Supreme Court: Prohibition on third-party funded litigation an issue for the Oireachtas

About this case:

• Judgment:
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Chief Justice Susan Denham held that the funding agreement amounted to unlawful maintenance or champerty, and that to vary the scope of these offences considering modern policy was a multifaceted issue more suited to a full legislative analysis.

Background

Persona Digital Telephony Ltd, and Sigma Wireless Networks Ltd (hereafter “the plaintiffs”) sought an Order pursuant to the inherent jurisdiction of the Court and/or Order 34 of the Rules of the Superior Courts, that in entering a litigation funding arrangement with Harbour Fund III LP (hereafter “HF3”), that they were not engaging in an abuse of process and/or were not contraversing rules on maintenance and champerty.

The Minister for Public Enterprise, Ireland, the Attorney General and Mr Denis O’Brien were the defendants in the proceedings; and Mr Michael Lowry, the third party.

Maintenance was defined as the giving of assistance, by a third party, who has no interest in the litigation, to a party in litigation. Champerty was defined as where the third party, who is giving assistance, will receive a share of the litigation succeeds.

Funding Agreement

The plaintiffs entered into an investment agreement with HF3 – an exempted limited partnership under the laws of the Cayman Islands – to provide financial backing for the plaintiffs’ legal costs.

Justice Denham explained that this was the first case to come before the Court raising the issue of the potential use of a third party professional funding agreement to support a party in legal proceedings.

The plaintiffs contended that the third-party funding scheme should be considered in context, and that the question should be asked whether, overall, the transaction amounts to unlawful maintenance or champerty; or whether it should be viewed as enabling a claim of public importance to proceed and to ensure the constitutional guarantee of access to justice.

Opposing the plaintiffs’ application, the State relied on the Maintenance and Embracery Act 1634, which was retained by the Statute Law Revision Act 2007; and submitted that maintenance and champerty were criminal offences as well as torts, being common law offences which had statutory recognition for hundreds of years.

The State submitted that the funding agreement was void for illegality, and that the plaintiffs were asking the Court to vary the scope of the offences and torts of maintenance and champerty, which was not within the jurisdiction of the Court.

High Court

In the High Court, Ms Justice Aileen Donnelly emphasised that the Court had not been asked to examine the constitutionality of the offences and torts of maintenance and champerty.

There were no grounds for examining whether the interpretation given to the torts and offences was in accordance with the Constitution – since the ingredients of the offences (and the torts) of maintenance and champerty had been stated clearly by the Superior Courts to prohibit professional third party funding,

Since maintenance and champerty continued to be torts and offences in Ireland, there was a prohibition on an entity funding litigation in which it had no independent or bona fides interest, for a share of the profits.

While the plaintiffs argued that there was a lack of clarity regarding whether this funding arrangement would be acceptable in view of expanded modern ideas about propriety in litigation – Justice Donnelly stated that there was a consistent line of authorities to suggest the contrary.

The High Court found that HF3 was a professional third party litigation funder, with no independent interest in the litigation – thus the reliefs sought by the plaintiffs were refused.

Supreme Court

The issue was whether such an agreement to fund, where there is no connection between the plaintiffs and the funder other than the funder’s decision to fund, was contrary to law.

The Court heard that third party funding had been permitted in the jurisdictions of England and Wales, and Australia.

In Ireland, the 14th century Statute of Conspiracy (Maintenance and Champerty); the Maintenance and Embracery Act 1540; and the Maintenance and Embracery Act, 1634; were statues which continued in force – thus, the torts and crimes of maintenance and champerty were offences which had been retained in Ireland.

Since the offence was still extant, it was irrelevant that there was no evidence of a prosecution for champerty in recent times.

Justice Denham concluded that:

Noting concern that ‘the defendants and third party who vigorously opposed the plaintiffs’ motion’ were beneficiaries of the cases failure, Justice Denham found that third party funding to support a plaintiff was unlawful due to the rules on champerty.

Dismissing the appeal, Justice Denham stated that she agreed with the concurring judgments of Justice Frank Clarke, Justice John MacMenamin, and Justice Elizabeth Dunne.