Fighting ghosts – how a lawsuit over property damage from Liberian Civil War provides a glimpse into the secretive world of international litigation funding

05th Feb 2016

By: Scévole de Cazotte – Some disputes arise because opposing parties just can’t see eye to eye.  But how can it be a fair fight when one party is acting as a proxy for a third party who remains in the shadows?  A recent case lifts the lid on the murky world of hidden investment in litigation.  It’s a story that has the features of a crime thriller, but is all too real for those who need to defend themselves against the tactics of the modern litigation investor.

The Liberian Civil War caused damage to some commercial properties in the early 1990’s.  The property owners’ insurance claims were denied on the basis of a “war risk” exclusion.  The claimants were dissatisfied and sued their insurer, Cigna Worldwide (CWW), in a U.S. federal court in 1991.  After several steps, the claimants lost their case, lost their appeal and failed to persuade the U.S. Supreme Court to consider the case further.  That might have been the end of the matter, but then things took a strange turn.

Having lost the claim they started in the U.S., the claimants went back to Liberia and took a new action on the same facts in the local courts.  The Liberian court declined to recognise the prior U.S. judgment, instead awarding the claimants $66.5 million in 1998.  After initially participating, CWW ultimately declined to participate in the trial because the matter had already been ruled upon in the U.S.  In response to attempts to enforce this conflicting Liberian judgment, CWW requested—and in 2001 was granted—an injunction from the U.S. court preventing any enforcement attempts.  Once again, the matter should have concluded.

In 2005, a company called CC International Ltd (CCI) was formed in Nevis to pursue claims against CWW, including to collect on the Liberian judgment despite the injunction preventing its enforcement.  CCI was advised by Martin Kenney, a dual Irish and Canadian citizen based in the British Virgin Islands who previously practiced as a foreign legal consultant in New York, and Samuel Lohman, a dual Swiss-U.S. citizen and member of the Oregon bar with an office in Switzerland.  The original claimants assigned CCI the right to receive proceeds from the enforcement of the (enjoined) Liberian judgment, in exchange for receiving stock in CCI.

CCI then sought the appointment of a “Liberian Receiver” to collect debts supposedly owed to CWW’s Liberian “branch” by CWW’s parent company – against the wishes of the parent company itself.  In 2007, a Liberian government official was appointed to the Receiver position and—acting on Kenney and Lohman’s advice—recognised the Liberian judgments as a valid claim against CWW.  The Receiver launched a new legal action, this time in the Cayman Islands, seeking a pay-out for the Liberian judgment.  According a recent U.S. court’s description, “throughout this litigation, CCI limited the Receiver’s discretion, forbidding him from settling for less than $28.88 million”, unless approved.

In 2009, CWW tried to put a stop to the Receiver’s activities including by filing a motion for “contempt of court” in the U.S. against those conspiring to “aid and abet” the violation of the earlier U.S. injunction.  CWW also sought discovery to find out who was really behind all of this—it wanted to know the identity of the persons bankrolling and directing the litigation against them, and who stood to gain.

By 2012, the Cayman court had dismissed the Receiver’s claims with prejudice and, in considering who should pay the costs, found that that Kenney and CCI may have “instigated, controlled, and financed” the Receiver’s efforts and so should potentially be liable for costs.  However, despite discovery orders in the U.S., Lohman had failed to produce any documents and he declined to appear before the U.S. court to explain.

In August 2014, after a further two years of wrangling and more than a decade of litigation, CWW at last learned through discovery in the U.S. action that part of CCI’s funding had been provided by an investment vehicle set up by Kenney, but also that an entirely unrelated and—to this point—entirely unknown party was also supporting the claim.  The unknown party, an Irish property developer, Garrett Kelleher, was shown to have invested $2.85 million in CCI to fund collection of the Liberian judgment on undisclosed terms, though presumably in exchange for a sizeable stake in the expected “winnings.”

In 2015, the U.S. court summoned the backers of these actions (Lohman, Kenney and Kelleher) to appear and explain why they shouldn’t be held in contempt of court as “aiders and abettors” of the attempts to carry on the litigation despite the injunction.  As the court put it, “[W]here—as here—a person knowingly and deliberately attempts to violate a court’s directive, it is reasonably foreseeable that he or she will be haled before that court to respond”.

The court referred to their “apparently vexatious actions” and insisted that they appear, though at least Kelleher—according to press reports—has already written to the court saying that he will not come to the U.S. to answer the contempt allegations.  The U.S. court has made clear that “failure to appear may lead to the imposition of fines or other sanctions”.  The hearing occurred on 26 January, with none of the backers appearing in person and Kelleher not even sending a lawyer on his behalf.

The saga continues.  It seems clear that the action, with all its twists and turns, was driven in large part by the desire of the investors to harvest a portion of the spoils.  In this case the investors’ determination seems to have been matched by the insurer’s determination to know who was really behind the actions.  One can only guess how much all of this has cost the parties, not to mention the public purse.  Can it be right that it takes this level of effort to learn with whom one is really in dispute?  And how many cases have already been concluded that were mainly motivated or controlled by the financial interests of secret investors, rather than the interests of the parties to the claim?