knowledge | 24 May 2017 |
A Red Light for Litigation Funding in Ireland?
The judgment of the Supreme Court in Persona has been delivered. This is the first pronouncement of that court on the issue of the validity of professional third party litigation funding in Ireland. The court held that a litigation funding arrangement entered into by the plaintiffs was champertous and not permitted by law.
The judgment1 arises in the context of the long-running litigation surrounding the grant of the second GSM mobile telephone licence in the 1990s. In 2001, Persona Digital Telephony Ltd and another party, who were runners-up in the competition for the licence, commenced proceedings alleging irregularities in that competition.
Previously, the High Court had been told that the plaintiffs could not fund the litigation and that an overseas company would do so in exchange for a share of the proceeds if the action succeeded. Given that maintenance and champerty remain both torts and criminal offences in Ireland, it was unclear whether this arrangement was permissible.2 The plaintiffs therefore sought a declaration that they were not engaging in an abuse of court process or contravening the rules on maintenance and champerty. They argued that their funding arrangement would enable a claim of public importance to proceed and would ensure the constitutional guarantee of access to justice. Against this, the defendants argued that the funding agreement was void for illegality, and that the plaintiffs were asking the court to vary the scope of these offences and torts, which was not within the jurisdiction of the court.
The plaintiffs were unsuccessful in the High Court but were granted a leap-frog appeal to the Supreme Court given the importance of the issues canvassed in their application. Denham CJ summarised the issues for the court as follows: do the tort and crime of champerty exist in Irish law? What are the parameters of the tort and offence of champerty? Is the professional funding agreement of the plaintiffs champertous?
She went on to hold that the law prohibiting champerty remains the law in the State and on the statute book. The funders had no connection with the plaintiffs, apart from an agreement to fund their proceedings. It was, thus, a champertous agreement outside of any exception as permitted by law.3 It might be said that in light of modern issues, such as Ireland being an international trading state, it might well be appropriate to have a modern law on champerty and the third party funding of litigation. However, that was a complex multifaceted issue, more suited to a full legislative analysis. The issues raised by the plaintiffs were issues for the legislature not the courts. This comment was echoed by other members of the court and it noted that it would be open to the legislature to develop and establish parameters in the area rather than having the matter dealt with in an ad hoc or piecemeal fashion by the courts.
However, Denham CJ noted that the application was not a constitutional challenge to the existing law and that this had been parked by the plaintiffs, perhaps for another day. Clarke J also addressed this point saying if the law was found to be unconstitutional but no action was taken by the appropriate arm of the State to remedy this, the courts, as guardians of the Constitution, might have no option but to intervene. Dunne J also questioned whether the ingredients of the criminal offences of maintenance and champerty, which do not appear to have been prosecuted since the foundation of the State, were sufficiently clearly defined.
While the current application in Persona may have been unsuccessful on appeal, these comments are interesting in that they appear to leave open the possibility of a party seeking a declaration of unconstitutionality in the future and indeed there may be further development in the area by the legislature. This judgment may not therefore be the end of the road in relation to non-party funding of litigation in Ireland.
- Persona Digital Telephony Ltd v The Minister for Public Enterprise  IESC 27
- Maintenance involves improper interference in civil proceedings often by way of the provision of financial assistance. 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 in the spoils of the litigation or some other profit. In Ireland, non-party funding of litigation is only permitted where it does not breach either of these prohibitions
- An exception to the rules prohibiting maintenance and champerty may exist where the funder has an interest in the outcome of litigation, for example, the shareholder or a creditor of a company. See Thema International Fund v HSBC Institutional Trust Services (Ireland)  3 IR 654
This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.