Case Alert - [2018] EWHC 95 (Comm)

Court considers whether deed of indemnity from insurer is adequate security for costs

When the defendants intimated that they were going to make a security for costs application, the claimants' solicitors offered to give undertakings to hold sums of money as security for certain costs. The defendants accepted this. However, the claimants subsequently wanted to exchange those undertakings for a Deed of Indemnity provided by one of the claimants' ATE insurers. The defendants objected and the claimants sought an order from the court. Two issues arose:

(1) Was the Deed of Indemnity an acceptable form of security?

If it was, there was no need to consider the ATE policy. The judge held that, on the facts, it did provide adequate security. An offer to endorse the policy to the effect that monies paid out under the policy would be paid to the defendants' solicitors avoided the possibility that the insurer might first pay the claimants under the policy and thus reduce its liability under the deed (which would have created the possibility that the defendants would then have had to pursue the claimants for their costs).

(2) Should the undertakings be released in favour of the Deed of Indemnity?

The judge held that there had to be a material change in circumstances in order to engage the court's discretion to exchange the security. He was doubtful that there had been a material change here (because it was not clear whether the deed and policy could have been offered at an earlier stage), but the defendants were happy to proceed on the assumption that there had been a material change.

There is a general principle applicable to security for costs applications that security should be provided in the way least onerous to the provider and the judge said it was not enough for the defendants merely to show that the new security being offered was not as good as the existing security ("A London solicitor's undertaking backed by cash is at the very top of the range of types of security for cost"). The judge also took into account how long the old security had been in place and the explanation for the claimants' change of position. However, the most important factor here was the fact that the claimants had not suggested that they would suffer hardship or prejudice if the existing security were to stay in place.

Accordingly, the application was dismissed.