Whether shareholder undertaking as good as ATE insurance in security for costs application
The defendants applied for a security for costs order on the basis that the claimant is a company and there "is reason to believe that it will be unable to pay the defendant's costs if ordered to do so" (CPR r25.13(2)(c)). The claimant sought to rely on recent caselaw in which it was held that the existence of an ATE insurance policy should be taken into account in deciding whether the claimant will be able to pay. It was recently held in Premier Motorauctions v PWC that the question is simply whether there is reason to believe that the insurer will not pay.
In this case, there was no ATE policy, but the claimant's sole shareholder had irrevocably undertaken to indemnify the claimant in respect of its costs liability to the defendant. Teare J held that the approach towards ATE policies did not apply to an indemnity from the shareholder. That is for various reasons, including the fact that the counterparty to an ATE policy is a "responsible and reputable insurer", whereas the shareholder is, in a practical sense, the adversary of the defendant. Furthermore, "Whereas ATE policies are now "a central feature of the ability of parties to gain access to justice" indemnities provided to a company by its owner in respect of the company's liability to pay legal costs are not so regarded".
Accordingly, only in exceptional circumstances will the shareholder's indemnity be a sufficient asset to demonstrate that the claimant will be able to pay the defendant's costs.