Insurance Update: Third Party Funding Rejected in Ireland – Implications for D&O Insurance
11 May 2016
A recent decision in the Irish High Court on litigation funding has wider implications beyond issues of access to justice.
As reported in our previous article, the Irish High Court considered the law of maintenance and champerty in the context of After the Event (“ATE”) insurance . The law of maintenance and champerty renders it unlawful to provide financial support to litigation in which the supporter has no direct or legitimate interest - maintenance - or to provide such support in return for a share in the proceeds of the litigation - champerty.
In that case, the High Court judge had made reference to the law “moving on” and suggested that ATE insurance amounted to a “legitimate service by providing access to justice”. However, on the facts of that case, the Court of Appeal subsequently found that the terms of the policy failed to provide sufficient certainty that funds would be available as security to cover the defendant’s costs, if successfully defended.
The issue arose again in a recent case arising out of a long-running dispute about the award of a telecoms licence. Persona Digital Telephony Limited sought a declaration from the High Court that, in entering into a litigation funding arrangement with Harbour Fund III LP, it was not contravening rules on maintenance and champerty. The decision of Ms Justice Donnelly on 20 April 2016  refusing the application has already been widely reported in the press. Much has been made of the fact that Ireland still considers maintenance and champerty criminal offences, and torts, in reliance on legislation from 1634. The Judge considered the relevant Irish caselaw, including the decisions referred to above, and gave a concise decision, concluding that “there is a prohibition on an entity funding litigation in which it has no independent or bona fides interest, for a share in the profits.” She therefore refused to give the declaration sought by Persona.
The judicial rejection of third party funding in Ireland is, we suggest, good news for D&O insurers in particular. Insurers will be aware that in other jurisdictions, Australia for example, litigation funders have been drivers of a significant number of securities class actions. Ireland therefore presents a good risk for D&O insurers in that litigation funding is now outlawed subject to any future constitutional challenge.
For the corporates and directors who are seeking D&O insurance, it is good news. These factors should mean that their premiums are significantly lower than other jurisdictions where litigation funding, and class actions, are permitted.