The issue of legal costs and how proceedings may best be funded has always been a source of great interest to lawyers and clients. The Irish legal system has been very conservative in allowing the funding of litigation by parties not directly involved. It was only last year that the principle of After the Event legal costs insurance was recognised in the Irish High Court. The issue of litigation funding by a non-party has now arisen in a significant pending case.

Medieval Torts

The long established rule of common law was that only parties directly involved in litigation could fund the proceedings or share in any damages awarded.  This may have been born originally from an antipathy to litigation and a reluctance to see litigation being promoted in any way, or the fruits of litigation being assigned to non-parties.  Maintenance involves the provision of financial support to litigation in which the supporter has no direct or legitimate interest.  Champerty is the provision of such support in return for a share in the proceeds of litigation.  In Ireland the original Statute of 1305 has not been repealed and such activities are still potentially criminal in nature.  In England and Wales these torts were repealed in 1967.

Judicial Reform

The case of O’Keeffe v. Scales [1998] restated the old common law position, but went on to hold that the existence of a champertous agreement did not mean that proceedings should be automatically stayed or struck out, unless it could be established that there was evidence of an abuse of process.  In Madoff related litigation Thema International Fund Plc v. HSBC Institutional Trust Services (Ireland) Limited [2011]; Judge Clarke restated the historical position and noted that “…in Ireland it is unlawful for a party without an interest (or some other legitimate concern including charity) to fund the litigation of another at all and, in particular, it is unlawful to fund litigation in return for a share of the proceeds”.  However he held that it was quite legitimate for a party who has an indirect interest in the relevant litigation, such as a shareholder or a creditor to support the same financially. The next important development came in the case of Greenclean Waste Management Limited v. Leahy (No. 2)[2014]; which determined that a Plaintiff’s After the Event ("ATE") insurance policy did not amount to either maintenance or champerty.

Current Challenge

Current litigation between telecommunications companies Persona/Sigma and the Irish State will involve the Court having to determine whether the financial supporting of such proceedings (maintenance) by a litigation funding company, in return for a share of the damages (champerty) is lawful in this country.  The case revolves around the competition for a mobile phone licence awarded by the State in 1996 which subsequently became the focus of an extensive inquiry by the Moriarty Tribunal which made findings critical of the State’s conduct of the competition. The unsuccessful consortium are now seeking damages for such loss of opportunity.  In a preliminary application they have advised the Court of the involvement of a well-known UK litigation funder.  The Court will firstly consider an application by the Defendants for an order that they be given a copy of the litigation funding agreement.  The Court then proposes in July to consider whether such an arrangement breaches maintenance and champerty rules.  Given the importance of the issues it is likely that such decision will be appealed to the Court of Appeal, and perhaps given that the issue is one of public law importance, to the Supreme Court

Policy Issues

A variety of criticisms have been made of this type of litigation funding revolving principally around arguments that it promotes spurious litigation, and allows for profiteering or claim marketing. The courts have historically been rightly hesitant to allow the assignment of actions where cases are effectively sold to third parties, or the participation of lawyers in a share of the damages their clients are awarded.  In Ireland, Section 68 of the Solicitors (Amendment) Act, 1994 prohibits the charging of contingency fees in all matters except debt collection.  However, serious issues arise regarding access to justice in this country where there is no proper provision for civil legal aid, and there has been no legislative reforms such as in the UK relating to contingency fee agreements and damages based agreements.  The Courts there have taken a much more relaxed view regarding litigation funding and ATE insurance products have been widely available now for years.

The Law Reform Commission in 2010 recommended retention of the principles of maintenance and champerty.  Somewhat ominously in the Thema case Judge Clarke, now a member of the Supreme Court, was at pains to distinguish the facts of that case from the orthodox position “….the law of maintenance and champerty always made a distinction between such parties and professional third party funders.  It seems to me that it is appropriate to maintain that distinction…”.

Conclusion

The Persona/Sigma case will now give the High Court an opportunity to determine  the issue of third party litigation funding.  On the one hand it will have to balance the traditional antipathy of the Courts to such practices with the modern commercial reality of parties being involved in worthwhile litigation, which for whatever reason they cannot fund.  Primary in all of this must be the protection of the independence of the legal system and the right of access.  While the Court may well uphold the principle of such funding, individual agreements will come to be closely scrutinised in terms of fairness and legality.  The UK has recently introduced a voluntary code for litigation funders and the Irish legislature could show the way in putting such code on a statutory basis in the new Legal Services Bill.