Landmark ruling on assignments of litigation handed down in Ireland

Lisa Carty and Sadhbh Kelleher of Pinsent Masons in Dublin were commenting after the Irish Supreme Court ruled that the Court of Appeal had erred in determining that a Polish ruling could not be enforced in Ireland on public policy grounds.

Irish company Coucal Ltd asked the Irish courts to recognise and enforce a ruling issued by a court in Poland in a case in which it had been awarded damages totalling approximately €6.3 million. The damages award was made by the Court of Appeal in Warsaw against construction company owner Michael Scully who had faced claims asserted by Coucal’s shareholders that he had defrauded them and induced them to sell off their investments on unfavourable terms.

In 2015, each of the 63 shareholders of Coucal entered into individual assignment agreements with Coucal to assign “a future debt due to the assignor from Michael Scully”. Coucal exercised those assignment powers by issuing proceedings against Scully in Poland.

The EU’s Brussels I (Recast) Regulation provides for the presumption of recognition and enforcement of judgments between EU member states. However, courts can depart from this presumption in limited circumstances, such as where the judgment is manifestly inconsistent with the public policy of the state.

In challenging Coucal’s bid to enforce the Polish award in Ireland, Scully cited matters of public policy. Among other things, 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 prohibits, 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.

The Court of Appeal was satisfied that exceptional public policy grounds applied which justified refusing to recognise and enforce the Polish judgment.

Irish case law has established that an assignment of the right to litigate is unenforceable unless the assignee had a genuine commercial interest in the assignment. The Court of Appeal considered that the assignment of a group of shareholders’ cause of action to Coucal for the purposes of bringing the proceedings against Scully satisfied the “genuine commercial interest” requirement for an enforceable assignment of a bare cause of action. However, because the assignment contemplated and permitted the assignment of the shareholders’ action to third parties, providing that “the right to sell the debt to the third party has not been excluded”, allowing those third parties to potentially profit from the claim, the Court of Appeal ruled that the assignment would be unenforceable under Irish law because it allowed the commodification of litigation, which is against public policy.

The Court of Appeal’s decision has now been overturned by the Supreme Court.

The Supreme Court agreed with the Court of Appeal’s finding that Coucal had a genuine legitimate commercial interest in receiving the assignment. This was because Coucal was a “corporate vehicle … created for the very purpose of pursuing [the] litigation in Poland”. The Supreme Court described this structure as “in effect, a corporate substitute for a form of class action on behalf of the investors”.

However, in considering the fact that there was no exclusion on the assignment being sold on, the Supreme Court found that this did not mean it was automatically unlawful.

Mr Justice Gerard Hogan said that the right provided in the assignment “simply amounted to a warranty that no sale or assignment of the debt had already taken place”. He added that even if the assignment were considered to permit the assignment of a bare cause of action, such an assignment would not be an issue under Polish law, and as such there was no reason why the judgment should not be recognised in Ireland. He said that the public policy exception to enforcement under the Brussels I (Recast) Regulation should only be triggered in “special and exceptional cases”.

Mr Justice O’Donnell, Ireland’s chief justice, added that in carrying out its public policy assessment, the Court of Appeal had failed to acknowledge that the court was not being asked to enforce an assignment under Irish law – rather, that it was being asked to enforce a judgment obtained in another EU country where the assignment was lawful. He said this was “a critical fact” and that there is a strong public policy for enforcing judgments from the courts of other EU member states.

In relation to the law of maintenance and champerty, Mr Justice O’Donnell said: “[This] … is an area in which the law has recently developed, and at each point expanding the steps which are permissible, and narrowing the forbidden area. In the case of assignments, it was never the case that all assignments were regarded as impermissible. There has been a noteworthy and steady development of the law in this area at each point narrowing the area of invalidity.”

The chief justice added that the case did not have any of the characteristics of commodification or trading in litigation that underpins the public policy objection of Irish law in this area and concluded that Irish public policy would not require refusal of recognition and enforcement of the Polish judgment.