knowledge 17 July 2023 |

Third party funding of international commercial arbitration is permitted in Ireland

The prohibition on maintenance and champerty² in Ireland has meant an effective prohibition on third party funding of litigation in this jurisdiction save in limited circumstances.  Whilst any wider legislative reform of the third-party litigation funding landscape in Ireland is likely to await the outcome the Law Reform Commission’s just published Consultation on Third-Party Litigation Funding³, this is a concrete development that gives certainty in the international commercial arbitration sphere.

The recently enacted legislation inserts a new Section 5A into in the Arbitration Act, which explicitly provides that the offences and torts of maintenance and champerty do not apply to:
(i)   international commercial arbitration;
(ii)  any proceedings arising out of an international commercial arbitration; or
(iii) any mediation or conciliation proceedings arising out of an international commercial arbitration or proceedings arising out of same.

It also provides that a third-party funding contract that meets the criteria (if any) prescribed by ministerial regulation, including in relation to transparency in relation to funders and recipients, shall not be treated as contrary to public policy or otherwise illegal or void.  A third-party funding contract is described as meaning a contract between a party or potential party to dispute resolution proceedings and a third-party funder, for the funding of all or part of the costs of the proceedings in return for a share or other interest in the proceeds or potential proceeds of the dispute resolution proceedings to which the party or potential party may become entitled. 

These new provisions are awaiting commencement by way of Ministerial Order.  It will also be interesting to see whether the Minister introduces regulations setting out criteria for third-party funding contracts and whether they require the disclosure of third party funding arrangements. It is considered best practice in many jurisdictions internationally to disclose the existence of third party funding, however the position does differ across jurisdictions.  By way of example in other common law jurisdictions, Hong Kong requires disclosure of funding arrangements as a matter of law, whereas England and Wales do not. Reasons in favour of requiring disclosure include avoiding potential conflicts of interest between the parties to an arbitration and funders.

The Minister for Justice, Helen McEntee, noted when first proposing the introduction of third party funding in international commercial arbitration that it “should assist the broader Government policy of promoting Ireland as a destination of choice for international commercial legal business under the Ireland for Law initiative”.  The question of whether and what further reform may be introduced is hotly anticipated given the increased focus on this topic over the last several years both in matters before the Courts and following recommendations by administration of civil justice and company law review groups which have reported to Government. 

Also contributed by Isobel Murphy