Judgment Title: Greenclean Waste Management Ltd -v- Leahy p/a Maurice Leahy & Co. Solicitors (No.2)
Neutral Citation:  IEHC 314
High Court Record Number: 2009 7548 P
Date of Delivery: 05/06/2014
Court: High Court
Composition of Court:
Judgment by: Hogan J.
Status of Judgment: Approved
Neutral Citation:  IEHC 314
THE HIGH COURT
[2009 No. 7548 P]
GREENCLEAN WASTE MANAGEMENT LIMITED
MAURICE LEAHY PRACTISING UNDER THE SYLE AND TITLE OF MAURICE LEAHY & CO. SOLICITORS (No.2)
AND (BY ORDER)
DAS LEGAL EXPENSES INSURANCE COMPANY LIMITED
JUDGMENT of Mr. Justice Hogan delivered on 5th June, 2014
1. Is after the event (“ATE”) legal costs insurance illegal in this jurisdiction by reason of the tort of champerty or other analogous public policy considerations? This is essentially the issue which now arises following a direction in that behalf by the Supreme Court. That direction was given following an appeal by the defendant against an earlier decision of mine. My earlier judgment may be summarised by saying that I would not make an order for security for costs pursuant to s. 390 of the Companies Act 1963 (“the 1963 Act”) by reason of the fact that the plaintiff had acquired ATE insurance, the insolvency of the plaintiff company notwithstanding: see Greenclean Waste Management Co. Ltd. v. Leahy  IEHC 74.
2. In the present proceedings the plaintiff company sues for professional negligence arising from advices which were given initially in relation to the lease of certain industrial premises in 2001/2002. The plaintiff claims that the premises in question were in very poor condition at the end of the lease due to lack of effective maintenance coupled with wear and tear, so that a total refurbishment of the premises was required. The complaint here is that the defendants failed to advise it of the extent of its obligations under the repairing covenants under the lease.
3. In 2006 the lessor commenced an action in this Court claiming damages for breach of covenant against the plaintiff. These proceedings were ultimately settled the sum of €310,000, together with a contribution towards costs of some €150,000.
4. In these present proceedings, however, the plaintiff contends that the defendants were guilty of further and independent acts of breach of contract and professional negligence by, inter alia, failing to advise in relation to a relevant limitation period and by failing to disclose a material conflict of interest. So far as the latter point is concerned, it is contended that the defendants ought to have advised the plaintiff that it had a cause of action against a former principal of the firm who had given the original advice in relation to the lease. The defendants have denied that they were negligent in the manner in which they gave advise.
5. It was in response to the defendant’s motion for security for costs that the plaintiff fell back on the existence of the ATE insurance. As I have just noted, I ruled that, subject to the insurer giving an undertaking not to invoke a particular clause of the insurance policy, I was prepared to treat the existence of the ATE insurance as sufficient security in respect of any costs application which the defendant might make if they were to be successful in defending the proceedings. It was for that reason that I refused to make the order for security for costs.
6. The defendant appealed that decision to the Supreme Court. By order dated 25th September, 2013, that court directed of its motion that the appeal on the merits should stand adjourned, but that the matter should be remitted to me in the first instance to determine whether, as a matter of principle, ATE was champertous, illegal or otherwise unenforceable in law. The court also made an order joining the ATE insurer, DAS Legal Expenses Insurance Co. Ltd. (“DAS”), as a notice party to these proceedings. In effect, therefore, I am obliged for this purpose to consider the present status of the nominate tort of champerty in this jurisdiction and, perhaps more particularly, its present day extent and reach.
The present status of the tort of champerty
Leaving aside the incremental change and development which are standard features of the common law method, the courts can generally only develop or supplement the law of torts where this corpus of law has been shown to be “basically ineffective” to protect constitutional rights in a particular case…”
9. This legislative change was nonetheless significant in altering the legal landscape, so much so that English case-law which post-dated this change may not necessarily be “of great assistance in determining the extent of the court’s jurisdiction to order disclosure at an early stage of third party funder in a jurisdiction such as Ireland where champerty and maintenance remains the law”: Thema International Fund v. HSBC Institutional Trust Services (Ireland) Ltd.  IEHC 357,  3 IR 654, 661, per Clarke J. The actual significance of this legislative change may nonetheless be possibly overstated, since even the contemporary English case-law still evinces a suspicion of and a hostility to anything that smacks of trafficking in litigation: see, e.g., the decision of the English Court of Appeal in Simpson v. Norfolk and Norwich University Hospital NHS Trust  QB 640, a case which is discussed further below. Besides, s. 14(2) of the 1967 Act may be thought to have expressly preserved the common law as champerty and maintenance in civil (as distinct from criminal) matters.
