In the case of Premier Motorauctions Ltd (in liquidation) and another v Pricewaterhousecoopers LLP and another [2016] EWHC 2610 (Ch), an application by the defendants for security for costs made under CPR Part 25 was before the High Court at the first Case Management Conference.

A key point of interest is the consideration of the significance that should be attached to the After The Event insurance that the claimants had in place (insurance in respect of their potential liability for the defendant's costs).

Facts

The claimants were a parent company and its subsidiary, both of whom went into administration in December 2008 and then into compulsory liquidation in June 2010. They had two main business operations, a car auction business in Leeds and an auction business selling unique registration plates for the DVLA at various locations around the UK.

The underlying claim (brought by the Joint Liquidators), worth between £45 and £54 million, involves allegations that the defendants (PWC and Lloyds Bank PLC) were in breach of the duties they owed to the claimants and that they conspired to cause them loss by unlawful means (specifically that the defendants took steps that forced the claimants into administration).

The claimants' solicitors served notice that ATE policies had been issued to the Joint Liquidators and the claimants (as co-insureds) with a combined limit of £5 million. Redacted copies of the insurance policies were provided to the defendants. They nevertheless sought security for their costs, indicating that they were anticipated to be £3.52 million (PWC) and £3.69 million (Lloyds).

Basis of application

The defendants argued that because the claimants were insolvent and had no substantial assets they would be unable to pay the defendants' costs if ordered to do so.

The defendants contended that acceptable security must be equivalent to cash or a first-class bank guarantee. The ATE policies that the claimants had obtained were not, they claimed, sufficient because: (i) there is a real risk that the ATE policies might be avoided, rescinded or cancelled in the event that the defendants win; and (ii) two of the insurers are based in Gibraltar and cannot be accepted as credit-worthy (they have no credit ratings and are not FCA-regulated).

Specifically, the defendants sought security in the form of: (i) a payment into court; (ii) provision of a guarantee by a UK clearing bank; or (iii) a deed of indemnity from ATE insurers based in the UK.

Decision

Snowden J refused the defendants' application on the basis that the jurisdictional threshold for security could not be satisfied. This was largely because he was not persuaded that the policies would fail to respond. The fact that a company is in liquidation or administration does not necessarily mean that it will have insufficient assets to meet an adverse costs order.

Snowden J said that the question was not whether the ATE policies provide the same security as cash or a bank guarantee. Rather, it is whether, having regard to the terms of the ATE policies in question, the nature of the allegations in the case and all other circumstances, there is reason to believe that the ATE policies will not respond so as to enable the defendants' costs to be paid. 

Discussion

Snowden J suggested that the independent and professional nature of insolvency practitioners, combined with their personal liability, indicates that ATE insurance arranged by them (in particular, as in the present case, with advice from solicitors and counsel) is more likely to be held to be adequate cover for the defendants' costs. He also reaffirmed the importance of the ATE insurance market and acknowledged that there "is a public interest in permitting ATE insurance on appropriate terms to provide access to justice for insolvent companies under the control of responsible insolvency office-holders", endorsing Stuart-Smith J's comment in Geophysical Service Centre v Dowell Schlumberger (ME) Inc [2013] EWHC 147 that ATE insurance has "for some years now, been a central feature of the ability of parties to gain access to justice". Snowden J further reasoned that, whilst "ATE insurers are of course entitled to take a stand on their policy terms and conditions, they are unlikely to have a commercial incentive to take an unusually defensive line in seeking to avoid liability".