The Irish Supreme Court has rejected an appeal by a party whose application to have its litigation funded by a professional third party was rejected by the High Court.
Four of the five judges hearing the case held that the funding arrangement in question would be in breach of laws dating back to the 14th century, which prohibit certain kinds of financial support arrangements where the third party providing the funding stands to make a profit from the litigation. This is the first case to come before the Supreme Court on the potential use of a third party professional funding agreement to support a party in legal proceedings.
The Maintenance and Embracery Act 1634, retained by the Statute Law Revision Act 2007, and historical common law principles provide that maintenance and champerty are torts and criminal offences. Maintenance is the improper interference with civil proceedings, and champerty is a form of maintenance whereby financial support is provided by a third party with no connection to the dispute, in exchange for a share of proceeds from the litigation.
The plaintiffs in this case, Persona Digital Telephony and Sigma Wireless Networks, are two English companies who sought to initiate a legal challenge against the State for awarding its second mobile phone licence to Denis O’Brien’s company, Esat Digifone, in 1996. The applicants were among a number of failed bidders for the licence. The case was taken against the State, Denis O’Brien, and Michael Lowry TD as a third party. Persona brought a motion seeking a High Court order that entering into a funding arrangement in respect of the case did not breach the laws on maintenance and champerty. Persona had entered into an arrangement with Harbour III Limited Partnership to fund the litigation, for which Harbour III would get 40% of any return. It was argued that the case was of public importance and that the litigation may be unable to continue without third party funding. Donnelly J in the High Court rejected the funding arrangement, holding that in line with the case-law of the superior courts, maintenance and champerty continue to be prohibited and that third party funding arrangements “cannot be viewed as consistent with public policy in this jurisdiction”. Persona were then granted leave to make a so-called “leapfrog appeal” directly to the Supreme Court, to rule on whether an agreement to fund where there is no connection between the plaintiff and the funder, other than the funder’s decision to fund, is contrary to law.
Michael Collins SC for the plaintiffs submitted as part of the appeal that the Court was not being invited to abolish the doctrines of maintenance and champerty, rather that the Court was being invited to examine the content of the doctrines to determine whether the agreement here was likely to bring about the mischief that the doctrines were designed to prevent. Counsel for the respondents argued that the 2007 Act represented a policy decision to retain the restriction on maintenance and champerty and as such, that legislative decision should only be changed by the passing of legislation. It was further argued that bringing an investor to litigation could be “corrosive to the administration of justice” and risks a growth in unmeritorious claims.
Chief Justice Denham held that financial assistance without a bona fide interest is considered a champertous agreement, and case-law of the superior courts over the last 40 years makes it clear that such agreements are still prohibited. Concern was expressed that the respondents, who had opposed Persona’s High Court motion, stood to benefit if the case did not proceed but the Chief Justice rejected the applicants’ argument that the Court could develop the common law on champerty and maintenance in this case in light of modern policy considerations, as the case was not a constitutional challenge to the rules on maintenance and champerty.
Justice Clarke agreed with Chief Justice Denham, holding that there are modern considerations regarding the “commoditisation of litigation” which would need to be taken into account in any reform on the issue. However, Justice Clarke expressed disquiet that the issues in the case represented “very real, practical problems in access to justice”, given that the case might not go ahead without funding. In discussing the factors relevant to the effectiveness of access to justice, Justice Clarke submitted that the resources applied to the court system are significantly lower in common law countries like Ireland and, as such, more of the burden of ascertaining facts and conducting legal research lies on the parties to a case. In addition, litigation has become more complex given the influence of EU law, and increasing areas of regulation, meaning that, in practice, some cases cannot be run at all without legal assistance. Justice Clarke noted that the most common ways in which litigation is conducted on behalf of insufficiently funded parties is by lawyers taking cases on a pro bono basis, or on a “no foal, no fee” basis but that the factors mentioned had the potential to make these avenues less available to litigants
Chief Justice Dunne noted that the torts of maintenance and champerty have adapted to reflect the need to protect the integrity and independence of the court and to prevent “trafficking in litigation”, and that it was not appropriate to comment on their continued status as criminal offences in the instant case. All four concurring judges held that the Court would be impermissibly legislating if it attempted any reform of the law in the case before it. Justice McKechnie delivered a dissenting judgment which is yet to be published, invited the State to address the “deeply disturbing” situation of Persona being unable to bring its case because of the continued application of principles of law “of enormous antiquity”.
Click here for Chief Justice Denham’s judgment.
Click here for Justice Clarke’s judgment.
Click here for the Bulletin article on the High Court decision.