Recent case law has the potential to increase the accessibility to the Courts for impecunious clients and will have implications for the effectiveness of After the Event (ATE) Policies for receivers and liquidators of insolvent companies.

Greenclean Waste Management Ltd v Leahy  (No 2) [2014] IEHC 314.

In 2009, the plaintiff, Greenclean Waste Management Ltd, issued proceedings against the defendant solicitors for professional negligence. In 2011 Greenclean was ‘hopelessly insolvent’. The defendant solicitors duly applied for security for costs. Greenclean sought to resist the application on the basis that it held a policy of After the Event (ATE) Insurance.

What is ATE?

ATE insurance is a type of insurance policy that provides cover for the legal costs incurred in bringing or defending litigation after litigation has arisen. It covers outlay and liability to pay the other side’s legal costs in the event that the other side wins. It is attractive to a litigant as the premium is normally only payable after a favourable court decision or settlement or when the policy ends.

Security for costs

The defendant solicitors argued that the ATE insurance could be repudiated at any time by the insurers for just cause and therefore was not sufficient security for costs. For example there was a “prospects clause” that gave the insurer the right to end the policy at any time if “we, after discussion with your solicitor, are of the opinion that it is more likely than not that you will lose your claim.”

Mr Justice Hogan in the High Court ruled that, subject to the insurer giving an undertaking that it would not exercise the right to repudiate pursuant to the prospects clause he would treat the policy of ATE insurance as sufficient security. An appeal ensued and the Supreme Court remitted the matter to the High Court to determine whether ATE insurance is akin to champerty or is otherwise unenforceable in Irish law.

What is maintenance and champerty?

Maintenance may be defined as the improper provision of support to litigation in which the supporter has no direct or legitimate interest. Champerty, on the other hand is an aggravated form of maintenance (where a party obtains a share in the proceeds of litigation in return for funding). These torts have long been abolished in many other common law jurisdiction including the UK and therefore while the law here is not identical to other common law countries, recent Judicial commentary of Mr Justice Hogan in the Greenclean case shows a narrowing of these differences that may pave the way for greater access to the Courts for litigants.

Mr Justice Hogan stated that champerty “must accommodate itself to modern social realities and must be interpreted accordingly” adding “the law must be viewed - and, if necessary, modified in the light of modern principles and general constitutional understanding. One of these principles is that the courts should not place any unnecessary obstacles in the path of those with a legitimate claim.”

He therefore concluded that ATE insurers provide ‘a legitimate service’ by providing access to justice and this service cannot properly be regarded as simply regarded as either investing in or ‘trafficking’ in litigation.

This decision is good news for ATE Insurance providers and third party funding ventures who may see an increase in the take up of their product and will be seen as a welcome development for impecunious litigants who have legitimate causes of action with good prospects of success.