Security For Costs - Premier Motorauctions V PWC LLP (Court Of Appeal)

Court of Appeal orders security for costs where ATE insurance policy did not contain an anti-avoidance provision

The defendants applied for a security for costs order on the basis that the claimant is a company and there "is reason to believe that it will be unable to pay the defendant's costs if ordered to do so" (CPR r25.13(2)(c)). The defendants had acted for the claimants before the claimants were placed into administration (and subsequently compulsory liquidation). After the claim form was issued, the claimant took out ATE insurance cover. The issue in this case was whether the security for costs order should be made in light of the ATE insurance cover.

At first instance, the judge held that the existence of an ATE policy should be taken into account when asking whether there is reason to believe that the claimant will be unable to pay an adverse costs order (ie the threshold jurisdictional question), rather than only after a security for costs order has been made (and it is necessary to decide whether the policy is as good as cash or a bank guarantee). On the appeal, the Court of Appeal did not disagree with that approach and held that "an appropriately framed ATE insurance policy can in theory be an answer to an application for security".

The judge had then refused to find that there was reason to believe that the ATE policy in question would not respond, and in particular, that the insurers would avoid for non-disclosure or misrepresentation. That was despite the underlying case involving doubts about the credibility of the claimant's managing director. The Court of Appeal has now allowed the appeal from that finding.

It held that "Of course it does not follow that insurers would avoid but the difficulty is that neither the defendants nor the court has any information with which to judge the likelihood of such avoidance. One knows that ATE insurers do seek to avoid their...