Funding litigation in Ireland

The decision of the Supreme Court of Ireland, in the case of Persona Digital Telephony Ltd & Anor v Minister of Public Enterprise, Ireland & Others 2017 1 ESC 27, a leapfrog appeal from the decision of the High Court of 12th May 2016, is stark.

“Champerty remains the law in the State. It has been described clearly in recent cases. A person who assists another’s proceedings without a bona fide interest acts unlawfully.”

Thus spoke Denham CJ giving the majority verdict of the Court.

The Plaintiffs (backed by the third party funders, Harbour Litigation Funding Limited) had argued amongst other points, that their third party funding agreement did not offend the real mischief which the crimes of maintenance and champerty were designed to prevent. Further, in Ireland, statute law was a development of the common law and that in the interests of justice, it was open to the Court to develop the law to allow their type of funding agreement to stand.

The Court did not agree. The Statute Law Revision Act 2007 repealed no less than 3,226 Acts leaving 1,364 Acts in force, including the Statute of Conspiracy (Maintenance & Champerty) dating back to the 14th Century, the Maintenance & Embracery Act 1540 and the updating Act of the same name in 1634.

In addition, the Court pointed to relatively recent cases, McElroy v Flynn 1991, O’Keeffe v Scales 1998 and Greenclean Waste Management v Maurice Leahy & Co 2015 where the Courts had identified champertous arrangements and disallowed them for being in breach of the law.

Maintenance is the process of supporting litigation e.g. paying the plaintiffs legal bills, without a bona fide interest in the case. Champerty is distinguished as being the process whereby someone who maintained the action did so to recover a share of the damages. The Court recognised that these arrangements were allowed in other countries. The Court also recognised that third party funding was a means by which litigation and arbitration was increasingly being utilised elsewhere. However, it concluded that it was a matter for the legislature to change the law and that this was not a matter for the Court.

Interestingly, the Court observed that they were concerned that the defendants would use this decision as a means of effectively defeating the case because the Plaintiff would not be able to fund it. The Court pointed to the long history of counsel and solicitors working on a no foal, no fee basis as a possible solution.

Irish lawyers are prohibited from working on any basis where they are entitled to an uplift on their fees or a percentage of the damages on the success of a case. Therefore no foal, no fee is equivalent to the old no win, no fee arrangements that existed in England prior to the introduction of success fees.

Nevertheless, some may be puzzled as to why a lawyer working on a no foal, no fee is not guilty of maintenance. It seems a pretty clear example of the genre. The lawyer has no interest in the litigation per se. His only interest in the litigation is to encourage or enable its continuance to get paid, when acting in this way.

However, until legislation is passed, third party funding, whereby a stranger to the litigation provides cash to pay for lawyers and experts fees, is an illegal arrangement in Ireland. Thus, the only types of funding that are legal are no foal, no fee arrangements and the use of ATE insurance.

The High Court had previously held in an earlier Greenclean case (2014) in Ireland that ATE insurance, which insures the plaintiff (typically) against the adverse costs of losing proceedings and own disbursements, such as experts fees, is simply an insurance policy and does not amount to any form of maintenance or champerty.

In that Greenclean case, the ATE policy had been offered as security for costs. The Court held, in practice, such a policy might provide appropriate security. However, in that example, it was not capable of doing so because the policy wording was designed to work in England & Wales and had not been adapted for Ireland. For instance, the insurance policy required the plaintiffs solicitor to be engaged on a conditional fee agreement with a success fee, which is, of course, as discussed above, an illegal form of retainer in Ireland.

Lakehouse Risk Services Limited is probably unique in having an ATE Policy Wording specifically adapted for the Irish Courts, and it underwrites on behalf of an Irish insurer. Therefore, Lakehouse is confident that its policies, in addition to affording valuable protection to their insureds, will be able to be used as security for costs.

It is to be hoped that the Irish legislature will make the appropriate changes to allow third party funding to operate in Ireland quickly. Third party funding is increasingly useful and successful across the globe. The Court in its judgment, identified defendants being able to escape justice because the plaintiffs did not have the means to afford to pursue the case. The quaintly named No foal, no fee arrangement is not the answer because lawyers cannot bear the full burden of financing substantial work in progress, either because it is just not practical for them to do so or with no reward for undertaking that risk.