Litigation funding, often used in large commercial disputes in the UK and further afield, has traditionally been prohibited in Ireland. Thanks to some local developments and a new EU initiative, however, it is likely to make inroads into Ireland soon, which will impact not just litigation, but also related ADR processes like mediation.

What is litigation funding?

Litigation is expensive business. Not all litigants can afford the cost of taking a case, even if it’s a strong one. So a third party might step in to fund the case, usually in return for a share of the settlement. It is often used in substantial commercial and international cases, and international arbitration. 

Why is it prohibited in Ireland?

Traditionally, third party funding has been prohibited under the laws against maintenance and champerty. These are both crimes and torts which have survived from medieval common law and are designed to prevent an abuse of the court system. They do so by making it illegal for third parties to fund a case they have no legitimate interest in or for a share of the settlement or award.

What’s changing?

As the world changes, the law (slowly) catches up. Against a background of litigation funding being permitted — and successful — in other countries, the Irish Arbitration Act was amended in 2023 to allow third party funding for international commercial arbitration and related proceedings. 

At around the same time, the Law Reform Commission initiated a review of the law in this area with a final report and recommendations due to issue later this year. The EU Commission published a study on Mapping Third Party Litigation Funding in the European Union just last month, in an effort to inform legal developments in Member States. 

Where does mediation fit in?

Since mediation is not litigation, third party funding is not restricted for mediation, unless it takes place in the course of litigation. However, if it forms part of an arbitration, say in a med-arb or arb-med process, it can be funded by a third party. This is common in international commercial arbitration. 

While it might seem counterintuitive for third party funders to support mediation due to the perception that this might result in a lower settlement figure (and lower return for the funders) in fact mediation is a growing area for third party funding, as it is seen as lower risk, more efficient and of course less costly.

For mediators, this can mean another party at the table, and an additional dynamic in the mediation room but also more, bigger and more complex and challenging cases going down the mediation route.

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