Litigation Funding: New Rules for International Commercial Arbitration in Ireland

PUBLISHED: 19th July 2023

Third-party funding of international commercial arbitration in Ireland will be enabled by the Courts and Civil Law (Miscellaneous Provisions) Act 2023.

Background

Third-party litigation funding has generally not been possible in Ireland except in narrowly defined circumstances. This is because maintenance and champerty are torts and offences in this jurisdiction.

Maintenance is the improper support of a set of civil proceedings where the supporter has no legitimate interest in the proceedings.  This can involve the provision of financial support.  Champerty is a type of maintenance where support is provided by an unconnected party to the proceedings in exchange for a profit of some kind, such as a share in an award.

The Courts and Civil Law (Miscellaneous Provisions) Act 2023

Change is now on the horizon as the Courts and Civil Law (Miscellaneous Provisions) Act 2023 sets out a statutory exception to the general rules in respect of international commercial arbitration.  It is not yet in operation.

When it comes into force, the Act will insert a new section 5A into the Arbitration Act 2010.  Under that new provision, the offences and torts of maintenance and champerty will not apply to “dispute resolution proceedings”. This term includes an international commercial arbitration.  It also extends to any proceedings arising out of that arbitration before a court of competent jurisdiction performing any of the functions provided for in the Model Law.[1] This includes an appeal of any decision made by the court here. Also captured are any mediation or conciliation proceedings arising out of the arbitration, the court proceedings or the appeal.

Section 5A stipulates that a third-party funding contract will not, insofar as it relates to “dispute resolution proceedings”, be treated as contrary to public policy or otherwise illegal or void.  However, this is subject to the proviso that the contract should meet the criteria (if any) prescribed by the Minister.  

These criteria are unspecified save that they may include criteria relating to transparency.  The importance of transparency in these types of arrangements has also been highlighted by the European Parliament which has recently looked at commercial third-party litigation funding in a wider EU context.[2]

For its part, a “third-party funding contract” is a contract or agreement between a party or potential party to “dispute resolution proceedings” and a third-party funder, for the funding of all or part of the costs of the proceedings in return for a share or other interest in the proceeds or potential proceeds of those proceedings to which the party or potential party may become entitled.

Litigation Funding:  Related Developments

Litigation funding remains firmly on the agenda in Ireland.  This new legislation may be the first step in a gradual relaxation of the rules around maintenance and champerty in this jurisdiction.

It is of note that the 2020 Report of the Review of the Administration of Civil Justice favoured the permitting of third-party litigation funding for liquidators, receivers, the Official Assignee and others in order to fund proceedings intended to increase the pool of assets available to creditors. This was on condition that the applicant for funding was satisfied that a reasonable case against a prospective defendant existed and would result in increasing that pool of assets.[3] However, more generally, the Report stated that, while policy in the area needed to be looked at, this should await further examination of the area by the Law Reform Commission.

In 2021, the Company Law Review Group, by a majority view, was broadly supportive of provision being made to allow for litigation funding in insolvency proceedings, subject to certain safeguards, though it noted that further detailed consideration was needed.[4]

This topic has recently been to the fore in the transposition of Directive (EU) 2020/1828 in Ireland.  This legislation deals with representative actions for the protection of the collective interests of consumers.  The Irish implementing legislation is now enacted.[5] However, issues around the funding of these consumer actions in the context of the continuing prohibition on maintenance and champerty were canvassed widely in the pre-legislative scrutiny of the legislation and during its passage through the Oireachtas.  As recently as 4 July 2023, it was acknowledged in the Seanad by the sponsoring Department that the topic of funding would be revisited once the Law Reform Commission had reported on the issue.[6]

The Law Reform Commission has just published its Consultation Paper on Third-party Litigation Funding with submissions requested by 3 November 2023 in advance of its report. Its final recommendations are awaited with interest. The Department of Justice also plans to examine the policy considerations around third-party litigation funding in the first half of 2024.

For further information please contact Heather Mahon hmahon@lkshields.ie or Jill Callanan jcallanan@lkshields.ie.