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Old Limitations on Third-party Funding Still Apply
PRACTICE AREA GROUP: Commercial Litigation and Dispute Resolution
Historically, Irish law precluded parties with no connection or interest in proceedings from taking any part in or deriving any benefit from them. This was reflected in the common law principles of maintenance(1) and champerty,(2) which were given legislative footing in ancient statutes enacted long before Ireland was an independent state. In a recent decision, the High Court confirmed that both maintenance and champerty remain part of Irish law (and remain both torts and offences).(3) The decision is significant to third-party funders, which face a challenging legal landscape in Ireland.
The background to the High Court dispute arose out of the award of a mobile telephone licence in the 1990s. The plaintiff was the runner-up in a competition for the licence, arising from which the plaintiff commenced proceedings in 2001 claiming that there were irregularities with regard to the competition. The plaintiff recently advised the court that it could not continue to fund the litigation, but that a UK company was willing to do so for a share of the proceeds should the plaintiff prevail in the proceedings. Accordingly, the plaintiff sought a declaration that the proposed arrangement with the funder was not an abuse of process and did not contravene the principles of maintenance and champerty. At the outset, Judge Donnelly observed that not only was the underlying dispute unique, but the issue under consideration was the first Irish case directly concerning the acceptability of third-party funding.
The judge undertook a lengthy review of maintenance and champerty and their components as a matter of Irish law and recorded the defendants' contention that they were common law offences which had had statutory recognition for hundreds of years. She also paid particular attention to prior Irish authorities which had considered the relevant principles. The judge went on to look at applicable legislative provisions, including those enacted long before the foundation of the Irish State. In that regard, she noted that the Statute Law Revision Act 2007 – which repealed all public acts enacted before 1922 (except for specified exceptions) – included in the 'white list' of preserved legislation a number of acts which were concerned with maintenance and champerty.
At the end of her review, the judge felt that the plaintiffs were asking the court "to develop the law of maintenance and champerty beyond what has been generally understood in this jurisdiction". While she conceded that the application before her was unique, she stated that this did not enable her to depart from the considerable jurisprudence.
Although she felt that the approach adopted by the legislature in enacting the Statute Law Revision Act 2007 was not determinative, she held that it was significant because it retained maintenance and champerty as torts and offences. That legislation involved a continuation of the components of the torts and offences involved and it was the court's job to consider whether the third-party funding in respect of which approval was sought fell foul of these torts and offences.
The judge went on to cite English authority, which adopted a more lenient interpretation of maintenance by reference to 'legal impropriety'; but she also observed that Irish case law adopted a different approach. Although a leading English case had doubted "whether any of the attempts at giving definitions of what constitutes maintenance in the present day are either successful or useful",(4) subsequent Irish authority had approved of and used such definitions and the judge felt bound by these. She made particular reference to Judge Clarke in Thema and cited him to the following effect:
"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 proceedings. The only form of third party funding which is, therefore, legitimate in Ireland is one which comes within the exceptions to maintenance and champerty."(5)
She reiterated that "the law of maintenance and champerty continue to exist in this jurisdiction", and the jurisprudence is clear that "the provision of assistance with a view to supporting litigation in return for a share of the proceeds in the absence of a bona fide interest is contrary to public policy and constitutes an abuse of process". She went on to observe that:
"While 'modern ideas of propriety' may not necessarily include such deep suspicion of properly policed professional third party funding agreements having regard to changing views on public policy in other common law jurisdictions, the entrenched statements as to the prohibition of such type of agreements in this jurisdiction means that any amendment to that position may, at the very least, be for an appellate court, if not the legislature."
Ultimately, the judge concluded that maintenance and champerty continue to be torts and offences in Ireland and, as such, it is prohibited for an entity to fund litigation in which it has no independent or good-faith interest for a share of the profits. Consequently, such arrangements "cannot be viewed as being consistent with public policy in this jurisdiction".
The judge alluded to the implications that maintenance and champerty have for access to justice and the constitutional guarantee of equality. However, she acknowledged that the application before her was not a constitutional challenge and no declaration of unconstitutionality had been sought as part of the case. It may be that this is an avenue which a future applicant may pursue.
The decision confirms that third-party funding arrangements which constitute maintenance or champerty are not permissible as a matter of Irish law. While other common law jurisdictions are more receptive to third-party funding arrangements, the law in Ireland remains restrictive because of the continued existence of the torts and offences of maintenance and champerty. For potential plaintiffs, therefore, the possibility of seeking to avail of third-party funding to progress a claim in Ireland is limited. Great care should be taken before commencing litigation to determine whether the plaintiff can fund the case itself, as third-party funding as a subsequent option may not be possible.
(1) 'Maintenance' is the improper interference in proceedings, typically by way of providing financial assistance or support.
(2) 'Champerty' is a form of maintenance where financial support is provided by a party with no connection to the dispute in exchange for a share of the litigation proceeds.
(3) Persona Digital Telephony Ltd v Minister for Public Enterprise,  IEHC 187.
(4) Per Lord Justice Fletcher Moulton in British Cash and Parcel Conveyors Ltd v Lamson Store Service Co,  1 KB 1006, page 1013.
(5) Thema International Fund plc v HSBC Institutional Trust Services (Ireland) Ltd,  3 IR654, page 662.
This article first appeared in the International Law Office Litigation newsletter, 24 May 2016.