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High Court Rejects Security for Costs Application in Face of £5m ATE Policy

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The High Court has dismissed an application for security for costs and on the basis of a £5m ATE insurance premium in the matter of Premier Motorauctions Ltd & Anor v Pricewaterhousecoopers LLP & Anor [2016] EWHC 2610 (Ch).

The facts of the case are as follows: the action, which was pleaded at £54m, was brought by the joint liquidators of the Claimant companies against PwC and Lloyds Bank. The Defendants estimated their combined costs at £7.2m and sought security for costs. The Claimant liquidators had in place a multi-tiered ATE policy worth £5m, comprised of a £250,000 layer of QBE insurance, a £750,000 layer of Elite Insurance, a further £1.75m layer of QBE insurance, another layer of £750,000 Elite Insurance, a £500,000 layer of insurance provided by Acasta European Insurance, and a final £1m layer of insurance provided by DAS.

Mr Justice Snowden stated that the starting point for analysing an application for security for costs was to consider whether there was reason to believe that the Claimant would be unable to pay the Defendant’s costs if ordered to do so. In determining how to consider this point, Snowden J followed the approach of Mr Justice Stuart-Smith in Geophysical Service Centre v Dowell Schlumberger (ME) Inc [2013] EWHC 147 (TCC) and found that the relevant consideration was “whether, having regard to the terms of the ATE policy in question, the nature of the allegations and all the 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.” He also highlighted the public interest in the use of ATE insurance to provide access to justice for insolvent companies under the control of responsible administrators.

Snowden J then moved on to dismiss criticisms of the ATE policy raised by the Defendant and pointed out that the "liquidators had every incentive to ensure that the terms and conditions of the ATE policies will be adhered to," as the companies "had no assets" and that, as a result, the Defendant would likely apply " for a costs order against them personally." He further pointed out that, if the ATE provider were to take an unduly defensive stance with regards to avoid liability under the policies they issue, they would "soon become known in the market and potentially profitable business would be placed elsewhere."

The issue was then raised by the Defendant that two of the ATE providers, Acasta and Elite, were based and regulated in Gibraltar, so had no credit rating. Of this, Snowden J did concede that the absence of a credit rating and concerns over the failure rate of Gibraltarian insurers suggested that there was, "a greater risk of Elite or Acasta defaulting on their obligations than, say, QBE", but pointed out that Elite had an established track record. Of Acasta, however, he did note concerns about the lack of evidence as to its history and current operations, as well as the "lack of any recent financial information,” and considered that there was “reason to doubt its financial standing and ability to pay under the policy issued.”

He declined, however, to order the provision for security for costs, particularly with reference to the Acasta layer of insurance, as it was only £500,000 of a total ATE policy worth "more than £3.5m" and that, "on the basis of current estimates, this layer of assessed costs will not be reached until well after disclosure and possibly much later."

Mr Justice Snowden went on to say that the case did not cross the jurisdictional threshold under CPR 25.13 and thus the Application was refused although he did comment that the Defendant would have liberty to apply, as the case progressed, if subsequent events or information “cast a materially different light on the risks…”