Summary

A recent judgement in the Irish High Court, Greenclean Waste Management Ltd -v- Leahy p/a Maurice Leahy & Co Solicitors (No. 2), considered the legality of "after the event"/ATE legal costs in Ireland in the context of the tort of champerty and other public policy considerations. On the facts of the case, Hogan J. concluded that the plaintiff's insurance policy did not amount to either maintenance or champerty and was therefore valid and enforceable.

Background/Facts

The case arose out of an earlier High Court decision of Hogan J, Greenclean Waste Management Limited v Maurice Leahy Practising under the Style and Title and Maurice Leahy & Co. Solicitors [2013] IEHC 74, in which he held that "after the event"/ATE insurance could be utilised by a plaintiff as an alternative to the provision of security for costs in certain circumstances.

The facts involved a claim by an insolvent plaintiff against its solicitors for professional negligence, arising from advice provided in connection with a lease of a business premises. The plaintiff alleged that the defendants had failed to advise it of certain of its obligations under the lease, resulting in significant liabilities for the plaintiff and had failed to disclose a material conflict of interest relevant to the advice. The defendant made an application for security for costs against the plaintiff, which argued that it would be in a position to discharge the defendant's costs by virtue of its ATE insurance policy.

The key consideration in the case before the High Court was whether the ATE insurance policy sufficiently mitigated the risk of the insolvent plaintiff being unable to discharge the defendant's costs (i.e. did it give the defendant real security if he obtained an award of costs against the plaintiff), or whether the terms of the policy were such that the insurer could effectively repudiate the policy in such a wide variety of circumstances, that it would ultimately be ineffective for this purpose.

Under the terms of the ATE insurance policy, the insurer was entitled to deny cover in a number of situations, in particular under a "prospects clause" which allowed it to do so where the plaintiff's solicitors confirmed that there was a reasonable prospect that the plaintiff's cause of action would fail. The Judge therefore held that, subject to the insurer giving an undertaking not to invoke the prospects clause, he would treat the ATE insurance policy as sufficient security in respect of any costs application which the defendant might make if successful in defending the proceedings.

The defendant appealed the Judge's decision to refuse to make an order for security for costs to the Supreme Court. The Supreme Court held that the appeal on the merits of the case should be adjourned. However, it directed the High Court to examine more closely the question as to whether the support provided by the insurers to the plaintiff, in the form of the ATE insurance policy, amounted to maintenance/champerty, thereby rendering the policy illegal and void.

What is ATE insurance?

"After the event"/ATE insurance is a relatively new form of product to the Irish insurance market. It is usually provided by insurers to cover a plaintiff's potential exposure to a defendant's legal costs (as well as the plaintiff's own expenses) if the plaintiff loses a case and an order for costs is made against him. It generally involves a high premium, which is usually only payable by the plaintiff if he wins his case. This type of policy (as the name implies) is taken out after the event giving rise to the claim has taken place. This type of policy is used to cover a wide range of legal matters including personal injury claims, employment disputes, contractual disputes involving the purchase of goods and criminal law cases. 

The law of maintenance and champerty

The common law doctrine of maintenance can be described as the improper provision of support to litigation in which the funder has no direct or legitimate interest. The common law doctrine of champerty, on the other hand, is generally considered to be an aggravated form of maintenance, which involves the provision of support for litigation in return for a share of the proceeds of that litigation.

In the UK, the tort of maintenance was abolished in 1967 and ATE insurance is permissible in the context of certain conditional fee arrangements, subject to certain requirements being met. In Ireland, however, the position is less clearly defined. The decision (below) in the Greenclean case is therefore likely to be of precedent value for future proceedings dealing with enforceability of ATE policies, particularly where similar facts are involved.

High Court decision on legality

Hogan J, in finding that the ATE insurance policy was not void for illegality in the context of the common law doctrines of maintenance and champerty, held as follows:

  • the Courts can generally only develop or supplement the law of torts where the law is "basically ineffective" to protect constitutional rights in a particular case;
  • the common law tort of champerty still exists in Ireland and has a "practical vibrancy" - its scope has not been affected or altered by legislation;
  • any agreements which involve "trafficking in litigation" (i.e. investing in litigation in which the funder has no legitimate interest, in the expectation of making a profit) will be void as champertous and contrary to public policy;
  • ATE insurance, while it may involve "features of champerty", serves an important purpose, as it facilitates the fundamental constitutional right of access to justice for those who might otherwise be deprived of such access and insofar as the insurer provides financial assistance to the plaintiff, it has a legitimate interest in the outcome; and
  • The law of champerty must be interpreted (and if necessary, modified), so as to cater for modern social realities and the general constitutional understanding that the Courts must not place any unnecessary obstacles in the way of plaintiffs who have a valid claim.

Commentary

The initial High Court decision confirms the viability of ATE insurance for legal costs as an alternative to security for costs in Ireland. This is a positive development for insurers which sell ATE products, as well as plaintiffs who hold or may wish to take out this type of policy. It is also good news for defendants, who may ultimately have greater prospects of recovering their costs where an ATE insurance policy is in place.  

The second High Court decision is also significant, in that it recognised that ATE insurers offer a "legitimate service" by providing access to justice and this service cannot simply be regarded as either investing in or "trafficking" in litigation.

The decision in the second case included an acknowledgement that the common law doctrines of maintenance and champerty are outdated and that flexibility is required in their application in a modern social context (particularly in the context of diverse concepts such as legal aid, representative actions, "no win no fee" arrangements and the recognition of the validity of contracts of guarantee and indemnity for those with legitimate business interests in such contracts).