Third-Party Litigation Funding: An Opportunity to Modernise in a time of Crisis?
There is no doubt that the Irish legal landscape has been forced to modernise and ultimately grapple with far-reaching procedural reforms due to the realities caused by COVID 19. In the spirit of the wider modernisation of Court procedures and rules this short blog post examines the possibility of using the present opportunities to introduce reforms to the rules on third party litigation funding.
Third party litigation funding operates on the premise that a professional funder, with no legitimate interest or connection to the proceedings, may assess the merits of a particular claim and provide up front funding for the litigation. This funding is based on the funder’s own assessment of the particular merits of a claim. These types of arrangements can be seen as mutually beneficial as the funder gains a share of any damages or settlement from the claim if successful, and the claimant has the opportunity to bring proceedings. In essence this funding is an investment for the funder and, as with any investment, they are looking for worthwhile return.
The Supreme Court confirmed, in Persona Digital Telephony Limited v The Minister for Public Enterprise, Ireland & Ors, that professional third-party funding of litigation in Ireland unlawful as a breach of maintenance and champerty rules. In the context of litigation, maintenance means a person with no interest in proceedings, provides funding for those proceedings. Champerty is the funding of these proceedings in return for a portion of the proceedings, if successful. Both maintenance and champerty are prohibited and considered both civil and criminal offences in Irish law dating back to the 1600s. In the Persona judgment, Chief Justice Susan Denham provided that change in this area of law would be more suitable by way of legislative reform as opposed to development through the common law.
One exception to the rules of maintenance and champerty the Irish courts have found that third parties that have a legitimate interest in proceedings, such as shareholders or creditors of a company involved in proceedings, can fund them without offending the rules of maintenance and champerty, even when such funding may indirectly benefit them.
Access to Justice
Sir James Matthews, an Irish judge in the Victorian era, is reputed to have said “In England, justice is open to all, like the Ritz Hotel”. Third party litigation funding could enable a wide range of litigants gain redress in any number of areas. Third party funding can be a valuable resource for an individual or company who is not in a position, financially, to pursue a course of action. It could be an especially valuable tool in today’s market with access to finances to fund litigation waning.
The cost of litigation can be high together with the risk that if a claim is unsuccessful, an individual or company may bear the costs of the successful party. Commercial litigation can be extremely complex requiring highly specialised knowledge. With regard to more novel proceedings, provisions of the Civil Legal Aid scheme do not provide assistance for an untested area of law to be challenged. This is a huge barrier to an individual’s ability to access justice and remedy a wrong.
Resistance to the development of this type of funding appears to be rooted public policy concerns and that this type of funding will be provided purely for the benefit the funder. In addressing this concern, the Association of Litigation Funders, self regulates this type of funding in the UK. The members of bound by a Code of Conduct for Litigation Funders that provides protections for the receiver of these funds.
The decision in Greenclean Waste Management v Leahy, views After the Event insurance as permissible and does not breach the rules of maintenance and champerty. After the Event insurance policies can provide cover in certain circumstances for third party outlay such as expert fees. This type of insurance policy can also insure against having to pay the unsuccessful party’s legal fees in the event of a loss.
More recently, in SPV OSUS Limited v HSBC Institutional Trust Services (Ireland) Limited & Ors, the Supreme Court have called for “urgent reform is needed so that the right of access to the courts can be rendered effective in a practical sense.” The Supreme Court then went further to stress that “undesirable as unregulated change might be, I would wish to reiterate the point made in Persona that a point might be reached where the courts had no option but to go down such a route if it became clear that no real effort was being made on the part of the legislature to address issues such as those which came into focus on this appeal.”
The Law Reform Commission is yet to publish its report and recommendations from its June 2016 Issues Paper on “Contempt of Court and Other Offences and Torts Involving the Administration of Justice”. At Issue 6 of this paper, the Commission has opened up the retention of the related crimes and torts of “maintenance” and “champerty” to public consultation, along with the question of whether third party funding of litigation should be permitted.
Clearly, reform by legislation is the preferable option and the findings of the Law Reform Commission’s report will be carefully considered by legislators once published. In January 2020, a joint report by the EU Bar Association and the Irish Society for European Law was published and strongly recommend that proper provision be made for litigation funding as it is an essential mechanism to access justice. For the moment, it remains to be seen if Ireland will follow other common law jurisdictions who have banished the civil and criminal crimes of maintenance and champerty from their legislation.