Ireland reaffirms ban on litigation funding
13th Jun 2017
By: Scévole de Cazotte
In a 4-to-1 decision heard around the litigation funding world, Ireland’s Supreme Court ruled that litigation funding remains banned in Ireland.
The case in question, Persona Digital Telephony Ltd v The Minister for Public Enterprise, was funded by an off-shore Cayman island fund connected to UK-based Harbour Litigation Funding who stood to gain an estimated 40% return on their investment in the case. The Irish Supreme Court considered whether it should be permitted for third party investors to pay for lawsuits in exchange for a share of the proceeds, or whether this practice is illegal under long-standing rules on “maintenance and champerty” which prevent improper interference in disputes (e.g., by way of financing in return for a share of the spoils of the litigation).
The Irish State argued that maintenance and champerty have been criminal offences as well as torts in Ireland for hundreds of years, and referenced laws dating from as recently as 2007 and as long ago as 1634. They argued that Harbour’s funding agreement was void for illegality, and that the plaintiffs were asking the Court to change the law to permit Harbour’s agreement, which the Court should not do. The plaintiffs argued that even though the law had applied for hundreds of years, the Court should apply a favorable new interpretation to allow agreement to agreement to be found valid. The Court stuck with what the law says, rather than what the plaintiffs wanted it to say, and reaffirmed the ban on funding.
While these age-old laws have been eroded in many common law jurisdictions around the world, Ireland’s decision just reaffirmed that “champerty remains the law in the State” and that it was up to the legislature (not the courts) to decide whether any litigation funding should be permitted at all, and if so on what conditions. This ruling is also significant because it comes at a time when other countries are opening their courtrooms to third party litigation funding with too little appreciation for the risks the industry poses.
In Europe, the Paris Bar Council just published its support for third party funding of arbitration, noting that TPLF does not violate French law. In Asia, both Hong Kong and Singapore also recently opened the door to third party funding in arbitration, however, to their credit, both jurisdictions imposed some regulatory requirements, including disclosure.
The Irish decision is a reminder that there is profound uncertainty surrounding the acceptability and the future of this unregulated practice on a global scale.
When up to 50% of an award can go to the funders instead of the plaintiffs, one has to ask, how many claims result from funders looking for a profitable investment instead of promoting access to justice?
Global recognition of the need for meaningful oversight of the litigation funding industry is paramount, and the ethical concerns surrounding the practice can only be remedied through legislation that would protect against abuses of the system.
Chief justice Susan Denham presiding over the Persona case summed the issue up well, saying that TPLF is “a complex, multi-faceted issue, [that is] more suited to a full legislative analysis”.