1 | ARTHUR COX
Group Briefing
July 2015
ARTHUR COX - KEY CONTACTS
DONOGH CROWLEY
PARTNER, LITIGATION & DISPUTE RESOLUTION
+353 1 618 0410
donogh.crowley@arthurcox.com
LITIGATION AND DISPUTE RESOLUTION
Can an ATE Insurance Policy
Defeat an Application for
Security for Costs?
What is the effect of an After the
Event (“ATE”) insurance policy on an
application for security for costs? The
Court of Appeal considered this question
for the first time in Greenclean Waste
Management Ltd v Leahy [2015] IECA 97,
where a “hopelessly insolvent” company
was seeking damages against its former
solicitor for professional negligence.
WHAT IS ATE INSURANCE?
DAVID O’DONOHOE
PARTNER, LITIGATION & DISPUTE RESOLUTION
+353 1 618 0440
david.odonohoe@arthurcox.com
DAVID STRAHAN
ASSOCIATE, LITIGATION & DISPUTE RESOLUTION
+353 1 618 0423
david.strahan@arthurcox.com
This document contains a general summary of
developments and is not a complete or definitive
statement of the law. Specific legal advice should be
obtained where appropriate.
ATE insurance enables plaintiffs to
insure against the risk of having to pay
a defendant’s legal costs, and cover their
own outlay, in the event that they lose.
The cover is taken out after the dispute has
arisen and the premium is usually only
payable if the plaintiff’s claim is successful.
As we reported last July, the High Court
in Greenclean upheld the legality of an
ATE insurance policy for the first time in
this jurisdiction, finding that it does not
offend against the torts of maintenance
or champerty. Maintenance is the
improper funding of litigation by
somebody who has no legitimate
interest in it. Champerty is an aggravated
form of maintenance that involves a
person maintaining another’s action to
share in the proceeds of that action.
The High Court further held that the
specific policy sufficiently mitigated the
risk that Greenclean, as plaintiff, would be
unable to pay the defendant’s costs in the
event that it lost its action. Accordingly,
the High Court refused to grant an order
for security for costs. The defendant, who
was seeking the security, appealed this
decision to the Court of Appeal.
CAN AN ATE INSURANCE POLICY DEFEAT AN
APPLICATION FOR SECURITY FOR COSTS?
An order for security for costs is an order
requiring a plaintiff to provide security
(usually by way of cash lodged in Court or a
bond) to cover the costs that the defendant
is likely to incur in defending the case. If the
defendant successfully defends the case, the
plaintiff may be liable for his costs.
In this case, the Court of Appeal held
that there is no reason in principle why
an ATE policy cannot provide sufficient
security for a defendant’s costs so as to
justify a refusal of an order for security.
In deciding whether to order security in
circumstances where a plaintiff has ATE
insurance, the Court must consider the
following questions:
»» Is the plaintiff unable to pay the
defendant’s costs?
»» Has the defendant established a
prima facie defence?
If the answer to these questions is yes,
the Court will have regard to the ATE
insurance policy when considering
whether to exercise its discretion to
make an order for security for costs.
2 | ARTHUR COX
LITIGATION AND DISPUTE RESOLUTION
CAN AN ATE INSURANCE POLICY DEFEAT AN
APPLICATION FOR SECURITY FOR COSTS?
WAS THE ATE POLICY IN THE PRESENT CASE
GENERAL PRINCIPLES ADOPTED BY THE COURT OF
SUFFICIENT TO DEFEAT THE APPLICATION FOR
APPEAL
SECURITY FOR COSTS?
The Court noted that while ATE
insurance has only recently “crept”
into this jurisdiction, it is relatively
common in England and Wales and the
courts there have previously considered
how it can impact on applications for
security for costs. The Court adopted the
following general principles from the
English courts:
A plaintiff who seeks to rely upon an ATE
policy to defeat a defendant’s application
for security for costs will need to avoid the
pitfalls of conditionality and voidability
which proved fatal in the Greenclean
case. This will involve reviewing in
detail the provisions of the policy before
signing. The plaintiff will also need to be
fully prepared to address any potential
weaknesses in the policy in the event of
an application for security for costs. In
Greenclean, Kelly J commented on the fact
that the defendants had raised fourteen
criticisms of the ATE policy and the
plaintiffs had at no stage addressed these.
No, the Court of Appeal concluded that
on the basis of the information put
before it, there was no justification for
refusing an order for security for costs.
The policy was expressly conditional on
the existence of a no-win no-fee agreement
which provided that Greenclean’s solicitor
would not take a fee if the claim failed.
Kelly J stated that Greenclean’s failure to
put this agreement before the court, as a
“fundamental proof”, was the first and most
important matter. It effectively meant that
the Court could not be satisfied that the
ATE policy had come into effect.
The Court found that even if the no-win
no-fee agreement had been produced,
the ATE policy was so conditional that it
could not provide sufficient security to the
defendant to warrant the refusal of an order
for security for costs. Kelly J noted that the
policy was voidable for many reasons which
were outside the control, responsibility and
knowledge of the defendant.
One such clause, which had particularly
concerned the High Court, was the
“prospects clause”. This clause allowed the
insurers to end cover under the policy if
they, after discussion with Greenclean’s
solicitor, were of the opinion that
Greenclean would more likely than not
lose the case. An undertaking by the
insurers not to exercise the “prospects
clause” satisfied the High Court that the
policy negated the need for an order for
security for costs. However, the Court
of Appeal disagreed stating there were
numerous other issues which had not
been similarly resolved. Examples of
these included the fact that the policy
would terminate “at once” if Greenclean’s
solicitor “refuse[d] to continue acting for
[Greenclean] with good reason” or the “nowin no-fee agreement end[ed] for any reason”.
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»» There is no reason in principle why
an ATE insurance policy cannot
provide sufficient security for costs,
even if it cannot provide complete
security for costs.
»» An ATE insurance policy will
rarely provide as good security as a
payment into court or a bank bond
or guarantee due to its conditionality
and voidability.
»» An ATE insurance policy must
provide security as a matter of fact.
Reliance upon an ATE policy to avoid
an order for security for costs being
made against a plaintiff is not without
consequences for the insurer involved.
The insurer may be asked to give an
undertaking not to exercise certain
provisions under the insurance policy,
such as a “prospects clause.”
WHAT DOES THIS MEAN FOR PLAINTIFFS,
DEFENDANTS AND ATE INSURERS?
The High Court and Court of Appeal
judgments in Greenclean suggest that
ATE insurance might be a legitimate
means of financing litigation in this
jurisdiction. This method will likely
prove most attractive to plaintiffs in
financial difficulties (including the
liquidators of insolvent companies).
It will also allow plaintiffs to manage
risk and obtain more certainty as
regards their likely expenditure on the
litigation in question. It may provide
an opportunity for Irish companies to
transfer some of the risks of litigation,
which can be costly and unpredictable.
However it is worth noting that, in
general, ATE insurance policies are
expensive. In Greenclean, the premium
was €52,500 for a maximum policy
cover of €210,000.
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