Regulation of litigation funding in Ireland

November 24, 2022

Regulation of litigation funding in Ireland

On 14 September 2022, Irish Minister for Justice Helen McEntee announced that Ireland is likely to introduce legislation to remove the current restriction on third-party funding (TPF) of international arbitration in Ireland. Subsequently, the Irish Department of Justice (DOJ) confirmed that it is considering recommending that the government allow limited TPF, particularly in relation to commercial arbitration. This should support the government’s overall policy of promoting Ireland as a preferred location for international commercial transactions.

This announcement has been well received by both the Irish and international legal services sectors, as it represents a timely relaxation of the current prohibition on maintenance and champerty under Irish law.

TPF in international arbitration has become increasingly common over the last decade as litigation funders have emerged as a resource to enable parties to arbitrate their disputes, in circumstances where the high costs associated with doing so might otherwise deter the attempted vindication of a claim by way of arbitration proceedings.

The issue of TPF has been the topic of much debate and scrutiny in Ireland over recent years with both the Irish Parliament and the judiciary considering the issue. It has become evident that Ireland is in a different position to other EU member states and other common law jurisdictions in terms of any legal framework to enable such funding.

Case Law

The Supreme Court of Ireland confirmed in Persona Digital Telephony Ltd. v. The Minister for Public Enterprise (2017) that it is legislation role, and not judiciary, to remove the hundred-years-old torts of maintenance and champerty from the statute books, which basically forbid TPF of international arbitration in Ireland.

Current Irish rules of maintenance and champerty forbid TPF except for two situations. One is funding by a third-party with a legitimate interest in the proceedings: a creditor or a shareholder of a company that is a party to the litigation in question. This was approved in the case of Thema International Fund v HSBC International Trust Services (Ireland) Ltd. Another exception applies in funding litigation under an after the event insurance policy. In this instance is the insurer who provides the coverage (Greenclean Waste Management v Leahy). These rules equally apply to arbitrations in Ireland.

Future regulation

In contrast to England and Wales, Ireland might follow example of International Chamber of Commers (ICC), Singapore International Arbitration Centre (SIAC), Hong Kong International Arbitration Centre (HKIAC), and require the parties to disclose the existence and identity of the funder.

It will be crucial for the Irish legislature to strike the right balance in terms of the extent of the disclosure requirement in relation to TPF, in order to position Ireland as an attractive location for international arbitration. Proponents of disclosure argue that this would also provide clarity to all parties, strengthen the integrity of the arbitral process and avoid potential conflicts of interest between funders and arbitrators, thereby preventing late challenges to arbitrators or awards.

European Regulation
Developments in Irish law come at a time when significant change is in the air on TPF at EU level. On September 13, 2022, the European Parliament passed a resolution that supports the establishment of a comprehensive framework for the commercial financing of litigation. It also urged the Commission to develop a Directive on this subject.

The resolution acknowledges that TPF funding can provide various advantages to both the public and corporate sectors. It can help support the availability of justice, ensure that citizens have access to justice, and reduce economic imbalances between the private and public sectors.

Moreover, according to the resolution, most of the funders have not adopted voluntary codes of conduct and regulatory mechanisms, leaving the claimants exposed.

Parliament believes that this regulatory vacuum needs to be addressed. It also points to the lack of common minimum standards at Union level, which risks fragmentation and regulatory imbalance in this area.

What is next

At EU level, it is left to each Member State to decide whether and to what extent to allow litigation funding in its own legal system. If Member States choose to allow it, any new Directive will set minimum standards for the protection of funded claimants.

Any recommendation on TPF in Ireland will be implemented by way of an amendment to the Courts and Civil Law Bill. The legislative process it’s already before Irish Parliament.

Permitting TPF initially in a limited way (commercial arbitration) should be a significant factor in helping to develop the attractiveness of Ireland as a seat for international arbitration.

November 24, 2022