High Court Upholds Validity of ATE Legal Costs Insurance Policy

17-07-2014

Author: Gavin Woods



ATE Legal Costs Insurance Policy

The High Court has upheld the validity of a policy of After the Event (“ATE”) insurance and has held that such insurance does not offend against the torts of maintenance or champerty. The Court has further acknowledged that providers of ATE insurance provide a legitimate service to society by facilitating access to justice to those, be they corporate entities or individuals, who might not otherwise be able to afford it.

This clarification came in a judgment of Mr Justice Hogan in the High Court in Greenclean Waste Management Ltd v Leahy (No 2) [2014] IEHC 314.

What is ATE Insurance?
ATE insurance is a type of insurance policy that provides cover for the legal costs incurred in bringing or defending litigation. As the name suggests, the policy is purchased after a legal dispute has arisen. It typically covers the client’s own outlay and his liability to pay the other side’s legal costs in the event that the other side wins. The premium is generally high, but is normally only payable after a favourable court decision or settlement or when the policy ends.

Although ATE insurance is quite well established in the UK, it is a relatively new to the Irish market and indeed there were concerns that the provision of such insurance in Ireland might amount to maintenance or champerty. However, the decision of the High Court in the Greenclean proceedings would appear to alleviate all such concerns.

What is Maintenance and Champerty?
The torts of maintenance and champerty have existed since at least the medieval times. Unlike the position in England and Wales, the scope of these historic torts in Irish law has not been affected or altered by legislation.

Maintenance is the improper provision of support to litigation in which the supporter has no direct or legitimate interest. The policy underlying the tort of maintenance is “directed against wanton and officious intermeddling with the disputes of others” (Giles v Thompson [1993] 3 All ER 321, per Lord Mustill).

Champerty is an aggravated form of maintenance and occurs when a person maintaining another’s litigation requires a share of the proceeds of the action or suit. The tort of champerty arose out of a concern that “the champertous maintainer might be tempted, for his own personal gain, to inflame the damages, to suppress evidence, or even to suborn witnesses” (Re Trepca Mines Ltd [1962] 3 Al ER 351, per Lord Denning MR).

Agreements which involve the trafficking in litigation or which concern the assignment of a bare cause of action for purposes which the law does not recognise as legitimate are void on the ground that they “savour of champerty”.

Background to the Proceedings
In 2009, the plaintiff, Greenclean Waste Management Ltd, issued proceedings against the defendant solicitors for professional negligence. Two years later, Greenclean went into insolvent liquidation, which prompted the defendant solicitors to bring an application for security for costs. In resisting that application, Greenclean submitted that the Court should have regard to the fact that it held a policy of ATE insurance. However, the defendant solicitors contended that given the numerous avoidance provisions in the policy, it would not provide any real security in the event that it obtained an award of costs against Greenclean.

The Court reviewed the policy in detail, noting in particular what was termed “the prospects clause”. This clause gave the insurer the right to end the policy at any time if it and Greenclean’s legal advisers agreed that it was more likely than not that Greenclean would lose the claim.

Mr Justice Hogan in the High Court indicated that, subject to the insurer giving an undertaking that it would not exercise the right to repudiate pursuant to the prospects clause, he was prepared to treat the policy of ATE insurance as sufficient security for the defendant solicitors’ costs. Accordingly, he refused to make an order for security for costs in their favour.

The defendant solicitors appealed this ruling to the Supreme Court. The Supreme Court adjourned the appeal and remitted the matter to Mr Justice Hogan to determine whether ATE insurance is champertous, illegal or otherwise unenforceable in Irish law.

Legality of ATE Insurance
Mr Justice Hogan noted that while the torts of maintenance and champerty were originally formulated in a different legal era, they continue to exist in this jurisdiction and to enjoy a “practical vibrancy”. However, he stated that these torts must be viewed, and, if necessary, modified, in light of modern principles, in particular the constitutional right of access to the courts.

Mr Justice Hogan acknowledged that the fact that the premium on an ATE insurance policy is normally only payable after a favourable court decision or settlement might be seen as “simply a disguised method of investing in litigation and recovering a share of the proceeds of the action under the guise of a handsome premium”. However, he noted that it should be borne in mind that ATE insurance serves important needs within the community by facilitating access to justice for persons and entities who might otherwise be denied this. He considered that in this regard ATE insurers provide a legitimate service and cannot be regarded as merely investing in or trafficking in litigation.

Accordingly, Mr Justice Hogan concluded that ATE insurance, at least in the form in which it manifested itself in the instant proceedings, was not on the whole champertous and did not amount to maintenance.

Commentary
This is the first decision of the Irish courts on the legality of ATE legal costs insurance under Irish law. As noted above, the market for ATE insurance is quite well-established in the UK. Indeed, as a matter of best practice, litigators practising in the UK will usually tell their clients about the possibility of obtaining ATE insurance when advising them about their potential liability for costs. It will be interesting to see whether the decision of Mr Justice Hogan opens up the Irish market to this type of insurance product and whether more and more parties will seek to rely on the existence of a policy of ATE insurance in response to an application for security for costs.

Download PDF