Third Party Funding of International Commercial Arbitration in Ireland: signed into law

Speed Read

On 5 July 2023, The President of Ireland, Michael D. Higgins, signed into law the Courts and Civil Law (Miscellaneous Provisions) Bill 2022 (the Bill). The Bill amends a variety of legislation, including the Arbitration Act 2010 (the AA 2010) by removing the current restriction on third party funding of international commercial arbitration in Ireland.

This decision by the Irish government to permit third party funding of international commercial arbitration and Irish court proceedings arising out of international commercial arbitration is a welcome development. This development will bring Ireland’s legal system into line with other common law jurisdictions by easing the existing prohibitions on the centuries old torts of maintenance and champerty, at least in terms of funding international arbitration. Given the growth of the arbitration funding market around the common law world, this will arguably make Ireland a more attractive destination for international commercial business and arbitration.

It will also mean that parties who are funded can now bring actions to enforce awards or seek interim relief in support of international commercial arbitration in the Irish Courts without falling foul of the torts of maintenance and champerty.

Background

We previously published an article in October 2022 on the announcement at an Ireland for Law event in New York of the intention to introduce legislation to permit third party funding of international arbitration in Ireland. In a response to a parliamentary question tabled on 20 September 2022, the Irish Minister for Justice, Helen McEntee, confirmed that the Department of Justice was “considering recommending to Government that third party funding be permitted in a limited way, specifically in relation to commercial arbitration” (see Proposed Legislation: Dáil Éireann Debate, Tuesday - 20 September 2022). 

The proposed amendments to the AA 2010 were included at the Third Stage before the Dáil. The Bill then passed through all stages of the Dáil and Seanad, without any alterations to the amendments to the AA 2010, before being sent to the President for signature in July 2023.

This drive by the legislature to remove the prohibition on third party funding was facilitated by increased scrutiny and the recognition that Ireland lacked a competent legal framework in this area. The amendment to the AA 2010, with the insertion of a new Section 5A legalises third party funding in the specific context of international commercial arbitration and for related mediation and court proceedings. Specifically, the legislation provides that the offences of maintenance and champerty do not apply to dispute resolution proceedings as defined in the AA 2010. The definition of “dispute resolution proceedings” is:

(a) an international commercial arbitration;

(b) any proceedings arising out of an international commercial arbitration before a court of competent jurisdiction performing any of the functions provided for in the Model Law;

(c) any appeal from a decision of a court referred to in paragraph (b);

(d) any mediation or conciliation proceedings arising out of an international commercial arbitration, proceedings or an appeal referred to in paragraph (a), (b) or (c);

A ‘third-party funding contract’ is defined as a contract or agreement 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.

Minister to introduce regulations to require Disclosure of Third Party Funding?

One important issue that remains to be addressed is the extent to which financed parties will be required to disclose information relating to third party funding.  The new section 5A(4) of the AA 2010 gives the Minister for Justice the power to prescribe criteria for third-party funding contracts, including criteria relating to transparency in relation to funders and recipients.

In prescribing criteria on the extent of disclosure required in relation to third party funding, the Minister for Justice will need to strike the right balance between considering transparency and confidentiality issues relating to third party funders to avoid conflicts of interest and avoiding encouraging unnecessary security for costs applications solely on the basis that a funder is involved.

It will be interesting to see the secondary legislation that may now emanate in this space – until the Minister issues regulations parties will be uncertain about whether they need to disclose the existence of third party funding. In these circumstances, it is probably best to follow international best practice on this topic.

The international perspective on Disclosure of Third Party Funding

Ireland has a unique opportunity to benefit from the experience of other common law jurisdictions who have already faced the issues that the introduction of third party funding presents. While there is generally a consensus within the international arbitration community that it is best practice to disclose the existence of funding, many common law jurisdictions differ in their legislative approach. Singapore under the Legal Profession (Professional Conduct) Rules 2015 and Hong Kong under the Arbitration Ordinance (Cap. 609) (Part 10A (sections 98U–98W)) require financed parties to disclose the existence of funding as well as the identity of the funder involved. The legislation does not go so far as to require the disclosure of the funding agreement itself.

This contrasts with the position in England and Wales, where there are no statutory disclosure requirements relating to third party funding. However, in England and Wales, the arbitration community is also in consensus that it is best practice to disclose third party funding although there is no obligation to do so. In the current consultation on the reform of the Arbitration Act 1996 in England, many commentators have proposed that the requirement to disclose the existence of funding and the identity of the funder be enshrined in legislation.

A number of arbitral institutions have also included the requirement that the existence of third party funding be disclosed in updates to their rules including SIAC, HKIAC, ICC and even ICSID Rules 2022. However, the LCIA Rules 2020 which are often used by parties in Irish seated arbitrations are notably silent on third party funding.

There is a global progression towards increased disclosure regarding third party funding, with advocates arguing that mandatory disclosure of the existence and identity of third party funders provides greater transparency and helps avoid potential conflicts of interest between funders and arbitrators. This is particularly important to limit challenges to arbitrators and awards. The potential for conflicts is great due to the value of the arbitration funding industry. Given that many funders are public listed companies, it is possible that arbitrators may own shares or sit on boards.

Next Steps

The new legislation will not come into force immediately as it is subject to a commencement order, which remains to be signed by a government minister. It will be interesting to see whether the Minister of Justice will introduce disclosure requirements quickly to pre-empt future challenges to the arbitrators or the award and to ensure the enforceability of the award in other jurisdictions or whether the Minister will take a wait and see approach. Overall, the introduction of third party funding could be a game changer for Irish arbitration. We will be monitoring it closely to see whether Irish parties to arbitrations are quick to seek funding for their arbitrations and whether the legislation achieves its aim of increasing Ireland’s attractiveness as a seat for arbitration.

With thanks to Coilin Flynn for his assistance with this article.

For more information, please contact Joe Kelly, Partner, Ciarán Ó Conluain, Partner, Paula Gibbs, Senior Associate, or your usual A&L Goodbody Disputes & Investigations team contact.

Date published: 11 July 2023