Greenclean Waste Management Ltd v Maurice Leahy t/a Maurice Leahy & Company Solicitors (No.2) and Another

• Jurisdiction: Ireland
• Judge: Mr. Justice Hogan
• Judgment Date: 05 June 2014
• Neutral Citation: [2014] IEHC 314
• Court: High Court
• Date: 05 June 2014

Greenclean Waste Management Ltd v Leahy t/a Maurice Leahy & Co Solicitors (No 2) & Anor

BETWEEN

GREENCLEAN WASTE MANAGEMENT LIMITED

PLAINTIFF

AND

MAURICE LEAHY PRACTISING UNDER THE SYLE AND TITLE OF MAURICE LEAHY & CO. SOLICITORS (No.2)

DEFENDANT

AND (BY ORDER)

DAS LEGAL EXPENSES INSURANCE COMPANY LIMITED

NOTICE PARTY

[2014] IEHC 314

[No. 7548 P/2009]

THE HIGH COURT

Maintenance and Champerty – Third-Party Funder – Jurisdiction Of Court –Impecunious Party – Legitimate Interest – Security For Costs - s. 13(1)(a) and s. 14(2) of the Criminal Law Act 1967

Facts: The court was tasked with making a determination in relation to after the event (‘ATE’) legal costs insurance and whether it was champertous, illegal or unenforceable in law.

Background

The plaintiff Company sued the defendant for professional negligence for legal advice given in relation to a lease. The lessor commenced an action against the plaintiff for damages for breaching a covenant. The matter was settled in the sum of £310,000 with the plaintiff contributing £150,000 towards costs. In these proceedings, the plaintiff contended that the defendants were guilty of further acts of breach of contract and professional negligence for failing to give advice on a relevant limitation period and for failing to disclose a conflict of interest. The defendants denied that they had been negligent and motioned for security for costs. The plaintiff had ATE insurance and the court refused to make an order for security of costs despite the insolvency of the plaintiff company. The defendant subsequently appealed to the Supreme Court. The Supreme Court ordered that the ATE insurer be joined as a notice party to the proceedings and remitted the matter for determination on ATE. The court had to consider the status and scope of the tort of champerty in Ireland.

The present status of the tort of champerty

The common law torts of maintenance and champerty pre-dated the Constitution of Ireland and were carried over into Irish law by Article 50.1. Unlike in England and Wales the scope of these torts had not been altered by legislation. The Criminal Law Act 1967 abolished any offence under the common law in England and Wales of maintenance and champerty by virtue of s. 13(1)(a). Section 14(2) of the 1967 Act states that the abolition of these offences should not affect any rule of law ‘as to the cases in which a contract is to be treated as contrary to public policy or otherwise illegal.’

Maintenance is defined as the improper provision of support to litigation in which the supporter has no direct or legitimate interest. Champerty is an aggravated form of maintenance and occurs when a person maintains another”s litigation for a share of the proceeds. At the time champerty was first formulated the legal system was weak and the independence of the judiciary was questionable. There was no concept of legal aid, representative actions, pro bono work, “no win, no fee,” arrangements or involvement of community and voluntary groups or trade unions supporting their members.

The court referred to English case law for assistance in making a determination in relation to third party funding. Even though maintenance and champerty were no longer offences in the UK, contemporary English case law demonstrated hostility toward anything that smacked of trafficking in litigation. It also illustrated that the Irish courts must accommodate modern realities when interpreting the law of champerty.

The tort of champerty still had practical application in Ireland as evidenced by O”Keefe v Scales {1998] 1 OR 290 and Thema International Fund plc v HSBC Institutional Trust Services (Ireland) Ltd [2011] IEHC 654, [2011] 3 IR 654. In O”Keefe the Supreme Court said that the tort of champerty should not be used to ‘deprive people of their constitutional right of access to the courts to litigate reasonably stateable claims.’ In Thema International it was decided that a third party funder had ‘a sufficient connection with the plaintiff so as to take the funding outside the scope of maintenance and/ or champerty.’ In Simpson v Norfolk and Norwich University Hospital NHS Trust [2012] QB 640 the English Court of Appeal decided that the bare assignment for consideration of a cause of action for personal injuries was unlawful. Again it was evident that the party must have a sufficient interest in the outcome. Moore-Bick L.J concluded that the assignment in this case was void because it savoured of champerty.

