Dispute Resolution Update: Reeling in the Year
In 2018 the Supreme Court delivered its much-awaited decision in the case of SPV OSUS Ltd v HSBC Institutional Trust Services (Ireland) Ltd & Ors where it confirmed that the assignment of a claim is unenforceable in Irish law unless the assignment is ancillary to a bona fide transaction or the assignee has a genuine commercial interest in the assignment. This year also saw the first appeal to the Court of Appeal in respect of the Mediation Act 2017, where the Court set out the factors to be considered by a court when dealing with applications to adjourn proceedings to facilitate mediation between the parties. Finally, the recently enacted Criminal Justice (Corruption Offences) Act 2018 saw the introduction of a new corporate liability offence which allows a body corporate to be held liable for corrupt offences committed for its benefit by company personnel.
Welcome clarification on assignment of a cause of action
SPV OSUS Limited v HSBC Institutional Trust Services (Ireland) Limited & Ors [2018] IESC 44 arose from the Bernard Madoff Ponzi scheme fraud. A fund (SUS) that had invested in the Madoff scheme was entitled to make a claim in the bankruptcy of Bernard Madoff in the US. In order to trade its share in the bankruptcy, SUS set up a special-purpose vehicle (SPV) and assigned its bankruptcy claim and other rights to SPV. SPV OSUS subsequently issued proceedings in Ireland against the Irish based custodian and administrator of the investments of SUS. These proceedings were issued on the grounds that SPV OSUS was entitled to recover the net asset value of the investments in Bernard Madoff Investment Securities.
Both the High Court and the Court of Appeal decided that the assignment of the claim by SUS to SPV OSUS was void, contrary to public policy, and constituted trafficking in litigation. SPV OSUS then appealed to the Supreme Court and judgment was delivered on 31 July 2018.
The Supreme Court noted its earlier judgment in Persona[1] and observed that if it is offensive to public policy to permit a person to fund a plaintiff's litigation in return for some part of the proceedings, then it follows that the same public policy must apply with more force “where the third party purchases the claim outright, removes the party from his or her proceedings, and converts them into a mere witness at best”.
The Supreme Court confirmed that an assignment of a bare right to litigate is unenforceable unless the assignment is ancillary to a bona fide transaction or the assignee has a genuine commercial interest in the assignment. The Court did remark that in the short term it is a matter for the legislature, and not the courts, to develop the law in this area.
Abuse of mediation will not be tolerated
Danske Bank & Anor v S.C [2018] IECA 117 involved an application by a receiver to protect rental income from properties over which he was appointed from being depleted until the main issue between the parties in the proceedings could ultimately be decided by the High Court. The defendant first indicated to the Court on the morning of the interlocutory application that she wished to avail of mediation. The Bank and receiver declined the offer and the defendant brought her own application to adjourn the proceedings to facilitate mediation between the parties.
The High Court refused the defendant’s application and the Court of Appeal upheld the ruling for the following reasons:
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The delay caused by the mediation would benefit the defendant, but would prejudice the Bank and the receiver.
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The dispute between the parties should be suitable for mediation. In this case, two previous settlement discussions had failed, leading the Court of Appeal to believe that mediation was unlikely to be successful.
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The application must be genuine and the applicant must be willing to engage in mediation to resolve the dispute rather than to improve its negotiating position.
This decision makes it clear that the courts will not tolerate a party abusing the Mediation Act 2017 for the purposes of delay or to strengthen their bargaining position in respect of costs.
Tackling corporate crime
This year also saw the introduction of new corruption-related offences legislation in the Criminal Justice (Corruption Offences) Act 2018. The Act came into effect on 30 July 2018 and consolidates Irish law on corruption into a single piece of legislation.
Under the new Act a company is liable for the actions of directors, managers, secretaries, officers, shadow directors, employees, agents or subsidiaries who commit a corrupt act. Where a company is accused of committing a corrupt act and prosecuted under the new legislation, the onus is on the company to prove that it took “all reasonable steps and exercised all due diligence to avoid the commission of the offence” to avoid a conviction. A company may be liable to a fine of €5,000 on summary conviction or an unlimited fine if convicted on indictment.
In addition, the Act provides for the individual criminal liability of senior officers of a company for offences committed by the company with their consent, connivance or wilful neglect. Penalties include imprisonment and an unlimited fine.
Conclusion
It is now clear following the Irish Supreme Court judgments in Persona in 2017 and SPV in 2018 that third-party funding from a third party with no legitimate interest in litigation and the assignment of a right to litigate to a third party with no legitimate interest in litigation remains unlawful. It remains to be seen whether in light of the Chief Justice’s comments the legislature will go about legislating for this area in 2019.
The decision in Danske Bank confirms the principles the Courts will take into consideration when dealing with applications to invite parties to consider mediation and indicates that the Courts will not abide people using such applications to delay proceedings or unduly bolster a party’s position in respect of costs.
As regards the new corruption legislation, companies should ensure that they have robust anti-bribery policies and associated training in place as these policies may prove critical where a company is seeking to defend a claim on grounds that it took all reasonable steps and exercised all due diligence.
For more information relating to effective dispute resolution, contact a member of our Dispute Resolution team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.
[1] Persona Digital Telephony Limited & Anor v. Minister for Public Enterprise & Ors [2017] IESC 27
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