Rosemary Garstang

After the event insurance which can be voided does not constitute adequate security for costs, the Court of Appeal has ruled.

In  Premier Motorauctions Ltd v Anor v Pricewaterhousecoopers LLP & Anor [2017] the Court of Appeal decided that the existence of an after the event insurance policy to cover legal expenses did not prohibit a court from ordering security for costs where the claimant company was insolvent.

The background to this appeal is that the defendants by way of applications made in 2016 sought security for costs on the grounds that there was reason to believe the insolvent claimants would be unable to pay the defendants’ costs if ordered to do so.  The Claimants resisted the applications on the basis that they had ATE insurance to cover the Defendants’ costs.

The Court of Appeal held that ATE insurance was not to be considered at all on the basis that the policy did not provide sufficient protection to the defendants because of the possibility of it being avoided.

On the facts of this case, the Court of Appeal held that the ATE policy did not give sufficient protection, and therefore ordered security for costs against the claimants.

As we know there has in the past been a tendency for judges to accept that an ATE policy can stand as security of costs but here at Box Legal we consider the appeal ruling a sensible one.

Why?…. because the question arises as to how the Defendants and the Court can be in possession of all the facts provided to an ATE insurer when the application for Security of Costs is made

Whilst it is generally unusual for an insurer to seek to  avoid an ATE policy, the most likely reason would be where there is a finding of Fundamental Dishonesty which may only come to light at the conclusion of a trial.  This is a more important consideration bearing in mind the most recent case of Howlett & anor v Davies & anor where a finding of fundamental dishonesty can be made by the trial Judge even if fundamental dishonesty may not have been specifically positively pleaded.

This judgment will undoubtedly lead to Defendants now taking more steps to ascertain from Claimants their proposals for security of costs at an early stage.

A false sense of security