Ireland: Recent Decisions On Costs – Costs Against An Insurance Company Coming Off Record, Costs Against A Shareholder Who Is Funding Litigation And After The Event Cost Insurance

Last Updated: 19 August 2014
Article by Stephen O’Sullivan

You can get costs against an insurance company even when they legitimately repudiate.

In Berney v. South Dublin County Council (Unreported High Court (Hedigan J.) 6/6/14) the plaintiff succeeded in an action against her neighbours when a footpath had caused her to trip and fall. The claim against the county council failed. The insurance company solicitor came off the record for the second and third defendant after the case had been first listed for hearing, but before the case was heard. The insurer repudiated liability on the basis that the second and third defendant had misled the insurer, which was accepted by the court. Nevertheless, the court awarded costs to the plaintiff and the county council as against the insurance company. The court applied McTiernan v. Quin Con Developments (Unreported High Court 17/4/07). The insurer had delayed excessively in repudiating the contract of insurance and had not made reasonable and diligent enquiries to reveal the material relied on to repudiate. If there was an earlier investigation by the insurer, they would have revealed that the second and third defendant had in fact carried out works on the footpath.

The case is a warning to insurance companies to consider repudiation at an early stage and after a thorough investigation, which might involve physical inspection. It shows it can be worthwhile for a plaintiff to pursue the insurance company in certain circumstances, even where it repudiated the contract.

You can get costs against a non party to proceedings, including a director of a company who funds litigation, in limited circumstances

The court has jurisdiction to make an award of costs against a non-party to proceedings pursuant to Order 15 r.13.

In Used Car Importers of Ireland Ltd. v. Minister for Finance (Unreported High Court (Gilligan J.) 27/3/14) the court refused to make an order against a director of the plaintiff company (hereinafter the director). The plaintiff sued the revenue commissioners arguing that the manner which the VRT system was operated lacked transparency, thereby causing loss to the plaintiff.

The director had ceased to be a shareholder and director of the plaintiff prior to hearing but at the hearing of the action it transpired that he would return as director and shareholder, if the plaintiff was successful in the action, for the purpose of benefiting from any award of damages.

The court applied Moorview Developments Ltd. v. First Active Plc [2011] IR 615. The court would make the order

  • if it was not reasonable to think that the company would meet the costs if it failed
  • if there was benefit to the non-party concerned
  • if the proceedings were pursued reasonably and in a reasonable fashion and
  • if the person sought be made liable was on reasonable notice of the fact that such an order might be sought

The court refused to order costs against the director on the basis that proceedings were pursued reasonably and in reasonable fashion. Further, the defendant had not put the director on reasonable notice that costs would be sought against him - the director was put on notice when a letter was written on the 11th day of at 33 day.

If a shareholder chooses to subsidise litigation of the company, adequate records should be kept. One of the problems in the within case was that there was no evidence before the court as to how much the shareholder had contributed and on what basis. If the shareholder loaned money to the company and the company discharged the legal bills, this would put the shareholder in a better position. If a party wishes to argue that a non-party such as a shareholder should be liable for the costs incurred in prosecuting or defending proceedings, it is advisable to send a warning letter to the non-party at the earliest possible opportunity.

After the event legal costs insurance not unlawful

If an insurance contract amounts to maintenance or champerty, it could be deemed unlawful unenforceable. Maintenance is the improper provision of support to litigation where the supporter has no direct or a legitimate interest. Champerty is where the person maintaining another's litigation stipulates for a share of the proceeds of the action.

After the event (ATE) costs insurance often involves the client only paying if they are successful in the claim. The insurer will often appoint a legal team on a no win no fee basis, but both the insurer and the legal team can withdraw if it is deemed more than likely that the client will lose the claim.

In Greenclean Waste Management Ltd. v. Maurice Leahy & Co. Solicitors (Unreported High Court Hogan J. 5/6/14) the plaintiff's claim against the defendant was that it negligently advised them in relation to it's repair obligation under a lease and negligently advised them in defending litigation arising from that lease. The plaintiff had previously avoided an order for security for costs when Hogan J. decided that the presence of the ATE alleviated the need.

The court held the policy in question did not amount to trafficking in litigation - the premium was payable where the coverage was terminated in advance of the determination of proceedings. ATE served an important need within the community by facilitating access to justice.

The decision may well be appealed to the Supreme Court. ATE may be a useful avenue where a plaintiff company may pursue the claim, where otherwise an order of the security of for costs could stop it in it's tracks.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Stephen O’Sullivan
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