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Litigation Funding in Ireland

    With the recent announcement that government is to table proposals for third-party funding of international arbitration, I look at the restrictions on litigation funding in Ireland and possible future developments.

    What is Litigation Funding?

    Litigation Funding is an arrangement where an independent party (‘the funder’) pays some or all of the legal costs and expenses of one of the parties to a dispute (usually, but not always, the claimant). In return, the funder will be paid out of the proceeds should the claim succeed, often as a percentage of the amount recovered or a multiple of the amount it invested. If the claim fails, the funder will not be entitled to payment.

    It is most often encountered in large commercial disputes, and a number of investment funds have appeared which specifically focus on identifying (and funding) suitable disputes in order to inflate their own assets. (For example, Balance Legal Capital, Bench Walk Advisors, and others.)

    Is litigation funding permitted in Ireland?

    No, thanks to the medieval doctrines of champerty and maintenance.

    sorry, the what?

    The medieval doctrines of champerty and maintenance.

    Maintenance has been described as “the improper provision of support to litigation in which the supporter has no direct or legitimate interest” (Greenclean Waste Management Ltd v Leahy (No. 2) [2014] IEHC 314) and champerty is a particular form of maintenance whereby a person obtains a share in the proceeds or spoils of the litigation in return for funding of the prosecution.

    The Statute Law Revision Act 2007 repealed over 3,000 old statutes but expressly retained the Maintenance and Embracery Act 1540, the Maintenance and Embracery Act, 1634 and the Statute of Conspiracy (Maintenance & Champerty) (from an unknown date in the 14th century).

    The Irish Supreme Court has confirmed (in Persona Digital Telephone Ltd. and Sigma Wireless Networks Ltd v The Minister for Public Enterprise & Ors [2017] IESC 27) that maintenance and champerty are still recognised torts and crimes in Ireland.

    Are there any exceptions to the rule against Litigation Funding?

    Broadly speaking, there are two exceptions – (i) if the funder is connected to the litigation, and (ii) after-the-event (ATE) insurance.

    The first of these – where the funder has a sufficient connection with the party it is funding – arises because, as the Supreme Court put it in Persona, ‘a person who assists another’s proceedings without a bona fide independent interest acts unlawfully.’ That left the door open for funding by a funder who does have a ‘bona fide independent interest’ in the proceedings.

    This could include company shareholders, or even creditors of a company involved in a dispute. The risk for the funder, however, is that they could be made personally liable for the costs of the litigation if the fundee loses (see, for example, Moorview Development Ltd v First Active Plc [2019] 1 I.R. 417, where a non-party costs order made in the High Cour was upheld by the Supreme Court).

    [For more on connected funders, see the decision of the High Court in Thema International Fund v HSBC International Trust Services (Ireland) Ltd [2011] 3 IR 654 where it held that the plaintiff was in receipt of a form of third-party funding but was satisfied on the evidence that the funder had a sufficient connection with the plaintiff so as to take that funding out of the scope of maintenance or champerty.]

    The second exception – after-the-event insurance – is an insurance policy generally taken out by a plaintiff after a dispute has arisen. If the plaintiff is unsuccessful in the litigation, the insurance policy provides protection (and the premium is usually only paid if the plaintiff is successful).

    In Greenclean Waste Management Ltd v Leahy (No. 2) [2014] IEHC 314 the High Court accepted that ATE insurance did not fall foul of the rules against champerty and maintenance. (Incidentally, it also mentioned that the presence/absence of an ATE policy could be relevant in determining whether to order security for costs against a party).

    Where to from here?

    The Supreme Court has called for urgent intervention by the legislature, but has also recognised that if the legislature does nothing, and a suitable consitutional challenge was brought, the courts ‘as guardians of the constitution’ might have no option but to intervene (see the judgment of Clarke J. in the Persona case at paragraph 4.1).

    In a report published on 29 January 2020 and entitled “Litigation Funding and Class Actions”*, the EU Bar Association and the Irish Society of European Law both recommended that proper provision be made in Ireland for ligitation funding, which was “regarded as critical for access to justice and the proper, fair and efficient administration of justice”. The report points out that litigation funding is an essential mechanism of access to justice, that it has “been recognised as such across multiple jurisdictions as this report demonstrates”, and that it is necessary “to enable this jurisdiction to have a realistic prospect of attracting international and cross-border litigation and arbitration”.

    *As of September 2022 the report was available to download here.

    What’s Hulk Hogan got to do with it?

    His cases against Gawker Media are often cited in support of the argument against litigation funding. His multiple lawsuits (which resulted in Gawker filing for Chapter 11 bankruptcy) were secretly funded by billionaire Peter Thiel who, it was rumoured, bore a grudge against Gawker for outing him as gay in a 2007 article.

    About the lawsuit – Bollea v Gawker (Wikipedia)

    Peter Thiel vs. Gawker: Case Highlights World of ‘Litigation Funding’ (NBC News)

    Hulk Hogan v. Gawker Media and the Problem of Invisible Funding (Professor Simona Grossi,Loyola Law School, Los Angeles)