After-The-Event Insurance And Litigation Funding

Under Irish law, the common law principles of maintenance and champerty1 still apply, to the extent that there is limited scope for third-party litigation funding. However, after-the-event insurance (ATE) - which is designed to offer protection when or after a party becomes aware of the need to litigate to protect their interest - has recently been approved (in theory at least) as not contravening either of those principles.

Background

In Green Clean Waste Management Ltd v Leahy2 the Court of Appeal accepted that an ATE insurance policy could, in principle, provide security for costs, albeit based on the facts in this case the specific policy involved did not satisfy the requirements to constitute sufficient security (for further details please see "After-the-event insurance given amber light"). The plaintiff issued proceedings against its former solicitors for alleged professional negligence. Subsequently, the plaintiff entered into liquidation and the defendant sought security for costs to oblige the plaintiff to provide security for the defendant's costs in the event that the plaintiff failed at trial. In resisting the security for costs application, the plaintiff relied on its ATE insurance policy to say that it would be in a position to discharge the defendant's costs.

Application

In the High Court, Judge Hogan upheld the ATE policy, stating that it was not contrary to the torts of maintenance and champerty. Based on the policy and an undertaking from the insurers not to repudiate cover on the basis of a 'prospects of success' clause, Hogan declined to order the plaintiff to provide security for cost pursuant to Section 390 of the Companies Act 1963. His ruling was appealed.

Judge Kelly gave the decision on behalf of the Court of Appeal. He acknowledged that but for the ATE policy Judge Hogan would have made the order sought. He proceeded to undertake a detailed review of the provisions of the policy relied on by the plaintiff. Kelly observed that ATE insurance was introduced as a change to legal practice in England and Wales through the Access to Justice Act in 1999 and commented that:

"Despite the absence of legislative change of the type that was introduced in England in 1999, ATE Insurance has nonetheless crept into this jurisdiction. It is still comparatively novel."3

In relation to the policy at issue, Kelly noted that it had obviously been written for the English market and had undergone some minor modifications for Ireland...