Third Party Funding of International Commercial Arbitration in Ireland

Third-party funding of international commercial arbitration in Ireland will be permitted upon the commencement of s.124 of the Courts and Civil Law (Miscellaneous Provisions) Act 2023 (the “Act”) [1]. The Act was signed into law by the President on 05 July 2023 but shall come into operation on such day or days as may be appointed by order/s made by the Minister for Justice.

The above development moves away from existing prohibitions on the torts of champerty[2] and maintenance[3] which have formed established law in Ireland for centuries[4].  However, the new development, if/ when enacted, will affect disputes that take the form of/ or result from legal proceedings meeting the description of an international commercial arbitration[5] only.

An arbitration is considered to be an international commercial arbitration if[6] neither one of the parties is a consumer and:-

1. The parties to an arbitration agreement have, at the time of conclusion of that agreement, their places of business in different States; or
2. one of the places is situated outside the State in which the parties have their place of business:
   • the place of arbitration if determined in, or pursuant to, the arbitration agreement;
   • any place where a substantial part of the obligations of the commercial relationship is to be performed or the place with which the subject-matter of the dispute is most closely connected; or
3. the parties have expressly agreed that the subject matter of the arbitration agreement relates to more than one country.

The Act proposes[7] that a new section 5A be added to the Arbitration Act 2010, providing that:-

• The offences and torts of champerty and maintenance do not apply to legal proceedings that take the form of/ or result from legal proceedings that meet the description of an international commercial arbitration (as defined above);
• A third-party funding contract, where the third-party funder funds the costs of a party to those proceedings in return for a share in any proceeds that party receives, relating to such international commercial arbitration, shall not be treated contrary to public policy or otherwise illegal or void, on condition it meets any criteria prescribed by the Minister for Justice as to the content of such agreement contract.
• Act further allows for the minister to prescribe criteria, including criteria relating to transparency in relation to funders and recipients, for third-party funding contracts.

Third-party funding of litigation in Ireland involving disputes that do not fall into the above category will remain prohibited in Ireland following commencement of s. 124 of the Act. A Law Reform Commission Report is awaited in relation to that prohibition before there is likely to be any broader legislative change.

On 17 July 2023, the Law Reform Commission issued a consultation paper[8] on Third-Party Litigation Funding, having as its goal to inform debate, stimulate discussion and to invite responses and submissions from all interests and perspectives that will enable the Commission to move to a final report setting out its recommendations.  A brief yet informative discussion on the topic may be found on the Law Society of Ireland Gazette Magazine website [9] at this link.

Authors: Deirdre Farrell, partner deirdre@amoryssolicitors.com and Mike Collum, solicitor, Amorys Solicitors mike@amoryssolicitors.com.

[1] s.1 (4) of the Act

[2] In the context of the within article means the funding of litigation by an unconnected third party in expectation of benefitting in some way e.g. by way of sharing in profits from that litigation

[3] For the purpose of this article means funding of litigation by unconnected third party/ies with no expectation of sharing in profits/ intermeddling in litigation

[4] See Maintenance and Embracery Act 1634 at this link.

[5]  See s. 124 of the Act, specifically s. 5A (5)

[6] Article 1(3) of the Uncitral Model Law on International Commercial Arbitration 1985, as amended in 2006, incorporated into the law of Ireland pursuant to s. 6 of the Arbitration Act 2010.

[7] At s. 124 of the Act

[8] Law Reform Commission Consultation paper on Third Party Funding may be found on its website at this link

[9] “LRC looks at pros and cons of third-party funding”, Law Society of Ireland Gazette, 17 July 2023 at this link

Financial Services and Pensions Ombudsman – Does It Have the Final Say in a Dispute?

The Financial Services and Pensions Ombudsman (“FSPO”) in its current form was established in 2017 with the aim to provide a service that was impartial and accessible to customers and one which delivers fair, transparent and timely outcomes to disputes between customers and financial service and pension providers, thus limiting the number of disputes of this nature before the Courts.

In the case of Lloyds Insurance Co SA v Financial Services and Pensions Ombudsman [2022] IEHC 290, Lloyds Insurance Co SA (“Lloyds”) lodged statutory appeal against a decision made by the FSPO following a dispute with a customer of the insurance provider. The case addresses three important issues:-

1. Challenging FSPO decisions;
2. The jurisdiction of the FSPO;
3. The lawfulness of compensation;

Background to the Case

This case originates from a complaint by the Claimants/Notice Parties, Joanna Donnelly and Harm Luijkx (“the Claimants”), who purchased a home from a developer in 2006 and entered into a contract with Lloyds for insurance cover relating to potential structural defects in the property. Two defects subsequently became apparent; 1) damage to the structure caused by pyrite and 2) damage to the structure of the roof. The Claimants submitted a claim to Lloyds in respect of both issues.

