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Cite as: [2006] 3 IR 379, [2006] IESC 30

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Judgment Title: Byrne -v- O'Connor, John & Co

Neutral Citation: [2006] IESC 30

Supreme Court Record Number: 287/00

High Court Record Number: 1996 No. 2020P

Date of Delivery: 15/05/2006

Court: Supreme Court

Composition of Court: Mc Guinness J., Kearns J., Macken J.

Judgment by: Kearns J.

Status of Judgment: Approved


Judgments by	Result	Concurring
Kearns J.	Appeal dismissed - affirm High Court Order	Mc Guinness J., Macken J.

THE SUPREME COURT

McGuinness J.
Kearns J.
Macken J.

[2000/287]

BETWEEN

PETER BYRNE

PLAINTIFF/RESPONDENT

AND
JOHN S. O’CONNOR & CO. SOLICITORS

DEFENDANTS/RESPONDENTS

AND
BY ORDER MADE THE 15TH DAY OF OCTOBER, 1999 ADMIRAL UNDERWRITING AGENTS (IRELAND) LTD

DEFENDANTS/APPELLANTS

JUDGMENT of Mr. Justice Kearns delivered the 15th day of May, 2006

This is an appeal brought on behalf of Admiral Underwriting Agents (Ireland) Ltd. from an order of the High Court (O’Donovan J.) dated the 15th October, 1999, whereby the application of Giles J. Kennedy & Co., solicitors, to come off record for the defendants pursuant to Order 7 of the Rules of the Superior Courts was granted, but was granted, however, on the basis that Admiral Underwriting Agents (Ireland) Ltd. were joined as a notice party to the proceedings and directed to pay both the costs incurred by the plaintiff in the proceedings to date and the costs incurred in relation to the application by Mr. Michael O’Connor, executor of the estate of the late Patrick J. O’Connor, former principal of the defendant firm. It was further ordered that, in default of such payment of costs as aforesaid, the application to come off record would stand refused.

The background facts may be briefly stated. The plaintiff was allegedly the victim of an assault perpetrated against him by employees of a public house in Rathmines in the city of Dublin on the 11th July, 1986. He instructed the defendant firm of solicitors to act on his behalf in proceedings in which he claimed damages for assault. The person in the defendant firm of solicitors with whom he dealt was Mr. John O’Connor. Mr. John O’Connor was not a qualified solicitor and misled the plaintiff into believing that legal proceedings on his behalf had been initiated and that a judgment on foot of a settlement meeting had been entered in the High Court Central Office. In fact, no such settlement had ever been arrived at, nor had any proceedings been commenced on the plaintiff’s behalf. The plaintiff’s claim in the circumstances became statute barred on the 11th July, 1989.

On ascertaining the true facts the plaintiff wrote to the Law Society and intimated a claim against the defendant firm for negligence. On the 10th May, 1993, Mr. Michael O’Connor, then a solicitor in the defendant firm and a son of Mr. Patrick O’Connor, principal of the firm, received a letter from the Law Society in consequence of which on the 9th June, 1993 he notified the possibility of a claim from Mr. Byrne to the insurers of John S. O’Connor & Co., namely, Admiral Underwriting Agents (Ireland) Ltd., the appellants herein.

By letter dated 16th August, 1994, Messrs, Orpen Franks, solicitors, wrote to Michael O’Connor, who was by that time working as a solicitor with Messrs. Ivor Fitzpatrick & Co., confirming that they had been nominated to act on behalf of the appellants. On the 24th August, 1994, Mr. O’Connor furnished the original file in relation to the plaintiff to Messrs. Orpen Franks.

On 18th January, 1995, Messrs. Orpen Franks wrote to the principal of the defendant firm, Mr. Patrick O’Connor, seeking an interview with Mr. Patrick O’Connor in relation to a proposed claim by the plaintiff against the practice of John S. O’Connor & Co. Mr. Patrick O’Connor furnished a reply to this letter on the 31st January, 1995.

On the 13th November, 1995, Messrs. Orpen Franks wrote to Mr. Michael O’Connor in the following terms:-

“We are writing to advise that our client is prepared to provide indemnity under the insurance policy taken out by John S. O’Connor & Co. for 1993/1994. The first notification of this claim was by letter from your good self to J.H. Minet (Insurance) Ltd., dated 9th June, 1993. Indemnity is provided subject to the proviso that should evidence come to light during proceedings and/or negotiations that the insured was aware of this matter prior to May, 1993, indemnity will be withdrawn.”

