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Litigation Update: Contracts Manifestly Contrary To Irish Public Policy – Implications for Contingent Fee Arrangements and Third Party Funding?

11 August 2015

The Irish High Court recently declined to recognise an English judgment in respect of a gambling debt on the basis that to do so would be manifestly contrary to Irish public policy. By close analogy, this has the potential to affect, amongst other things, the enforceability of contingent fee arrangements and third party funding arrangements entered into by Irish parties and their lawyers in relation to litigation outside Ireland.

Background

In Sporting Index Ltd –v- O’Shea[1] the plaintiff sought to enforce two English judgments, in Ireland, pursuant to the Brussels Regulation.[2] The judgments were in respect of:

  1. a debt incurred as a result of spread betting (the “Debt Judgment”); and
  2. the costs of obtaining the Debt Judgment (the “Costs Judgment”).

The Brussels Regulation provides for almost automatic recognition of judgments from other EU Member States. In this case, the plaintiff obtained orders ex parte from the Master of the Irish High Court declaring the English judgments enforceable and served them on the defendant.

The defendant then appealed the Master’s order to the High Court primarily on the basis that article 34.1 of the Brussels Regulation provides that a judgment shall not be recognised:

 “if such recognition is manifestly contrary to public policy in the Member State in which recognition is sought”.

Section 36 of the Gaming and Lotteries Act 1956 (the “1956 Act”) provides:

“(1) Every contract by way of gaming or wagering is void.

 (2) No action shall lie for the recovery of any money or thing which is alleged  to be won or to have been paid upon a wager or which has been deposited to  abide the event on which a wager is made….”

The defendant submitted that this section was a clear prohibition on the enforcement of betting contracts on public policy grounds and prevented the enforcement of the English judgments as it engaged the public policy exception provided by Article 34.1 of the Brussels Regulation.

The plaintiff contended that:

  1. it was seeking the enforcement of court orders, not gambling debts; and
  2. denying enforcement would require the Court to review the English judgments as to their substance, which is prohibited by the Brussels Regulation.

As regards the Debt Judgment, the court held that:

  1. While the Court was not permitted to go behind the judgment, for example to examine the merits of the case, it was not prohibited from knowing what the substance of the proceedings was.
  2. The intention of the legislature is perfectly clear in that the enforcement of any gambling contract is prohibited in Ireland.
  3. Section 36 of the 1956 Act constitutes a rule of law regarded as essential in the legal order of this State.
  4. There is a manifest conflict between the foreign court order arising from a gambling debt and Irish public policy as expressed in the 1956 Act. Because this rule was enacted by the Irish legislature, the court was bound to find that the rule is essential in the legal order of the State.
  5. It could see no reason to refer the matter to the Court of Justice of the European Union (“CJEU”) as:
    1.  it was not a matter for the CJEU to decide whether the Irish statutory provision constituted a rule of law regarded as essential in Ireland; and
    2. the CJEU could not decide whether there was a manifest conflict between Irish public policy and the order sought to be enforced. These were questions which only the authorities in Ireland were competent to assess.

As regards the Costs Judgment, the Court held that this did not constitute enforcement of a gambling debt. The monies were not owed from a betting transaction, rather they related to litigation expenses only. The Court therefore permitted the enforcement of the Costs Judgment.

Comment

Irish public policy diverges from that in other Member States of the EU only in a limited number of areas. One specific area of clear divergence is in relation to litigation funding.

In Ireland:

  1. Contingent fee arrangements, where a solicitor acts in relation to contentious matters for a percentage of the total monies recovered, are unenforceable, except in relation to debt collection or claims for liquidated sums.[3]
  1. After the event insurance is permissible, to cover the legal costs of the other side in litigation.[4]
  1. Other third party funding arrangements, where the funder does not have a bona fide interest in the proceedings, especially where the funder may obtain a share of any award,[5] are generally unlawful, or unenforceable. [6]

In light of Sporting Index, the Irish courts may not give effect to a foreign judgment seeking to enforce payment pursuant to contingent fee arrangements and third party funding arrangements entered into by Irish parties and their lawyers in relation to litigation outside Ireland.[7]

It would therefore be appropriate for parties entering into such arrangements with an Irish litigant, in a jurisdiction where the arrangement is legal, either to:

  1. satisfy themselves that the arrangement would not be manifestly contrary to Irish public policy; or
  1. ensure that they can recover what they are entitled to under the arrangement, without the need to enforce a judgment through the Irish courts.

[1] High Court, unreported, Mac Eochaidh J., 15 June 2015.

[2] Regulation 44/2001, which continues to apply to proceedings instituted before 10 January 2015, despite the recast Brussels Regulation (Regulation (EU) No 1215/2012, Article 45.1 of which re-enacts Article 34.1 of 44/2001) now being in effect.

[3] Section 68(2) of the Solicitors Act 1994.

[4] After the event insurance is generally obtained to overcome applications for security for costs see: Greenclean Waste Management Ltd v Leahy & Co. Solicitors (No.2) [High Court] [2014] 6 JIC 0503.

[5] Thema International [2011] 3 I.R. 654 at 662.

[6] In O’Keefe –v- Scales [1990] 1 I.R. 290, the Supreme Court held that: “A person who assists another to maintain or defend proceedings without having a bona fide interest independent of that other person in the prosecution or defence of those proceedings acts unlawfully and contrary to public policy and cannot enforce an agreement with that other person for any form of benefit” contingent on the outcome of the litigation.

[7] On the basis that such agreements are, in general unenforceable, or unlawful, if entered into in Ireland. What would constitute an unenforceable, or unlawful agreement is currently the subject of High Court proceedings. In Greenclean, Hogan J., stated that the question of what may amount to maintenance or champerty is “not frozen by reference to the social conditions and public policy considerations which pertained several hundred years ago”. There are currently proceedings before the High Court, in which, partly in reliance on that statement, a declaration is being sought that that the plaintiffs entering into a commercial litigation funding arrangement are not engaged in an abuse of process and/or are not contravening rules on maintenance and champerty (Persona Digital Telephony Ltd & anor -v- Minister for Public Enterprise & ors, High Court Record Number 2001 9223 P).

The content of this article is provided for information purposes only and does not constitute legal or other advice.

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