Third-party litigation funding consultation to end in Ireland

Dublin-based litigation lawyer Sarah Twohig of Pinsent Masons was commenting ahead of the forthcoming deadline of 15 December for responding to the LRC’s consultation on third-party litigation funding (207-page / 1.94MB PDF).

Third party funding is an agreement between a 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 interest in the proceeds of the proceedings.

Until recently, parties involved in disputes were prohibited from obtaining third party funding to help them fund the cost of taking their case through formal dispute resolution channels in Ireland. However, on 5 July, The Courts and Civil Law (Miscellaneous Provisions) Act 2023 was signed into law, amending the Arbitration Act 2010 to permit third party funding of international commercial arbitration and any  court proceedings or mediation arising out of that arbitration in Ireland for the first time.

The question of whether to provide for third party funding of mass claims brought in Ireland was debated during the pre-legislative and parliamentary scrutiny phases of other legislation finalised this year. However, law makers eventually decided against allowing for third party funding in the Representative Actions for the Protection of the Collective Interests of Consumers Act.

Despite this, there are signs that the current restrictions on third party litigation funding could be eased in future to bring Ireland more into line with the position in other dispute resolution hubs globally.

In its consultation paper, issued in July, the LRC set out the history of third-party funding, the arguments for and against a liberalisation of the rules governing the third party funding of litigation, the approach which may be taken to implement reform, and the models of regulation.

Among the issues it cited that it considered weigh against legislating for third party funding, the LRC said it might encourage the bringing of vexatious and meritless disputes and lead to funded parties not receiving the level of compensation appropriate for any harm suffered, due to the cut funders would receive of compensation awarded. It further warned of the potential for legal costs and insurance premiums to increase and added that third party litigation funding is not appropriate in all types of disputes.

However, the LRC listed four arguments in favour of legalising third party litigation funding. It said it would help expand access to justice in Ireland and improve equality of arms between the parties in cases where one party has the benefit of significant financial resources compared with the other, which can force the weaker party to accept an unsatisfactory settlement. It also said it could help increase the pool of assets available to creditors in insolvency proceedings and that the introduction of third party litigation funding would further address an inconsistency in the law, whereby corporate entities can effectively engage in third party funding under another name by issuing shares or transferring ownership of the company to fund its participation in dispute resolution.

Three possible models of legislation appear to be under consideration by the LRC, all of which concern what should happen to the existing torts and criminal offences of maintenance and champerty, which currently prohibit, in most cases, the funding of litigation by third parties.

An outright abolition of those torts and offences is one approach being considered, while another would see part-abolition only, with the torts and criminal offences of maintenance and champerty preserved in the context of the law relating to public policy and illegality. The third option under consideration by the LRC is a ‘statutory exception’ approach, whereby the torts and criminal offences of maintenance and champerty would be retained but third-party funding would be provided for in law in some cases as an exception to those torts and offences.

The LRC said that any regulatory framework adopted for third-party litigation funding must be capable of operating coherently in conjunction with regulatory and legislative developments in other spheres, citing in particular the new provision for third party funding of international commercial arbitration.

Sarah Twohig said: “The LRC’s consultation paper recognises that the global landscape in the context of third-party litigation funding has shifted in the last decade and that Ireland requires a legal and policy shift to accommodate these advances. Businesses interested in seeing reform should take the opportunity to share their views on the LRC’s proposals before the consultation period closes on 15 December.”

The LRC intends to produce a final report setting out its recommendations after the consultation process ends. The Irish government would then consider the recommendations when deciding whether and, if so, how best to introduce new legislation.

Editor’s Note, 07/11/2023: This article has been updated to reflect the fact that the Law Reform Commission, on 27 October 2023, extended the deadline for responses to its consultation to 15 December 2023, from the earlier deadline of 3 November 2023.