Decision highlights Irish Courts’ resistance to the commodification of litigation

It follows the Court of Appeal’s refusal to enforce a judgment of a Polish court under the Brussels I (Recast) Regulation (49 pages / 1.1 MB) on public policy grounds. The Irish court’s decision was based on the potential involvement of third-party litigation funding, which is currently prohibited in Ireland.

However, there are signs that rules on third-party litigation funding may be eased in Ireland in the future. This includes a recent consultation paper issued by the Irish Law Reform Commission.

“It is clear that any reform of litigation funding in Ireland will need to balance the risks of commodification of litigation against the benefits of potentially facilitating access to justice,” said Lisa Carty, commercial litigation expert at Pinsent Masons.

The appeal arose from an application by Michael Scully to the High Court seeking the refusal of recognition and enforcement of a Polish judgment obtained against him by Coucal Ltd, an Irish company, in the Court of Appeal in Warsaw.

The shareholders of Coucal consisted of 63 Irish-based individuals, who had invested in a 2006 project for the construction of a shopping centre in Poland. The project investments were made through a Polish special purpose vehicle, a separate legal entity created specifically for the development of the shopping centre. Scully was one of the owners of the construction company which carried out the project.

The shareholders claimed that Scully had defrauded them and induced them to sell off their investments on unfavourable terms. In 2015, each of the shareholders of Coucal entered into individual assignment agreements with Coucal to assign “rights to future debt due to the shareholders from Mr Scully”. Coucal then exercised its assignment powers by issuing proceedings against Scully in Poland.

The Polish court ultimately ruled that Scully wrongfully, and without authority, entered into agreements on behalf of the shareholders. The court awarded approximately €6.3 million against him.

Following the Polish judgment, Coucal notified Scully of its intention to commence enforcement proceedings in Ireland in accordance with the Brussels I (Recast) Regulation. The regulation provides for the presumption of recognition and enforcement of judgments between EU member states meaning, in theory, the Irish court should enforce the decision made in Poland.

However, courts can depart from this presumption in limited circumstances, such as on public policy grounds.

Scully initiated proceedings in the High Court seeking refusal of the recognition and enforcement of the judgment on two issues relating to public policy. He claimed that the assignment of the shareholders’ cause of action to Coucal was impermissible under Irish law because of the prohibition on maintenance and champerty, which prohibit, in most cases, the funding of litigation by third parties.

Maintenance is when a third party, which has no legitimate interest in the proceedings, funds the legal action. Champerty is seen as a subset of maintenance and occurs where the third party funding the action does so with the intent of financially benefitting from any damages awarded. Additionally, Scully claimed that there was a lack of judicial independence on the part of the Polish court as one of the judges had been seconded from a lower court by the Polish minister of justice.

The application to the High Court was unsuccessful and Scully appealed to the Court of Appeal.

The Court of Appeal highlighted the high bar for non-recognition of EU judgments on public policy grounds. The court held that while a refusal to recognise and enforce a judgment of another member state could not be based solely on a difference between national rules, the public policy exception may be justified where recognition and enforcement would infringe a fundamental national legal principle.

The court considered whether the assignment by the shareholders to Coucal would be valid if it had been relied on in Irish proceedings. The court found that an assignment of a cause of action would be champertous and therefore unenforceable, unless the assignee had a genuine commercial interest in the claim which existed prior to and independently of the assignment. Applying this principle, the court found that Coucal had been formed for the purpose of bringing the litigation and was satisfied that it therefore had a genuine commercial interest in the claim prior to the assignment.

However, the court took issue with another aspect of the assignments. The assignments stated that “the right to sell the debt [claim] to the third-party has not been excluded”. The court found that an assignment to a connected party that contemplates or permits a future transfer to an unconnected third party was unenforceable. Applying this rule, the court found that the assignment clearly contemplated and permitted the assignment of the shareholders’ action to third parties, allowing those third parties to potentially profit from the claim, and that the assignment would be unenforceable under Irish law on that basis.

The court then considered the issue of public policy as a whole. The court concluded that the public policy rule against assignments of this nature reflected the public policy choice not to allow the justice system to be used for commercial transactions. The court was satisfied that exceptional public policy grounds applied which justified refusing to recognise and enforce the Polish judgment. The court concluded that it was not necessary to deal with the judicial independence issues raised by Scully, as it was satisfied that the public policy exception applied regardless.

Carty said: “The ruling will be of considerable interest, as it concerns the reciprocal enforcement of judgments within the EU and Ireland’s prohibition against third-party litigation funding on public policy grounds, which was the basis for the Court’s refusal to enforce the Polish judgment.”