10. Maintenance may be defined as the improper provision of support to litigation in which the supporter has no direct or legitimate interest. Champerty, on the other hand: “is an aggravated form of maintenance and occurs when a person maintaining another’s litigation stipulates for a share of the proceeds of the action or suit”: Camdex International Ltd. v. Bank of Zambia  Q.B. 22, 29, per Hobhouse L.J. Champerty may thus be described with only a little exaggeration as a secular form of simony within the legal system, for, as Hobhouse L.J. aptly put it in Camdex International, what “is objectionable is trafficking in litigation.”
11. Given that this is the conduct which underlies the basis for the tort, the scope of application of the law of champerty must thus accommodate itself to modern social realities and must be interpreted accordingly. The torts of maintenance and champerty were first formulated at a time when the legal system was weak, when the independence of the judiciary was not necessarily secure and the rules ensuring the attendance of witness and providing for their protection against attempts to interfere or suborn them were still in their infancy: see Giles v. Thompson  A.C. 143, 153, per Lord Mustill. Diverse concepts such as legal aid, representative actions, pro bono work, “no foal, no fee” arrangements and the involvement in litigation of community and voluntary groups and trade unions in support of their members all lay far into the future.
12. This reality had been recognised for quite some time by the English courts ever before the enactment of the 1967 Act. In British Cash and Parcel Conveyors Ltd. v. Lamson Store Service Co. Ltd.  1 K.B. 1005 the protagonists were rival manufacturers of certain machinery for the storage of cash. The defendants, having obtained contracts for the hire of their apparatus from three of the plaintiff’s customers, agreed to indemnify the customers against any claims against them for breach of contract. The plaintiff then successfully sued their former customers and obtained an award of damages and costs. The defendants then paid these awards under the contract of indemnity, at which point the plaintiffs sought damages and an injunction for what they said amounted to maintenance.
13. The English Court of Appeal overturned a finding of maintenance by the High Court. The words of both Cozens-Hardy M.R. and Fletcher Moulton L.J. are still very much in point. As the Master of the Rolls stated ( 1 K.B. 1005. 1012)::
15. There is, nonetheless, no doubt at all that the tort of champerty not only still exists in this jurisdiction, but that it also has a practical vibrancy. This is well illustrated by the Supreme Court’s decision in O’Keeffe v. Scales  1 I.R. 290, but also perhaps more recently by the judgment of Clarke J. in Thema International Fund plc v. HSBC Institutional Trust Services (Ireland) Ltd.  IEHC 654,  3 IR 654.
16. In O’Keeffe the plaintiffs had incurred a significant liability to their particular solicitor and this bill of costs was included in a head of claim in an action for professional negligence brought by them against their former solicitor. The defendant contended that this arrangement amounted to champerty. The Supreme Court apparently indicated that the arrangement was not champertous, but indicated that even if it were, it could not be used to “deprive people of their constitutional right of access to the courts to litigate reasonably stateable claims”:  1 I.R. 290, 295, per Lynch J. It follows that even a champertous law suit should not be struck out on that ground, as the remedy in that situation is for the injured party to sue for damages for the tort of champerty.
17. In Thema International the question was whether the defendants (who were sued in their capacity as funds custodian) were entitled to details of third party funding of the plaintiff.
18. Clarke J. held that the defendants were not so entitled, provided that the plaintiff informed the third party funder kept appropriate records of such funding and that the third party funder was informed that it might be made amendable to a third party costs order. Clarke J. was, however, satisfied ( 3 IR 654,659) on the facts that the third party funder had “a sufficient connection with the plaintiff so as to take that funding outside the scope of maintenance and/or champerty.”
19. Clarke J. nevertheless went on to observe ( 3 IR 654, 662):
That such parties are, even though they not be guilty of maintenance or champerty, exposed to potential orders for costs is clear….. However, such parties are not, in my view, in the same category as professional third party funders who make a commercial decision to “invest” in litigation in the hope of making a profit. After all, if the litigation is well founded then the shareholder or creditor is only getting their due. If an insolvent company has a good cause of action, then the shareholders or creditors who might benefit by any recovery on foot of that cause of action are getting no more than their entitlements. If the proceedings are bona fide progressed, then such parties are simply funding an entity in which they have a legitimate interest in the hope that that entity will be able to pay them monies due (in the case of creditors) or dividends or capital distributions (in the case of shareholders). The law of maintenance and champerty always made a distinction between such parties and professional third party funders. It seems to me that it is appropriate to maintain that distinction.”
