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ATE insurance given the amber light by Court of Appeal
In the most recent instalment in the case of Greenclean Waste Management Ltd v Leahy, the Court of Appeal, considering ATE insurance for the first time, overturned a High Court ruling that the insolvent plaintiff’s after-the-event insurance (“ATE Insurance”) could effectively substitute security for costs in this instance.
The Court of Appeal accepted that an ATE insurance policy could provide security for costs in principle. However, it did not accept that the policy in question provided sufficient security. In this case the Court’s decision was clearly heavily influenced by the existence of a condition precedent to cover and the absence of any evidence to confirm that there had been compliance with the condition precedent. The Court also considered the policy to be “highly conditional” and noted that the plaintiff had not responded to the defendant’s detailed criticisms of the policy.
In a separate ruling, the High Court had confirmed that ATE insurance is valid and does not fall foul of the rules on maintenance and champerty. While this ruling was not under appeal, the Court of Appeal made some useful observations regarding ATE insurance generally and the principles which apply:
- An ATE policy can in principle provide security for costs;
- However, an ATE policy can only provide as good a security as a payment into court or a bank bond or guarantee in very rare cases;
- To be relied upon as security for costs, an ATE policy must actually provide some security, ie it must not contain terms which entitle the insurer to avoid liability to pay the defendant’s costs;
- If the ATE policy is not sufficient security, the amount of security fixed could potentially be reduced to take account of any realistic possibility that an ATE policy would cover the costs of the defendant.
Following this decision, it would appear that the way is clear for ATE insurance to be used as a legitimate method of third party funding in this jurisdiction, however, the extent to which it will be considered as an acceptable form of security for costs is less clear and will very much turn on the individual policy wording, which will be scrutinised by the Court, and the extent to which the policy is perceived to be conditional.
There is an opening in the market for the underwriters of ATE to write a policy aimed at the security for costs market and it is a very positive development that the law is now clear in terms of the legality of such a product. Clearly, following this decision, it is desirable for ATE policies to be as certain as possible. However it is difficult to see how one might overcome the simple fact that an insurance policy cannot be enforced by a third party and further, it is difficult to envisage that an insurer might agree to eliminate the prospect of a repudiation for non-disclosure or declinature for breach of a condition precedent.
Finally, while there are similarities between Irish and English law, it is interesting to note the Court’s comment that the policy in question was clearly modified for this jurisdiction. This is a common practice in insurance but may not be appropriate for ATE insurance and greater consideration should be given to the terms and conditions of policies offered by ATE insurers in this jurisdiction.
This case involved an application for security for costs in a professional negligence action brought against a firm of solicitors by an insolvent company, Greenclean, which had recently entered voluntary liquidation. Greenclean defended the application on the basis that it held ATE insurance and thus was in a position to discharge the Defendant’s costs if unsuccessful.
In April 2013, the High Court delivered its judgment on security for costs (for further details, see “Can after-the-event insurance substitute security for costs?”) The trial judge declined to make an order for security for costs after being furnished with a binding assurance from the ATE insurer that it would not subsequently repudiate cover by relying on a prospects of success clause (the “Prospects Clause”) in the policy.
The Defendant appealed to the Supreme Court. The Supreme Court adjourned the appeal and remitted the matter to the High Court in September 2014 for a determination as to the legality of ATE insurance in Irish law (for further details, see “After-the-event insurance passes champerty and maintenance test”). The High Court upheld the validity of ATE policies, expressly confirming that ATE insurance does not fall foul of the tort of maintenance or champerty. With this point having been clarified, the case returned to the Court of Appeal for the final determination as to the effect of an ATE insurance policy on an application for security for costs.
Court of Appeal’s Consideration of ATE Insurance
The Court of Appeal (Kelly J) accepted that, in the appropriate circumstances and as a matter of principle, an ATE policy could provide sufficient security for costs. While the Court did not comment on the validity of ATE insurance, the decision seems to be premised on the basis that ATE insurance is not champertous (as previously held by the High Court) and the Court made some interesting general observations regarding ATE insurance.
The Court found that the proceeds of an ATE policy do not and will never form part of the assets of the company and consequently the trial judge was incorrect, in the context of the application for security for costs, to have regard to the existence of the policy in assessing the plaintiff company’s ability to discharge costs although the Court of Appeal confirmed that the existence of the policy could be taken into consideration in the exercise of the court’s discretion.
The Court noted that ATE insurance and conditional fee arrangements (“no win, no fee”) had been introduced in England and Wales by the Access to Justice Act 1999 and, despite the absence of similar legislative measures in Ireland, ATE insurance had nonetheless “crept into this jurisdiction” but is still comparatively novel.
The Court was assisted by the conclusions of Akenhead J in the English case of Michael Philips Architects Limited v Riklin EWHC 834 (TCC), finding that they also apply in this jurisdiction:
- There is no reason in principle why an ATE insurance policy which covers the claimant’s liability to pay the defendant’s costs, subject to its terms, could not provide some or some element of security for the defendant’s costs.
- It will be a rare case where the ATE insurance policy can provide as good a security as a payment into court or a bank bond or guarantee, because, amongst other reasons, insurance policies are voidable by insurers and the promise to pay under the policy will be to the claimant.
- In order for a policy to provide security, there must not be terms pursuant to which or circumstances in which the insurers can readily but legitimately and contractually avoid liability to cover the defendant’s costs.
- There is no reason in principle why the amount fixed by a security for costs order could not be somewhat reduced to take into account any realistic probability that the ATE insurance would cover the costs of the defendant.
The ATE policy in question
The Court allowed the appeal, having concluded that there was insufficient evidence before the High Court to demonstrate the existence of an effective ATE policy in this instance.
The Court commented that an examination of the policy in question suggested it was originally written for the English market and had undergone minor modifications for use in this jurisdiction.
While the High Court had been concerned only with the Prospects Clause, the Court of Appeal considered that the most important and insurmountable issue was that the policy in question contained a condition precedent to cover requiring Greenclean to enter into a no-win no-fee agreement with its solicitor and no evidence of such an agreement had been put before the Court. The Court deemed the existence of this agreement, and its compliance with section 8 of the Solicitors (Amendment) Act 1994, to be a fundamental proof for establishing the effectiveness of the ATE policy. As Greenclean was unable present a copy of this agreement to the Court, the policy did not constitute sufficient security. However, the Court observed that even if the condition precedent had been complied with, the policy was “highly conditional” and could be avoided for a substantial number of reasons outside the defendant’s control and knowledge.
Consequently, the Court held that even with the Prospects Clause neutralised (ie, by virtue of the binding assurance given by the insurance company that it would not rely on same), the policy could not be relied on as sufficient security. The Court concluded that the ATE policy in question fell “far short of providing as good a security as a payment into court or insurance bond”.
. The “prospects of success” clause allowed the insurer to decline cover if it agreed with the claimant’s solicitor that it was “more likely than not” that the litigation would be unsuccessful.
. The Court of Appeal having taken over from the Supreme Court as the appropriate appellate court in the interim.