No plans to lift the ban on litigation funding despite EU directive on consumer collective actions providing for it

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No plans to lift the ban on litigation funding despite EU directive on consumer collective actions providing for it

No plans to lift the ban on litigation funding despite EU directive on consumer collective actions providing for it

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May 31, 2023

Ireland is now an outlier in common law jurisdictions as third party litigation funding remains prohibited; although there is a proposal to allow it for arbitration. It has been several years since the Supreme Court called for legislative reform in relation to litigation funding in its landmark decision Persona Digital Telephony Limited and Another v. The Minister for Public Enterprise, Ireland and Others [2017] IESC27. There was some commentary that EU law in relation to consumer collective actions which provides for litigation funding could precipitate reform in this area. However, the government has given a clear indication that there are no current plans for reform¹. Any reform is to await the outcome of Law Reform Commission Review on the issue expected in 2024²and so it appears any overhaul of the law in this area is some time away.

There are two sides to the debate on the question of whether third party litigation funding should remain prohibited. On the one hand, there is a concern that allowing third party funding would increase claims where there is an already overburdened court service with the European Commission’s 2020 Rule of Law Report, citing Ireland as having a major shortage of judges and a need for capital investment in the legal system. The government is clearly mindful of this with the Minister for Justice stating in the Dáil in February 2022 "[w]e must increase the number of judges". Further, in many jurisdictions, litigation funding is unregulated with litigation funders self-regulating and there are often no minimum capital requirements or other safeguards. The European Parliament has recently called for regulation in this sector.

The counter to these arguments is that, in certain circumstances, a ban on litigation funding can produce unfair results, impede access to justice and, in certain cases, there may be an argument that litigation funding is unconstitutional for this reason. In many jurisdictions, third party litigation funding is a feature in risk management with many large corporates availing themselves of it to manage risk and provisions on balance sheets. In the UK, litigation funding is seen as desirable for individuals as well as corporates managing risk, and the Solicitors Regulation Authority has issued guidance to solicitors on their duty to inform clients of their best pricing options, which may include the possibility of using third party litigation funding. There is also the argument that, if Ireland wants to take advantage of its unique position as the only English-speaking common law jurisdiction within the EU, its legal system must be modernised and this would include allowing third party litigation funding.

There are some signs that reform may be coming with the Review of Administration of Civil Justice (Kelly) Report³ recommending a policy review of litigation funding, and the Minister for Justice requesting the Law Reform Commission conduct a review of the law in this area which is expected to be completed in 2024. If passed, new legislation i.e. the Courts and Civil Law (Miscellaneous Provisions) Bill 2022 (which is in its late stages before the Oireachtas) will allow litigation funding for arbitration. When the government announced this last September, it was seen as a step towards reform in this area of law. There had also been some thought that changes in EU consumer law may bring about an end to this prohibition, even in a limited form. In particular, the focus was on EU Directive 2020/1828 on representative actions for the protection of the collective interests of consumers (Directive on Representative Actions) which expressly provides litigation funding for collective actions. This legislation is expected to be transposed into Irish law before the Dáil summer recess in August, with the deadline for doing so being 25 December 2022. However, the section of the legislation-dealing with litigation funding is under the remit of the Department of Justice which has confirmed that litigation funding envisaged under this directive would not be permitted until separately provided for in law in Ireland. So central is the question of third party funding to this directive that most of the Dáil debate on the legislation related to the question of litigation funding. The Minister of State for Enterprise, Trade and Employment came under fire, with it being argued that not allowing funding for consumer collective actions was a breach of EU law and entirely impeded the spirit of the directive. The Minister acknowledged this would likely discourage some not-for-profit organisations from stepping forward to seek designation to bring consumer collective actions under the directive, but that the question of funding could not be considered until the Law Reform Commission completed its review of the law in this area.

It remains to be seen what the outcome of the Law Reform Commission Review expected in 2024 will be, but it appears that any overhaul of the law in this area is some time away.