Introduction
Following an appeal to the Supreme Court, Greenclean Waste
Management Limited v Leahy has come before the High Court for a
second time. The High Court upheld the validity of an
after-the-event insurance policy and expressly confirmed that
after-the-event insurance does not fall foul of the tort of
maintenance or champerty.
Unlike in many other common law jurisdictions, the torts of
maintenance and champerty continue to exist in Ireland. Litigation
funding is an issue that has recently come to the fore, putting the
ancient laws of maintenance and champerty under the
spotlight.
The High Court confirmed that the rules against maintenance and
champerty remain applicable in an Irish context and after-the-event
policies must comply with these rules in order to be valid and
enforceable. However, the court found that the policy did not
breach the common law principles of champerty or maintenance. The
law of champerty must be interpreted in line with modern ideas and
realities. After-the-event insurance serves an important purpose in
allowing those who would otherwise have no access to the courts to
enjoy such access.
Background
After-the-event insurance is a relatively new form of insurance
product, at least in Ireland. It is a form of insurance taken out
in the wake of a specific event and is often closely linked to
'no win, no fee' arrangements.
The High Court delivered a previous judgment in this case in 2013,
in the context of an application for security for costs (for
further details please see "Can after-the-event insurance substitute security
for costs?"). It considered whether an after-the-event
insurance policy could effectively substitute security for cost and
concluded that the policy in question could provide adequate
security to a defendant only in circumstances where the
plaintiff's insurer gave an assurance that it would not rely on
a prospect of success clause to deny cover.
The defendant appealed to the Supreme Court and the matter was
remitted to the High Court for a determination as to whether
after-the-event insurance was champertous, illegal or otherwise
unenforceable in Irish law. The Supreme Court also made an order
joining the after-the-event insurer as a notice party to the
proceedings.
High Court judgment
The High Court acknowledged that the torts of maintenance and champerty were first formulated at a time when:
- the legal system was weak;
- the independence of the judiciary was not necessarily secure; and
- the rules ensuring the attendance of witnesses and providing for their protection against attempts to interfere were still in their infancy.
The High Court considered that "the law of champerty must
accommodate itself to modern social realities" and be
interpreted accordingly. Nonetheless, there was no doubt that the
tort of champerty not only still exists in Ireland, but also has a
practical vibrancy. The High Court cited Thema International Fund
plc v HSBC Institutional Trust Services (Ireland) Limited (2011)
and considered that the principle expounded therein related to
trafficking in litigation. The law in relation to maintenance and
champerty must be viewed and, if necessary, modified in light of
modern principles and general constitutional understanding. One of
these principles is that the High Court should place no unnecessary
obstacles in the path of those with a legitimate claim. However,
agreements which involve trafficking in litigation or concern the
assignment of a bare cause of action for purposes which the law
does not recognise as legitimate would be held void as contrary to
public policy.
The High Court pointed out that the real objection to
after-the-event insurance is the size of the premium and the fact
that it is normally payable only after a positive court decision or
settlement. At one level, it is easy to represent this simply as a
disguised method of investing in litigation and recovering a share
of the proceeds of the action under the guise of a handsome
premium. If after-the-event coverage were confined in this matter,
the High Court considered it would be champertous and void as
contrary to public policy.
However, the High Court considered that there is more to
after-the-event insurance, and in particular pointed out that it
serves important needs within the community by facilitating access
to justice for persons and entities that might otherwise be denied
such access. After-the-event insurers provide a legitimate service
by providing access to justice, and this service cannot be properly
regarded as simply investing in or trafficking in litigation.
The High Court concluded that after-the-event insurance (at least
in the form of the after-the-event policy before the High Court in
this case) is not on the whole champertous; nor does it amount to
maintenance. The High Court considered that while the general
parameters of the torts of champerty and maintenance are clear, the
modern application of these principles is not frozen by reference
to the social conditions and public policy considerations which
pertained several hundred years ago. The law must accordingly move
on and assess whether, by reference to modern concepts of
propriety, after-the-event insurance amounts to trafficking in
litigation. The High Court concluded that on the whole it does not
and that, insofar as the insurer provides financial assistance to
the litigant, it has a legitimate interest in the outcome.
Comment
This is an important decision as it expressly confirms for the first time that after-the-event insurance does not fall foul of the rules of maintenance and champerty, notwithstanding that these rules continue to have "practical vibrancy" in Ireland. Whether after-the-event insurance becomes more widely available on the Irish market and a feature of the Irish litigation landscape as a result of this judgment remains to be seen.
This article first appeared in the International Law Office Insurance newsletter 9 September 2014.
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.