On 24 September 2015, the Supreme Court of Victoria in Australian Property Custodian Holdings Ltd (in liq) v Pitcher Partners[2015] VSC 513 (“APCH”) handed down a decision in relation to security for costs (in which the author’s firm, Johnson Winter & Slattery, acted for the successful respondent liquidator) which could significantly transform the way in which commercial litigation in Australia is funded and conducted.

In approving a deed of indemnity offered by a foreign insurer as security for a defendant’s adverse costs in litigation commenced by a company in liquidation, the Court’s decision paves the way for the increasing use of deeds of indemnity as a cheaper alternative to conventional litigation funding approaches which required funders to pay large sums of money into court. This in turn could release significant reserves of cash flow within litigation funding business models that are otherwise presently locked up in payments into Court.

The decision

In APCH, the defendant auditor sought security for its costs of a proceeding commenced against it by Australian Property Custodian Holdings Ltd, the company in liquidation. The application was brought pursuant to Order 62 of the Supreme Court (General Civil Procedure) Rules 2005, s 1335(1) of the Corporations Act 2001 (Cth) and the inherent jurisdiction of the Court.

The plaintiff offered to provide security in the form of a deed of indemnity from AmTrust Europe Limited, an insurer based in the United Kingdom, together with a bank guarantee for the sum of $20,000 to cover costs of enforcement of the deed against AmTrust in the UK. The defendant rejected this proposal, arguing that the proffered security was inadequate on grounds which included the following:

  • Although AmTrust was in the business of insurance, this did not mean that there was no risk associated with the proposed security, as there was no evidence that AmTrust had any assets within Australia to satisfy the proposed indemnity;
  • Paying security into court was preferable to the indemnity because the money was available, there was no cost of execution and it was 100% certain;
  • The plaintiff had failed to satisfy the onus of proving that the defendant would not suffer unreasonable disadvantage if the plaintiff was to provide an indemnity sourced from a foreign corporation.

In response, the plaintiff argued that the relevant test was not the particular form of the proffered security, but rather whether it achieved its purpose as a security, such that it effectively put the defendant in the same position it would have been in if the person was providing security within Victoria. Specifically, the plaintiff argued that the deed of indemnity was in substance the same as a bank guarantee, in that despite AmTrust lacking any assets in Australia, a costs order against AmTrust would be entirely enforceable against it in the United Kingdom and the costs and complexity of such enforcement would not be unreasonable.

In this regard, the plaintiff submitted that the adequacy of the protection afforded to the defendant was manifest in such matters as AmTrust’s principal business being general insurance underwriting (in particular, the underwriting of legal expenses risks) and AmTrust’s strong financial position and substantial assets (including an A credit rating and $76 million in cash). The plaintiff contended that these matters showed that AmTrust was unlikely to default on the deed and that its business model created a commercial imperative to honour its obligations. Indeed, the plaintiff adduced evidence that AmTrust never failed to honour an indemnity deed given in favour of a defendant. Given this evidence of adverse costs protection, it was appropriate that the security should be given in a form least disadvantageous and most cost-effective to the party providing the security.

In addition, the plaintiff referred to the growing use of deeds of indemnity in the UK, citing a case in which such a deed was accepted by the High Court of England and Wales, as well as the fact that the deed of indemnity offered by AmTrust represented a direct and irrevocable obligation to pay.

Her Honour held that a deed of indemnity offered from within the same jurisdiction may be adequate security provided that it represented real security, namely, amounting to a promise that would likely be honoured, given by a creditworthy entity with the financial resources to pay and against whom enforcement could readily be obtained. Although the usual form of security was payment into Court, other types of security (including insurance policies and bonds) had been accepted by courts. There was no general rule that a bond of a foreign company or a deed of indemnity provided by a third party insurer would never be appropriate forms of security.

In concluding that the proposed security was appropriate, her Honour referred to the following circumstances:

  • The deed was directly enforceable in Victoria, as it was governed by the laws of Victoria and subject to the Supreme Court of Victoria’s exclusive jurisdiction;
  • The deed was directly enforceable against AmTrust, including within the UK (a jurisdiction with which there are arrangements for the enforcement of Australian judgments);
  • The defendant had not challenged evidence of AmTrust’s sufficient financial resources in the UK to satisfy a costs order;
  • The deed imposed upon AmTrust an irrevocable and unconditional obligation as principal debtor to pay to the defendant any sums which the plaintiff was liable to pay in respect of the defendant’s costs, an obligation which was not contingent upon an insurance policy or any other conditions;
  • The plaintiff had offered to pay into Court $20,000 in enforcement costs of the deed within the UK, and the defendant had failed to adduce any evidence regarding the quantum of those enforcement costs (including any evidence to challenge the adequacy of the $20,000 proffered by the plaintiff);
  • Given AmTrust’s reputation as an insurer with very substantial assets involved in the business of underwriting legal expense risks, it was unlikely that AmTrust would default on the deed; and
  • The terms and the form of the deed were acceptable to the defendant.


The decision in APCH outlines a clear alternative pathway for plaintiffs looking for alternative litigation funding options in the form of ATE insurance products, including indemnities provided by insurers resident outside Australia. Indeed, it could be said that the decision identifies a “checklist” for obtaining an indemnity arrangement which comprises the requisite features which are likely to be resistant to challenges by defendants seeking the imposition of more onerous forms of security such as payment into Court or bank guarantees.

In this way, the APCH decision represents a potentially significant commercial opportunity for litigation funders, as it indicates a growing acceptance of indemnity arrangements as a legitimate form of security for adverse costs. This in turn could lead to a significant uptake in the use of deeds of indemnity as a cheaper alternative to conventional litigation funding approaches which required funders to pay large sums of money into court. Consequently, indemnity arrangements may provide a means by which funders can effectively outsource the provision of security for adverse costs to a foreign insurer who has access to vast capital reserves, thereby freeing up significant cash flow which may be more effectively deployed elsewhere. This is particularly the case where the security provider would only be required to pay into Court a modest quantum of cash (such as the $20,000 offered in APCH) in respect of enforcement costs of the indemnity within the foreign jurisdiction.

Having said this, whether such a development actually eventuates or becomes a permanent feature of the litigation funding market remains to be seen. For example, it is as yet unclear whether commercial terms comparable to those seen in APCH are likely to be replicated on a wider scale in other indemnity arrangements. In addition, Ierodiaconou AsJ’s decision in APCH is currently the subject of an appeal.

If the APCH decision ultimately endures as binding authority, the established market players are likely to move quickly in embracing the opportunities presented by the judgment. It can also reasonably be expected that this in turn may intensify the winds of competition within the litigation funding market as funders adjust and adapt their product portfolios accordingly in response to the additional momentum for increased penetration of ATE insurance products. Indeed, it may well be that the decision, insofar that it identifies a cheaper method of providing security for adverse costs, ultimately contributes to an increase in the frequency of class action cases and litigation commenced on behalf of insolvent companies in liquidation.