ATE Insurance defeats security for costs application

A recent High Court decision has provided comfort for liquidators by reinforcing the fact that an after the event (“ATE“) insurance policy can provide a good defence to an application for security for costs.

In Premier Motorauctions Limited (in liquidation) and anor. -v- (1) Pricewaterhousecoopers LLP and (2) Lloyd’s Bank PLC [2016] EWHC 2610 (CH), the Defendants faced claims valued at around £50 million for breach of duty and the economic tort of unlawful means conspiracy. The Defendants applied for security for costs against the Claimant company in liquidation, estimating their total costs at around £4.5 million. The Company’s defence to that application was to rely on a series of ATE insurance policies backed by a number of providers and tiered to give combined cover of £5 million. However the Defendants argued that the policies should be disregarded on the ground that they were not as secure as, for example, a bank guarantee and therefore could not be relied upon in the same way. It was also argued that the policies provided no real security as they might be later voided by the insurers either in reliance on the terms of the policy or for material non-disclosure if certain evidence was found not to be upheld at trial.

The judgment contains a useful review of the applicable case law and, in refusing the Defendants’ application for security for costs, the Court made a number of points likely to be of assistance to claimants generally and insolvency office holders in particular when faced with such an application:

1. The mere fact that the claimant is a company in liquidation does not automatically mean that the court would have reason to believe it is unable to pay costs if ordered to do so (being the relevant test under CPR 25.13 for the order sought).
2. Where a party has obtained insurance specifically to cover the claim, the Court defined the test it should apply as, having regard to all the circumstances, whether there was reason to believe the policy might not respond so as to pay the defendant’s costs.
3. The UK ATE market was recognised as being substantial and mature and accordingly a court should have little difficulty in finding that a policy underwritten by a well-known UK insurer would so respond (up to the limit of the indemnity).
4. Conversely, where cover is being provided by an insurer outside of the jurisdiction and no or insufficient information is provided about its financial position (as was the case here in respect of one of the insurers who had provided cover), the court may well find such a policy to provide inadequate protection to a defendant.
5. Professional office holders and their professional legal advisers were seen as being likely to have a strong incentive objectively to scrutinise the case to ensure compliance with the terms of ATE policies and hence remove or at the very least reduce the risk of unenforceability, not least because of their professional status and the possibility for personal liability for the defendant’s costs in the event that any claim under the policy was rejected by the insurer.
6. Finally, the Court expressly acknowledged that it was in the public interest for ATE insurance (where it was obtained on appropriate terms) to be a defence to any security for costs application in order to ensure access to justice for insolvent companies under the control of responsible insolvency office holders.

This is the latest in a series of judgments in which the courts have taken a favourable stance on funding arrangements and ATE insurance. As the only law firm member of the Association of Litigation Funders, Stevens & Bolton LLP has extensive experience in funding litigation cases, including insolvency litigation. Should you have any queries regarding the above or wish to discuss the availability of funding for a particular insolvency case, please do feel free to contact Tim or Oliver, whose details appear to the right of this article, or your usual contact.