After-the-Event (ATE) insurance is an increasingly important tool within the Australian legal landscape, much like it has been in the UK for over two decades. ATE insurance provides critical protection for individuals and businesses involved in litigation, covering the risk of paying an opponent's legal costs if the case is lost. For solicitors, the obligation to inform clients about the availability of ATE insurance is not merely a good practice but is becoming an essential aspect of comprehensive legal advice.
As the ATE insurance market in Australia continues to expand, more and more law firms are recognising the importance of advising their clients on the various funding options available, including ATE insurance. What was once primarily utilised by litigation funders to mitigate risks in high-stakes cases is now being increasingly embraced by a broader range of clients. At Vie, we have observed a growing number of law firms proactively working with brokers to ensure that their clients are fully informed about ATE insurance and how it can effectively reduce financial risks in litigation. This trend reflects a growing recognition of ATE insurance as a crucial element of modern litigation strategy.
Understanding the Duty to Inform
In the UK, solicitors are bound by the Solicitors Regulation Authority’s (SRA) Code of Conduct, which mandates that solicitors act in the best interests of their clients, including providing all relevant information that might affect their clients' decisions during legal proceedings. This duty encompasses the obligation to advise clients on ATE insurance as a means of mitigating the financial risks associated with litigation. The duty to inform clients about ATE insurance arises from a broader responsibility to advise on funding arrangements and the potential risks of litigation. According to the SRA Code of Conduct, solicitors must ensure that clients fully understand the cost implications of their case, including the risk of having to pay the other side's costs if they lose. This duty inherently involves discussing the possibility of obtaining ATE insurance to cover those risks, even if ATE insurance is not specifically mentioned (as illustrated in Adris v Royal Bank of Scotland Plc [2010] EWHC 941 (QB)).
The Consequences of Failing to Inform
Consider a scenario where a solicitor fails to inform a client about ATE insurance:
Jane, a farmer, decides to pursue a claim against a supermarket for breach of contract. Her solicitor, Clare, advises on the strength of her case and potential damages but fails to inform her about ATE insurance. The case proceeds, but unfortunately, the court rules in favour of the supermarket, and Jane is ordered to pay the supermarket’s substantial legal costs. Had Jane been informed about ATE insurance, she would have likely taken out a policy to protect herself against such adverse costs. This situation not only causes significant financial strain for Jane but also exposes Clare to a potential professional negligence claim.
UK Case Law: A Cautionary Tale for Australian Practitioners
In the UK, the failure to advise clients about ATE insurance has led to serious professional consequences. For instance, in Adris v Royal Bank of Scotland Plc [2010] EWHC 941 (QB), the court held that solicitors are under a duty to advise their clients on the availability of ATE insurance. Failure to do so can result in the solicitor acting without proper instructions, exposing them to potential non-party cost orders and professional negligence claims.
Conclusion: A Growing Obligation in Australia
As ATE insurance continues to gain traction in Australia, the expectation for solicitors to advise on this option as part of comprehensive litigation funding advice is likely to grow. Failing to inform clients about ATE insurance could lead to significant financial consequences for the client and professional liability for the solicitor.
To ensure your firm remains ahead in this evolving area, we strongly recommend ongoing professional development. Whether your team is large or small, we offer tailored training sessions to deepen your understanding of ATE insurance and its application in litigation. Our sessions, which have been presented to groups ranging from 3 to 70 participants, can be presented in person or via Teams/Zoom and are designed to equip your team with the knowledge and confidence to effectively advise clients and manage the associated risks.
For more information or to schedule a CPD session, please contact a member of the Vie Legal Insurance team.
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