In the latest decision regarding security for costs, the High Court have provided some helpful guidance in respect of policy terms which may cause an ATE policy to be inadequate to satisfy a defendant’s request for security for costs.

At the end of last year, the Court of Appeal in Premier Motorauctions Ltd (in liquidation) and another v Pricewaterhousecoopers LLP [2017] upheld the general provision that, in theory, an ATE insurance policy can defeat an application for security for costs if the policy offers the defendant “sufficient protection” that the claimants will be able to pay the defendant’s costs if it is ordered to do so. The Court of Appeal also reinforced that it is the precise terms of each policy that will determine whether it offers sufficient protection so that ATE policies needed to be considered according to their specific terms and conditions and if a risk of avoidance remained, security could still be ordered. In Premier Motorauctions, there was a provision in the ATE policy permitting the insurer to avoid payment in the event of non-disclosure or misrepresentation. On the facts, the Court held that there was reason to believe that the claimant would be unable to pay the defendants’ costs and, accordingly, ordered that security be provided.

In the recent case of Lewis Thermal Limited v Cleveland Cable Co Limited [2018], the ATE policy in question excluded cover in cases of failure to disclose material facts, fraud, misleading misrepresentation or insolvency; all of which are standard exclusions in ATE policies. The court held that these exclusions did not provide the “sufficient protection” required by the Court of Appeal’s ruling in Premier Motorauctions and held that the policy was therefore inadequate to satisfy the defendant’s request for security. The court held that these exclusions all provided opportunities for the insurer to avoid the policy, leaving the defendant at an unacceptable risk that neither the claimant nor its insurer would pay its costs if it won. In this case, therefore, the Judge awarded the defendant security to be made in two staged payments to cover (1) the incurred costs; and (2) the costs for the next stages of the litigation, for an amount of approximately one third of the defendant’s budgeted costs. It should be highlighted that in the circumstances of the particular case, the Judge was mindful that the claimant shareholders did have funds available to provide security, even if that was not up to the full amount of the budgeted costs.

Subsequently, the claimant successfully applied to vary the order by way of a provision of a deed of indemnity from the ATE insurer in substitution for the payments in. The Judge concluded that the deed of indemnity offered adequate security, but that it should cover the full amount of the defendant’s budgeted costs, rather than the costs for which a payment into court had previously been ordered.

This decision highlights the fact that whilst an ATE policy is a useful instrument in defeating security for costs applications, claimants need to carefully evaluate the policy wording and consider whether the terms of their ATE policy are likely to prevent reliance on them. If an application for security for costs is a possibility, the claimant, when searching for ATE insurance, should highlight this so that steps can be taken to remove provisions likely to be unacceptable to the court.

As the leading open market broker in this arena, TheJudge are able to access insurers that can provide the necessary financial instruments to defeat security for costs applications such as non-avoidance endorsements and deeds of indemnity. Our experienced and professional team can assist by offering independent market searches and by negotiating bespoke policies to suit the specific needs of each client.

Emily Thomas

Head of Broking                   

+44 (0) 203 882 7405

Email Emily here