AFTER THE EVENT INSURANCE DOES NOT PROHIBIT AN ORDER FOR SECURITY FOR COSTS
In Premier Motorauctions Ltd & Anor v Pricewaterhousecoopers LLP & Anor  EWCA Civ 1872 the Court of Appeal decided that the existence of an after the event insurance policy to cover legal expenses did not prohibit a court from ordering security for costs. The policy did not provide sufficient protection to the defendants because of the possibility of it being avoided.
The defendants sought security for costs. At first instance the application was refused on the grounds that the existence of the policies meant there was no good reason to believe that the claimants would not be able to pay costs. The judge held he had no jurisdiction to order security.
OVERTURNING THE JUDGE ON APPEAL
The Court of Appeal held
- It was possible for an ATE policy to be sufficient to deal an application for security for costs.
- The question was whether the ATE policy provided “sufficient protection”.
- The policy in this case contained no anti-avoidance provisions.
- The court could not be satisfied that the possibility of avoidance was illusory.
- The defendants did not have any assurance that the policy relied upon the claimants could not be avoided.
- The policy did not, therefore, provide “sufficient protection”.
DISCRETION AND QUANTUM
Once one is satisfied that the Companies are insolvent, that there is jurisdiction to order security for costs and that ordering security will not stifle the claim, it is normally appropriate to order security and I see no reason not to do so in this case. As long ago as 1878, when section 69 of the Companies Act 1862 was in virtually the same terms as the present CPR 25.13, this court thought that it was more or less axiomatic that in these circumstances security should be ordered, see Northampton Coal Iron and Waggon Company v Midland Waggon Company (1878) 7 Ch.D 500 as followed by Pure Spirit Company v Fowler (1890) 25 QBD 235. I would follow this lead, especially in circumstances where the Bank has already lost about £5 million by way of irrecoverable loan from the Companies which will remain irrecoverable even if the Bank wins its case. Unless security is ordered, there will be no level playing field, as the Companies have no reason to suppose that they will be unable to recover costs if they win.
It is a sad reflection of the number of appeals waiting to be heard in this court that this interlocutory appeal has taken more than a year to be listed since the date when Snowden J gave judgment. No doubt further costs have been incurred meanwhile. Nevertheless we ought to ask ourselves what order he would be likely to have made. At the time the matter was before him, PwC were asking for £3,520,000 later increased to £3,920,000 being 80% of their estimate of costs to be overall incurred; the Bank was asking for 80% of £3,690,000. These are very high figures even taking into account the sums said to be at stake in the action. I consider that justice will be done at this stage by ordering security to be provided for each of the defendant’s costs in the sum of £2,000,000 making £4,000,000 in all. That is not intended to rule out a further properly evidenced application if that is considered appropriate. I see no reason to assume, as the defendants would wish us to do, that it will be inevitable that, if they win, they will recover indemnity costs.
THE DRAFT ORDER
An annex to the judgment provides a draft order, which may provide useful guidance for drafting in the future.
UPON the Defendants’ appeals against the Order of Mr Justice Snowden dated 2 December 2016 (the “Appeals”)
AND UPON hearing Leading and Junior Counsel for the First Defendant, Leading Counsel for the Second Defendant and Leading and Junior Counsel for the Claimants
AND UPON the Court of Appeal handing down judgment in the Appeals on 23 November 2017
IT IS ORDERED THAT:
1. The appeals be allowed.
2. Paragraphs 1 – 3 of the Order of 2 December 2016 are set aside and the orders below are substituted in their place.
3. The Claimants shall provide security for each of the Defendants’ costs in the sum of £2,000,000 for the First Defendant’s costs and £2,000,000 for the Second Defendant’s costs. The form and timing of the security shall be determined as follows:
(1) the Claimants shall by 5pm on 1 December 2017 provide the Defendants with their proposed security arrangements which shall be in the form of one of the following: payment into court, alternatively a deed of indemnity from the Claimants’ lead UK insurer, alternatively a bank guarantee from a UK clearing bank (the “Security Arrangements”);
(2) the Defendants shall notify the Claimants by 5pm on 6 December 2017 of any objections to the form or terms of the Security Arrangements and the parties shall thereafter use their best endeavours to resolve any such objections; and
(3) the Security Arrangements shall in any event be put in place by 4pm on 15th January 2018.
4. There be liberty to apply to Snowden J, in the event that the timeframes specified in paragraphs 3(1) or 3(2) above are not complied with and/or if the terms or form of the Security Arrangements are not agreed by the Defendants.
5. Unless security is given in accordance with paragraph 3(3) above: (a) the Claimants’ claims be struck out without further order, and (b) on production by the Defendants (or one of them) of evidence of default, there be judgment for the Defendants without further order with costs of the claim to be the subject of detailed assessment, with liberty to apply as to the basis of assessment.
6. The Claimants do by 4.30pm on 7 December 2017 repay to the Defendants the sum of £35,000 each, which the Defendants paid to the Claimants under paragraph 3 of the Order of 2 December 2016.
7. The Claimants shall pay the Defendants’ costs of their appeals and of their applications (for security for costs) below on the standard basis to be subject to a detailed assessment if not agreed. The claimants to pay £44,000 to first defendant and £37,000 to second defendant by way of payment on account in respect of the costs of the appeal and £45,000 to each of the defendants by way of payment on account in respect of the costs below. All such payments to be made by 4.30 p.m. on Friday 8th December 2017.
8. The Claimants’ applications for permission to appeal to the Supreme Court and for a stay of the Orders above be refused.