Can After The Event Insurance Defeat An Application For Security For Costs?

The question has recently come before the Court of Appeal for the first time in Premier Motorauctions Ltd (in liquidation) v Pricewaterhousecoopers LLP [2017] EWCA Civ 1872.

The Issue

When faced with an application for security for costs, is showing that you have ATE insurance sufficient to avoid being ordered to pay it?

The Background

The Claimants are a group of companies in liquidation. The joint liquidators of the companies brought proceedings against PWC and Lloyds Bank alleging that they had conspired together to take control over the companies through unlawful means, forcing their sale at an undervalue for the benefit of the bank. The liquidators are claiming losses of £45million - £54 million.

The defendants asserted that by reason of the Companies being in liquidation and the joint liquidators' communicating to creditors that there were no assets to be realised in the liquidations, they had reason to believe that the Companies would be unable to pay the defendants' costs if ordered to do so. Accordingly, the defendants issued an application seeking around £7.2million in security for costs from the liquidators.

The Arguments

The liquidators, whose claim was funded by a third party litigation funder, did not contest that ordering security would stifle their claim. Their defence of the application was based on the fact that they had the benefit of an ATE insurance policy, which provided them with indemnity of up to £5million if they were ordered to pay the defendants costs. They argued the existence of that policy meant that there was no reason to believe that they would be unable to pay the Defendants' costs if they were ordered to do so (that being one of the requisite conditions for ordering security set out under CPR 25.13(2)).

PwC's solicitors contended that "unlike the payment of money into court, a bank guarantee, or a deed of indemnity, the ATE policies were not adequate security because they could be avoided in certain circumstances by the insurers".

The Court's Findings

Counsel for the defendants argued that ATE insurance was no more than a contingent asset and therefore could not be taken into account when considering whether there was reason to believe that the Companies would be unable to pay the defendants' costs. The Court of Appeal disagreed, Longmore LJ stated that "If it is very probable that a contingent asset will mature before any order for costs is made, that asset cannot be excluded from consideration. It is...