Thereafter a plenary summons was issued on behalf of the plaintiff on the 6th March, 1996, in which the plaintiff claimed damages for breach of contract and negligence against the defendant firm. Messrs. Orpen Franks duly entered an appearance to the said summons on the 2nd September, 1997. It appears a statement of claim had been delivered on the 19th March, 1996, in respect of which a notice for particulars was raised on the 25th September, 1997. A reply to the notice for particulars was furnished on the 11th November, 1997. Messrs. Orpen Franks delivered a defence on the 25th September, 1997, and a reply thereto was delivered on the 11th November, 1997.

On 25th June, 1998, a further request for particulars was served on the plaintiff’s solicitors, to which a reply was delivered on the 3rd November, 1998.

It is clear from the foregoing history that from the month of November, 1993, matters progressed in relation to this claim as though indemnity and insurance cover in the normal way were being provided. However, on the 28th November, 1998, the insurers changed their solicitors and appointed Messrs. Giles J. Kennedy & Co. Solicitors, to replace Messrs. Orpen Franks. A notice of change of solicitor was filed in the Central Office of the High Court on the 16th December, 1998.

On the 14th December, 1998, Mr. Giles Kennedy wrote to Mr. Michael O’Connor to confirm that his firm was now acting for Admiral Underwriting Agents (Ireland) Ltd. The letter raised a number of matters, suggesting, inter alia, that there had been material non disclosure of facts relating to possible claims by the defendant firm and that there was a material deficiency in the Client Funds of the firm. The letter sought a meeting with Mr O’Connor but also strongly hinted that, in the view of Mr. Kennedy at least, the defendant firm was not entitled to an indemnity in respect of the plaintiff’s claim. By letter of even date to the plaintiff’s solicitors, the position was stated more starkly as follows:-

“Serious difficulties have now developed in respect of the policy of insurance and we expect that within the next few weeks we will be advising you of our client’s intention to decline the claim and/or to repudiate or avoid cover ab initio for non disclosure of material facts.”

It should be noted that Mr. Patrick O’Connor had by then died. The practice of which he was principal had ceased business some years previously on the 1st April, 1993. Messrs. Gore & Grimes thereafter represented the estate of Patrick O’Connor of which Mr Michael O’Connor is executor.

The negligence claim against the defendant firm was ultimately listed for hearing in the High Court on the 4th May, 1999. On the 22nd March, 1999, notice of repudiation was given to Messrs Gore & Grimes by Messrs Giles Kennedy & Co. On the 24th March, 1999, Mr. Kennedy wrote to the plaintiff’s solicitors to advise that his firm proposed to come off record in the case. The letter also advised the plaintiff’s solicitors that Mr. Kennedy had requested Messrs. Gore & Grimes to file a notice of change of solicitor and stressed that in the event of their refusal to file such notice, he intended to issue a motion to come off record in the first week of the following law term.

The motion to come off record was linked to the main action, both of which duly came on for hearing before O’Donovan J. in the High Court and this Court has had the benefit of counsel’s note of the hearing which took place on successive dates, being the 8th October, 1999, and the 15th October, 1999. On the 8th October, 1999, counsel on behalf of the defendant firm, Mr. Seamus Gilhooly, Senior Counsel, requested that the trial judge first deal with the motion dated 29th April, 1999, whereby an order was sought pursuant to Order 7, Rule 3 of the Rules of the Superior Courts seeking liberty for the solicitor acting on behalf of the defendants to come off record.

In the course of the hearing before O’Donovan J., Mr. John Peart, Senior Counsel for the plaintiff, argued that the plaintiff had been led to believe over a period of many years that the defendant’s insurance company was dealing with the matter in the normal way on behalf of the defendant firm. Mr. Peart noted that Messrs Giles Kennedy & Co. still seemed to have instructions from the insurers and were in fact continuing to act on their behalf. Counsel for the estate of the late Patrick O’Connor also objected to the application because of the delay which had occurred prior to any notification of purported avoidance of the policy.

In response, Mr. Gilhooly stated that notice to avoid had been given by letter dated 22nd March, 1999, addressed to Mr. David Martin, solicitor, of Messrs. Gore & Grimes Solicitors, acting for the estate of the late Patrick O’Connor.

