Landmark Decision Approving Third Party Litigation Funding In The British Virgin Islands

• Published date: 01 October 2020
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Corporate and Company Law, Contracts and Commercial Law, Trials & Appeals & Compensation
• Law Firm: Carey Olsen
• Author: Alex Hall Taylor QC, Richard Brown and Paul Griffiths

Background

Exential Investments Inc. (the "Company") formed part of a group of companies (the "Exential Group") that operated a Ponzi scheme between 2011 and 2016. The Exential Group lured investors with promises of a low risk, high reward foreign exchange trading program that purportedly used a sophisticated proprietary trading algorithm to guarantee returns. During the life of the Ponzi scheme, it is believed that investors parted with US$250-500 million, with the typical investor investing a five figure sum in the Ponzi scheme. The Exential group collapsed in 2016, leading to criminal and regulatory investigations and the jailing in Dubai of its main protagonists. Thousands of individual investors were left out of pocket.

On 27 July 2020, on application by Carey Olsen the BVI Court appointed Russell Crumpler and David Standish of KPMG as Joint Liquidators of the Company. In order to make recoveries for creditors, the Joint Liquidators will need to undertake investigations in a number of jurisdictions and in the fullness of time, bring recovery actions. Given the large number of relatively small creditors and the lack of available funding in the estate the liquidators turned to the commercial third party funding market to meet their anticipated costs and expenses, including the costs of prospective litigation in various jurisdictions. This is a common scenario faced by liquidators of BVI companies, where all too often there are few, if any, liquid assets available to fund investigations and claims and where a large group of fraud victims may not have the further resources or organisation needed to fund and pursue extensive collective recovery action.

Public policy - maintenance and champerty

Maintenance involves the procurement by direct or indirect financial assistance of another person to institute or carry on or defend civil proceedings, without lawful justification. Champerty is an aggravated form of maintenance and occurs when the person maintaining another does so for a share of the proceeds of the action.

These rules originate from medieval times and aim to prevent 'wanton and officious intermeddling' with the disputes of others, in which the inter-meddler has no interest - and where the assistance he renders to the other party is without justification or excuse.

Justice Jack took particular note of the fact that the BVI legislature had abolished common law criminal offences relating to maintenance and champerty in 1997 and expressly repealed...