For the second time this year, the Irish courts have considered the lawfulness and effectiveness of an after-the-event insurance policy (an ATE Policy) for litigation costs in circumstances where the insured party is insolvent. An ATE Policy typically indemnifies the insured in respect of its opponent’s litigation costs should the litigation ultimately be unsuccessful.

The case involves a claim by an insolvent company in liquidation, Greenclean Waste Management Limited (In Liquidation), and its former solicitors. The liquidator for the company claimed that the former solicitors gave negligent advice in relation to its obligations under a commercial lease.  The liquidator said that this advice resulted in the company paying €460,000 to its former landlord for failure to comply with those obligations.

In a pre-trial application in the High Court, the former solicitors had sought security for costs from the company.  The application was brought as the company was insolvent and was therefore unlikely to be able to meet any award for costs if its action did not succeed. The Court found that the company was “hopelessly insolvent”. Consequently, and as a matter of principle, the other side would be entitled to an order for security for costs which would have the practical effect of ending the proceedings.

The liquidator argued, however, that the company’s ATE policy would provide their opponents with sufficient security in the event that the company’s case failed. The Court expressed strong reservations regarding the security afforded by the ATE Policy in light of the policy terms that permitted the insurer to deny cover. Following an adjournment to permit the insurer to consider its position, the Court held that the policy was sufficient security for costs in circumstances where the insurer committed to maintain the cover in place throughout the proceedings.

The former solicitors appealed this decision to the Supreme Court. After some initial consideration by that court, the case was remitted back to the High Court to consider the underlying legality of ATE cover. In particular, the Supreme Court asked the High Court to consider whether the cover amounted to: 

• Maintenance (a legal principle that restricts someone supporting litigation in which it has no legitimate interest)
• Champerty (a legal principle where a party with no legitimate interest supports litigation in return for a share of the proceeds)
• Cover that was otherwise illegal or unenforceable

While the High Court considered that the tort of champerty retained a “practical vibrancy”, it also made clear that the law on maintenance and champerty should evolve to reflect modern realities. The Court acknowledged that various aids to litigants now exist (such as “no foal, no fee” arrangements and pro bono work) which did not when maintenance and champerty were initially developed. The Court also considered that a balance had to be struck taking into account the constitutional right of access to justice. Ultimately, the Court held that an ATE Policy was just another valid aid for litigants bringing legitimate actions.

There may still be a twist in the tale, however, as the High Court’s decisions remain the subject of an appeal to the Supreme Court. As such, it will be the decision on appeal that will truly answer the question whether ATE cover for litigation costs is effective in Ireland.

Contributed by:  Ruairi Rynn