Page 25 - PIC e-newsletter Spring Issue 8

...It is difficult to believe that, simply because a judge may prefer the evidence of one party over another, that means the other party could
be said to have misrepresented the position to its insurers.
In order to balance a seemingly generous order,
the judge did restrict who the information could be disclosed to and required con dentiality undertakings to be given by the recipients of the information.
This is an interesting development in the law of security for costs in that it con rms the court is willing to assist parties that have genuine applications to bring under CPR 25.14. Of course such an application can also apply equally in a non-insolvency context. The moral of the story? It would be wise to disclose the identity of your funders when asked, in exchange for the usual con dentiality undertakings.
Is there adequate security for costs?
Assuming that the defendant has been able to obtain access to any funding agreement or after the event insurance (ATE) policy, the next challenge that an of ce holder will likely face is the application for security for costs itself.
Such an application, if successful, will usually require that money be paid into court to secure
the defendant’s costs in the event that the claim is successfully defended and the claimant does not (or – more likely in the case of insolvency litigation – cannot) pay an adverse costs order.
The court – and rightly so – will only make such an order where there is reason to believe that non- payment is likely. It is dif cult to see a more obvious likelihood of non-payment than where the claim is brought by an insolvent company. To get around this, of ce holders have traditionally taken out ATE policies, which will include a provision for an adverse costs order. More recently however, such policies have been under scrutiny by the court as to whether they truly do provide adequate security.
In the recent high-pro le case of Premier Motorauctions & Anor v PriceWaterhouseCoopers LLP [2017] EWCA Civ 1872, the claimants were liquidated companies with the same director. The director asserted that the defendant had entered into an unlawful means conspiracy to force the companies into administration. This was a claim to be brought by the companies (in liquidation), and so the of ce holders obtained ATE insurance for £5m. As in any standard ATE policy, there was a get-out clause for the insurers whereby they wouldn’t have to pay out if there had been any non-disclosures or misrepresentations.
The defendants applied for security for costs in the sum of £7.2m.
At rst instance, it was held that there was no reason to believe that the ATE policy would not cover the defendants’ costs and the application was dismissed.
The appeal was allowed on the second ground only.
In relation to rst ground, it was held that an ATE policy was, in principle, able to amount to security for costs. There could be no blanket refusal.
However, in relation to the second ground, in this particular case the director’s evidence would be the deciding factor as to whether the conspiracy took place. If the judge preferred alternative evidence this could be construed by the ATE provider as a misrepresentation, thus voiding the policy and avoiding a pay out. Therefore on these particular facts, the ATE policy was inadequate security.
This was a disappointing decision for of ce holders and demonstrates a further hurdle that they have to overcome to be able to bring claims. Of course, not all claims will rely on the evidence of former directors: indeed many claims are brought against those very people. Nevertheless, it is dif cult to believe that, simply because a judge may prefer the evidence of one party over another, that means the other party could be said to have misrepresented the position to its insurers.
Whilst it is easy to say that ATE policies must be drafted carefully in order to defeat an application for security for costs, in reality the of ce holder is often presented with a ‘take it or leave it’ policy in relation
to standard exclusions and boilerplate clauses. Hopefully there will be a realisation amongst ATE providers that their
business will not be sustainable without the
inclusion of appropriate anti-avoidance
provisions to overcome the hurdle faced
in this case.
On appeal, two arguments were advanced:
1. The ATE policy was not an asset to be taken into account in ability to pay as it was contingent.
2. The ATE policy does not amount to adequate security in the way that a payment into court would.
Alexandra Withers
is an Associate at Short Richardson & Forth.
www.pic.legal Spring 2018
PARTNERS IN COSTS
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