Premier Motorauctions Ltd & Anor v Pricewaterhousecoopers LLP & Anor

The Court of Appeal held that after-the-event (ATE) insurance can be taken into account at the jurisdictional stage of an application for security for costs under CPR 25.13(2)(c), but its weight depends on the precise terms of the policy and the realistic risk that the policy will be avoided. The court emphasised the rule in CPR 25.13 that an order for security requires that there is "reason to believe" the claimant will be unable to pay the defendant's costs and that a contingent asset such as ATE cover may be considered if it is likely to mature or provide sufficient protection.

On the facts, the policies relied on contained multiple exclusions and conditions precedent (including express exclusions for costs relating to security orders, warranties regarding disclosure and cooperation, and an endorsement permitting termination unless counsel opined at least 60% prospects). Given that the claimant companies' case depended centrally on the evidence of their former director (Mr Elliott) and that non-disclosure or misrepresentation could lead insurers to avoid cover, the court concluded there was insufficient assurance that the ATE policies would respond. Accordingly the jurisdictional test was satisfied and the Court of Appeal exercised its discretion to order security for each defendant's costs of £2,000,000 (totalling £4,000,000), with detailed directions for form and timing.

Background and parties: The claimants are two companies in liquidation (a car auction business and a business selling DVLA registration plates) brought by their joint liquidators against PricewaterhouseCoopers LLP and Lloyds Bank PLC. The pleaded case alleges that PwC and the Bank conspired (or were otherwise in breach of duties) to manufacture a need for finance, obtain control and force the companies into administration to procure an undervalue sale; the defendants deny liability and contend that the companies failed due to mismanagement by their director, Mr Elliott.

Procedural posture: This is an appeal from Snowden J's decision ([2016] EWHC 2610 (Ch)) refusing the defendants' applications for security for costs. The defendants appealed to the Court of Appeal, which heard the matter on 7 November 2017 and handed down judgment on 23 November 2017.

Nature of the application: The defendants sought security for costs (PwC and the Bank seeking sums totalling about £7.2 million). The claimants relied on multi-layered ATE insurance policies procured after liquidation which they said would meet any adverse costs orders.

Issues framed:

• Whether ATE insurance which is potentially avoidable or contains exclusions can be treated as an asset to be taken into account at the jurisdictional stage under CPR 25.13(2)(c) when deciding whether there is reason to believe a company will be unable to pay the defendant's costs.
• If ATE insurance is relevant, whether the particular policies in this case provided sufficient protection to defeat jurisdiction to order security for costs and/or to defeat the exercise of the court's discretion to order security.

Court's analysis and reasoning: The court recalled the jurisdictional threshold under CPR 25.13(2)(c) as a matter of evaluation — the court need only have "reason to believe" the claimant will be unable to pay. It rejected submissions that contingent assets such as ATE cover must be ignored; contingent assets may be taken into account where they are likely to mature or provide effective protection. The court reviewed the terms of the policies: exclusions for insurer avoidance for non-disclosure or misrepresentation, conditions precedent and warranties, explicit exclusions for costs relating to security for costs and an endorsement making coverage contingent on counsel's opinion of at least 60% prospects or permitting termination.

The court concluded that in many cases an appropriately drafted ATE policy (notably one with an anti-avoidance clause) can suffice to defeat an order for security, but where there is no anti-avoidance protection and where the claimant's central evidence is such that disbelief might expose the insurer to avoidance, the defendants are entitled to some assurance that the insurance is not liable to be avoided. On the facts — because Mr Elliott's evidence was central and because the policies lacked anti-avoidance protection and contained potentially displacing clauses — there was reason to believe the companies might not be able to pay the defendants' costs.

Disposition: The Court of Appeal allowed the appeals, found that the jurisdictional requirement for security under CPR 25.13 was met, and exercised its discretion to order security for costs of £2,000,000 for each defendant (total £4,000,000) with detailed directions for form and timing. The court declined to remit the discretion to the trial judge and dealt with quantum itself to avoid further interlocutory satellite litigation. The court also commented that anti-avoidance provisions in ATE policies make the assessment easier and that courts must consider policy terms and the realistic risk of avoidance when evaluating whether ATE cover provides "sufficient protection".

Appeal allowed. The Court of Appeal held that ATE insurance may be taken into account at the jurisdictional stage under CPR 25.13(2)(c) but its effect depends on the policy terms and the real risk of avoidance. On the facts the ATE policies lacked anti-avoidance protection and the claimant's case turned on evidence which, if disbelieved, might lead insurers to avoid cover. Therefore there was reason to believe the companies would be unable to pay the defendants' costs, the Court of Appeal had jurisdiction and, exercising its discretion, ordered security for costs of £2,000,000 for each defendant (total £4,000,000) with specified timelines and forms for providing security.

Appeal from Snowden J, High Court (Chancery Division), judgment [2016] EWHC 2610 (Ch), to the Court of Appeal ([2017] EWCA Civ 1872).