Ireland contemplates third-party dispute funding in international arbitrations

Ireland contemplates third-party dispute funding in international arbitrations
Camilla Godman
Investment Manager, Senior Legal Counsel, FCIArb - United Kingdom

Third-party funding of disputes is continuing its rise in popularity in the UK and gaining increasing acceptance in Singapore and Hong Kong, where it was first permitted to assist impecunious parties in international arbitrations. Might Ireland be on the brink of following the lead set by its fellow common law jurisdictions?

Legislation recently introduced by the Irish government and currently making its way through Ireland’s parliament would expressly permit funding in international arbitrations. The government says allowing arbitration funding is necessary to keep Ireland competitive and to burnish the country’s reputation as a hub for international arbitration—arguments that mirror those made in Hong Kong and Singapore when those markets liberalized their approach.

Until now, Ireland has lagged behind many common law countries which already have established funding regimes. In the U.K., funding of both arbitration and court litigation is permitted through a framework developed almost entirely by the courts and case law.

Ireland, however, appears more likely to follow the models of Singapore and Hong Kong, where legislation was passed to expressly permit funding of international arbitrations. Singapore has since widened its approach, allowing third-party funding of a wider range of proceedings. (Read more about the funding frameworks in Singapore and Hong Kong here.)

Case Law
The Irish government’s bill follows a series of court rulings that prohibited third-party funding, but at the same time opened the door for a legislative response to address the issue.

Chief among those rulings was 2019’s Supreme Court of Ireland decision in Persona Digital Telephony Ltd. v. The Minister for Public Enterprise. The Supreme Court asserted that “maintenance and champerty continue to be torts and offences” in Ireland and as a result “there is a prohibition on an entity funding litigation in which it has no independent or bona fides interest, for a share of the profits.” The court added that any change to the law in Ireland relating to professional third-party funding should come in the form of legislation, rather than via a court decision.

In a previous decision, SPV Osus Ltd v. HSBC Institutional Trust Services (Ireland) Limited & Others, the Irish Supreme Court had found that the right to litigate could not be assigned to a third party unconnected to the underlying case.

The Road Ahead
It remains to be seen what role the Irish courts might take in interpreting any legislation should it pass. If the history of funding in other common law jurisdictions is a guide, we expect that the Irish courts would soon be asked to weigh in to refine the law.

In Singapore, for example, the funding framework has been developed through a mix of expressly permissive legislative regimes (for arbitration, Singapore International Court proceedings and select insolvency-related claims) and case law. The case law informs the development of policy regarding the funding of other commercial litigation outside of the expressly permissive regimes. Since the 2017 legislation that first enabled funding in international arbitrations, the Singapore judiciary has consistently taken an expansive view to funding. Moreover, in response to the positive response by the legal communities to the funding regime, in 2021, Singapore expanded the categories of proceedings for which third party funding is permitted. This includes domestic arbitrations, litigation before the Singapore International Commercial Court, and certain insolvency claims.

In the U.K., funding continues to enjoy significant judicial support and its acceptance in courts and in arbitration has occurred almost entirely via case law and changes in court procedures. Most recently, in December 2021, the English Commercial Court in Tenke Fungurume v. Katanga  upheld the decision of an ICC tribunal to award a claimant its third-party funding costs (i.e. the funders’ fee) as part of the “legal and other costs of the parties”. 

Regulatory Regimes 
Also to be determined is how Ireland might choose to regulate funders and funding agreements should third-party funding gain approval. In the U.K., the funding industry is self-regulated through a voluntary code of conduct, published by the Civil Justice Council and administered by the Association of Litigation Funders (ALF) of England and Wales, which was established in 2011.

By contrast, Singapore has legislated specific requirements for funders. The Civil Law Act was amended to make it clear that financing could only be offered by companies that specialize in the business of dispute funding and that had a certain amount of assets under management.

These requirements, as we have noted previously, have given Singapore the ability to control the growth of the funding industry and protect users within its borders before potentially opening up the market to a wider group of investors. Restricting the industry to professionals, such as Omni Bridgeway, ensures a level of rigor and professionalism in the absence of a more prescriptive regulatory regime. In the U.K., there is no such restriction, although there is a natural preference by parties for funders who are ALF members.

Ireland’s regulatory regime also may be influenced by another key factor: the European Union. Champerty and Maintenance is a common law phenomenon. The European Union has only civil law jurisdictions, except for Ireland and Cyprus.  In civil law jurisdictions, litigation funding has existed for decades with several professional entities, many of them listed, active on the continent including Omni Bridgeway which was established in 1986. Funding is seen more as essential to provide access to justice and its legality is based on the freedom to contract.  The representative action directive (EC directive 2018/0089), to be implemented by the member states, clearly embraces the possibility of litigation funding in consumer collective actions. In addition, the European Parliament’s Committee on Legal Affairs recommended the introduction of a specific EU-wide legislative framework for third-party litigation funding. Hence an EU legislative harmonization drive may make Ireland rethink its remaining prohibitions on third-party litigation funding (as opposed to arbitration funding) to create a method for allowing funding of all disputes.

We will continue to closely monitor the development of dispute funding in Ireland. Learn more about dispute finance here and for more information about how we can assist claimants in a variety of commercial disputes, visit our Company Insights. Or contact us for a consultation to learn more about the ways we can help you and your clients unlock the value of meritorious claims.