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After-the-event insurance passes champerty and maintenance test

AUTHOR(S): April McClements
PRACTICE AREA GROUP: Insurance and Reinsurance
DATE: 09.09.2014

Introduction

Following an appeal to the Supreme Court, Greenclean Waste Management Limited v Leahy has come before the High Court for a second time. The High Court upheld the validity of an after-the-event insurance policy and expressly confirmed that after-the-event insurance does not fall foul of the tort of maintenance or champerty.

Unlike in many other common law jurisdictions, the torts of maintenance and champerty continue to exist in Ireland. Litigation funding is an issue that has recently come to the fore, putting the ancient laws of maintenance and champerty under the spotlight.

The High Court confirmed that the rules against maintenance and champerty remain applicable in an Irish context and after-the-event policies must comply with these rules in order to be valid and enforceable. However, the court found that the policy did not breach the common law principles of champerty or maintenance. The law of champerty must be interpreted in line with modern ideas and realities. After-the-event insurance serves an important purpose in allowing those who would otherwise have no access to the courts to enjoy such access.

Background

After-the-event insurance is a relatively new form of insurance product, at least in Ireland. It is a form of insurance taken out in the wake of a specific event and is often closely linked to 'no win, no fee' arrangements.

The High Court delivered a previous judgment in this case in 2013, in the context of an application for security for costs (for further details please see "Can after-the-event insurance substitute security for costs?"). It considered whether an after-the-event insurance policy could effectively substitute security for cost and concluded that the policy in question could provide adequate security to a defendant only in circumstances where the plaintiff's insurer gave an assurance that it would not rely on a prospect of success clause to deny cover.

The defendant appealed to the Supreme Court and the matter was remitted to the High Court for a determination as to whether after-the-event insurance was champertous, illegal or otherwise unenforceable in Irish law. The Supreme Court also made an order joining the after-the-event insurer as a notice party to the proceedings.

High Court judgment

The High Court acknowledged that the torts of maintenance and champerty were first formulated at a time when:

• the legal system was weak;
• the independence of the judiciary was not necessarily secure; and
• the rules ensuring the attendance of witnesses and providing for their protection against attempts to interfere were still in their infancy.

The High Court considered that "the law of champerty must accommodate itself to modern social realities" and be interpreted accordingly. Nonetheless, there was no doubt that the tort of champerty not only still exists in Ireland, but also has a practical vibrancy. The High Court cited Thema International Fund plc v HSBC Institutional Trust Services (Ireland) Limited (2011) and considered that the principle expounded therein related to trafficking in litigation. The law in relation to maintenance and champerty must be viewed and, if necessary, modified in light of modern principles and general constitutional understanding. One of these principles is that the High Court should place no unnecessary obstacles in the path of those with a legitimate claim. However, agreements which involve trafficking in litigation or concern the assignment of a bare cause of action for purposes which the law does not recognise as legitimate would be held void as contrary to public policy.

The High Court pointed out that the real objection to after-the-event insurance is the size of the premium and the fact that it is normally payable only after a positive court decision or settlement. At one level, it is easy to represent this simply as a disguised method of investing in litigation and recovering a share of the proceeds of the action under the guise of a handsome premium. If after-the-event coverage were confined in this matter, the High Court considered it would be champertous and void as contrary to public policy.

However, the High Court considered that there is more to after-the-event insurance, and in particular pointed out that it serves important needs within the community by facilitating access to justice for persons and entities that might otherwise be denied such access. After-the-event insurers provide a legitimate service by providing access to justice, and this service cannot be properly regarded as simply investing in or trafficking in litigation.

The High Court concluded that after-the-event insurance (at least in the form of the after-the-event policy before the High Court in this case) is not on the whole champertous; nor does it amount to maintenance. The High Court considered that while the general parameters of the torts of champerty and maintenance are clear, the modern application of these principles is not frozen by reference to the social conditions and public policy considerations which pertained several hundred years ago. The law must accordingly move on and assess whether, by reference to modern concepts of propriety, after-the-event insurance amounts to trafficking in litigation. The High Court concluded that on the whole it does not and that, insofar as the insurer provides financial assistance to the litigant, it has a legitimate interest in the outcome.

Comment

This is an important decision as it expressly confirms for the first time that after-the-event insurance does not fall foul of the rules of maintenance and champerty, notwithstanding that these rules continue to have "practical vibrancy" in Ireland. Whether after-the-event insurance becomes more widely available on the Irish market and a feature of the Irish litigation landscape as a result of this judgment remains to be seen.

Author: April McClements

This article first appeared in the International Law Office Insurance newsletter 9 September 2014.
 

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