Greenclean Waste Management Limited – Leahy practicing as Maurice Leahy & Co. Solicitors – Case Note on ATE and Champerty 

Judge Hogan in the High Court recently handed down an interesting decision in the context of “After the Event” Legal Costs Insurance, or ATE Insurance. The Court had been directed by the Supreme Court following an appeal of an earlier decision to consider whether the taking out of a policy of ATE Insurance was illegal on the basis that it fell foul of the old common law civil wrong of champerty and maintenance.

Judge Hogan reviewed the law on champerty and maintenance in this jurisdiction in detail from the enactment of the Constitution to date, as well as the views taken by other common law jurisdictions, and came to the view the policy of ATE Insurance in this case was not champertous and therefore legal.

What is ATE Insurance?

ATE Insurance is a relatively new type of insurance taken out by a party after a dispute has arisen to protect the Insured party against the risk of having to pay the opponent’s legal costs if they lose. The policy may also cover some or all of the Insured’s disbursements during the course of the litigation, such as expert’s or counsel’s fees.

Premiums are usually quite high, in the region of 25% – 60% of the amount of cover being sought, but are usually deferred until the end of the litigation and are contingent on success (i.e. it only becomes payable if the Insured Party wins). Premiums may not have to be paid if the case is lost, even though the insurer indemnifies the Insured Party for the insured risks.

What is champerty and maintenance?

The common law tort (civil wrong) of maintenance may be defined as the improper provision of financial support to litigation in which the supporter has no legitimate interest.

Champerty is an aggravated form of maintenance and occurs when a person is providing financial support to another’s litigation in return for a share of the proceeds of the action or suit.

The origins of champerty and maintenance arise out of the public policy argument that it is wrong for persons to be able to “traffic” in litigation. Indeed, Judge Hogan commented that champerty can be described with only a little exaggeration as a secular form of simony within the legal system.

Case background:

The decision arose out of professional negligence proceedings brought by the Plaintiff Company against its former solicitors. The Defendant Solicitors brought a motion seeking security for costs against the Plaintiff Company. In the first instance, Hogan J in the High Court determined that the existence of a policy of ATE insurance in favour of the Plaintiff Company was sufficient security for costs and refused the Motion.

The Defendant appealed the decision to the Supreme Court, who adjourned the appeal on the merits and remitted the matter back to the High Court for consideration of the issue whether, as a matter of principle, ATE insurance a form of champerty, illegal or otherwise unenforceable in law.

High Court Decision:

Judge Hogan took a detailed look at the status of the torts of maintenance and champerty in Irish law from the adoption of the Constitution to date.

Judge Hogan found that, as the torts of champerty and maintenance had long pre-dated the Constitution, and as such would have been carried over into Irish law post -1937 by virtue of Article 50.1 of the Constitution. He noted that as the torts were rooted in public policy concerns, it was appropriate that the law surrounding them accommodate itself to modern social realities and must be interpreted accordingly.

Hogan J. made particular reference to the Supreme Court’s decision in O’Keeffe –v- Scales (1998), and the judgment of Clarke J in Thema International Fund plc –v-HSBC Institutional Trust Services (Ireland) Limited (2011).

In the O’Keeffe matter, the Supreme Court ruled that a Defendant could not rely on an argument that the inclusion by the Plaintiff of the costs incurred with their current solicitor as a result of the Defendant’s solicitor in professional negligence proceedings against their former solicitor was champtertous. The Court appeared to hold that the arrangement was not champtertous, and even if it was, such an argument could not be used to “deprive people of their constitutional right of access to the courts to litigate reasonably stateable claims”.

In the Thema case, in the context of an application on behalf of the defendants for details of a third party funding the Plaintiff in the proceedings. The High Court ultimately found that the Defendants were not entitled to that information provided the Plaintiff informed the third party funder to keep appropriate records of the funding and advised the funder that it could be amenable to a third party costs Order. The Court was satisfied that the third party funder had a sufficient connection with the Plaintiff to take the funding outside the scope of maintenance or champerty. The Court made a distinction in that decision between those who funded litigation which they hope will indirectly benefit them in capacities such as shareholders and creditors, and professional funders of litigation.

Hogan J. noted that it was clear from the Thema decision that what was contrary to public policy and therefore formed the basis of the torts of champerty and maintenance was the “trafficking in litigation”.

He also noted that it was clear from the O’Keeffe decision that the law in relation to maintenance and champerty must be viewed in light of modern principles and constitutional understanding. These principles include the principle that the Courts should not place any unnecessary obstacles in the path of those with a legitimate claim.

On the basis of the above principles, it is only the cases which involve “trafficking in litigation”, where a benefit from cause of action is assigned for a purpose which the law does not recognise as legitimate, which will be held to be void on the basis that they “savour of champerty”.

The Court went on then to consider whether the policy of ATE Insurance “savoured of champerty”. Hogan J examined the policy in question in detail and found that, on one level, it would be easy to represent ATE Insurance as a “disguised method of investing in litigation and recovering a share of the proceeds” under the guise of a hefty premium. Indeed, he noted that in his view the real objection to the policy of  ATE Insurance is the size of the premium and the fact that it was only payable if successful.

However, Hogan J noted that there was more to ATE Insurance than this. He observed that ATE Insurance served an important need and a legitimate service within the community in facilitating access to justice for persons who might otherwise be denied it.

In light of the above, he found that the policy of ATE Insurance, did not “on the whole” amount to champerty or maintenance. In finding this, he noted that whilst the general parameters of the law surrounding champerty and maintenance were long established, they must be interpreted in light of modern social conditions and public policy considerations.

Comment:

This decision is good news for ATE Insurance providers, who may see an increase in the take up of their product from a very conservative legal market in light of the apparent seal of approval from the High Court. It is also good news for impecunious litigants who have legitimate causes of action with good prospects of success. The potential availability of ATE Insurance gives them an opportunity to prosecute the proceedings, where otherwise there would be none, due perhaps to the financial might of the opposing party.

The decision does send out a word of warning to those Defendants using security for costs applications as a strategy for bringing litigation to an abrupt end when a party cannot come up with the required security. Such applications may be less successful in the future as the take up of ATE Insurance products becomes more widespread amongst litigants.