Zenith Personal Injury Current Awareness

​Can insurance provide security for costs? – Premier Motorauctions Ltd (in liquidation) and another v Pricewaterhousecoopers LLP & Another

1 December 2017

Jonathan Holsgrove

The Court of Appeal (link here) have considered the issue of whether or not an ATE policy is relevant when considering an application for security for costs.

The substantive claim is a complex one strongly denied by the Defendants.  The Claimant companies allege that the Defendants, PWC and Lloyds Bank, conspired to encourage the Claimant to enter into additional finance agreements on terms that gave the Defendants control of the companies.  This ultimately leading to the companies being sold at an undervalue to the benefit of the bank.

After the claim was issued the Defendants put the Claimants on notice that they wuld be seeking security for costs.  The Claimants disclosed copies of ATE policies providing a total sum insured of £5 million.  The Defendants argued that as the policies could be avoided for non-disclosure or misrepresentation they were not sufficient security.  The Claimants refused to provide anything further and the application for security for costs in the sum of £7.2 million was issued.

At first instance Snowden J held:

 “40. … if a claimant company is insured under an ATE policy giving it contractual rights which it could enforce in the event of an adverse costs order being made, its contractual rights are the property of the company like any other asset. I therefore see no reason in principle why the existence of that policy should not be taken into account together with its other assets at the first stage when deciding whether the jurisdiction to make an order for security for costs under CPR 25.13 is engaged. That must be so where the very purpose of such a policy is to provide the means by which the claimant company “is able to pay the defendant's costs if ordered to do so.

41. Accordingly, I think that in a case in which a claimant has obtained an ATE policy specifically to cover the bringing of a claim, and relies upon it to resist an application for security for costs, the approach taken by Stuart-Smith J in paragraph 20 of Geophysical is correct. The question is not whether the ATE policy provides the same security as cash or a bank guarantee, or indeed whether the ATE policy provides the same security as might a deed of indemnity from the same or another insurer. It is whether, having regard to the terms of the ATE policy in question, the nature of the allegations in the case and all the other circumstances, there is reason to believe that the ATE policy will not respond so as to enable the defendant's costs to be paid..

…48. On the basis of the pleadings I have real doubts that the disputed evidence of Mr Elliott will be as central to the case as the defendants suggest.  The case involves much more than an evidential dispute as to what went on between Mr Elliott and Mr Warnett on 11th August 2008 and notwithstanding Mr Elliott's central role in the affairs of the Companies, I cannot in any event imagine that the Joint Liquidators and their advisers will have placed unquestioning reliance upon him when making proposals to the insurers.  I would regard it as something of a leap to conclude that if Mr Elliott's evidence was to be disbelieved or found unreliable, that would provide grounds for the insurers to avoid the policies or deny liability.

49. In that regard, I note that in Geophysical at paragraph 30, Stuart-Smith J was obviously impressed by the argument that the ATE policy had been taken out with the assistance of experienced lawyers and that the claimant would have no commercial interest in acting so as to breach its conditions.  I think that the circumstances of this case justify a similar approach, and if anything point more strongly to such a conclusion.

50. In the instant case, the ATE policies taken out to cover the Companies' exposure to adverse costs orders have been arranged and the proposals to insurers have been made by the Joint Liquidators who are independent professional insolvency office-holders.  They have arranged the ATE policies after having conducted an investigation into the claims against the defendants with the assistance of experienced solicitors and counsel.  This level of objective professional scrutiny is likely to exceed that undertaken in cases such as Monarch Energy or Geophysical where, although the claimant companies were in financial difficulties, professional insolvency office-holders had not been appointed."

The Judge held that as the ATE policy was sufficient he did not have jurisdiction to make an order.  The Defendants appealed.

Longmore LJ, giving the leading judgment and allowing the appeal, held:

  1. Whilst there is little appellate authority what there is does support the proposition that an appropriately worded ATE policy can answer an application for security.  The ATE policy must offer ‘sufficient protection’ .
  2. This case will turn on whether or not the evidence of the Claimants’ director about the conversations had with the Defendants at the time.  If he is not believed the case will be lost and the Claimants liable for the costs of the Defendants.
  3. The judge was wrong to state it was something of a ‘leap’ to conclude that the disbelief of the director’s evidence would provide grounds to avoid payment under the policy.  One cannot speculate what view the ATE insurers will take after trial where the claim has been unsuccessful.
  4. There was provision in the ATE agreement to avoid payment in the event of non-disclosure or misrepresentation.  There has been no information given about what that the ATE providers have been told when the policy was placed with them.  The insurers have not provided any assurance that they would not avoid payment under the policy for non-disclosure or misrepresentation.  The Defendants are entitled to that assurance.
  5. It follows that there is reason to believe that the Companies will not be able to pay the Defendants’ costs if so ordered.
  6. Security for costs in the sum of £4 million.

This case provides useful guidance where an insurance policy is provided as security for costs.  Unless it contains anti-avoidance provisions and / or there is some assurance from the insurer that it will not avoid in any circumstances then it is unlikely that such a policy will provide sufficient protection to the Defendant.  Given that insurance contracts are based on the notion of ‘Good Faith’ it is hard to envisage a policy that would provide such an absolute anti-avoidance clause that, inevitably could include fraud by the policy holder.

Current Awareness

By the Personal Injury team