Premier Motorauctions Ltd & Anor v Pricewaterhousecoopers LLP & Anor

An after-the-event insurance policy may be considered when deciding whether the jurisdictional condition for security for costs is met under CPR 25.13. The question is whether the policy gives the defendant sufficient protection against an adverse costs order, not whether it is equivalent to cash or a bank guarantee.

A policy without effective anti-avoidance protection may be inadequate where the insurer could avoid liability for non-disclosure or misrepresentation and the defendant has no sufficient assurance that the risk is unreal. Once an insolvent company satisfies the jurisdictional condition and security will not stifle the claim, security will normally be ordered.

Premier Motorauctions Ltd & Anor v Pricewaterhousecoopers LLP & Anor concerned claims by two companies in liquidation against their former advisers and bank. The companies alleged breaches of duty and an unlawful-means conspiracy connected with the companies’ administration and sale of their businesses. They claimed losses of approximately £45 million to £54 million.

The defendants applied for security for costs of about £7.2 million. The companies relied on layered ATE insurance worth £5 million. Snowden J held that the insurance could be considered at the jurisdictional stage and that there was no reason to believe the companies could not meet an adverse costs order: [2016] EWHC 2610 (Ch). The defendants appealed.

The central issue was whether policies containing avoidance risks and conditions precedent gave the defendants sufficient protection so as to prevent the jurisdiction to order security for costs arising.

1. The appeals were allowed. The court set aside the refusal of security and ordered the claimants to provide £2 million security for each defendant, £4 million in total.

2. The jurisdictional condition in CPR 25.13(2)(c) requires reason to believe that a company claimant will be unable to pay the defendant’s costs if ordered to do so. It is an evaluative assessment of future risk. It does not require proof on the balance of probabilities, and the rule should not be paraphrased as a requirement of significant danger.

3. ATE insurance is an asset which may be considered at that jurisdictional stage. A contingent asset cannot be disregarded merely because it is contingent. The correct inquiry is whether, on the policy terms and all the circumstances, it gives the defendant sufficient protection. It need not provide the same security as cash, a bank guarantee or a deed of indemnity.

4. These policies did not give sufficient protection. They lacked an anti-avoidance clause and permitted avoidance or refusal of indemnity for non-disclosure or misrepresentation. The evidence of Mr Elliott was central to the claim. If it were disbelieved, the companies would lose, but neither the defendants nor the court had adequate assurance that the insurers would not then seek to avoid the policies. The liquidators’ use of experienced professional advisers did not remove the risk of unknown non-disclosure.

5. The court therefore had jurisdiction. It exercised the discretion itself rather than remit the matter, since further satellite litigation would cause expense and delay before the fixed trial. The companies were insolvent, security would not stifle the claim, and security was normally appropriate in those circumstances. The order specified acceptable forms of security and provided for strike-out and judgment if security was not furnished.

• Court of Appeal (Civil Division): Allowed the defendants’ appeals and substituted an order requiring security for costs of £2 million for each defendant: [2017] EWCA Civ 1872.

• High Court, Chancery Division: Snowden J held that the ATE insurance could be considered at the jurisdictional stage and dismissed the applications for security: [2016] EWHC 2610 (Ch).