The cases referred to confirm that agreements which involve trafficking in litigation or concern the assignment of a bare cause of action for an illegitimate purpose will be declared void. These agreements are contrary to public policy on the ground that they savour of champerty. The case law also clarified that after consideration of modern principles the law of maintenance and champerty may need to be modified. One of those principles is that the court should not place any obstacles in the path of those with a legitimate claim. The court must keep all of these principles in mind when analysing the methods used to assist litigants.

Held by Hogan J: ATE is a relatively new form of insurance closely linked to “no win, no fee” arrangements and is only payable following the successful costs recovery against another party. For this reason it can be viewed as having champertous features i.e. sharing profits of litigation where the party has no legitimate interest. An ATE policy also relies on enhanced co-operation with the solicitor nominated by the ATE insurer. The Court said that in these circumstances the nominated solicitor did not exercise an objectionable degree of control over the conduct of litigation and the litigant was free to discharge the solicitor or reject their advice.

The real objection to ATE insurance is that a high premium has to be paid which is only payable after a positive court decision or settlement. The court disagreed that this type of arrangement was just a disguise for investing in litigation and the payment of a premium was an attempt to mask the fact that the insurer was taking a share of the proceeds. The court said that ATE insurance could not be so narrowly construed as this as it does much more. ATE insurance covers the insured”s legal costs even when the insured loses the litigation and is also payable when the coverage is terminated in advance of the proceedings being decided. The court recognised that ATE insurance provides people with access to justice where they would otherwise be denied it. The court decided that ATE insurers provide a legitimate service that cannot be regarded as trafficking in litigation. ATE insurance in these proceedings was not on the whole champertous or amounting to maintenance. The court applied the torts of champerty and maintenance in light of modern social conditions and public policy considerations and concluded that the insurer had a legitimate interest in the outcome of the case. In this instance, ATE insurance was not a way of trafficking in litigation and for all of the reasons stated above the court decided that the plaintiff”s ATE insurance policy was valid.

COMPANIES ACT 1963 S390

GREENCLEAN WASTE MANAGEMENT LTD v LEAHY (T/A MAURICE LEAHY & CO SOLICITORS) UNREP HOGAN 19.2.2013 2013/22/6471 2013 IEHC 74

HEALY v STEPSTONE MORTGAGE FUNDING LTD UNREP HOGAN 19.3.2014 2014 IEHC 134

CRIMINAL LAW ACT 1967 S13(1)(A) (UK)

CRIMINAL LAW ACT 1967 S14(2) (UK)

THEMA INTERNATIONAL FUND v HSBC INSTITUTIONAL TRUST SERVICES (IRL) LTD & ORS 2011 3 IR 654 2012 1 ILRM 250 2011/47/13324 2011 IEHC 357

SIMPSON v NORFOLK & NORWICH UNIVERSITY HOSPITAL NHS TRUST 2012 1 AER 1423 2012 QB 640 2012 2 WLR 873 124 2011 NLJR 1451 2011 EWCA CIV 1149

CAMDEX INTERNATIONAL LTD v BANK OF ZAMBIA (NO 1) 1996 3 AER 431 1998 QB 22 1996 3 WLR 759 1996 CLC 1477

GILES v THOMPSON 1994 1 AC 142 1993 2 WLR 908 1993 RTR 289

BRITISH CASH & PARCEL CONVEYORS LTD v LAMSON STORE SERVICE CO LTD 1908-1910 AER 146 1908 1 KB 1006

O'KEEFFE v SCALES 1998 1 IR 290 1998 1 ILRM 393 1998/28/11456

CONSTITUTION ART 34.1

MACAULEY v MIN FOR POSTS & TELEGRAPHS & ORS 1966 IR 345

BLEHEIN v MIN FOR HEALTH & AG 2009 1 IR 275 2008 2 ILRM 401 2008/3/594 2008 IESC 40

MINISTERS & SECRETARIES ACT 1924 S2(1)

1 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 [2013] IEHC 74.

2 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 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 4. In these...