Insights

The amendment

Before the amendment of Ireland’s Arbitration Act 2010 (the Arbitration Act) in July 2023, Ireland was lagging behind many common law countries when it came to third party funding. The torts of champerty and maintenance prohibited the use of third-party funding for litigation and arbitration.

Prior to July 2023, there were only limited exceptions/workarounds available for parties to proceedings to obtain funding, including (a) where the funder had a legitimate pre-existing interest in the proceedings (shareholders and creditors of a company could fund the proceedings involving the company), and (b) solicitors could enter into conditional or contingency fee arrangements with clients.

The amendment to the Arbitration Act, which expressly permitted third-party funding for international commercial arbitration and international commercial arbitration related proceedings, is a cautious first step that hopes to solidify Ireland’s reputation as a hub for international arbitration.  There is little philosophical objection which can be raised to the use of third-party funding in commercial arbitration.  Arbitration can be extremely expensive and where sophisticated commercial parties elect to have their disputes resolved by means of a private mechanism it is difficult to see why there should be any restriction on how they choose to fund those disputes.

The amendment is in line with the Government’s policy of promoting Ireland as a destination of choice for international commercial business under the “Ireland for Law” initiative, which is the Irish Government’s international legal services strategy. This is a key part of the Government’s wider strategy of pursuing trade and investment opportunities from Brexit – Ireland is the only English-speaking common-law country in the EU.

Ireland changed the law by employing a “statutory exception” approach (rather than, for example, abolishing champerty and maintenance altogether), which is the same as the approach used by Hong Kong where the funding of international arbitrations is permitted.

The road ahead

Given the history to date, it is expected that Ireland will develop its third-party funding regime in a cautious manner, similar to what we have seen in Singapore and Hong Kong. If so, the next steps might be to extend the framework by allowing third-party funding in a wider range of proceedings such as domestic arbitration and insolvency. We may also see the courts weighing in to refine the law. Recently, the Irish Law Reform Commission published a Consultation Paper on third- party funding. Funding has of course been permitted for international commercial arbitration and related proceedings, but the Commission states that if funding is to become a reality in Ireland (beyond international commercial arbitration) it is likely that the “statutory exception” approach will continue to be the best option.

The amendment to the Arbitration Act provides that the Minister for Justice may by regulation prescribe criteria, including criteria relating to transparency in relation to funders and recipients, for third-party funding contracts. However, it remains to be seen if regulations will in fact be introduced setting out criteria for third-party funding contracts and whether such regulations would require the disclosure of third-party funding agreements in international arbitration (as is the case under most of the arbitral rules of the institutions). On the other hand, Ireland could end up mirroring the approach in the UK, where funding is self-regulated through a voluntary code of conduct that is administered by the Association of Litigation Funders of England and Wales (ALF). In its Consultation Paper, the Law Reform Commission looked at regulation and concluded that any future regulatory system would probably consist of a combination of different approaches.

On a separate but related note, the Representative Actions for The Protection of the Collective Interests of Consumers Act 2023 (the Act) was signed into law in Ireland on 11 July 2023. This was long awaited in Ireland, given that the existing capacity for representative actions is limited. The Act allows for representative actions to be brought on behalf of groups of consumers, but it does not address how such actions would be funded (it simply says that a representative action may be funded by a third-party “insofar as permitted in accordance with law”). The issue of third-party funding was explored during the pre-legislative scrutiny stage and it was acknowledged that many not-for-profit organisations would be discouraged from stepping forward given the limitation on access to funding. The current position prohibiting funding (except for in international arbitration) is not altered by the Act.

Conclusion

As a concluding remark, it will be interesting to see the impact of the amendment to the Arbitration Act and whether it does in fact lead to more arbitrations being seated in Ireland, especially for industries such as aviation finance and tech in which Ireland is a world leader.

It also goes without saying that any extension to the regime to broaden access to third-party funding would further strengthen Ireland’s position as a dispute resolution hub and would provide greater access to justice and reduce the imbalance of power between parties to a dispute.