Does an insolvent company need to provide security for the costs of English litigation if it has purchased After The Event (ATE) insurance? Maybe, maybe not – it depends on the insurer!

In Premier Motorauctions Ltd & Anor v Pricewaterhousecoopers LLP & Anor [2016] EWHC 2610, a 24 October 2016 decision of Mr. Justice Snowden, sitting in the English High Court’s Chancery Division, PwC’s application for security for costs against two claimant companies in liquidation was dismissed (with liberty to re-apply), in circumstances where the Court accepted that the existence of an ATE insurance policy, issued by a reputable international insurance company, provided a credible basis for thinking, on the basis of the information currently available to the Court, that the claimants could pay PwC’s costs, if ordered to do so at the end of the litigation.

One of the arguments made by PwC was that the ATE insurance had been underwritten, in part, by two insurance companies incorporated, regulated, and doing business in Gibraltar (Elite and Acasta), and having no published credit rating.

The Judge noted that “In relation to the financial position of Elite, the Claimants have adduced evidence to the effect that Elite has been trading in the UK for over 10 years, has operations in a large number of EU countries, and has an established record of paying claims. There is, however, no comparable evidence in relation to Acasta. The Defendants point out (among other things) that the most recent published financial statements for Acasta are now very dated (being for the year to 31 July 2014), that Acasta extended its accounting reference period until 31 December 2015 and that its balance sheet was largely supported by “premiums due from intermediaries”, which was over three times its gross written premiums for the year in question. The Defendants also draw attention to media reports and concerns over the collapse into insolvency of a number of unrated Gibraltarian insurers in recent years“.

The Judge went on to conclude that “… Whilst the absence of a credit-rating and concerns over the failure-rate of Gibraltarian insurers do suggest that there might, in general terms, be greater risk of Elite or Acasta defaulting on their obligations than, say, QBE, at least in relation to Elite there is evidence that it has an established track record, and there is nothing that gives me any particular reason to believe that it will not pay if called upon to do so under the policies that it has issued. … That is not the case in relation to Acasta. The reality is that I have seen little or no evidence about its history or current operations, and the lack of any recent financial information and the points made by the Defendants as to its balance sheet do give me reason to doubt its financial standing and ability to pay under the policy that it has issued. If Acasta stood alone, I would, on the basis of the evidence that I have seen to date, be inclined to think that the jurisdictional threshold under CPR 25.13 had been crossed“.

It remains to be seen whether Mr. Justice Snowden’s judgment is appealed.

While, from the claimants’ perspective, it may seem perfectly just to be allowed to continue with their claim without having to provide 100% security for the defendant’s costs, it also seems somewhat unsatisfactory, from the defendants’ perspective, to have to take the inevitable credit risk associated with enforcing an adverse costs order (directly or indirectly) against an insolvent estate, in liquidation, whose ATE insurers are based in Gibraltar, and whose credit-worthiness is difficult to assess.

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