The Facts

In July 2014, the joint liquidators of a pair of car auction companies commenced claims against their previous advisors and secured lenders, claiming various breaches of duty and damages in the region of £45 to £54 million. The defendants denied the claims and, after they were served notice that ATE policies had been issued to the claimants, applied to the court for security for costs on the basis that they doubted that the terms of the ATE policies were sufficient to cover combined estimated costs of £7.2 million.

The Decision

  • The court held that the key question was not whether ATE insurance provides the same security as traditional forms of security, such as cash, but “whether, having regard to the terms of the ATE policy in question, the nature of the allegations in the case and all other circumstances, there is reason to believe that the ATE policy will not respond so as to enable the defendant’s costs to be paid”
  • Here, despite the defendants’ objections, the court was satisfied that the relevant ATE policies did not cross the jurisdictional threshold. The multi-tiered ATE policy provided for cover of £5 million, the majority of which was provided by a reputable insurer with an established track record, and it was unlikely that the joint liquidators would act in such a way as to invalidate the cover.

Comment

In good news for officeholders, the court has confirmed that ATE insurance can be sufficient security for costs, on which insolvent claimants are relying more frequently. While applications for security for costs in respect of ATE insurance will be decided on a case-by-case basis, officeholders will be assisted by the pragmatic recognition that claimants have a strong incentive to ensure that the terms of any ATE policy are adhered to, and respond appropriately.