The Court of Appeal has overturned the High Court decision in Premier Motorauctions Ltd (in Liquidation) v PriceWaterhouse Coopers LLP concerning the extent to which the existence of ATE insurance is relevant when considering an application for security for costs.
The High Court had previously ruled that there was no reason to believe the claimant’s ATE insurance policies would not respond to a claim for adverse costs and, as such, the application for security was rejected. The defendant then appealed the decision. With no anti-avoidance clauses in the policies, and with the credibility of the claimant’s key witness in the spotlight, the Court of Appeal allowed the appeal and ordered that £4 million of security be provided.
The application arose from a long running dispute stemming from the administration and subsequent liquidation of a Leeds-based car auction business, Premier Motorauctions Ltd, by PwC.
Although the claimant had obtained £5m in ATE insurance cover from multiple insurers, the defendant’s legal team argued that “unlike the payment of money into court, a bank guarantee, or a deed of indemnity, the ATE policies were not adequate security because they could be avoided in certain circumstances by the insurers”.
In the initial ruling, Snowden J had ruled that the claimant’s ATE insurance policies were adequate security, commenting that the ATE insurance market was “substantial and mature” and suggested that there was no commercial incentive to go to great lengths to avoid paying out because of the damage it would do to insurers’ reputations.
The Court of Appeal, however, considered how exclusions within the ATE insurance policies could allow insurers to avoid liability. They found this caused sufficient reason to believe that the claimant may be unable to meet a costs award if ordered to do so; for this reason, the ATE policies were held to not constitute adequate security in the circumstances.
Claimants must show that the enforceability of their ATE insurance policy is sufficiently certain. Following this ruling there will be a much greater focus on anti-avoidance clauses (or the lack of them), especially in circumstances where the defendant can show a real risk of avoidance by ATE insurers.
It should be noted that ATE insurance may still, in a lot of cases, be an adequate answer to a security for costs application. However, this recent decision has muddied the waters somewhat and we would recommend discussing your particular circumstances with us as we oversee how the courts respond to this ruling.