Third Party Litigation Funding (“TPLF”) has long been prohibited in Ireland. This is contrary to the position in other common law jurisdictions in which the funding of litigation by third parties is increasingly popular. This position is set to change following legislation which is being contemplated on a national and EU-wide level.
What is TPLF?
In simple terms, TPLF is where an unconnected party enters into an agreement to fund the costs of bringing a claim in exchange for a percentage of any damages awarded. Litigation funders are typically investment firms who will invest in a range of high value cases in the hope of securing a return on their outlay if cases succeed. This is particularly
prevalent in countries where class actions are permitted as the rewards can be high. There may be several different reasons why potential claimants may seek funding from a litigation funder. The obvious one is that they have a strong claim but do not have the financial means to fund the costs of proceedings. It may be that the claimant wishes to
spread the risk especially if the defendant has significant resources to defend the claim. A claimant may also seek third party funding to maintain liquidity and free up funds that could be better spent elsewhere.
Litigation Funding in Ireland
Litigation funding has been prohibited in Ireland under the torts of “maintenance” and “champerty” which are centuries old. This is the funding of litigation by unconnected third parties (maintenance) and the funding of litigation by an unconnected party with a view to sharing the profits (champerty).
Third parties may still fund claims where there is a legitimate interest in proceedings such as insurers or shareholders. For example, After The Event insurance policies are permitted as they do not contravene the rules of maintenance and champerty due to insurers’ legitimate interest in the outcome of proceedings as per Greenclean Waste Management
v. Leahy [2015] 1 IR 106.
Ireland previously had an opportunity to abolish these torts as part of the State Law Revision Act 2007, which sought to repeal historic laws, but failed to do so. In contrast these torts were abolished in England and Wales following enactment of the Criminal Law Act 1967. Since then the UK has become a major centre for litigation funders and
it has been reported that they hold assets of over £2billion. Here, TPLF remains largely unregulated and governed through common law whilst litigation funders have signed up to voluntary codes of practice.
The prohibition of TPLF in Ireland was reaffirmed in the decision of Persona Digital Telephony Ltd & anor v. Minister for Public Enterprise & ors [2017] IESC 27. In this judgment the Supreme Court expressed its dissatisfaction with the existing scope of the law of champerty but concluded that the third party funding agreement was unenforceable under Irish Law.
The Future of TPLF in Ireland
Ireland is unlikely to follow the relaxed approach of the UK when changes are eventually made. In the decision of SPV Osus Limited v HSBC Institutional Trust Services (Ireland) Limited & Ors [2018] IESC 44 Mr Justice Clarke emphasised that there were compelling reasons (such as enabling access to justice) for significant legislative change on the issue.
Such changes should establish a properly regulated scheme which would ensure the benefits of allowing TPLF that outweigh any disadvantages. It therefore now falls to the Irish Government to move to enact reforms in this area.
A policy review of TPLF was recommended by Mr Justice Peter Kelly in his 2020 report on reforms to the civil justice system in Ireland. The Minister for Justice has recently announced that a discussion paper on the issue is expected to be published by the Law Reform Commission in the coming months.
In the short term, changes to TPLF will be implemented by an amendment to the Arbitration Act 2010. The Courts and Civil Law (Miscellaneous Provisions) Bill would seek to remove a restriction on TPLF in relation to international commercial arbitrations only.
In September 2022 the European Parliament adopted a report recommending that the European Commission regulate TPLF across the EU. The European Parliament noted the potential benefits of TPLF in supporting access to justice in countries where legal costs are very high or for women and marginalised groups. It was also noted that TPLF in Europe was largely unregulated and that by establishing minimum standards it will allow legislators to exercise effective oversight and protect the interests of claimants.
The report highlighted the problems with voluntary codes which it observed are not adhered to by litigation funders. The report recommended that litigation funders should be limited to the proportion of any damages award it can receive, stating that a minimum of 60% should be awarded to the claimant. The European Parliament’s draft Directive
seeks to impose capital requirements, and fiduciary duties on litigation funders as well as limiting their ability to terminate funding agreements without informed consent.
Conclusion
Upcoming change permitting TPLF in relation to international arbitration is welcomed as it puts Ireland on a similar footing to other countries. However, further work is needed to further liberalise the rules on TPLF.
The EU is keen to keep TPLF more tightly regulated than in the UK but the changes will be welcomed by many to abolish outdated principles and provide plaintiffs with the constitutional right of access to justice in Ireland, no matter how that is funded. It will be interesting to see what proposals are actually implemented by the EU and Ireland, and
whether TPLF will flourish in the coming years once they are eventually implemented.
