The Irish courts have long held that it is illegal to provide third party finance for litigation if the provider of funding has no interest in the proceedings or they are seeking to obtain a profit in return.
While the courts will permit a third party with an interest in the proceedings to provide funding for the litigation the courts can hold them liable for the costs of the proceedings if the other party succeeds.
In the recent decision of the Supreme Court in Moorview Development Limited and Ors –v- First Active Plc and Ors  IESC 33 the court examined the jurisdiction of the courts to award costs against a non-party. It was held that the High Court was correct in finding a non-party funder of litigation who has an interest in the proceeding to be liable to pay the cost of the successful party. In this case the court held that a director of insolvent plaintiff companies was personally liable for the costs of the successful defendants.
By way of background, a group of companies of which Mr Brian Cunningham was a director and shareholder issued High Court proceedings against First Active plc and a receiver appointed over assets of the group. He personally funded the litigation and directed the progress of litigation. In the action it was alleged that substantial losses resulted to the group from fraudulent actions of First Active plc and damages were sought. The High Court proceedings were unsuccessful and costs were awarded against the group of companies. First Active plc became aware that the group of companies were in effect insolvent and unable to pay the costs awarded. An application was made to the High Court to make the director, Mr Cunningham, personally liable to pay the costs and the court agreed. The High Court decision was appealed to the Supreme Court.
The Supreme Court refused to accept the proposition that the corporate veil could be used to protect Mr Cunningham in these circumstances. It was held that the courts have discretion to award costs against a non-party but that such discretion "… must be exercised judicially and, in all the circumstances, must give rise to a just result". The Supreme Court laid down a number of factors that a court should consider when deciding whether to make an order of this nature, as follows:
- The extent to which it might have been reasonable to think that the company could meet any costs if it failed;
- The degree to which the non-party would benefit from the litigation if successful, including whether it had a direct personal financial interest in the result;
- The extent to which the non-party was the initiator, funder and/or controller of, and moving party behind, the litigation;
- Any factors which may touch on whether the proceedings were pursued reasonably and in a reasonable fashion; the required assessment of the conduct of the proceedings may of course lean either in favour of or against the making of the order sought;
- There is no requirement that there be a finding of bad faith, impropriety or fraud, though of course the same, if present, will support the ordering of costs against the non-party;
- Whether the non-party was on notice of the intention to apply for a non-party costs order; at what point in the litigation such notice was communicated will also be a relevant consideration, as will the extent of the notice so provided.
The court noted that a further consideration that may be taken into account, though unlikely to be decisive in and of itself, will be "… Whether the successful party applied for security for costs in advance of the trial".
The court noted that a third party that funds litigation must face the same risk in relation to the costs of litigation as any other party.
This is a significant decision for litigants and Insurers. A corporate veil may not protect a company officer from personal liability for the costs of non parties in certain circumstances.
If a party in litigation becomes aware that the other party is unable to pay costs or believes they are being funded by a third party they should put that third party on notice of their potential liability to pay costs. The decision of the Supreme Court is a welcome development but it also highlights the risk faced by third party litigation funders with an interest in the proceedings.