2016 has seen the Irish High Court address the status of third-party litigation funding, and has struck a blow to funders seeking to service the Irish market by declaring it unlawful.
The Court’s judgment was handed down in April in the case of Persona Digital Telephony Ltd v The Minister for Public Enterprise.
Trouble in the Emerald Isle
The Irish High Court decision was the first case to have come before the Irish courts directly concerning the acceptability of professional third party litigation funding. The court noted a steady line of authority backing the view that maintenance and champerty remain unlawful in Ireland. The Court outlined that it is contrary to public policy and an abuse of process for a third party to provide financial assistance to support any litigation, in return for a share in the proceeds, unless that third party has a genuine interest in the litigation. This view differs to the position in many other jurisdictions, including England and Wales, where the law has evolved significantly over recent years.
Third party funding is allowed in cases where the funder has a lawful interest or a clear and legitimate concern in the litigation, e.g. as a shareholder or creditor of a company that is a party to the matter. However, those who fund litigation in this way risk being made personally liable for the costs of the litigation, if the action they are funding is ultimately unsuccessful.
With the recent acceptance in principle of after the event (ATE) insurance in Ireland, it appears that the attitude of the Irish courts to third party funding is evolving, regardless of the absence of any legislative change to deal with the issue. The notion of future legislative change to the position on litigation funding cannot be discounted.
With reports of some third party funders now financing FTSE 100 company’s litigation portfolios, it is clear that such a service is now firmly part of mainstream practice. With many international corporates choosing Ireland as their European base, it would be prudent to question whether the Irish legal system’s failure to adopt modern practice will ultimately have a telling impact on the decisions of the corporates to locate there.
Over the Irish Sea
Conversely, over in England and Wales and with the end of the Jackson carve-out, insolvency practitioners have more reason than ever before to explore alternative financing solutions
On 1st April 2016, the exemption for insolvency litigation from the changes brought about by the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO), was withdrawn. Prior to this, an Insolvency Practitioner (IP) could pursue action against a “rogue” director or debtor, on behalf of the creditors of an insolvent business/individual, by instructing a solicitor on a Conditional Fee Agreement (CFA), and protect themselves against adverse costs by taking out After The Event insurance (ATE). This could be done safely in the knowledge that should they win the case, the defendant would then pick up the cost of the ATE and pay the solicitors “success fee” within the CFA - and were they to lose, the ATE insurance would pay all the defendants costs.
So with the claimant now having to bear their own full legal costs and the premium for any ATE, what does a post-reform world look like for insolvency litigation?
One option to fund litigation would be to instruct a solicitor on a Damages Based Agreement (DBA). Although similar to a full CFA, a DBA means that the solicitor receives an agreed percentage of the proceeds of a successful claim rather than their fee plus an uplift. As this is a new and relatively untested arrangement, there is very little appetite from solicitors to enter into these agreements.
It would also be possible to sell or assign the claim to a third party. Although this will realise an immediate, albeit considerably lower, return for creditors, the question will remain as to whether the deal was in the best interests of the creditors.
It is perhaps this relative success in the UK that led the Irish Supreme Court to announce that it would hear an appeal of the High Court decision in Persona Digital Telephony Ltd v The Minister for Public Enterprise. The applicants in the case, who say they require litigation funding to progress a claim against various parties, including the State, sought to appeal the High Court decision directly to the Supreme Court, bypassing the Court of Appeal. The Supreme Court has granted them permission to do so.