Offshore

In this chapter of our Annual Insurance Review 2021, we look at the main developments in 2020 and expected issues in 2021 for offshore.

Key developments in 2020

In what commentators have described as a landmark decision, 2020 saw the Commercial Court in the British Virgin Islands (BVI) sanction a claimant party's use of a third party litigation funding agreement.  This means that, as a matter of law and as in other commonwealth jurisdictions, litigation funders are now permitted to fund the legal costs and expenses of proceedings issued in the BVI.  The decision (In the Matter of Exential Investments inc (in liquidation) and in the Matter of the Insolvency Act, 2003) opens the gateway for claimant parties to pursue litigation which, absent sufficient financial means to otherwise sustain it, may either not have been progressed at all or which would have stalled by defendant parties out spending their opponents to early withdrawal or acceptance of lower value settlements.  The background facts to the case will be familiar to insurers involving companies found to be operating a fraudulent FOREX trading ponzi scheme. 

Regulatory and criminal investigations followed alongside criminal prosecutions.  Between them thousands of investors lost a combined sum of USD250-500m.  In jurisdictions where litigation funding is already an established feature of the litigation landscape liquidators of insolvent investment funds with meritorious claims but limited liquid assets to pursue them have turned to the support of professional funders.  As RPC reported in 2020 capacity in the funding market has increased significantly in recent years and we can expect this trend to continue.  The Exential decision is seen as an important step for BVI as it positions itself as a leading offshore jurisdiction for disputes.  By approving the principle of third-party funding insurers can naturally expect professional funders to now take a close look at BVI as a new territory for investment.  From a claimant perspective many will see the judgment as timely given market volatility arising from COVID-19 is expected to increase insolvency related and other claims activity.        

What to look out for in 2021

In 2020's offshore review we noted the Cayman Islands case between Primeo Fund and HSBC regarding, amongst other issues, the principle of reflective loss as one to look out for with an appeal to the Privy Council expected to take place in the coming 12 months (the principle acting to prevent claims by shareholders to recover loss considered reflective of loss sustained by the subject company).  Instead the appeal by Primeo was 'bifurcated' meaning that (i) Primeo's appeal concerning reflective loss will now be heard in 2021; and (ii) should the appeal on this aspect succeed, the balance of the appeal is then scheduled to take place later in the year.  The case very much remains one for insurers to watch out for not least because of the UK Supreme Court's 2020 decision in Sevilleja v Marex Financial Ltd which scaled back the scope of the reflective loss principle (having been expanded over several years).  In Marex the Supreme Court chose not to overturn the principle entirely albeit a minority of Judges would have done so.  Marex very much sets the stage therefore for the issues presented by Primeo's 2021 appeal.  Whilst the issues are different, we wait to see what effect the Supreme Court's decision to reign in the scope of the reflective loss principle, will have on the Privy Council's preferred approach.  The decision will determine whether the balance of Primeo's appeal, and ultimately the prospects of Primeo's stakeholder's recovery action, survives to be heard later in 2021.      

Authored by Richard Booth.

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