Having heard the various submissions, O’Donovan J. adjourned the matter for one week, indicating that he wished to have a representative from the insurance company present in court on that day. Further submissions were received by O’Donovan J. on the 15th October, when Mr. Peart strongly argued that the plaintiff would suffer the ultimate prejudice of having no remedy of any sort if there was no insurance cover, not even for costs bona fide incurred in prosecuting the claim to date. Mr. Peart requested that the appellants be joined as parties to the proceedings. O’Donovan J. indicated that he found the situation very unsatisfactory, but decided to permit Messrs. Giles J. Kennedy and Co. to come off record on terms which included joining Admiral Underwriting Agents (Ireland) Ltd. as a defendant in the proceedings and in making the order for costs already referred to.

Insofar as the present appeal to this Court is concerned, counsel on both sides accept that there is no direct cause of action as between the plaintiff and the insurer. In the events which have transpired, the only outstanding issue is whether or not the trial judge was entitled to join the insurer as a defendant in the proceedings with a view to providing for an effective costs order which he felt was appropriate having regard to the history of the case. Mr. Gilhooly submitted that there was no jurisdiction to join a non-party to proceedings for the sole purpose of ordering that party to pay costs where no cause of action could be shown against such party.

Particular reliance was placed by Mr. Gilhooly on the following ground contained on the notice of appeal dated 9th November, 2000, which states as follows:-

“The liability of Admiral Underwriting Agents (Ireland) Ltd., if any, for the loss and damage of the plaintiff and the costs of these proceedings is a matter to be determined in separate proceedings in the event that either the plaintiff or John S. O’Connor & Co. seek to challenge the decision of Admiral Underwriting Agents (Ireland) Ltd. to repudiate liability under the policy of insurance between John S. O’Connor & Co. and Admiral Underwriting Agents (Ireland) Ltd. The effect of the order appealed against is to remove the rights of Admiral underwriting Agents (Ireland) Ltd. under the contract of insurance and compel it to pay costs in the absence of legal liability.”

This ground of appeal was understood by the Court to refer to the possibility that an arbitration might at some time take place between the defendant firm and its insurers to determine whether or not the insurers were entitled to avoid the policy. In the course of making submissions to the Court, Mr. Gilhooly stated that the possibility of any such development, if it were to happen, would be quite irrelevant in the context of the nett issue which the Court had to determine, namely, whether the trial judge had jurisdiction to make an order in the form and to the effect which he did on the 15th October, 1999.

It appears, however, that Mr. Gilhooly’s instructions were singularly lacking in relation to any ‘possible’ arbitration proceedings. Counsel for the estate of the late Patrick O’Connor advised the Court that arbitration proceedings about the policy were in fact in being and had been in being for several years. Mr. Gilhooly thereupon sought and received confirmation from his own solicitors that this indeed was the position. The failure to inform Mr. Gilhooly of this fact was, to say the least of it, a singular omission. Following the conclusion of the hearing the Court requested sight of the arbitration papers from which it now appears that Ms. Elma Lynch, President of the Law Society, had appointed an arbitrator in this matter as far back as the 28th February, 2002. Directions for the arbitration had been furnished in writing by the arbitrator to both Messrs. Giles J. Kennedy & Co. for the insurers and to Messrs. Gore & Grimes for Mr. Michael O’Connor, on the 15th May, 2002.

The Court accepts Mr. Gilhooly’s assurance that he had no knowledge of these developments and had not been told of same. They do, however, strike this Court as being of some considerable importance, given that the outcome of the arbitration proceedings will obviously determine the propriety or otherwise of the purported avoidance of the insurance contract, which in turn was the premise for the application to come off record by Messrs. Giles J. Kennedy & Co. It is to be noted in this particular context that this is emphatically not a case where the application to come off record was made because of some disagreement or difficulty arising between the insurer and the firm of solicitors nominated on their behalf.

In those particular circumstances, the Court is greatly concerned as to why it was considered necessary to continue with this appeal in circumstances where all issues in relation to the validity of the insurance policy are being dealt with elsewhere. If the insurer is unsuccessful in the arbitration, the overwhelming probability must be that Messrs Giles Kennedy & Co would be re-nominated to defend the court proceedings. For these reasons the Court is even more concerned that the fact of the arbitration proceedings was not disclosed to counsel for the appellants and came to light only as a result of an intervention from counsel acting for the estate of the late Mr. O’Connor.

