Non-Party Cost Orders: An Inevitable Consequence Of Funding Litigation?

As has been widely reported, the litigation funding landscape in the Cayman Islands is changing to keep pace with the UK, Australia and other common law jurisdictions.1 The Caymanian judiciary acknowledge that provided adequate protections are in place, a funding arrangement can facilitate better access to justice and the Legislative Assembly is in the process of enacting legislation to reflect that position. Whereas formerly claims with merit may not have been able to be pursued in Cayman due to a lack of funding, the potential to access third party funding is likely to lead to the rapid development of a sophisticated funding environment.

Funding a claim as a third party carries the potential to be made liable for the opponents' costs by way of a non-party costs order ("NPCO"). It is important that funders and their advisors consider how best to protect themselves from any exposure to a NPCO, as the use of external funding increases in Cayman.

General principles

The applicable principles, taken from a line of cases from 1993 onwards, were summarised by the Privy Council in Dymocks Franchise Systems (NSW) Pty Ltd v Todd and others (No.2) [2004] 1 WLR 2807.

Is it just to make an order?

Although costs orders against non-parties are described as "exceptional", this means no more than the case is outside the normal run of cases whereby parties pursue or defend claims for their own benefit and at their own expense. The ultimate question in any such "exceptional" case is whether, in all the circumstances, it is just to make the order.

Does the non-party have an interest in the outcome and exert any control?

As a rule, the court's discretion will not be exercised against "pure funders", described in the case law as those with no personal interest in the litigation, who do not stand to benefit from it, are not funding it as a matter of business and in no way seek to control its course.

Where the non-party funds, controls and benefits from the proceedings, justice will ordinarily require that, if the proceedings fail, the non-party will pay the successful party's costs. The non-party in such a case is not so much facilitating access to justice as they are taking advantage of it for their own purposes. In such a case, the funder is considered to be a "real party" to the litigation.

Generally speaking, where a non-party promotes and funds proceedings brought by an insolvent company solely or substantially for their own financial benefit, they are...