Third party funding of international arbitration in Ireland: on the horizon?
Third party funding of international arbitration in Ireland: on the horizon?
The Irish Minister for Justice, Helen McEntee, has announced that Ireland is likely to introduce legislation removing the current restriction on third party funding of international arbitration in Ireland. Subsequently, in a response to a parliamentary question tabled on 20 September 2022, the Minister confirmed that the Department of Justice is considering a recommendation to the government that third party funding be permitted in a limited way, specifically in relation to commercial arbitration.
This announcement has been well received by both the Irish and international legal services sectors, as a timely easing of the existing prohibition on maintenance and champerty that currently exists under Irish law.
On 14 September 2022, the Irish Minister for Justice, Helen McEntee, announced that Ireland will likely introduce legislation removing the current restriction on third party funding of international arbitration in Ireland. The Minister made this announcement during a visit to New York to attend a meeting organised by 'Ireland for Law' (a body established to promote Ireland as a centre for international legal services). Subsequently, in a response to a parliamentary question tabled on 20 September 2022, the Minister confirmed that the Department of Justice ( the DOJ) is "considering recommending to Government that third party funding be permitted in a limited way, specifically in relation to commercial arbitration". This should assist the broader Government policy of promoting Ireland as a destination of choice for international commercial legal business under the Ireland for Law initiative (see Proposed Legislation: Dáil Éireann Debate, Tuesday - 20 September 2022).
It is anticipated that the DOJ recommendation will be implemented by way of an amendment (the Proposed Amendment) to the Courts and Civil Law (Miscellaneous Provisions) Bill (the Bill), which is currently at second stage before the Dáil (the Irish Parliament).
This announcement has been well received by both the Irish and International legal services sectors, as a timely easing of the existing prohibition on maintenance and champerty that currently exists under Irish law (see Persona Digital Telephony Limited & Anor v The Minister for Public Enterprise, Ireland & Ors  IESC 27, in which the Irish Supreme Court confirmed that the torts of maintenance and champerty remain in place and that legislation will be required to remove them from the statute books). This prohibition stems from legislation dating back hundreds of years and has meant that third party funding of international arbitration has effectively been prohibited in Ireland.
Third party funding in international arbitration has become increasingly common over the last decade as professional funders have emerged as a resource to enable parties to arbitrate their disputes, in circumstances where the high costs associated with doing so might otherwise deter the attempted vindication of a claim by way of arbitration proceedings.
The issue of third party funding has been the topic of much debate and scrutiny in Ireland over recent years with both the Irish Parliament and the judiciary considering the issue. It has become evident that Ireland is in a different position to other EU member states and other common law jurisdictions such as Australia, Canada, England and Wales, and New Zealand in terms of any legal framework to enable such funding. This announcement indicates an intention on behalf of the DOJ to provide a mechanism for the funding of international arbitration, assuming that the measure will be approved by the Irish Parliament. Should this go ahead, as now seems likely, then the Proposed Amendment will bring Ireland into line with other common law jurisdictions, at least in terms of the funding of international arbitration.
In the DOJ Implementation Plan on the reform of civil justice, published in May of this year (see Implementation Plan on Civil Justice Efficiencies and Reform Measures), it was made clear that the "weighing of policy considerations regarding third party funding" should be shaped by the outcome of a report currently in preparation by the Law Reform Commission (LRC). This LRC report is expected to frame policy in this area. An exception to the slower paced reform of litigation funding is that third party funding is likely to be made available to parties such as liquidators and receivers involved in insolvencies. This is intended to provide a mechanism to potentially fund proceedings intended to increase the pool of assets available to creditors on the condition that a reasonable case against a prospective defendant exists.
The rules of maintenance and champerty currently forbid third party funding in Ireland, save for certain exceptions such as funding by a third party with a legitimate interest in the proceedings (for example, a shareholder) or funding litigation under an "after the event" insurance policy. These rules equally apply to arbitrations in Ireland.
The Irish Arbitration Act 2010 (AA 2010) provides the legislative framework for arbitration in Ireland. The introduction of third party funding may necessitate certain amendments to this legislation in order to make the Proposed Amendment operational.