Lloyds accepted the claim in relation to pyrite but rejected the claim for damage to the roof. Lloyds adopted the position that the damage to the roof was not inherently a structural defect, but instead was caused by a leak from a water tank which had not been properly fitted, i.e., a workmanship defect. The Claimants submitted a complaint to the FSPO in 2020 following a 6-year period spent seeking resolution to the matter with Lloyds, who maintained their position throughout.

The FSPO upheld the complaint made by the Claimants on the basis that the rejection of the claim by Lloyds was unreasonable, unjust and improper and directed that compensation of €20,000 be paid to the Claimants.

The Appeal to the High Court

In line with section 64 of the Financial Services and Pensions Ombudsman Act 2017, Lloyds proceeded to challenge the decision of the FSPO before the High Court on the basis that the FSPO erred in their finding which benefitted the Claimants, that the FSPO exceeded their jurisdiction and that the compensation was disproportionate. Judge Siobhán Phelan of the High Court found in favour of the FSPO, providing useful commentary as to the remit and jurisdiction of the FSPO.

1. Challenging FSPO decisions

Judge Phelan held that in order for a financial services provider to be successful in its challenge to a decision made by the FSPO, the provider must prove that a serious and significant error has been made by the FSPO in arriving at its decision. This standard has been consistently applied since 2006 (see Ulster Bank Investment Funds Ltd v Financial Services Ombudsman [2006] IEHC 323). In Lloyds, this threshold was extended to include a material error of law.

The standard of review that is to be adopted is to be one “not dissimilar” to Judicial Review as outlined in Verschoyle-Greene v Bank of Ireland Private Banking and FSO [2016] IEHC 236. The Court will not re-examine matters from the beginning or adopt the role of the FSPO. Instead, a decision made by the FSPO will not be deemed to be a serious and significant error if sufficient evidence put before the FSPO could reasonably lead to the decision made by it. In Lloyds, conflicting reports as to the cause of the damage to the roof was submitted by numerous engineers, therefore it was considered reasonable for the FSPO to arrive at its conclusion on foot of the evidence provided.

On that basis, the Court will not intervene to set aside decisions where it disagrees with the determination of the FSPO so long as no serious and significant error has been made in reaching this decision.

2. The jurisdiction of the FSPO

Lloyds is an instructive case in setting out the jurisdiction of the FSPO. The purpose of the FSPO is to afford an “informal, expeditious and inexpensive” way to resolve complaints made against financial services and pension providers, without the parties having to resort to the Courts in pursuit of a resolution.

It is set out in Molyneaux v Financial Services and Pensions Ombudsman [2021] IEHC 668, the FSPO enjoys a “hybrid jurisdiction” which extends to both the adjudication of alleged acts of maladministration and to make determinations in respect of disputes of fact or law. The FSPO has jurisdiction over cases centred around the assertion of legal rights, but cannot make determinations in cases where a financial services provider has acted unlawfully.

3. The lawfulness of compensation

In the Lloyds judgment, Judge Phelan outlined that the FSPO enjoys a wide discretion regarding compensation up to a higher limit of €250,000. The €20,000 compensation payable to the Claimants in Lloyds was held to be reasonable on the basis that the delays in repairing the roof issue interfered with the Claimants occupation and enjoyment of the home and therefore the personal rights of them as homeowners. It was noted that the FSPO cannot and should not compensate for ‘stress’ but instead can justify making an award based on inconvenience.

Key Learnings

• The FSPO aims to provide an impartial and accessible complaints handling service that seeks to resolve issues between financial services and pension providers and customers without the need to commence legal proceedings, which is an expensive and time-consuming process;
• The case of Lloyds reiterates that the FSPO is an independent service which has jurisdiction to handle a range of complaints with interference from the Court only where sufficiently serious and significant errors are made;
• Financial services and pension providers, therefore, have a significant hurdle to overcome in order to sustain a challenge to the decisions of the FSPO and will therefore likely bring fewer challenges before the Courts in the future;
• The boundaries created by Lloyds regarding the required criteria to be established by financial and pension providers in order to succeed in a legal challenge to decisions of the FSPO therefore now provide customers with a welcome sense of closure and finality in decisions made in their favour when dealing with the FSPO.