Since 2010, when the U.S. Supreme Court ruled in Morrison v. Australia National Bank Ltd., 561 U.S. 247 (2010) that purchasers of securities that were traded on a non-U.S. exchange could not bring claims under U.S. federal securities laws, we have observed two key trends. First, there has been a significant increase in securities litigation brought on a group basis in Europe, Canada, Australia, Japan and other non-U.S. jurisdictions. Second, and relatedly, third-party litigation funding has greatly expanded in various countries. The rise of third-party litigation funding has made non-U.S. securities litigation possible by protecting investor-plaintiffs from exposure to “loser-pays” rules–where the losing party pays the prevailing party’s costs and attorneys’ fees–which apply in many non-U.S. jurisdictions.
But these trends are unlikely to reach the green hills of Ireland. Ireland’s highest court has recently upheld the validity of medieval prohibitions on third-party litigation funding, essentially shutting down plaintiffs’ funding options. In Persona Digital Telephony Ltd. v. Minister for Public Enterprise, Appeal No. 72/2016 (decided May 23, 2017), the Irish Supreme Court ruled that third-party litigation funding constituted unlawful champerty and maintenance, which have been criminal offenses and torts in Ireland for hundreds of years.
The longstanding Persona Digital Telephony litigation involves allegations of corruption and bribery of public officials with respect to the Irish government’s award of a mobile phone operator license to Esat Digifone in the 1990s. The plaintiffs, two companies that submitted bids but were not awarded the license, sued. As the litigation progressed, the plaintiffs found it necessary to obtain third-party funding, and thus engaged UK-based Harbour Litigation Funding (“Harbour”). Without this funding, the plaintiffs would have been unable to continue their lawsuit.
This third-party funding agreement, however, ran headlong into the torts/offenses of champerty and maintenance. Maintenance, as the court explained, “may be defined as the giving of assistance, by a third party, who has no interest in the litigation, to a party in litigation.” Champerty goes a step further, “where the third party, who is giving assistance, will receive a share of the litigation succeeds [sic].” Champerty and maintenance have a long history in Ireland, having been unlawful since the 14th century. Importantly, in 2007 the Irish legislature enacted the Statute Law Revision Act, which repealed thousands of old statutes, but retained others, including retaining those governing champerty and maintenance. Harbour had no interest in the case, other than its interest in the outcome of the case that arose solely from its funding. Thus, the court had little difficulty in finding that the funding agreement amounted to maintenance and champerty.
The court was reluctant in handing down its decision. It recognized both the serious nature of the bribery allegations and that the Persona Digital Telephony litigation would end absent third-party funding. The case thus raised legitimate issues about access to justice and matters of great public concern. As Justice Clark put it, “it is difficult to take an overview of the circumstances of this case without a significant feeling of disquiet,” noting there was “no pain-free solution to the problem.”
But the court ultimately would not upend the centuries-old offenses of champerty and maintenance that the Irish legislature had so recently expressly retained. In the court’s view, whether the offenses should remain unlawful in Ireland, or whether any exceptions to these offenses should be made, were matters best left to Ireland’s legislature.
Some jurisdictions allow funding agreements and have a well-developed market for third party funding. But, for the time being, until the Irish legislature takes up the issue, Ireland is unlikely to see a similar rise in shareholder litigation as we have seen in other non-U.S. jurisdictions.