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The Law Society of Ireland –V- The MIBI

  • Ireland
  • General

26-05-2017

Summary

On 24 May 2017, the Supreme Court found in favour of the MIBI, holding that it should not be liable for the outstanding claims against Setanta Insurance Company (“Setanta”), who is currently insolvent. 

The question for determination before the Supreme Court was whether the Court of Appeal’s ruling in 2016 should be overturned and that the outstanding Setanta claims should be paid for by the Insurance Compensation Fund (“ICF”), who guarantees to cover the liabilities of insurance policyholders if a non-life insurance undertaking becomes insolvent.

Background

The principal role of the MIBI is to compensate victims of road traffic accidents caused by uninsured and unidentified vehicles. The costs incurred by the MIBI are funded by levies imposed on insurance customers.  This case stems from the sudden collapse of Setanta in 2014, which left 1,750 claimants with unpaid insurance claims worth approximately €90 million.  However,  it was unclear whether the MIBI or the ICF were responsible for Setanta’s liabilities was because:- (1) the MIBI had entered into an agreement with the ICF in 2009 to cover all unsatisfied insurance claims, and (2) Setanta was a member of the MIBI.

The 2009 agreement

In 2009, the MIBI entered into an agreement with Minister for Transport, of particular, relevance to this case was Clause 4.1.1, whereby the MIBI agreed that if a judgment was not satisfied within 28 days it would make the payment “whatever may be the cause of the failure of the judgment debtor”. The question arose whether as a result this that the MIBI contractual obligation it would also meet all claims by insurance companies who subsequently become insolvent.  In response, the MIBI put forward the following two defences.  First, based upon the general principles of contractual interpretation the MIBI argued that the agreement should be read as a whole, this approach would demonstrate that the MIBI did not intend to enter into a contract whereby it would also be liable for the outstanding insurance claims of insolvent insurers.  Secondly, even if the MIBI had entered into an agreement to satisfy the claims of insolvent insurers, that contract was void because the MIBI did not have corporate capacity to enter into such an agreement, this argument was based upon the company law principle known as “ultra vires”.

High Court and Court of Appeal

Both the High Court, in 2015, and the Court of Appeal, in 2016, rejected both of MIBI’s arguments, they held that the wording in Clause 4.1.1 meant that MIBI had assumed a contractual obligation to pay all claims of insolvent insurance firms.

Supreme Court

The Supreme Court, with Clarke J. giving the majority judgment, overturned the High Court and Court of Appeal decisions, based upon a 5/2 majority it ruled in favour of the MIBI.  In coming to this decision the Supreme Court emphasised that the question of whether the MIBI was liable turned “on the proper interpretation of the agreements governing the obligations of the MIBI … and the Fund”.  Clarke J. emphasised that this case was not one which concerned whether the MIBI or the ICF was the proper party for liability to be imposed upon.  The Supreme Court held that the 2009 agreement was “both complex and not free from doubt”. 

Accordingly, the Supreme Court interpreted the 2009 agreement using the Officious Bystander Test, whereby it interprets an agreement as a whole, taking into account both the terms and context of the 2009 agreement, and its predecessors, it held that the MIBI was not liable for unpaid Setanta claims.

Practical implications

As a result of the Supreme Court ruling, the MIBI will not be liable for the unpaid insurance claims of Setanta.  In practical terms, this decision means that the ICF will be liable for any or all unpaid insurance claims of insolvent insurance firms.  This decision also represents a stark reminder of the importance of drafting agreements in a clear and unambiguous manner, and that if a question arises regarding contractual interpretation the Irish Courts will interpret it as a whole, including its predecessors, and the context in which it was negotiated and drafted.

Disclaimer

This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full terms and conditions on our website.

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