Lloyds Developments Limited v Accor HotelServices UK Limited

Alternative security for costs by ATE insurance may be accepted where the policy gives the defendant protection equivalent to payment into court. The policy must address realistic uncertainty as to avoidance, including fraud by principals or agents, in clear terms. Wording may properly be required even where a strict construction might make it unnecessary, particularly where its inclusion causes no practical prejudice.

Costs incurred in addressing alternative security will ordinarily be costs in the case where both parties act reasonably. A defendant has no automatic right to recover all costs of scrutinising an ATE policy merely because the claimant chose insurance rather than payment into court.

The judgment concerned Accor’s application for security for costs in proceedings brought by Lloyds. At an earlier hearing, the court permitted Lloyds in principle to provide security through an ATE insurance policy rather than payment into court, but identified concerns requiring further drafting.

Following several iterations of the policy, the court determined whether the proposed Anti-Avoidance Endorsement provided suitable protection, addressing fraud, insurer control over agreed costs, the definition of the policy limit, and declined offers of payment. The court also determined responsibility for the costs of the security exercise and summarily assessed those costs.

1. The court approved Lloyds’ provision of security for costs by an ATE policy with an Anti-Avoidance Endorsement, in the previously ordered sum, and ordered that security and costs be provided within 14 days.

2. The principal issue was fraud. Accor relied on HIH Casualty & General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6, where Lord Bingham stated that exclusion of the ordinary consequences of fraudulent or dishonest misrepresentation or deceit by an agent must be expressed in clear and unmistakable terms. The court accepted that proposition and held that express reference to principals or agents was justified.

3. Although the wider concerns about fraud by any person might be legally unrealistic or unnecessary on a strict analysis, there was little rational basis for excluding wording which removed the uncertainty. The policy therefore had to state in clear terms that cover would be honoured irrespective of fraud or other misconduct by or affecting any person.

4. The court accepted provisions giving the insurer control over agreed costs. They did not prevent Accor obtaining a court order where agreement was absent. The definition of “Limit” properly reduced the remaining cover when liability arose, even before payment, but did not permit insurers to avoid their payment obligation.

5. Where ATE insurance is offered as a preference rather than a necessity, that preference places a burden on the defendant to scrutinise the policy. It does not create an entitlement to indemnification of all costs irrespective of the litigation’s outcome. If the parties act reasonably, such costs ordinarily fall as costs in the case: the successful defendant may recover them, while an unsuccessful defendant bears them as a collateral consequence of unsuccessfully defending the claim.

6. In this case, Accor succeeded on the principal remaining issue, while its earlier lack of engagement and Lloyds’ unconstructive refusal of changes contributed to the need for further work. Accor was awarded 55% of its reasonable costs. Those costs were summarily assessed at £70,000 before deduction, resulting in an award of £38,500.