Third Party Litigation Funding: Recent Developments

The Representative Actions for the Protection of the Collective Interests of Consumers Act 2023 provides for third party funding of representative actions “insofar as permitted in accordance with law”. Colin Monaghan, Dispute Resolution partner, examines why the 2023 Act does not change the long-standing position under Irish law prohibiting the funding of litigation by third parties who have no interest in the dispute.

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The Representative Actions for the Protection of the Collective Interests of Consumers Act 2023 provides for third party funding of representative actions “insofar as permitted in accordance with law”. The 2023 Act transposed into Irish law the Collective Redress Directive (EU) 2020/1828, which seeks to harmonise the regime for collective actions to be brought on behalf of EU consumers. However, the 2023 Act does not change the long-standing position under Irish law prohibiting the funding of litigation by third parties who have no interest in the dispute.

The Minister for Justice asked the Irish Law Reform Commission (LRC) to conduct a review of the law governing third party funding of civil litigation in Ireland. The LRC published a Consultation Paper on this topic in July 2023. The Consultation Paper is the result of an extensive project undertaken by the LRC involving research and analysis of the issues involved in third party litigation funding. It also examines the developments that have taken place concerning third party litigation funding in other jurisdictions. As a next step to the Consultation Paper, the LRC sought submissions from interested parties before 15 December 2023. The responses generated by this consultation process will enable the LRC to move to a final report setting out its recommendations.

Litigation funding in Ireland

The Commission defines “third party funding” as “an agreement by an entity that is not:

• A party or a prospective party to a legal dispute,
• An affiliate of or otherwise connected to that party or prospective party, or
• Law firm or legal practitioner representing that party or prospective party in that dispute,

to provide a party or a prospective party with funds or other material supports to finance part or all of the costs of the dispute either individually or as part of a specific range of cases in exchange for remuneration that is wholly or partially dependent on the outcome of
the dispute.”

In essence, third party litigation funding is investing in dispute resolution.

As we have reported previously, Irish law currently prohibits litigation funding by outside third parties who do not have a legitimate and independent interest in the dispute. This is subject to certain exceptions. The prohibition is founded on the ancient offences of maintenance and champerty. Maintenance is the funding of litigation in which the funder has no interest. Champerty is the funding of litigation in exchange for a share of the proceeds of that litigation.

In Persona Digital Telephony Ltd v Minister for Public Enterprise [1], the Irish Supreme Court confirmed that these offences remain part of Irish law. Similarly, in SPV Osus Ltd v HSBC Institutional Trust Services (Ireland) Ltd [2], the Supreme Court also determined that maintenance and champerty prohibit the assignment of a “bare” cause of action, that is, the transfer of the right to litigate a claim to a party who has no direct interest in that claim.

The arguments

In the Consultation Paper, the LRC sets out the following arguments against legalising third-party funding:

• It might encourage the bringing of vexatious and meritless disputes
• It causes funded parties to be under-compensated, as the funder may take their return on investment, with the result that the funded party is not fully compensated for the harm they have suffered
• Legal costs might increase as well as the price of insurance premiums
• It might not be appropriate in all types of disputes

Conversely, the LRC identifies four arguments in favour of legalising third-party funding. These include that:

1. Legalisation will help to expand access to justice in Ireland
2. It will improve equality of arms between opposing parties
   
3. It can help to increase the pool of assets available to creditors in insolvency proceedings
4. It will 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

How it might work

In the event that third party litigation funding is to be legalised in Ireland, the LRC discusses three different models of legalisation:#

1. The “preservation” approach, whereby maintenance and champerty would be abolished, but the public policy rules behind the offences would be preserved
2. The “abolition” approach, whereby maintenance and champerty would be abolished outright
3. The “statutory exception” approach, involving the retention of the offences of maintenance and champerty, but creating statutory provisions allowing third-party funding in some cases as exceptions

The LRC states that if third party funding is to become a reality in Ireland, it is likely that the “statutory exception” approach is the best option. Regarding the regulation of the funding sector, if it were to be permitted in Ireland, the LRC suggests that regulation should aim to:

• Reduce the financial and other risks that this funding and funders might create for those who use third-party funding services, and indeed, for non-funded parties to funded disputes
• Protect and enhance the proper and efficient administration of justice in Ireland

Lastly, the LRC analyses the regulatory regimes employed in a number of other common law jurisdictions including the voluntary self-regulatory regime used in England and Wales, and the enforced self-regulatory regime used in Hong Kong. It ultimately concludes that any future regulatory system to be rolled out in Ireland would likely consist of a combination of different approaches.

Are we any closer to change?

There has been undoubted recent movement and general interest towards amending the law in Ireland on third party litigation funding. For example, the recent introduction of the Courts and Civil Law (Miscellaneous Provisions) Act 2023 permits third party funding in international commercial arbitration and related proceedings. In addition, in its Consultation Paper, the LRC recognises the evolution of the legal and policy context for third party litigation funding. The LRC notes that this evolution has resulted in “the liberalisation of the statutory and regulatory framework in many countries.” It will therefore be interesting to note the level of engagement and discussion which the Consultation Paper evokes.

Regarding likely changes to the legal position in Ireland, it is possible that any change will be on the “statutory exception” basis suggested. This is due to the fact that the LRC itself notes that third party funding should perhaps be prohibited in certain dispute types including personal injury proceedings. It similarly raises significant concerns with the idea of promoting the assignment of a “bare” cause of action, highlighting that such an assignment has been prohibited in many jurisdictions. We therefore consider it unlikely that a blanket legalisation of all third party litigation funding will be permitted.

Overall, if the consultation process does ultimately result in overturning the existing prohibitions on third party litigation funding in Ireland, this will represent a very welcome development for many, bearing in mind that the changes will likely lead to greater access to justice and to the Irish Courts.

For more information and expert advice on commercial disputes, contact a member of our Commercial Disputes team.

The content of this article is provided for information purposes only and does not constitute legal or other advice.

1. [2018] IESC 44, [2019] 1 IR 1
2. [2017] IESC 27