The court confirmed that “after the event” insurance policies (also known as “ATE”) can be taken into account in an application for security for costs.
In making its assessment, the court will afford greater weight to an ATE insurance policy that can only be avoided by way of fraud.
An application for security for costs was made by Lloyds Bank plc and PwC LLP (the “Defendants“) in a claim brought by the liquidators of an insolvent company, Premier Motorauctions Limited (the “Company“). The liquidators alleged that the Defendants had conspired to unlawfully depress the assets of the Company in order to acquire them at an undervalue. The liquidators had taken out an ATE insurance policy with cover of up to £5 million, but the policy could be avoided for misrepresentation and non-disclosure on the part of the insured.
The court stated that an ATE insurance policy can, in theory, be an answer to an application for security for costs. Accordingly, the court rejected the Defendants’ submission that an ATE insurance policy could not be considered at all in the test for security for costs under CPR 25.13.
The court then considered whether the policies gave sufficient protection to the Defendants. As the evidence of the majority shareholder and managing director of the Company, Mr Elliot, was central to the case, the court was wary of the risk of avoidance of the policies for misrepresentation or non-disclosure. On this basis, the court held that there was reason to believe that the Company would be unable to pay the Defendants’ costs and, accordingly, ordered that £4 million security be provided.