High Court accepts ATE cover as sufficient to dismiss security for costs application

A recent High Court decision which accepted that ATE insurance policies were adequate security has offered some welcome reassurance to impecunious Claimants who may have previously had their claims stifled by an inability to satisfy an order for security for costs.

In Premier Motorauctions Ltd (in liquidation) and Premier Motorauctions Leeds Ltd (in liquidation) (the “Companies”) v. PricewaterhouseCoopers LLP and Lloyds Bank Plc (the “Defendants”), the Defendants pursued applications for security for costs, despite the fact that the Companies, via their liquidators, had put in place £5m of adverse costs cover underwritten by a syndicate of ATE Insurers in a deal brokered by litigation funding and insurance specialists, TheJudge.

The Defendants sought to argue that the ATE policies did not provide adequate security on the basis that they were conditional and might be avoided, rescinded or cancelled in the event that the Defence succeeds. They specifically identified that they intended to put the credibility of a key witness at the heart of their Defence and that, should that Defence succeed on that basis, it would create a scenario which would entitle the ATE insurers to avoid the policies on the basis of misrepresentation.
Having considered the arguments, the Court concluded that that the Defendants had failed to satisfy one of the key requirements of CPR 25.13 – that the Companies will be unable to pay the defendant’s costs if ordered to do so – and refused the Defendants’ applications for security of costs.

In a decision which appeared to underline the importance of obtaining independent, professional advice on litigation financing, the Court had particular regard to the fact that the ATE policies; (1) had been taken out by Liquidators acting in their capacity as independent professional insolvency office-holders; (2) that they had arranged the ATE policies after having conducted an investigation into the claims with the assistance of an experienced legal team; (3) that the ATE insurance market was now a substantial and mature market in which insurers are unlikely to have a commercial incentive in seeking to avoid liabilities under policies they issue.
This decision is a further shot in the arm for access to justice following the recent High Court ruling in Essar Oilfields Services Limited v Norscot Rig Management PVT Limited which upheld the decision of arbitrator Sir Phillip Otton to allow the recovery inter-partes of a success fee paid by the claimant to a third party funder who had financed their ICC arbitration, which was another landmark decision on a case brokered by TheJudge.

Even aside from the key issue of the adequacy of the security provided by ATE policies, the Judgment considered a number of other interesting issues from an insolvency or professional officeholder context:

It is interesting to note that the positive view that Mr Justice Snowden took of the fact that the ATE policy had been taken out by an independent professional insolvency officeholder was underpinned by a reiteration that the officerholders had every interest in ensuring that the ATE policies were fit for purpose and would respond as any failure of the ATE policies to respond would leave the officeholder with a “significant prospect” of the Defendants applying for a costs order against them personally under section 51 of the Senior Courts Act 1981.

The attribution of the knowledge of former directors and associated parties of the insolvency company

In making the application, the Defendants sought to suggest that the ATE policies were at a greater risk of being avoided because of the argument that the knowledge of the former Director should be attributed to the Company (and thus the professional officeholder).

The view of the Court was that such arguments were “extremely weak” and that the policy underlying the attribution rule in cases of ATE policies must recognise that insolvency officeholders come to an insolvent company as strangers and that they frequently encounter a lack of co-operation or candour from the former Directors or associated parties of the insolvency company.

It was considered that any attribution of the knowledge or actions of the former Directors and associated parties of the insolvent company to the officeholder would entirely defeat the commercial purpose for which the policy was taken out in the first place.

In considering some of the key issues connecting the ATE insurance market and the position of an officeholder, this Judgment provides a welcome and timely boost to access to justice. However, it does underline the importance of engaging an experienced and professional team to advise and source litigation financing options that are appropriate and suitable for the specific facts of each individual claim.

TheJudge are delighted to continue to be at the forefront of, and have an active involvement in, the most important developments in the constantly evolving area of litigation financing. 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.