Third Party Litigation Funding in Ireland

By virtue of the Maintenance and Embracery Act of 1634 (the “Act”), maintenance and champerty are criminal offences and civil wrongs in Ireland.

Maintenance is the assistance of a third party, with no interest in the outcome of a case, to a party in the case. For the purposes of their sharing in any award made, champerty is the financing or support of a case by such a third party who has no such interest.

In light of the Act, third parties are not entitled to fund litigation for profit, a rule which the Supreme Court has in “Persona Digital Telefony Limited -v- Minister for Public Enterprise [2017] IESC 27”, upheld.

However, in many other common law jurisdictions (for example, in the UK and US) third party funding of litigation is permitted. Indeed, in the UK, maintenance and champerty ceased being criminal offences and civil wrongs since the 1960s[1]. 

Exceptions to the Law

In Ireland, limited exceptions in which litigation funding is permitted, include:-

• legitimate interest (for example, where a shareholder or creditor of a company named in proceedings is permitted to fund the company);
• after the event (“ATE”) insurance policies; and
• in respect of international commercial arbitration proceedings.

Commentators[2] have noted that Ireland could be viewed as applying inconsistent rules and standards in respect of the prohibition on third party litigation funding.

In the seminal case[3] on ATE policies (in which Kane Tuohy LLP acted for the Liquidator) the Court of Appeal held that, subject to the terms contained within the policy, ATE policies may be relied on to resist an application for security for costs.

Yet, in a recent decision[4] the Court held that it had “no hesitation” in finding that the recognition and enforcement of foreign judgments in this jurisdiction may be refused where it is manifestly contrary to public policy considerations stemming from the prohibition on third-party litigation funding.

Contrast this latter decision with section 5(A)(5)(b) of the Arbitration Act 2010[5], it appears that, on the one hand, the Courts can be seen to refuse to enforce European judgments on public policy maintenance and champerty related grounds but, on the other, could permit third party  litigation funding in matters of international commercial arbitration.

Commentator’s views of an overarching inconsistency might well be justified.

Developments

The often disproportionate costs of litigation in Ireland and its negative effect on parties’ access to justice has led to renewed calls for the laws on maintenance and champerty to be updated. To this end, the Law Reform Commission (“LRC”) published a consultation paper in July 2023 where it recommended that the Oireachtas enact legislation to permit litigation funding.

In arguing in favour of the enacting such legislation, the LRC outlined four principal arguments, as follows:-

(a)    that it would help to expand access to justice in Ireland;

(b)    that it would improve equality of arms between opposing parties. Where one party has significant financial resources, and the other does not, this can lead to power imbalances and force “weaker” parties to accept unsatisfactory settlements;

(c)    that it would help to increase the pool of assets available to creditors in insolvency proceedings;

(d)    that it would address an inconsistency in the law, whereby corporate entities can effectively engage in third-party funding under another name, by issuing shares or transferring ownership of the company to fund its participation in dispute resolution.  

In arguing against the enacting such legislation, the LRC outlined five principal arguments, as follows:-

(a)    that it would encourage the bringing of vexatious and meritless disputes;

(b)    that it would cause funded parties to be under-compensated. This is because third-party funders may take from the funded party’s compensation to secure their return on investment, meaning that the funded party is not fully compensated for the harm they have suffered;

(c)    that it would cause legal costs to increase;

(d)    that it would cause an increase in insurance premiums and costs for business;

(e)    that it would not be appropriate for all types of dispute.

A key feature of the LRC’s recommendations is that there must be an accompanying regulatory framework capable of safeguarding and mitigating against any of the dangers that such legislation might pose.

Conclusion

The LRC’s final report is anticipated to be published in early 2025 and, if it leads to legislation lifting the rules relating to champerty and maintenance, which, in turn, ought to increase parties’ access to justice, it is difficult to see how such a development could not be viewed in a positive light.

While we will provide a further update when the LRC’s final report is published, for further information on the topics outlined above, or on practice and procedure in relation to litigation in Ireland, please contact Hugh Kane, Partner or David Walsh, Senior Associate, of our Commercial Litigation Department.

This document has been prepared by Kane Tuohy LLP for general guidance only and should not be regarded as a substitute for professional legal advice.

[1] By virtue of the enactment of the Criminal Law Act, 1967

[2] See ‘What has King Charles Ever Done for Us’, August/September 2024 Gazette p45

[3] Greenclean Waste Management Ltd v Leahy p/a Maurice Leahy & Co. Solicitors [2015] IECA 97

[4]Michael Skully v Coucal Ltd [2024] IECA 146

[5] which, once commenced, will lift the prohibition on third party litigation funding in (inter alia) court proceedings arising out of international commercial arbitration, and mediation and conciliation proceedings arising out of same