Third party financial backing of litigation is an important feature of legal processes internationally, particularly in large scale and multi-claimant actions.

Background

Litigation funding is a term that can embrace conditional fee agreements as well as third party funding. The purpose of this piece is to examine the area third party funding, which has undergone very recent analysis and clarification by the Supreme Court in Persona Digital Telephony Limited and Sigma Wireless Networks Limited v The Minister for Public Enterprise and Others [2017] IESC 27.

Persona Case

Persona brought an application before the High Court in 2015 seeking a declaration pursuant to the inherent jurisdiction of the Court and/or Order 34 (RSC) approving it entering into a litigation funding arrangement with Harbour Fund III, L.P. The funding arrangement provided for financial backing for Persona’s legal costs and its purchase of adverse cost insurance. The State Defendants submitted that maintenance and champerty are criminal offences as well as torts and common law offences which have had statutory recognition for hundreds of years and the State relied upon the Maintenance and Embracery Act 1634, which had been retained by the Statute Law Revision Act 2007. Therefore, the State maintained that the torts of maintenance and champerty were still extant and prohibited a funding arrangement, as at issue in this case.

In the High Court, Ms Justice Donnelly held in favour of the State and decided that the relevant authorities demonstrated a prohibition on an entity funding litigation in which it had no independent or bona fide interest in return for a share of the profits. Persona made a “leapfrog appeal” to the Supreme Court who delivered judgment last month.

Appeal

In the leading Judgment, the Chief Justice confirmed that the torts and crimes of maintenance and champerty have been retained in Ireland, pursuant to the Statutory of Conspiracy (Maintenance and Champerty) of an unknown date in the 14th Century, the Maintenance and Embracery Act 1540 and the Maintenance and Embracery Act 1634. She defined maintenance as the giving of assistance by a third party who has no interest in the litigation to a party in litigation. She defined champerty as where the third party who is giving assistance will receive a share of the litigation proceeds.

While the law on this issue had ancient roots, the Court was referred to a number of more recent cases regarding maintenance and champerty including the recent judgment of Mr Justice Hogan in Greenclean Waste Management Limited v Maurice Leahy practicing under the style and title of Maurice Leahy & Co Solicitors [No.2] [2014] IEHC 314, when the Judge considered that the laws of maintenance and champerty must be viewed in accordance with modern ideas of property. In this case, Justice Hogan upheld the legality of After the Event (ATE) legal cost insurance.

Supreme Court Judgement

Ultimately, the Court held that the investment agreement in the Persona case constituted a champertous agreement and thus the agreement was unlawful. In the conclusions of the Chief Justice, she stated her concern that if the case does not proceed, then the Defendants and the Third Party (Michael Lowry TD) who vigorously opposed the funding arrangement would be the beneficiaries of this ruling but in raising this concern, she offered an unconvincing option which throws the problem at practitioners when she stated; “There is a long history at the Bar, and amongst solicitors, of taking cases on a “no foal no fee” basis. Many of those important cases have been taken in such circumstances. Or, perhaps an alternative route may be found whereby the litigation would cost less.”. But, in circumstances where our laws also prohibit practitioners from sharing the fruits of any litigation with their client (admittedly with some justification), it is difficult to see how this suggestion can be regarded as a panacea.

The issue of third party funding litigation arises because of the cost of accessing justice. At the heart of this debate is the aspiration that every citizen should be entitled to bring his or her case to Court. As Lord Brougham said in the UK Parliament about 200 years ago with remarkable prescience; “Better something of justice than nothing”.

This article featured in the Summer Edition of the Parchment in July 2017