Court considers whether After the Event (ATE) Legal Costs Insurance provides sufficient protection for Costs

On 8 May 2015, in Greenclean Waste Management Ltd v Leahy p/a Maurice Leahy & Co. Solicitors [2015] IECA 97, the Court of Appeal considered whether the trial judge was correct to refuse to order security for costs by virtue of the existence of the insolvent plaintiff's 'After the Event' (ATE) insurance policy.

In another judgment, Greenclean Waste Management Ltd v Leahy p/a Maurice Leahy & Co. Solicitors (No.2)  [2014] IEHC 314, Hogan J. concluded that the ATE insurance policy did not amount to either maintenance or champerty and was therefore valid and enforceable (see our previous update here). 

Court of Appeal Decision
On the facts of the case, Kelly J. (Peart and Irvine JJ. concurring) ruled that the trial judge was in error in refusing security for costs, as there was insufficient evidence before the High Court to demonstrate the existence of an effective ATE insurance policy. He found that the trial judge had not taken account of the highly conditional nature of the policy and the fact that it could be avoided for a substantial number of reasons which were outside the control, responsibility or knowledge of the defendant. He concluded that the ATE insurance policy in question did not provide a sufficient security to the defendant to warrant refusal of an order for security for costs. 

ATE Insurance and Security for Costs
In determining whether ATE insurance provided adequate or effective security for the defending party's costs,  Clarke J. approved Akenhead J's views in Michael Philips Architects Limited v Riklin [2010] EWHC 834 (TCC) that:

"(a) There is no reason in principle why an ATE insurance policy which covers the claimant's liability to pay the defendant's costs, subject to its terms, could not provide some or some element of security for the defendant's costs. It can provide sufficient protection.

(b) It will be a rare case where the ATE insurance policy can provide as good security as a payment into court or a bank bond or guarantee. That will be, amongst other reasons, because insurance policies are voidable by the insurers and subject to cancellation for many reasons, none of which are within the control or responsibility of the defendant, and because the promise to pay under the policy will be to the claimant.

(c) It is necessary where reliance is placed by a claimant on an ATE insurance policy to resist or limit a security for costs application for it to be demonstrated that it actually does provide some security. Put another way, there must not be terms pursuant to which or circumstances in which the insurers can readily but legitimately and contractually avoid liability to pay out for the defendant's costs.

(d) There is no reason in principle why the amount fixed by a security for costs order could not be somewhat reduced to take into account any realistic probability that the ATE insurance would cover the costs of the defendant."

Comment
The Court of Appeal's decision shows that the existence of an ATE insurance policy is a factor which a court will give consideration to in exercising its discretion as to whether to order security for costs.  Whether an ATE insurance policy will be deemed to provide sufficient protection to the defendant will depend on terms of the particular policy in question.

However, Atkenhead J's comment that it will be "a rare case where the ATE insurance can provide as good security as a payment into court or a bank bond or guarantee" shows that it may only be in limited circumstances that the court will view an ATE insurance policy as a viable alternative to an order for security for costs.

For further information please contact Davinia Brennan at dbrennan@algoodbody.com or your usual contact at A&L Goodbody.

Date published: 26 May 2015