In the most recent instalment of Greenclean Waste Management Ltd v Leahy, the Court of Appeal – considering after-the-event (ATE) insurance for the first time – overturned a High Court ruling that the insolvent plaintiff's ATE insurance could effectively substitute security for costs in this instance.
The Court of Appeal accepted that an ATE insurance policy could provide security for costs in principle. However, it did not accept that the policy in question provided sufficient security. In this case, the court's decision was clearly heavily influenced by the existence of a condition precedent to cover and the absence of evidence to confirm compliance with the condition precedent. The court also considered the policy to be "highly conditional" and noted that the plaintiff had not responded to the defendant's detailed criticisms of the policy.
In a separate ruling, the High Court confirmed that ATE insurance is valid and does not fall foul of the rules on maintenance and champerty. While this ruling was not under appeal, the Court of Appeal made some useful observations regarding ATE insurance generally and principles which apply:
- An ATE policy can, in principle, provide security for costs.
- An ATE policy cannot provide as good security as a payment into court or a bank bond or guarantee except in very rare cases.
- An ATE policy must provide some security (ie, it must not contain terms which entitle the insurer to avoid liability to pay the defendant's costs) to be relied on as security for costs.
- If the ATE policy is insufficient security, the amount of security fixed could be potentially reduced to take account of any realistic possibility that an ATE policy would cover the defendant's costs.
Following this decision, it would appear that the way is clear for ATE insurance to be used as a legitimate method of third-party funding in this jurisdiction. However, the extent to which it will be considered as an acceptable form of security for costs is less clear and will turn on the individual policy wording (which will be scrutinised by the court) and the extent to which the policy is perceived to be conditional.
There is an opening in the market for ATE insurance underwriters to write a policy aimed at the security-for-costs market, and the fact that the law is now clear in terms of the legality of such products is a positive development. Clearly, following this decision, it is desirable for ATE policies to be as certain as possible. However, it is difficult to see how to overcome the simple fact that an insurance policy cannot be enforced by a third party or to envisage that an insurer might agree to eliminate the prospect of a repudiation for non-disclosure or declinature for breach of a condition precedent.
Finally, while there are similarities between Irish and English law, the court commented that the policy in question was clearly modified for Irish law. This is common practice in insurance but may be inappropriate for ATE insurance, and greater consideration should be given to the terms and conditions of policies offered by ATE insurers in Ireland.
The case involved an application for security for costs in a professional negligence action brought against a firm of solicitors by insolvent company Greenclean, which had recently entered voluntary liquidation. Greenclean defended the application on the basis that it held ATE insurance and thus was in a position to discharge the defendant's costs if unsuccessful.
In April 2013 the High Court delivered its judgment on security for costs (for further details please see "Can after-the-event insurance substitute security for costs?"). The trial judge declined to make an order for security for costs after being furnished with binding assurance from the ATE insurer that it would not subsequently repudiate cover by relying on a prospects-of-success clause in the policy.(1)
The defendant appealed to the Supreme Court. The Supreme Court adjourned the appeal and remitted the matter to the High Court in September 2014 for a determination as to the legality of ATE insurance in Irish law (for further details please see "After-the-event insurance passes champerty and maintenance test"). The High Court upheld the validity of ATE policies, expressly confirming that ATE insurance does not fall foul of the tort of maintenance or champerty. With this point having been clarified, the case returned to the Court of Appeal(2) for the final determination as to the effect of an ATE insurance policy on an application for security for costs.
The Court of Appeal accepted that, in the appropriate circumstances and as a matter of principle, an ATE policy could provide sufficient security for costs. While the court did not comment on the validity of ATE insurance, the decision appears to be premised on the basis that ATE insurance is not champertous (as previously held by the High Court) and the court made some interesting general observations regarding ATE insurance.
The court found that the proceeds of an ATE policy do not and will never form part of the assets of a company. In the context of the application for security for costs, the trial judge was incorrect to have regard to the existence of the policy in assessing the plaintiff company's ability to discharge costs, although the Court of Appeal confirmed that the existence of the policy could be taken into consideration at the court's discretion.
The court noted that ATE insurance and conditional fee arrangements ('no win, no fee') had been introduced in England and Wales by the Access to Justice Act 1999 and, despite the absence of similar legislative measures in Ireland, ATE insurance had nonetheless "crept into this jurisdiction" but remains comparatively novel.
The court was assisted by the English case Michael Philips Architects Limited v Riklin EWHC 834 (TCC) and found that the principles applied in that case also apply in Ireland:
- In principle, there is no reason why an ATE insurance policy which covers the claimant's liability to pay the defendant's costs, subject to its terms, could not provide some or an element of security for the defendant's costs.
- It is rare case for an ATE insurance policy to provide as good a security as a payment into court or a bank bond or guarantee, because, among other reasons, insurance policies are voidable by insurers and the promise to pay under the policy will be to the claimant.
- In order for a policy to provide security, there must be no terms pursuant to which insurers can readily but legitimately and contractually avoid liability to cover the defendant's costs.
- In principle, there is no reason why the amount fixed by a security-for-costs order could not be reduced to take into account any realistic probability that ATE insurance would cover the defendant's costs.
The court allowed the appeal and concluded that there was insufficient evidence before the High Court to demonstrate the existence of an effective ATE policy in this instance.
The court commented that an examination of the policy in question suggested it was originally written for the English market and had undergone minor modifications for use in Ireland.
While the High Court had been concerned only with the prospects clause, the Court of Appeal considered that the most important and insurmountable issue was that the policy in question contained a condition precedent to cover requiring Greenclean to enter into a 'no win, no fee' agreement with its solicitor and that no evidence of such an agreement had been put before the court. The court deemed the existence of this agreement, and its compliance with Section 8 of the Solicitors (Amendment) Act 1994, to be a required proof for establishing the effectiveness of the ATE policy. As Greenclean was unable to present a copy of the agreement to the court, the policy did not constitute sufficient security. However, the court observed that even if the condition precedent had been complied with, the policy was highly conditional and could be avoided for a substantial number of reasons outside the defendant's control and knowledge.
Consequently, the court held that even with the prospects clause neutralised (ie, by virtue of the binding assurance given by the insurance company that it would not rely on the same), the policy could not be relied on as sufficient security. The court concluded that the ATE policy in question fell "far short of providing as good a security as a payment into court or insurance bond".
For further information on this topic please contact April McClements or Sharon Daly at Matheson by telephone (+353 1 232 2000 or email (firstname.lastname@example.org or email@example.com). The Matheson website can be accessed at www.matheson.com.
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