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What has King Charles ever done for us

26 Sep 2024 / justice Print

What has King Charles ever done for us?

A recent Court of Appeal decision reveals the influence of the Maintenance and Embracery Act 1634 on the free movement of European judgments into Ireland in 2024. Tadgh Kelly sharpens the axe

Ireland for Law, established by the Minister for Justice in 2019 as a proactive response to Brexit, aims to promote Irish law and legal services to the international business community.

It presents Ireland as a jurisdiction of choice for contracts and international dispute resolution, leveraging its legal traditions and language advantage to attract global business.

However, Ireland’s legal history can sometimes complicate this modern appeal.

The recent case of Scully v Coucal Limited serves as a stark reminder that, even in the 21st century, businesses considering litigation in Ireland or choosing Irish law to decide contractual disputes must contend with laws dating back to the era of King Charles I, which can pose unforeseen challenges, potentially undermining the perceived benefits of Ireland’s legal system in the post-Brexit landscape.

Fire in the bush

In Coucal, an Irish developer appealed a High Court decision to enforce a €6.3 million judgment obtained in Poland by 57 Irish investors in a shopping centre project.

The investors alleged that Scully had defrauded them, inducing them to sell their investments on unfavourable terms.

In 2015, the majority of investors entered into individual assignment agreements with Coucal Limited, transferring their rights to future debt due from Mr Scully to enable Coucal Limited to initiate proceedings against Scully in Poland on their behalf, with Coucal Limited as a special purpose vehicle (SPV) for that purpose.

Under normal circumstances, an applicant seeking to enforce a judgment in another EU member state may rely on Regulation (EU) No 1215/2012 (now commonly known as the Brussels I (Recast) Regulation).

This regulation aims to streamline and simplify the recognition and enforcement of judgments in civil and commercial matters across member states, enhancing judicial cooperation and the functioning of the internal market.

However, article 45(1)(a) of Brussels I Recast also allows for the refusal of recognition of a judgment if it is manifestly contrary to the public policy of the member state where the judgment is sought to be enforced.

Mr Scully contended that the judgment obtained against him in Poland violated Irish public policy.

He argued, among other things, that the transfer of rights to the SPV to take action against him and the retention of a right to assign the claim to an unrelated third party was essentially a transfer of a bare cause of action, which is impermissible under Irish law due to the prohibition in the Maintenance and Embracery Act 1634.

The new law of righteousness

‘Maintenance’ involves a person improperly supporting litigation without just cause, while ‘champerty’, an aggravated form, involves funding litigation in return for a share of the proceeds.

These doctrines were historically designed to prevent abuses of the legal system and to protect the integrity of judicial processes.

In many common law jurisdictions, the rules against maintenance and champerty have been abolished or significantly eroded. In England, for example, maintenance and champerty ceased to be crimes or torts following the passing of the Criminal Law Act 1967.

In contrast, these doctrines remain criminal offences and civil wrongs in Ireland, as per the retention of the 1634 act in schedule 1 of the Statute Law Revision Act 2007, which aimed to tidy up and modernise the Irish statute book by repealing old and redundant prerogative-derived crown statutes.

True Levellers’ standard

In Coucal, the Court of Appeal (COA) recognised the high bar for the nonrecognition of EU judgments on public policy grounds, as provided by article 45(1) (a) of Brussels I Recast and as elaborated by Murray J in Brompton Gwyn-Jones v McDonald, who summarised the general principles as follows:

  • “The circumstances in which the receiving court will refuse to recognise and enforce a judgment to which the Recast Regulation applies will, by definition, be exceptional…
  • “The court asked to recognise or enforce a judgment to which the Recast Regulation applies may not review the accuracy of the findings of law or fact made by the court of the state of origin…” and
  • “The onus is on the party seeking to avoid recognition and enforcement to establish the facts and circumstances which require the application of one or other of these exceptions.”

