President Mary Laffoy of the Law Reform Commission has released a consultation paper regarding the prohibition of third-party litigation funding in Ireland. Upheld by court rulings, this ban has been a prominent characteristic of common law legal systems. A notable recent case involved the Persona Digital consortium’s challenge against the Minister for Public Enterprise in 2017 regarding the award of the second mobile phone license. The Irish courts dismissed the case due to concerns about how Persona funded it.
However, several other common law jurisdictions, including the UK, Australia, New Zealand, and Hong Kong, have begun to relax these rules. Some European countries also permit third-party funding. This practice often involves a specialized finance firm covering the legal expenses of another party’s case in exchange for a portion, or even the majority, of any future settlement. Controversially, this means that the finance firm can benefit greatly from a legal action without having personally experienced any loss or injury.
The consultation paper provided by the Law Reform Commission defines third-party funding as an investment in dispute resolution. Additionally, it highlights the related practice of assigning a cause of action, which involves selling the right to sue to another individual or entity. The paper presents five arguments against allowing third-party funding, including the potential encouragement of frivolous and baseless disputes, potential under-compensation for funded parties due to divided awards, potential increases in legal costs, potential increases in insurance premiums, and the consideration that third-party funding may not be suitable for all types of disputes.
Conversely, the Commission identifies four arguments in favor of a more lenient regulatory regime. These include expanding access to justice, balancing the power dynamic in cases where one side is significantly wealthier, increasing the resources available to creditors in insolvency situations, and addressing inconsistencies in the law regarding corporate entities engaging in third-party funding through alternate means, such as issuing shares or transferring ownership.
The Law Reform Commission welcomes responses to its consultation process beginning today. The consultation paper examines the practices and regulatory approaches of other countries, which encompass a variety of legal structures and standards for funding cases.
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