Musst Holdings Limited v Astra Asset Management UK Limited & Anor

An ATE policy may provide adequate security for costs where, read with any anti-avoidance endorsement, it gives the defendant effective protection against the realistic risk of non-payment. Objections must be assessed by reference to the policy’s actual terms and the likelihood of the suggested risk arising. The risk must be real rather than theoretical or fanciful.

The court may accept an ATE policy despite prospective cancellation rights, provided accrued costs remain covered and the defendant receives suitable notice and protection. The court should consider the policy and endorsement together. Where two forms of security would provide equal protection, the less onerous form for the claimant is generally preferable.

The defendants applied for security for costs under CPR Part 25. The claimant was a BVI company and did not dispute that the relevant gateway and amount of security were satisfied.

The claimant relied on a £900,000 litigation insurance policy supported by an anti-avoidance endorsement. The defendants challenged the policy’s construction, direct enforceability, termination provisions, exposure to insolvency challenges, and protection against fraud-related avoidance. The central issue was whether the policy and endorsement provided sufficient practical protection against an adverse costs order.

1. Application dismissed. The policy and anti-avoidance endorsement, including amendments offered by the claimant and insurer, provided adequate security for the defendants’ costs.
2. The court must examine the actual terms of the policy and endorsement together. ATE insurance can, in principle, satisfy the security requirement. Objections must identify a realistic risk that the defendant will remain unprotected; theoretical or fanciful concerns are insufficient ([2015] EWHC 1122 (TCC), at [21(d)]).
3. The endorsement gave the defendants a direct right of enforcement against the insurer under the Contracts (Rights of Third Parties) Act 1999. The claimant’s BVI incorporation did not require reliance on BVI legislation because the direct contractual right could be enforced in England and Wales.
4. The court did not need to resolve the experts’ disagreement about whether the Third Parties (Rights Against Insurers) Act 1949 applied to an English-law policy. Any risk of an insolvency challenge under the anti-deprivation or pari passu principles was remote. The policy did not remove an asset belonging to the claimant from an insolvent estate.
5. Cancellation rights did not generally make the security inadequate. Accrued adverse costs remained covered, and the endorsement required notice of termination. However, a possible gap concerning costs incurred in returning to court after termination justified retaining some or all of the £180,000 held in court pending consequential directions.
6. The court followed the reasoning in Saxon Woods Investments Limited v Costa that it must consider the meaning of the policy, the ease with which it could legitimately be avoided, and the likelihood of such circumstances arising. The broad wording of the endorsement was sufficiently clear to cover fraud-related avoidance risks in the circumstances of this case.
7. The court declined to require a deed of indemnity. The question was whether the proposed security was adequate, not whether the defendants preferred another form. Payment out of the £180,000 was deferred until the costs and case management conference.