Rupert Cohen appeared before Master Brightwell in the case of Stazione Limited v Quest Capital on 11 July 2023 in an application for security for costs pursuant to CPR 25.12 which was resisted on the basis that the Claimant / Respondent had obtained an After The Event insurance policy which, so it said, meant that it was not “unable to pay the defendants costs”. The application was eventually settled but the following is a useful summary of the law and, importantly, when ATE insurance will suffice and when it will not:
- ATE insurance can, in principle, be relied on by a respondent to show that a company would be able to pay the defendant’s costs. The critical question is whether that insurance is “sufficient protection” which requires the Court to evaluate the risk of the company being unable to do so notwithstanding the insurance (Premier Motor Auctions Ltd (in Liquidation) v PwC & Lloyds [2017] EWCA Civ 1872 at ¶7; ¶22).
- “In summary, the Court needs to be satisfied, when reliance is placed on an ATE insurance policy, there must not be terms pursuant to which or circumstances in which the insurers can readily but legitimately and contractually avoid liability to pay out for the defendant’s costs. This requires the court to form a view at this stage on (1) the meaning of the policy, and (2) on how readily it may be avoided legitimately and contractually, and (3) to form a view of the likelihood of circumstances arising which will enable the policy to be readily, legitimately and contractually avoided” (Saxon Woods Investments Ltd v Francesco Costa and others [2023] EWHC 850 (Ch) at ¶33).
- Particular examples of ATE policies that have not provided adequate security include where there is a risk of insolvency of the claimant so that the funds, effectively, go to his creditors and are not available for the defendant's costs. In Catalyst Managerial Services v Libya Africa Investment Portfolio [2017] EWHC 1236 counsel for the defendants explained that the nature of the risk was that if the claimant is insolvent, then the proceeds of the policy will have to be paid for the benefit of unsecured creditors of the company rather than the defendant because the policy in question excluded the provisions of the Contracts (Rights of Third Parties) Act 1999.
- A further example is the risk that the insurers would avoid liability under the policy on the grounds that they were not liable in circumstances in that case where there was forgery or misrepresentation. The point that “one knows that ATE insurers do seek to avoid their policies if they consider it right to do so: see Persimmon Homes Ltd v Great Lakes Reinsurance (UK) plc [2011] Lloyd’s Rep IR 101 in which a successful defendant was unable to recover its costs from ATE insurers. The landscape after trial may be very different from the landscape as it appears to be at present and it is unsatisfactory to have to speculate” (Premier at ¶27).
- Another is where the policy provides that no indemnity would be provided where the claim is abandoned, discontinued or dismissed because the claim is unable or unwilling to commit funds to continue the action. In Lewis Thermal Limited v Cleveland Cable Company [2018] EWHC 2654 O’Farrell J regarded this as the most important factor; she said this: “… cl.8 contains general exclusions that include at 8.6 the legal action being abandoned, discontinued, stayed or dismissed as a result of the claimant either not having the funds to continue or not being willing to commit funds to continue the action. That might result in an exclusion of liability because although the claimant has the benefit of no-win-no-fee arrangements with its solicitors, it does still have to fund disbursements with are relatively significant in terms of, at least, experts reports. Therefore, there must be a risk that those costs cannot be found and as a result, the claimant is forced to abandon the claim” (§35).
Rupert Cohen was instructed by Luke Evans at Fieldfisher LLP on behalf of the applicant.