Putting those considerations to one side for the moment, the court is satisfied that the learned High Court judge had jurisdiction to make the order which he did. The relevant portion of Order 15 r.13 of the Rules of the Superior Court Rules provides:-

“The Court may at any stage of the proceedings….and on such terms as may appear to the Court to be just, order that…the names of any parties….whose presence before the Court may be necessary in order to enable the court effectually and completely to adjudicate upon and settle all the questions involved in the case or matter, be added.”

Where an insurer exercises its right of subrogation to take over the defence of legal proceedings, as occurred in this case, it effectively stands in the shoes of the party concerned, usually a defendant or third party. It makes all the decisions about the conduct of the case, including ultimate decisions as to whether the litigation be fully fought out or compromised. A plaintiff will always be on hazard that an insurer, even after exercising its right of subrogation, may become aware of matters which would entitle it to avoid the policy and thus terminate its involvement in the dispute or litigation between the original parties. However, the interests of justice do not favour excessive delay on the part of an insurer who eventually elects to repudiate, unless reasonable and diligent inquiries would have failed to reveal the material upon which reliance is ultimately placed to avoid the policy. There is no suggestion that any such difficulty would have attended diligent inquiry in this case. Further, an insurer must be taken as being well aware that a plaintiff will incur legal costs as litigation proceeds towards trial and in this case the application to come off record was only heard on the day when the main action itself was listed for hearing. The delay on all counts by the appellants in this case has not been justified, explained or excused before this Court. Furthermore, the entire application may yet prove to be misconceived if the arbitration proceedings are resolved in favour of the defendant firm. In all of this the decisions of the insurers as to strategy and tactics have had a direct impact on the interests of the plaintiff who ran up costs as he continued to proceed in the bona fide belief that the defendant firm had valid insurance. Those costs can only be seen as a collateral though integral part of the “questions involved in the cause or matter.” Without an order of the kind made by O’Donovan J., a considerable injustice would have resulted for the plaintiff, who not only was deprived of a mark in damages for his claim in negligence but was in addition left with a bill for the legal costs incurred in pursuing a remedy which, on the known facts, he was clearly entitled to pursue.

Valuable precedent for the sensible course adopted by O’Donovan J. in the High Court may be found in a decision of this Court in O’Fearail v. McManus [1994] 2 I.L.R.M. 81. In that case a solicitor on record made an application under Order 7, Rule 3 of the Rules of the Superior Courts, 1986, for an order declaring that he had ceased to be the solicitor acting for party to the proceedings. The plaintiff in that case had initiated proceedings against the defendant for personal injuries arising from an alleged assault in 1990. It was claimed that the defendant’s car had dragged the plaintiff and caused him to fall from his bicycle. The insurance company which provided cover to the defendant in respect of the driving of his car instructed a solicitor to act in the matter and he subsequently delivered a defence in relation to the claim. However, the insurance company then took the view that the alleged incident was not covered by the defendant’s policy of motor insurance and that it should no longer be involved in the matter. The solicitor applied under Order 7, Rule 3 to come off record. On 15th November, 1993, Johnson J. refused the application on the grounds there had been no fraud or impropriety on the part of the defendant and the difficulties which had arisen were attributable to the insurance company failing to carry out a sufficient investigation before it instructed the applicant.

In allowing the applicants appeal, the Supreme Court (O’Flaherty J; Egan and Denham JJ. concurring) nonetheless directed that the insurance company should be liable for costs. At p.83 O’Flaherty J. stated:-

“The present situation, as it has unfolded before us, is that the insurance, rightly or wrongly, has repudiated. It says that it does not want Mr. O’Brien to act any longer and I think in those circumstances it would be a forced form of liaison to say to Mr. O’Brien that he should continue to act for this defendant and I would in the circumstances allow him to come off record and to that extent I would reverse the order of the learned High Court judge. I would do so, however, on condition that the costs both in the High Court and of this hearing will be paid, not by Mr. O’Brien, but by the insurance company concerned and I would look for Mr. Comyn’s undertaking in that regard that the insurance company will discharge the costs of all parties.”

Given that the particular undertaking was furnished in that case, the Court did not have to consider whether or not it should join the insurance company as a notice party or defendant in the proceedings. However, it is difficult to see what option other than joinder would have been adopted by the court had the undertaking in question not been given.

The Court is satisfied that O’Donovan J did have jurisdiction to make the order under appeal. To the extent that the order may be seen as a discretionary one, this Court is also satisfied that the discretion was reasonably exercised. In dismissing the appeal, the Court is also having regard to the undisclosed arbitration proceedings as a matter which goes to the exercise of discretion.