Irish Product Liability Update – The delicate balance of liberalising litigation funding - September 2023

Advocates for change argue that third-party litigation funding in Ireland, which is currently illegal, and other reforms would improve access to justice, as they say that many claimants cannot afford to litigate valid claims at present. Other voices urge caution, given the prospect of mass litigation, abuses by funders and the buying of claims by speculators. The Irish government has promised to examine the case for change, and a Law Reform Commission review about third party litigation funding is now well underway.

The cost of litigation

Litigation in Ireland is expensive and although lawyers and experts may agree to waive fees if a claimant loses the case, and lawyers often do, many other forms of contingency fee arrangements and third-party funding are illegal. Losers in litigation are liable to pay opponents’ reasonable costs too, and in most civil cases, there is no legal aid from the government. The law also bars a speculator from litigating a claim which an unrelated third party has assigned to it for payment. This prevents the sale of claims by persons or companies who cannot, or do not wish to, bring their claim to court.

Recently, the Irish Law Reform Commission reviewed the benefits and drawbacks of changing Irish funding law. The Commission has invited written submissions before 3 November 2023 but although the Irish government has said it will weigh up reform proposals constructively, we think that any change is unlikely before 2025, as the state will proceed cautiously.   

Funding consumer collective actions

In our August 2022 update, we discussed the new EU-derived regime for collective consumers actions in Ireland, which is intended to enable and encourage consumers, represented by a non-profit body, to sue collectively for compensation or injunctions for breaches of their rights in data protection, financial services and other areas. This regime has no application to product liability claims, but its references to funding may suggest future changes in Irish law with broader effect in litigation.

The new law has been enacted in Ireland and, to help consumers, will eliminate court fees for lawsuits brought under the legislation. These fees are modest though, so that change is unlikely to have any effect. Also, a qualified entity may only charge individual consumers a small fee to join an action under the new law. Most significantly, individual consumers in these cases will be exempt from costs orders in most circumstances if their action fails.

Section 27 of the new law allows funding of representative actions “insofar as permitted in accordance with law”. Under Irish law’s broad prohibition of third-party funding, this provision may be pointless at present, unless exceptionally the form of third-party funding used in a case does not infringe the general ban.

The new Irish law also requires the representative body (known as a ‘qualified entity’) to disclose to the court the sources of funds used by it to support the representative action. The court must oversee any funding arrangements to ensure that a third party does not unduly influence claims. Again, these changes appear academic at present, given the wide ban on litigation funding.

Recently, Ireland enacted legislation allowing third party funding of international commercial arbitrations in this country, to encourage use of Ireland as a seat for international arbitrations. The change will have no application to litigation. It gives no indication either of government thinking about any future changes to the law about funding litigation and related issues.

Comment

The government may worry that liberalising litigation funding rules and other procedures would encourage speculative or unmeritorious actions. A answer to some of these concerns may be that experienced litigation funders would not risk their money in speculative litigation. Also, legislation should require funders to be open about their fees and to avoid other conflicts of interest, and the EU appears likely to require regulation of funders in the single market.

If a law permitting third party funding is enacted, it could give better access to justice to persons and smaller businesses who cannot afford to litigate at present. It could also breathe life into the new regime for collective consumer actions in Ireland, where absence of funding probably will inhibit actions. Advocates for change may encourage the state to pass other laws too, which would make it less difficult for other individuals and groups, and not just consumers, to pursue actions in Ireland.

This may not be all bad news for potential defendants, as any changes in the law are likely to include strict regulation to discourage abuses. Also, any proposal for US-style class actions, deeming all persons affected by an alleged wrong to be part of a legal action unless they “opt-out”, may not impress legislators, given worries about encouraging lawyer-led mass group actions against defendants, including state authorities.