Court clarifies reimbursement obligation in personal injuries actions – Fahy v Padraic Fahy Tiling Contractors Ltd & Anor

Justice Twomey’s recent High Court ruling provides clarity on the issue of whether the Plaintiff and Defendant in a personal injury action can decide amongst themselves that the Defendant does not have to reimburse the Department of Social Welfare (the “Department”). Typically, when a settlement agreement is reached, the parties decide between themselves how responsible each party should be for the injury. For example, the Defendant might agree to liability of 60% with the remainder of the blame falling to the Plaintiff. The Defendant must then reimburse the Department in proportion to their liability.

In the present case, the Department had paid out €42,000 to the Plaintiff and the parties were requesting that the Court incorporate a term from their settlement agreement into the Court Order stating that the Defendant did not have to reimburse the Department irrespective of their liability. This issue had previously been dealt with by Justice Twomey in Szwarc v. Hanford Commercial t/a Maldron Hotel Wexford [2021] IEHC 474 (“Szwarc”) and here the Court refused to find that terms included in private settlements could be included in an Order of the Court. The Court stated that including such a term in a Court Order would result in the taxpayer paying for the Defendant’s financial liability to the State. The parties argued that the present case differed from Szwarc as the Second-Named Defendant, The Health Service Executive (“HSE”) is a State Body. They argued that unlike in Szwarc where the Defendant was an insurance company, if the HSE did not reimburse the Department, this would not create a loss for the taxpayer but that it would merely transfer the loss from one State Body to another.

Despite the submissions by the parties, the Court refused to allow the term in the settlement agreement to form part of the Court Order. One of the main reasons for doing so was because the term had not been decided by an independent observer (the Court) and the parties to the settlement agreement had a vested financial interest in the term being included. The Court was also heavily persuaded by the fact that including the term would have a negative financial impact on a third party who did not have an opportunity to be heard during the course of the settlement negotiations. Judge Twomey also held that the HSE should not be treated differently to insurance companies. The Court did not find that the distinction was relevant and noted that although the HSE and The Department are State Bodies, they nonetheless have their own separate budgets and financial interests and to assume that they are one and the same is inaccurate.

Justice Twomey’s decision makes it clear that Defendants to an action must always reimburse the Department in proportion to their liability unless otherwise decided by a court. This decision has not made any significant changes to the law, nonetheless, it strongly reiterates the position that Defendants who wish to settle an action, must take into account their liability to the Department when negotiating a settlement figure.