The COA also referenced decisions of the European Court of Justice such as Diageo Brands BV v Simiramida, which emphasised that the infringement must constitute a manifest breach of a rule of law regarded as essential in the legal order of the state in which recognition is sought, or of a right recognised as fundamental within that legal order.

Truth lifting up its head

The Coucal assignment explicitly stated that “the right to sell the debt to the third party has not been excluded.”

The court found this reservation of the right to further assign the cause of action to a third party to be highly significant.

In SPV Osus Ltd v HSBC Institutional Trust Services (Ireland) Ltd, the Supreme Court directly addressed whether a ‘right to litigate’ could be assigned, holding that an assignment of a cause of action is unenforceable unless the assignee had a genuine commercial interest in the assignment, which interest must exist prior to or independently of the assignment or the transaction of which it formed part.

The Supreme Court thus drew a distinction between those assignments where the original wronged parties remain (directly or indirectly) the parties pursuing the litigation, and those where the cause of action is sold to a third party with no genuine interest in the action, who then pursues it for their own benefit – which runs contrary to public policy and savours of champerty.

Following SPV Osus, the COA concluded that the Coucal assignment clearly contemplated and expressly permitted the assignment of the shareholders’ action to third parties without a genuine interest, which would allow those third parties to potentially profit from the assignment of the bare cause, and it was on this champertous rock that the assignment floundered.

Affidavit evidence was furnished to demonstrate that the Coucal shareholders had no intention of ever assigning the action to an unrelated third party.

The COA placed no store in such affidavit evidence, instead positing that the intention of the investors must be assessed by what they have actually agreed, and not by some type of parole evidence as to what the parties say they meant.

Consequently, the applicant succeeded in its application for the non-enforcement of the Polish judgment, notwithstanding that the Coucal assignment merely reserved a right to an onward sale of the debt to a third party, which had in fact never occurred.

Leviathan

What may demand a degree of explanation to our European partners is Ireland’s seemingly ‘twin-track’ approach to the prohibition on maintenance and champerty.

Take, for example, section 5A(5)(b) of the Arbitration Act 2010 which, upon commencement, will have the effect of disapplying the offences and torts of maintenance and champerty in dispute resolution proceedings.

For this purpose, ‘dispute resolution proceedings’ means international commercial arbitration, court proceedings arising out of an international commercial arbitration, and mediation and conciliation proceedings arising out those court proceedings or an international commercial arbitration.

Furthermore, it expressly permits a third-party funder to fund the costs of a party to those proceedings in return for a share in any proceeds that party receives, which shall not be treated contrary to public policy or otherwise illegal or void.

It is not unforeseeable, therefore, that in two adjacent courts of the High Court, orders are being made allowing for the non-enforcement of fellow member states’ court judgments pursuant to article 45(1)(a) of Brussels I Recast, based on public policy champerty-affront grounds, while in the court next door, third-party funded proceedings arising out of an international commercial arbitration proceed, causing no such affront.

Law of freedom in a platform

Ireland’s legal system offers many advantages, including a highly developed legal services sector and an English-speaking common law jurisdiction within the EU.

However, the legacy of laws like the 1634 act requires careful consideration and navigation when viewed in a European and global context.

One wonders, however, if our European partners may tire of our arguably duplicitous statutory public-policy-affront grounds as a distortion of the smooth functioning of the internal market and the free movement of their judgments into this jurisdiction.

Perhaps the Law Reform Commission’s anticipated report on third-party litigation funding might chart a course to ease such concerns.

However, if the commission requires sight of the original copy of the 1634 act, it might take note that it in all likelihood went up in flames in the Four Courts in 1922. Gone, perhaps, but not forgotten.

Tadgh Kelly is a solicitor and director of underwriting (Ireland/EU) with Temple Legal Protection Ireland ATE Insurers.

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Tadgh Kelly
Tadgh Kelly is a solicitor and director of underwriting (Ireland/EU) with Temple Legal Protection Ireland ATE Insurers.