Earlier this year in Moorview Developments Limited v First Active PLC & Ors the Irish High Court found they had jurisdiction to make Mr Cunningham, a non-party director of the Cunningham group of companies, personally liable for costs awarded against his company group.
The Cunningham Group was subject to adverse costs awards following unsuccessful litigation against First Active. However, the Cunningham Group was "hopelessly insolvent" and it was clear that First Active had no prospect of ever recovering costs from them.
Clarke J held that it was reasonable to infer that Mr Cunningham had funded the litigation. He observed that Mr Cunningham and his wife would have been the main beneficiaries had the litigation succeeded. On this basis, he found it justifiable to make Mr Cunningham personally liable for costs, reasoning "the ultimate justification for the exercise of the justification must be to redress a potential injustice that could arise where a person is able to pursue litigation largely for his own benefit but with no risk as to costs because the litigation is conducted through a company."
In reaching this conclusion, the Court considered a New Zealand case Carborundum Abrasives Ltd v Bank of New Zealand (No.2) [1992] 3 NZLR 757, which found that "it would rarely be just for such a person pursuing his own interests, to be able to do so without risk to himself should the proceedings fail or be discontinued."
In a subsequent case, the Irish High Court was asked to consider whether it was appropriate to order the disclosure of the identity of a third-party litigation funder. Thema International PLC v HSBC Institutional Trust Services (Ireland) Ltd was part of the wider Madoff Litigation. HSBC applied for an order compelling Thema to disclose how the litigation was being funded.
Clarke J accepted that Thema was being funded by a third party, noting that they did not refute the claim in their witness statement. Applying Moorview, he also accepted that the Court had jurisdiction to make a costs award against a third-party funder.
He distinguished case law from England and New Zealand, on the ground that the law against maintenance (where a third party without an interest in the litigation assists or encourages litigation) and champerty (a form of maintenance, where a third party assists the funding of litigation in return for a share of any costs recovered) no longer applies in those jurisdictions. It is accordingly logical that the identity of professional third party funding can be disclosed in jurisdictions where such funding is permissible.
However, both maintenance and champerty remain unlawful in Ireland (there may be legitimate exceptions, e.g. charitable intent). Clarke J considered that disclosing the third-party funder's identity would confer a litigation advantage on HSBC. He reasoned that it was unsurprising that shareholders or others with an indirect and legitimate interest in Thema might fund their litigation. This was not champerty. However, the disclosure of their identity was unnecessary and disproportionate in the circumstances. It would suffice to order Thema to undertake that the third-party funder be notified of the potential for third-party costs liability and to keep proper records of third-party funding. This should ensure that HSBC could pursue the third party for costs at a later stage, if appropriate.
Meanwhile, the UK Civil Justice Council has launched a voluntary code of conduct for litigation funders. The Master of the Rolls Lord Neuberger has welcomed the code, which he says will promote transparency among the providers of litigation funding. A new Association of Litigation Funders of England and Wales has been founded, whose members will observe this code. The press release states that "Litigation funding" refers to funders with no other connection to the legal proceedings agreeing to fund litigation costs in return for a share of the costs, should the case be successful.
Click here to view the press release by the UK Civil Justice Council.