Third-party funding in Ireland – what next?

In their consultation paper, the LRC listed five policy arguments against the introduction of third-party funding. The first argument is to do with the discomfort around what the LRC describes as 'The Commodification of Justice.' The LRC raised the concern that litigation will no longer be seen as a means of ensuring justice for the plaintiff and it might instead be seen as a tool for profit maximisation. 

The second concern the LRC had regard to was in relation to an 'Increase in Vexatious and Meritless Claims'. The LRC highlighted the fact that persons might be more inclined to take bigger risks and to issue proceedings which they might not have otherwise pursued if they had to pay legal fees out of their own resources.

The third concern raised by the LRC was to do with 'Under-Compensation of the Plaintiff.' It is a well-settled principle in Tort Law that an award of damages should place the claimant in the same position that they were in before the wrongdoing. Third-party funding will make this difficult as the LFC will essentially be eating into the sum awarded to the claimant by taking a share of the damages.

The fourth concern raised by the LRC was pertaining to the 'Increase in the Cost of Legal Services arising from third-party funding.' The LRC highlighted the fact that if claimants were given a larger budget by reason of third-party funding, then they may be inclined to incur higher legal costs.

The LRC also pointed out that third-party funding may not be appropriate for certain types of litigation, specifically personal injuries litigation. The LRC highlighted that there would be ethical issues if a third-party funder was to invest in a person's injuries.

There are also significant arguments in favour of third-party funding and recognised by the LRC - not least of which is 'Access to Justice.' Ireland is one of the most expensive jurisdictions in the world to litigate. Third-party funding would open the door for claimants with lesser means to bring their cases to court.

Another argument in favour of third-party funding, as mentioned by the LRC, is in relation to the 'Reduction in the Imbalance of Power' as between parties to a litigation dispute. A weaker party may now increase their bargaining power by accessing the resources of an LFC. 

The third argument in favour of third-party funding is with respect to 'Increasing the assets available to creditors in an insolvency situation.' The LRC discussed how it is often the case that a company has entered liquidation and there are insufficient assets to take claims against former company officers who might be personally liable to the company. Third-party funding would enable such litigation against these officers to be funded and it could result in assets being recouped for the company's creditors. The Irish Society of Insolvency Practitioners, as it then was, made detailed submissions on this point to the Review of the Administration of Civil Justice Group which produced what is referred to as the Kelly Report.

The final argument discussed by the LRC is the fact that corporate entities can already mimic the types of arrangements normally underlying a third-party funding agreement, by granting the third-party shares in their company. By allowing some form of third-party funding for individuals, the playing field might be somewhat levelled.

In the first instance, it is worth noting that the Courts and Civil Law (Miscellaneous Provisions) Act 2023 will amend the Arbitration Act 2010 to allow third party funding in an international arbitration context. The legislation also provides for the introduction of regulations prescribing transparency requirements for funders and recipients. The rationale for this limited change in the law around third-party funding was to promote Ireland as a choice for international commercial legal business under the 'Ireland for Law' initiative.

In their report, the LRC suggested three different regimes for a broader legalisation of third-party funding in Ireland. The first option for legalising third-party funding would be to abolish the offences of champerty and maintenance in their entirety. This would be extremely unlikely as an outcome. 

The second option would be to abolish both torts but to preserve the law relating to public policy and illegality. This would mean that third-party funding agreements could still be rendered unenforceable if they were contrary to public policy or if they were illegal. 

The third option suggested by the LRC would be to abolish both torts but to carve out a statutory exception which would legislate for third party-funding in Ireland. The LRC has invited submissions to establish the preferred legislative regime.

The LRC suggested a number of different regulatory frameworks for supervising third-party funding in Ireland. The first framework suggested by the LRC is that of 'Voluntary Self-Regulation.' This would allow LFCs complete autonomy to regulate themselves and seems an unlikely option. 

The second model is that of 'Enforced Self-Regulation' and this model provides that there would be a representative group appointed by LFCs operating in the third-party funding industry and they would set codes of practice, rules and so on. There may be some uneasiness in allowing even this level of autonomy to what would be a new industry in Ireland.

The third model suggested is that of 'Court Certification' and it would require that a court certify each third-party funding agreement before it becomes binding between the parties. The Court Certification process could place a lot of pressure on the courts so may not be an attractive option. 

The fourth model suggested that an existing regulator such as the Central Bank of Ireland regulate the industry. The fifth and final model envisaged by the LRC is that a new regulator be set up to regulate the third-party funding industry. Out of all these options, using an existing regulator or establishing a new regulator would seem the most robust and efficient means to regulate this sort of industry.

Third-party funding, if introduced in a broader context, has the potential to significantly alter the litigation landscape in Ireland. It seems unlikely that there will be a wholesale move to allow an unlimited regime but there would be clear benefits to allowing third-party funding in a measured and regulated fashion. 

It is interesting to note that the Representative Actions for the Protection of the Collective Interests of Consumers Bill 2023 provides for third party funding of consumer representative actions “insofar as permitted in accordance with law …” when in reality it is difficult to see how such representative actions will work in practice without some changes to the current law on third party funding. You can read our analysis of that Bill here. Overall, it seems likely that Ireland will take some steps to loosen up the current prohibition on third-party funding, but it remains to be seen to what extent.   

The LRC consultation paper gives much food for thought and submissions (due in November 2023) will be carefully considered.