Law firms risk potential conflicts of interest by becoming too close to litigation funders, the former president of the Irish Law Society has said.

Speaking at the International Bar Association’s annual conference, Geraldine Clarke said third party funders create a ‘practical difficulty’ for lawyers, who are torn between protecting the interests of their clients and pleasing investors.

‘In the UK, we have seen a lot of third-party funders becoming quite close to some of the law firms,' she said. 'They would be, for example, the funder of choice for those lawyers’ clients. Issues have been raised in a number of cases about where the obligations of the lawyers lie and, more importantly, where their heart is.’ Clarke, who is senior partner at Dublin-based Gleeson McGrath Baldwin Solicitors, is a former chair of the IBA's professional ethics committee.

Third-party litigation funders are currently banned in the Republic of Ireland.

Clarke said agreements need to be drawn up very carefully to make clear funders 'have a very limited role in what happens in the litigation and how the litigation is conducted’. She added that clients may need to seek independent legal advice before entering third-party funding arrangements.

‘It’s difficult if there are third party funders for the lawyers to say: “My obligation is to my client and not to you, although you are paying me”. I know that this a hotly contested debate and there are ways around it, but that is the rationale for them not being allowed in Ireland.’

Clarke did not cite any examples but in recent months several ventures have been announced between funders and firms. Earlier this year international firm DLA Piper teamed up with two funders to help clients pursue cases that would otherwise be too expensive. 

In June, listed litigation funder Burford Capital bought a stake in a London dispute resolution firm in what it says is the first transaction of its kind in the market.