A couple of months ago we reported on applications pending in the Supreme Court of Victoria about After The Event (ATE) insurance. That update, available here, noted that the procedural operation regarding security for costs to be provided by an overseas ATE insurer were being ventilated in the Supreme Court of Victoria.
We noted that ‘Associate Justice Lansdowne of the Supreme Court of Victoria recently reserved judgment on an application for security for costs from an ATE insurer based overseas. The party seeking security for costs sought the security in the usual form, being either a bank guarantee, or funds paid into Court. The ATE insurer offered security for costs by way of a deed of indemnity and did not consent to proffer a usual form of security.’
A little over a week ago Associate Justice Lansdowne delivered judgment in DIF III Global Co-Investment Fund LP and Anor v BBLP LLC and Ors  VSC 484. As explained in the judgment, the key issue in dispute was whether a deed of indemnity, rather than an Australian bank guarantee or payment into Court, was adequate security for costs.
The judgment essentially held that the evidence adduced by the ATE insurer about whether a deed of indemnity would be sufficient security for costs was inadequate. Her Honour noted that the ATE insurer did not provide any information about its financial position and did not assert that it had sufficient assets to meet an adverse costs order.
One of the key submissions made against the deed being ordered was that there would be significant costs involved in enforcing any Australian judgment in the UK. Her Honour accepted that enforcement of a foreign judgment could be subject to unexpected costs and delay but was satisfied that the process, if required, would be relatively straightforward.
The deed of indemnity was rejected because of the particular type of deed and the evidence adduced by the insurer. The commercial decision for overseas ATE insurers to make will be whether the potential benefits of a deed of indemnity in place of a bank guarantee are worth disclosing the commercial information that may need to be adduced in evidence.
Despite the outcome in this case, her Honour expressly did ‘not hold that security by way of a deed of indemnity from a third party insurer can never be appropriate.’ The upshot of this decision is that ATE insurers will probably continue to test the waters. It will be interesting to see what developments follow this decision.