The prohibition against third party litigation funding in Ireland
While the legal position in Ireland prohibiting commercial third-party litigation by an entity with no independent interest in the underlying proceedings litigation is not unique within the common law world, the very narrow exceptions to that prohibition in Irish law does swim against the trust of what is applicable in the rest of the common law world.
Both Maintenance (the funding of litigation in which the funder has no personal interest) and Champerty (the funding of litigation in exchange for a share of the proceeds of that litigation) are outlawed under ancient statutes from the 14th century up to the Maintenance and Embracery Act (Ireland) 1634 and remain both a crime and a tort in Ireland.
The exceptions to the general prohibition on third party litigation funding are:
- Funding by a shareholder of a company that is a party to litigation
- Funding by a creditor to a company that is a party to litigation
These common interest exceptions mirror similar exceptions to the prohibition of third-party litigation funding in other common law jurisdictions. After the Event Insurance is not regarded as Champerty and Maintenance was specifically approved by the High Court in Greenclean Waste Management -v- Leahy .
The rise in large scale high value commercial litigation in Ireland during the last decade has again brought the spotlight on how such litigation can be funded. In Thema International Fund -v- HSBC International Trust Services (Ireland) Limited , Mr Justice Clarke (as he then was) reviewed how the litigation was being funded after an application by the Defendant which was aware of the Plaintiff's financial position in its capacity as custodian to a fund that had been created specifically to invest in what ultimately proved to be the Madoff Ponzi fraud.
In this case the Court specifically approved funding by creditors but ordered the Plaintiff to inform the third party funders to be notified of a potential risk that third party costs could be awarded against them and to keep proper records of any third party funding to ensure that the Defendant could pursue the third party for costs at a later stage, if appropriate.
In SPV Osis Limited -v- HSPC Institutional Trust Services (Ireland) Limited , another Madoff related case, the assignment of the right to litigate to an unconnected third party which had no legitimate interest in the cause of action was held to be void under the rules of Maintenance and Champerty by the High Court and the Supreme Court. Such trade in the right to litigate was held to be against public policy in Ireland.
The most recent significant case where the law of Maintenance and Champerty has been reviewed was in Persona Digital Telephony Limited -v- The Minister for Public Enterprise Ireland and The Attorney General . This case related to alleged corruption in the awarding of the second mobile telephone licence in Ireland in 1996. The Plaintiff made an application to the High Court seeking a declaration that entering into a commercial third-party funding agreement did not contravene the rules on Maintenance and Champerty. The High Court ruled against the Plaintiff who appealed the decision to the Supreme Court. In the Supreme Court, the then Chief Justice Denham and Justices Clarke and McKechnie expressed disquiet at the continuing existence of ancient principles of law that had the capacity to derail potentially significant litigation. The Supreme Court expressly stated that any change to the law in Ireland required legislation enacted by the Oireachtas rather than by way of a Court decision. The Court also placed some emphasis on the fact that the rules relating to Champerty and Maintenance had not been repealed under the Statute Law Revision Act 2007 which reviewed and repealed statutes which were enacted prior to 6 December 2022.
Commercial third-party litigation funding is now widely accepted and utilised in virtually all common law jurisdictions (it has never been against the law in Bermuda). In those common law jurisdictions where Champerty and Maintenance remains a tort and a criminal offence (such as Hong Kong), three well defined exceptions to the general prohibition are recognised namely –
- common interest,
- access to justice
- and in liquidations.
Commercial litigation funding has evolved considerably over the last decade to provide innovations such a litigation risk hedging, where a Plaintiff pays a proportion of its claim for a fixed sum to a funder and portfolio funding where funders provide finance to law firms for future cases. Some funders have gone further and taken shares in specialist boutique law firms.
Any change to the current law in Ireland can only be through legislation. Interestingly, the government is proposing to amend the Courts and Civil Law (Miscellaneous Provisions) Bill which is currently before the Oireachtas to allow for third party funding of international arbitrations which have a seat in Dublin. Third party funding in international arbitration is widely utilised.
Further change in this area is also on the horizon following a resolution passed by the European Parliament on 13 September 2022 following a report on commercial third party funding in Europe which recommended the establishment of a system of structured authorisation for third party litigation funding which remains largely unregulated. The European Parliament also noted the need for transparency around litigation funding in legal proceedings and considered that limits on the percentage of any award the litigation funders could receive in the event of successful litigation should be proportionate and not excessive. The European Parliament also stressed the need to outlaw contractual arrangements based on conditional funding. It requested the European Commission to submit a proposal for a directive to establish common minimum standards at EU level on commercial third party litigation funding.
Given the level of litigation against the State in Ireland, it appears unlikely that the Irish government will voluntarily extend the level of commercial third-party litigation funding other than in limited areas where it accepts there may be a commercial benefit. Any relaxation of the law in this area is likely to be limited and contain carve outs in order to discourage commercial third party litigation funding of litigation against the Irish state. One exception to the prohibition against third party commercial litigation funding which clearly requires consideration is in liquidations where liquidators may not have sufficient resources to pursue meritorious claims for the benefit of creditors in the absence of third party funding.
It seems likely that a directive seeking to regulate commercial third-party funding may ultimately issue (albeit some years hence) and that change in this area may to a certain extent be imposed. Under the European Parliament's recommendations each member state can determine whether to permit third party litigation funding within its own legal system and therefore unless there are political and commercial imperatives otherwise, any third-party litigation funding that may be permitted to Ireland in the future is likely to contain significant carve outs.