Lloyds Developments Limited v Accor HotelServices UK Limited

An ATE policy may provide security for costs where it gives real protection against the defendant’s costs not being paid in full. The relevant risk must be realistic rather than fanciful, assessed pragmatically by reference to the precise policy wording, the litigation and the parties. An anti-avoidance endorsement is not automatically sufficient. General wording may leave a realistic risk of avoidance for fraud, particularly where clear and express wording could have been used. A policy containing material drafting lacunae will not provide equivalent security to payment into court, although the court may allow time for those defects to be cured.

The defendant sought further security for costs in proceedings concerning the construction and management of a hotel. The claimant, which was in administration and registered in Guernsey, accepted that further security was appropriate but proposed an ATE insurance policy instead of payment into court.

The dispute concerned whether the policy and anti-avoidance endorsement gave equivalent protection. The defendant raised concerns about termination of the litigation funding agreement, the identity of the policyholder, fraud, and exclusions relating to sanctions and foreign laws. The court also considered the amount of further security and the effect of the parties’ failure to identify objections before the hearing.

1. Security for costs. Under Civil Procedure Rules 1998 Part 25, the court has a broad discretion as to whether security should be ordered, its amount and its form. Where two forms provide equal protection, the less onerous form may be preferred.
2. ATE adequacy. The question was whether there was a real, rather than fanciful, risk that the policy would not respond in full. The court adopted a pragmatic and realistic approach. A policy need not provide the same security as payment into court, but it must provide genuine protection from a creditworthy entity against whom enforcement is readily available.
3. Drafting defects. The exclusion for costs incurred after termination of the litigation funding agreement created an unacceptable risk that security could cease without the defendant knowing. That concern was cured in the revised draft. However, changing the policyholder from the claimant to the funder left a drafting lacuna: the definition of Security Claim remained linked to an Insured Liability which might not be incurred by the funder. The policy was therefore presently inadequate.
4. Fraud. The anti-avoidance wording was broad enough potentially to encompass fraud, but did not do so expressly. In light of Candy v Holyoake and the principles stated in HIH Casualty, there remained a realistic risk that the insurer could argue that it was entitled to avoid for fraud in placing the policy. Saxon Woods could not simply be transplanted because its conclusion depended on the wording, other policy terms and factual context. The court was not bound by it.
5. Sanctions exclusions. No specific existing sanction or restriction was identified. The possibility of a future prohibition preventing an English insurer from paying costs to a UK company was insufficiently realistic on these facts and did not make the policy inadequate.
6. Case management and relief. The defendant’s failure to identify its substantive objections in advance was inconsistent with co-operative case management and deprived the claimant of an opportunity to amend the policy. The court therefore allowed 10 days to address the two material defects. If cured, the revised policy could be used for the further £75,000 and £600,000 security not yet paid. Existing payments into court were not released because no material change or hardship had been established.
7. The appropriate further security was assessed at £882,336. The parties were directed to agree by 6 June 2025 whether the revised policy met the identified concerns, failing which the court would determine the issue.