Disclosure of third party funding
One possible amendment may involve the introduction of an obligation to disclose the existence and identity of third party funders in international arbitrations in Ireland. It is widely accepted in the international arbitration community that in order to minimise the risk of a conflict of interest arising, and to maintain the integrity of the arbitration process, disclosure of third party funding should be made. The need for this stems from the fact that the third party funding industry is now so well-established, that the potential for conflicts of interest has greatly increased. In England alone, the litigation funding market stands at £2.2bn according to a report by RPC in June 2022. Many funders are publicly listed companies and it is possible that arbitrators may hold positions on their boards. Early disclosure of any such relationship between an arbitrator and funder lessens the risk of a successful later challenge to arbitrators or awards, on the basis of bias.
However, it is worth noting that our neighbouring common law jurisdiction, England and Wales, does not currently have any statutory disclosure requirements in relation to third party funding. Despite this, the arbitration community in England and Wales accepts that it is best practice to disclose the existence of funding and many commentators have suggested that this disclosure requirement should be included in the proposed reform of the English Arbitration Act 1996.
The position in England and Wales contrasts with the position in Singapore under the Legal Profession (Professional Conduct) Rules 2015 and Hong Kong under the Arbitration Ordinance (Cap. 609) (Part 10A (sections 98U–98W)). In arbitrations seated in those jurisdictions, the existence and identity of the funder must be disclosed. In addition, a number of arbitral institutions, such as the SIAC, HKIAC and ICC, have now included in their rules, a power for the arbitrator to order the disclosure of third party funding, the identity of the funder or have alternatively made clear the requirement for parties to make a disclosure around funding. In particular and perhaps evidencing this wider trend towards disclosure, the ICSID Rules 2022 provide for the mandatory disclosure of third party funding in investment arbitration.
It will be crucial for the Irish legislature to strike the right balance on the extent of the disclosure required in relation to third party funding, in order to best position Ireland as an attractive destination for international arbitrations. Proponents for disclosure argue that it would also provide clarity for all parties, bolster the integrity of the arbitral process and avoid "potential conflicts of interest between funders and arbitrators, thus preventing belated challenges to arbitrators or arbitral awards." At the time of writing, it is not yet known how the legislature intends to approach this issue should the Proposed Amendment be adopted.
Developments at EU level
These developments in Irish law come at a time when significant change is in the air on third party litigation funding at EU level. On 13 September 2022, the European Parliament (the EP) adopted a report (the Report) on responsible third-party litigation funding. The Report proposed to apply a directive to proceedings, the definition of which would include "any voluntary arbitration procedure". The EP has also called on the European Commission to establish common minimum standards for third party funding at EU level.
The EP acknowledged that commercial third party litigation funding is developing without a specific legislative framework at EU level and the fundamental aim of the Report is to regulate such funding "before it gains traction in all of our Member States."
It was highlighted that, if regulated properly, litigation funding could facilitate access to justice, particularly in countries with very high legal costs or where marginalised groups face additional barriers to justice. Moreover, it has been claimed that third party funding could reduce the significant economic imbalances that exist between corporations and citizens seeking redress in public interest cases. It was therefore accepted that if regulated correctly, it could act as a significant tool to support access to the justice system.
Whilst it remains to be seen how the narrative will develop at EU level, it is clear that the issue is firmly on the radar of MEPs who are presumably most in touch with their constituents throughout the EU. Any proposed changes to be adopted at EU level, will require a lengthier legislative process and lead in time. We anticipate that at a domestic level in Ireland, the Bill and the potential amendments to the AA 2010, can proceed more swiftly. Assuming they do, in line with the recent pronouncements from the DOJ and Minister McEntee, they will then provide Ireland with a framework within which third party funding will be permitted, initially in a limited way, in the context of international commercial arbitration. The legalisation of such funding in international arbitration should be a significant factor in helping to develop the attractiveness of Ireland as a seat for international arbitration.
With thanks to Simone Crawford for her assistance in preparing this article.
A version of this article was originally published on Practical Law Arbitration on 7 October and is reproduced with the permission of Thomson Reuters.