21. The English Court of Appeal held that the bare assignment for consideration of a cause of action for personal injuries was nonetheless unlawful. As Moore-Bick L.J. explained ( QB 640, 652):
24. As Lynch J. made clear in O’Keffee, the law in relation to maintenance and champerty must be viewed - and, if necessary, modified - in the light of these modern principles and general constitutional understanding. One of these principles is that the courts should not place any unnecessary obstacles in the path of those with a legitimate claim. Indeed, this is why disproportionate legislative fetters on the right of access to the courts - such as the requirement contained in s. 2(1) of the Ministers and Secretaries Act 1924 to obtain the prior fiat of the Attorney General before suing a Government Minister which was at issue in Macauley - have generally been found to be unconstitutional. Accordingly, methods by which litigants can be assisted by others should be scrutinised with these principles in mind.
25. Against this background it can be said that agreements which involve the trafficking in litigation or - as in Simpson - which concern the assignment of a bare cause of action for purposes which the law does not recognise as legitimate will be held to be void as contrary to public policy on the ground that they savour of champerty. That, in my opinion, is true leitmotif which runs through all of this case-law in this area.
Does ATE insurance savour of champerty?
Your policy is linked to your no win no fee agreement and (unless it is ended earlier, in line with its terms) operates for the duration of your no win no fee agreement. The insurance premium due for your policy is payable at the end of your claim (by court decision or settlement) or when your policy ends if this is sooner. We can end cover under your policy if we and your solicitor agree that it is more likely than not that you will lose your claim.”
(a) if you lose; or
(b) if your claim is withdrawn by agreement on us and your solicitor after the start date of your no win no fee agreement; or
(c) if, after a lodgement or tender, you win but a court awards you damages that are less than the offer to settle, provided your solicitor has advised you not to accept the lodgement or tender.
We will pay your opponent’s legal expenses and outlays arising from any order the court makes against you but not for order for costs where there has been non-compliance with the rules or order of the court.”
(b) you dismiss your solicitor without good reason; or
(c) your no-win no-fee arrangement ends for any reason; or
(d) you stop your claim without our agreement and that of your solicitor; or
(e) you do not give suitable instructions to your solicitor.”
24. In passing it may be noted that Lord Mustill took a similar view on this point in Giles v. Thompson  AC 142, 162. In that case the plaintiffs had suffered damage to their motor vehicles for which the defendants were to blame. The plaintiffs had entered into agreement with car hire companies who specialised in hiring vehicles to such plaintiffs while their own were being repaired. One of the agreements provided that the car hire companies should have the right to pursue defendants for these costs in the name of the plaintiff, with the litigation conducted by the solicitor chosen by the car hire company.
25. The House of Lords decided - in the admittedly different atmosphere of the aftermath of the enactment of the 1967 Act - that these arrangements were not champertous, as the car hire companies had a legitimate interest in recovering these costs. Lord Mustill specifically rejected the argument that the nominated solicitor clause was objectionable, because the motorist still retained ultimate control of the proceedings, even if the termination of the solicitor’s retainer meant that the hiring charges of the motor vehicle were payable immediately. In my view, this reasoning also applies by analogy to the present situation.
26. In truth, the real objection to ATE insurance is to 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 as simply 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 ATE coverage was confined to this, then I think the argument that it savoured of champerty and was therefore void as contrary to public policy would be almost unanswerable.
27. Yet there is more to ATE than this. There are certainly some cases - even if doubtless a minority of cases - where ATE is payable to cover the insured’s legal costs even where the insured has lost the litigation. The premium is also payable where the coverage is terminated in advance of the determination of the proceedings. It should also be borne in mind that ATE also serves important needs within the community by facilitating access to justice for persons and entities who might otherwise be denied this. In that regard, ATE insurers provide a legitimate service by providing access to justice and this service cannot properly be regarded as simply regarded as either investing in or trafficking in litigation.
28. Taken in the round, therefore, I find myself inclining to the conclusion that ATE insurance - at least in the form in which it manifests itself in these proceedings - is not on the whole champertous or amounting to maintenance. And reverting to the previous simile of secular simony, it may well be that if the venerable judges and jurists who first formulated the torts of champerty and maintenance sometime between the days of the Yearbooks of the courts of Henry IV and the emergence of the nominate law reports in the 16th and 17th centuries were to realise the direction in which the common law might now be heading, they would doubtless rise from their graves and affix their own theses of protest outside wherever the legal equivalent of Wittenberg Cathedral happens to be.
29. Yet, as Cozens-Hardy M.R. recognised over 100 years ago in British Cash, 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 conceptions of propriety, ATE insurance amounts to trafficking in litigation. For the reasons I have given, I conclude 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.