On 5 June 2014 Judge Hogan of the Irish High Court held that a “plaintiff’s ATE insurance policy does not amount to either maintenance or champerty”. This brief statement could have a significant impact on the future of litigation in Ireland.
After the Event (“ATE”) insurance is generally provided by the insurance industry to cover a plaintiff’s potential exposure to his opponent’s legal costs if the plaintiff loses either litigation or arbitration and is ordered to pay his opponent’s legal costs. As such, it protects plaintiffs from this potential exposure in return for a premium.
The premium is usually only payable if the plaintiff is successful. As the name suggests, the person or company takes out the policy “after the event” which gives rise to the claim has occurred.
The law of maintenance and champerty renders it unlawful to provide financial support to litigation in which the supporter has no direct or legitimate interest (maintenance) or to provide such support in return for a share in the proceeds of the litigation (champerty). The issue for the court was whether the support to the litigation provided by the existence of the ATE policy amounted to champerty and was therefore unlawful and void.
In England, the tort of maintenance was abolished in 1967, and ATE insurance is a common corollary to conditional fee arrangements ("CFAs") which were first introduced in England in 1990 and which now extend to all civil claims except family law. CFAs are closely regulated and provide for how the ATE premium and any success fee are paid. In Ireland there has been no legislative intervention so the position was uncertain.
In Greenclean, the corporate plaintiff alleged that the defendant solicitors had been negligent in advising it on terms of a lease which had caused it loss in an earlier action. In 2011 the corporate plaintiff went into voluntary liquidation and the court accepted it was “hopelessly insolvent”. The defendant sought an order for security for costs. In 2013 the High Court considered the plaintiff’s ATE policy and concluded that, provided the insurer undertook that it would not repudiate the policy, the court would not order that security for costs be provided.
The plaintiff appealed that decision to the Supreme Court which referred the matter back to the High Court to decide whether or not, as a matter of principle, the ATE insurance was unlawful as being contrary to the law of champerty. Judge Hogan reviewed the operation of the policy and some case law and found:
- the courts can generally only supplement the law of torts when such law is shown to be basically ineffective to protect constitutional rights in a particular case;
- there is no doubt at all but that the tort of champerty not only still exists in Ireland but has a “practical vibrancy”;
- agreements which involve trafficking in litigation will be held to be void as champertous and contrary to public policy;
- ATE serves an important purpose in that it facilitates access to justice for persons who might otherwise be denied such access; and
- the law of maintenance and champerty is not frozen by reference to social and policy conditions which pertained hundreds of years ago and the law must accordingly move on and assess whether by reference to modern conceptions of propriety, ATE insurance amounts to trafficking in litigation.
Against this background, he concluded that the policy did not amount to champerty or maintenance and was accordingly valid and binding.
This decision will provide comfort for the purchasers and sellers of ATE insurance. It may lead to more widespread use of the product and indeed solicitors who fail to advise plaintiffs to purchase it may have questions to answer if adverse costs’ orders are made against uninsured plaintiffs.
It will be interesting to see whether it leads to an increase in speculative claims. In England and Wales, the experience of local authorities was that 85% saw an increase in their annual costs and a 68% increase in “tenuous claims” after the introduction of CFAs, most of which incorporate ATE insurance. However, in Ireland, “no foal, no fee” arrangements have long been available so any impact may be more muted.
ATE policies will also likely be purchased to head off security for costs applications, and while more cases may have to be fought, the corollary is a greater prospect of actual recovery of costs for successful defendants.
The more vexed question of litigation funding other than by parties with a clear interest, e.g shareholders of a corporate plaintiff or creditors of a company in liquidation, remains unclear. The strong statements that the law still operates to prohibit “trafficking in litigation” may discourage that industry from seeking to establish a foothold in Ireland. However, the outcome of the case and the comments about access to justice and assessment against current social policy may tempt a brave commercial funder into an untapped market.
Given that the defendant has already appealed once to the Supreme Court, it may well appeal this judgment also so we probably have not heard the last word on these issues.