All questions

The year in review

Litigation funding is often considered in the context of multiparty litigation. As the law currently stands in Ireland, professional third-party funding is prohibited on the basis that it offends the rules of maintenance and champerty that exist under the Maintenance and Embracery Act (Ireland) 1634. While professional third-party funding arrangements are unlawful in this jurisdiction, 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 lawfully fund them, even when such funding may indirectly benefit them. Therefore, funding of representative actions by the class members does not offend the laws of maintenance and champerty, as the class has a pre-existing legitimate interest in the litigation.

The impact of the 1634 Act was considered by the High Court in Ireland in a number of cases between 2013 and 2015 and was considered again in 2016 in the context of the legality of professional third-party litigation funding in the case of Persona Digital Telephony Ltd & Another v. Minister for Public Enterprise & Other. In that case, an application was made to assess the legality of a third-party funding agreement. The plaintiff, Persona Digital Telephony Limited, was unable to fund the proceedings. A professional third-party funder from the UK was prepared to enter into a litigation funding arrangement. The plaintiff sought a declaration from the High Court that the litigation funding arrangement did not constitute an abuse of process or contravene the rules on maintenance and champerty.

While the High Court had some sympathy for the plaintiff, it affirmed that both maintenance and champerty are part of Irish law and are torts and criminal offences. The High Court found that to permit a litigation funding arrangement by a third party with no legitimate interest in the proceedings would necessitate a change in legislation and this could not be done by the High Court. This decision was unexpected, given some obiter dicta comments from the High Court in a judgment approving ATE insurance to the effect that the laws have to be interpreted in the context of modern social realities (Greenclean Waste Management Ltd v. Leahy [2014] IEHC 314). Further, the High Court in SPV OSUS Limited v. HSBC Institutional Trust Services (Ireland) Limited, HSBC Securities Services (Ireland) Limited, Optimal Investment Services, SA and Banco Santander, SA indicated that litigation funding could be deemed by the court to be legitimate in future as reflecting 'modern social realities'. The plaintiff, Persona Digital Telephony Limited, appealed the decision of the High Court.

Given the issues of public importance raised in the case, the Supreme Court allowed the plaintiff to bypass, or 'leapfrog', the Court of Appeal to have the appeal heard directly by the Supreme Court itself. The decision of the Supreme Court was handed down in May 2017. In dismissing the appeal and finding that the third-party litigation funding was unlawful (where none of the exceptions apply), Denham CJ stated that it would not be appropriate for the Supreme Court to develop the common law on champerty, pointing out that it is a 'complex multifaceted issue, more suited to a full legislative analysis'. The Chief Justice emphasised that the third-party funder in this case had 'no connection with the plaintiffs, apart from an agreement to fund their proceedings', distinguishing it from the recent decision of Thema International Fund v. HSBC Institutional Trust Services (Ireland) Limited [2011] 3 I.R. 654, in which the court recognised that it is lawful for a party with a legitimate interest in the litigation to fund the litigation of another party and a creditor or shareholder may have such a legitimate interest.

Therefore, the Supreme Court has confirmed that third-party funding is unlawful in Ireland by reason of the Maintenance & Embracery Act (Ireland) 1634, which remains the law in Ireland, so 'a person who assists another's proceedings without a bona fide independent interest acts unlawfully'. The courts have clearly indicated that it is a matter for the legislature rather than the courts to develop the law in this area. However, in his Supreme Court judgment in the Persona Digital case, Clarke J left open the possibility of the courts, in their role as guardians of the Constitution, reconsidering the position in circumstances where there is a breach of the constitutional right of access to the courts and 'no action' has 'been taken by either the legislature or the government to alleviate the situation'. In the meantime, however, it is clear that third-party funding from a third party with no legitimate interest in the litigation to progress a claim in Ireland remains off limits unless and until the legislature addresses this issue.

The decision in SPV Osus Ltd, referred to above, which addressed the issue of maintenance and champerty – but not in the context of litigation funding, came before the Supreme Court in 2018 for consideration of the related issue of litigation trafficking. In this case a fund, Optimal Strategic US Equity Ltd (SUS), was entitled to make a claim in the US bankruptcy proceedings of Bernard Madoff. In order to allow investors in the fund to trade their share in the bankruptcy claim (which is allowed in the US), SUS set up a special-purpose vehicle SPV OSUS Ltd (SPV) and assigned the bankruptcy claim to it. The majority of the original investors in SUS swapped their shares for shares in SPV and then traded the shares in SPV to distressed debt hedge funds. SPV then issued proceedings in Ireland against the custodian to the fund claiming an entitlement to the net asset value of the investments of SUS as at 30 November 2008.

The custodian challenged the standing of SPV to bring proceedings on the basis that the assignment was contrary to public policy, and should not be enforced for reasons of maintenance and champerty. The High Court upheld the custodian's application and dismissed the action, holding that the transaction was void, contrary to public policy, and constituted trafficking in litigation.

In March 2017, the Court of Appeal upheld the ruling of the High Court. The Court of Appeal confirmed that, under the rules of champerty, an assignment is unenforceable unless one or more of the exceptional circumstances apply that would grant it legality (for example, an assignment of a bare cause of action that is incidental to the property transferred, or the assignment of a debt), none of which applied in this case. The Court of Appeal further ruled that there was no requirement to prove an improper motive under the principles of maintenance and champerty. SPV was granted leave to appeal to the Supreme Court.

In July 2018, the Supreme Court upheld the decision of the Court of Appeal, confirming that the assignment in question did not fall within any of the exemptions to the rule against the assignment of a right to litigate nor did it fall within some plausible and permissible extension to the exemptions to the rule against the assignment of a right to litigate. However, the Supreme Court reiterated the sentiment expressed in the Persona Digital case, namely that it is a matter for the legislature to develop the law in the area of right of access to the courts. Notwithstanding this, the Supreme Court was of the view that 'where the legislature persistently fails to take corrective measures to vindicate a constitutional right, such as the right of access, responsibility in this regard will fall to be discharged by the judiciary'.