Moving the dial on third party litigation funding? Law Reform Commission publishes consultation paper

Speed Read

On 17 July 2023, the Law Reform Commission (LRC) published a consultation paper (the paper) on “Third-Party Litigation Funding” inviting submissions from all interested parties by 3 November 2023.

This is a noteworthy step for a number of reasons. It comes hot on the heels of the enactment of the Courts and Civil Law Miscellaneous Provisions Act 2023 which, by amending the Arbitration Act 2010, will remove the restriction on third party funding of international commercial arbitration in Ireland once the commencement order is made (see briefing here). It also follows a number of references to the LRC’s work in this area during the recent legislative passage of the Representative Actions for the Collective Interests of Consumers Act 2023.

With the consultation period due to close in November, we take a look at the key points covered by the paper and likely next steps.

Focus of Consultation

In 2016, the LRC published an “Issues Paper on Contempt of Court and Other Offences and Torts Involving the Administration of Justice”. In the executive summary to the current paper, the LRC states “Since publication of the Issues Paper, the legal and policy context for third-party funding has shifted considerably…The Commission has generally refrained from expressing even preliminary or provisional views on the issues discussed in this Consultation Paper. Its purpose is to inform debate and stimulate discussion which, it is hoped, will generate responses from all interests and perspectives that will enable the Commission to move to a final report setting out its recommendations.”

The paper is divided into seven distinct parts:

Chapter 1: a chapter setting the context at both a national and European Union level, citing the recently enacted national legislation mentioned above as well as the September 2022 resolution passed by the European Parliament requesting the European Commission to submit a proposal for a Directive to establish common minimum standards on third-party litigation funding, at Union level. There is an overview of the sector, including a look at the key terms and key players. At the outset, the LRC sets out its own definition of third-party funding for the purposes of the paper:

“Third-party funding means an agreement by an entity that is not:

 (a) a party or a prospective party to a legal dispute,

 (b) an affiliate of or otherwise connected to that party or prospective party, or

 (c) a law firm or legal practitioner representing that party or prospective party in that dispute,

to provide a party or a prospective party with funds or other material supports to finance part or all of the costs of the dispute either individually or as part of a specific range of cases in exchange for remuneration that is wholly or partially dependent on the outcome of the dispute.”

Chapter 2: a chapter setting out the current Irish law on third-party funding, with the laws of maintenance and champerty in focus.

Chapter 3: a chapter considering the policy considerations of legalising third-party funding, both those in support of and opposing legalisation. In this part, the LRC has identified five principal arguments made against third-party funding and four principal arguments in favour (summarised below):

Chapter 4: a chapter looking at methods of legalisation with some comparative law analysis: England and Wales, Hong Kong and New Zealand. There are three different methods considered here:

• the “preservation” approach: abolishing the torts and offences of maintenance and champerty but preserving the rules of public policy behind the torts and offences
• the “abolition” approach: abolishing the torts and offences of maintenance and champerty outright
• the “statutory exception” approach: retaining the torts and offences of maintenance and champerty but creating statutory provision permitting third-party funding in some cases as an exception to these torts and offences

Interestingly, the LRC states in the executive summary of the paper, in relation to this part “If legalising third-party funding becomes a reality in Ireland, it is likely that the “statutory exception” approach is the optimum method in this jurisdiction. Legalising only third-party funding while preserving the torts and offences of maintenance and champerty avoids the difficulties presented by the “preservation” and “abolition” approaches.”

Chapter 5: a chapter which looks at possible various models of regulation, again with some comparative law analysis. There are five regulatory models which are considered, along with advantages and disadvantages of each. The LRC makes clear in its final remark on this chapter: “In summary possible models of regulation give rise to hard decisions. It is not a matter of choosing a model from those listed above. An effective framework is likely to combine court certification in some cases (especially class actions) and in other cases certification or approval by a non-court statutory body, while at the same time there may be specific provisions set out in primary or secondary legislation about how crucial elements of the funding relationship are dealt with in a funding agreement.”

Chapter 6: a chapter considering six priority issues which can arise and with which policymakers would have to engage, as part of any future regulatory framework if legalisation were to occur e.g. mitigating the consequences of funder insolvency during the lifetime of the funding agreement; managing and mitigating excessive funder control of funded disputes. There is also treatment of the issue of disclosure in funded disputes.

Chapter 7: a chapter looking at the distinct issue of assignment of causes of action and considering what a regulatory framework might look like.

The paper then sets out a summary of questions to which answers are invited.

Next steps

As made clear in the executive summary, the responses to this consultation will allow the LRC to move to a final report which will set out recommendations. The report, once published, will then have to feed into government policy considerations as to how reform of the position will take shape going forward.

As noted in the paper, the Department of Justice, in the Implementation Plan on Civil Justice Efficiencies and Reform Measures published in May 2022 (see briefing here), committed to carrying out a policy review on third-party funding by the first half of 2024, taking into account the LRC’s current project. These national outcomes will also have to be monitored in the context of the overall European Union position, with likely activity in this space.

We will continue to monitor these developments as they unfold.

For more information, please contact Joe Kelly, Partner, Ciaran O’Conluain, Partner, Paula Gibbs, Senior Associate, Orla Clayton, Knowledge Consultant, or your usual ALG Disputes & Investigations team contact.

Date published: 25 July 2023