Development of Third-Party Litigation Funding in Ireland

As the practice of third-party litigation funding has become more and more prevalent in common law countries, Ireland has stood out as a notable exception to this trend. While there have been a number of decisions by Irish courts that have affected the law of third-party funding in recent years, the country is still lagging behind its peers in loosening restrictions on the litigation finance industry. Below, we take a look at the current legal situation in Ireland regarding third-party litigation funding and what future legal and regulatory developments may lie in store for this rapidly growing area of financial services.

The Law and Recent Developments

The Statute Law Revision Act 2007, which repealed a large number of historic acts enacted prior to 6 December 1922, retained the statutes that provide legal footing to the ancient torts of maintenance and champerty in modern Irish law. Originally intended to preclude disinterested parties to a dispute intermeddling to encourage a lawsuit, these torts have been strictly interpreted to prohibit direct financial backing of a party to litigation by a person or entity that has no interest in the litigation. In its recent decision in the Persona Digital case, the Supreme Court of Ireland confirmed that third-party litigation funding by an entity with no independent interest in the underlying proceedings continues to be prohibited under Irish law as contrary to the torts of maintenance and champerty. The Persona Digital decision thus precludes the standard third-party litigation funding arrangement commonly available in other jurisdictions, where a commercial organisation, which is unconnected to the litigation in question funds the litigation with a view to making a profit.

So what is allowed?

Despite their generally restrictive outlook, there have been some recent decisions in Irish courts that have allowed for certain types of third-party litigation funding to occur in limited circumstances. For example, litigation funding by a third-party with a legitimate interest in the proceedings, such as a creditor or a shareholder of a company that is a party to the litigation in question, is currently permitted in Ireland. This was approved in the case of Thema International Fund v HSBC International Trust Services (Ireland) Ltd. Also permitted is the related matter of “after the event” or “ATE” insurance policies, which was approved in the case of Greenclean Waste Management v Leahy. These ATE policies are generally taken out by a plaintiff after a dispute has arisen, and are designed to provide protection to that plaintiff if they are unsuccessful in the litigation in question and are ordered to pay the defendant’s costs.

The Future of Third-Party Litigation Funding in Ireland

As noted above, while the maintenance and champerty rules have been abolished (or at least interpreted in a relaxed manner) in most common law jurisdictions, such rules have retained a “practical vibrancy” in Ireland, as Judge Hogan noted in the Greenclean Waste Management case. Thus, until these rules are amended, it is likely that most common “for profit” third-party litigation arrangements will continue to be prohibited in Ireland.

In the Persona Digital case referenced above, the Court stated that any change to the law in Ireland relating to professional third-party “for profit” litigation funding should come in the form of legislation enacted by the Irish parliament, rather than by way of a court decision. However, in the absence of such legislative change, it could be that the Court will be forced to act. There has been an increasing recognition by legal scholars that the prohibition on third-party litigation funding may have a negative impact on individuals' constitutional right of access to justice.

Former Chief Justice Susan Denham has cautioned that if the legislature failed to act and an individual's constitutional right of access to justice was breached as a result, then the Court might need to step in to amend the law of champerty.

Until either the legislature or the courts act to amend the law, litigation funders seeking to operate in Ireland will need to find ways to navigate the current legal framework. One possible route through the current prohibition on third-party “for profit” litigation funding in Ireland is for a funder to take an equity stake or some other interest in the party that it is hoping to fund. Although this approach is being considered by professional litigation funders as a way to lawfully exploit the litigation funding market in Ireland, it is not yet common practice. By taking an equity stake or some other form of interest in a party to the litigation, a funder could potentially bring themselves within the permitted exception to the general rule that allows for litigation funding by a third-party with a legitimate interest in the proceedings.

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