Third-party funding of litigation
Litigation funding might fall foul of the rules against maintenance and champerty.
Maintenance is defined as the giving of assistance or encouragement to one of the parties to an action by a person who has neither an interest in the action nor any other motive recognised by law as justifying his interference.
Champerty is defined as an aggravated form of maintenance where a person maintaining another’s persons litigation stipulates for a share of the proceeds of the action.
In McElroy v. Flynn 1991 ILRM 294 an agreement was held to be champertous. The plaintiff specialised in finding next of kin for persons who died intestate. The plaintiff contracted with the defendant for a 25% share in the estate in order to assist them in the realisation of the benefit.
In Thema International Fund Plc v. HSBC Institutional Trust Services 2011 IEHC 654 the court stated:-
“In Ireland it is unlawful for a party without an interest in (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 proceeds. The only form of third-party funding which is, therefore, legitimate in Ireland is one which comes within the exceptions to maintenance and champerty…”
In SPV Osos Ltd V HSBC International Trust Services Ltd 2015 IEHC 602 the High Court Costello J set out 14 principles applicable to the principles of maintenance and champerty.
In Persona Digital Telephony Ltd. v. Minister for Public Enterprise 2016 IEHC 187 the plaintiffs entered with a third party funder to fund litigation and pay for legal costs insurance. The High Court held the agreement to be in breach of the rules on maintenance and champerty. The plaintiff engaged in a funding arrangement with a third party. The court stated:-
“[M]aintenance and champerty continue to be torts and offences in this jurisdiction. From the Irish authorities… There is a prohibition on an entity funding litigation which has no independent bona fide interest, for a share of the profits”
In Persona Digital Telephony Ltd. v. Minister for Public Enterprise [2017] IESC 27 the Supreme Court upheld the High Court.
After the event (ATE) legal costs insurance
In Greenclean Waste Management v. Leahy 2014 IEHC 314 the court held that ATE legal costs insurance amounted to a legitimate service by providing access to justice and could not properly be regarded simply as investing in or trafficking of litigation. The court further found that because the plaintiff had ATE legal costs insurance, this amounted to sufficient security for costs.
In Greenclean Waste Management v. Leahy 2015 IECA 97 the Court of Appeal found the policy did not mean that the plaintiff had sufficient security for costs. The policy was voidable from many reasons outside the control of the defendant.
Conclusions
If the third-party providing funding has an interest, independent of the agreement which gives a share in the proceeds of the action, the agreement may not be in breach of the rules on maintenance and champerty. For instance a family member might fund the litigation for another family member or a member might fund litigation for a company. The identity of the funder is liable to be disclosed by the court and the funder could be liable for costs.
ATE legal costs insurance may be lawful and not a breach of the rules of maintenance and champerty. However, it may not be sufficient security for costs if the policy is voidable for conditions outside the control of the defendant.
The content of this article is intended to provide a general guide to the subject matter and is not intended to be a substitute for legal advice. Specialist advice should be sought about your specific circumstances.
