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England and Wales High Court (Technology and Construction Court) Decisions |
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You are here: BAILII >> Databases >> England and Wales High Court (Technology and Construction Court) Decisions >> Harlequin Property (SVG) Ltd & Anor v Wilkins Kennedy (a firm) [2015] EWHC 1122 (TCC) (29 April 2015) URL: http://www.bailii.org/ew/cases/EWHC/TCC/2015/1122.html Cite as: [2015] BLR 469, 160 Con LR 143, [2015] EWHC 1122 (TCC), [2015] 3 Costs LR 495 |
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QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Strand, London, WC2A 2LL |
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B e f o r e :
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Harlequin Property (SVG) Limited Harlequin Hotels and Resorts Limited |
Claimants/Respondents |
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- and - |
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Wilkins Kennedy (a Firm) |
Defendant/Applicant |
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(instructed by ELS Legal LLP) for the Claimants/Respondents
Mr Justin Fenwick QC and Mr George Spalton
(instructed by Kennedys Law LLP) for the Defendant/Applicant
Hearing date: 27 March 2015
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Crown Copyright ©
The Hon. Mr Justice Coulson:
1. Introduction
2. Factual Background
3. The Law
"35…What may matter, however, is what insurance the claimant has obtained against the eventuality of having to pay the defendant's costs. A claimant who has satisfactory after-the-event insurance may be able to resist an order to put up security for the defendant's costs on the ground that his insurance cover gives the defendant sufficient protection.
36. In the present case, however, we are told that the claimants have after-the-event insurance, but that the policy is voidable or the cover ineffective if their eventual liability for costs is consequent upon their not having told the truth. We have not been told what the premium was, but since the outcome of this case will depend entirely upon which side is telling the truth, one wonders what use the insurance cover is. If the claimants win, they will have no call on their insurers. If they lose, it is overwhelmingly likely that it will be on grounds which render their insurance cover ineffective.
37. It follows that the claimants' CFA, while it does not count against them either in law or in the exercise of the judge's discretion, does not help them to ward off an order for security for costs. Eady J made no error in this regard. While he refers to the probable 100% uplift in the event of success, he does not suggest — and neither does Ms Page — that this enhances the defendants' case for security."
"5. It would, in my judgment now, be most unjust to the defendants to prevent them from pointing out that the policy in fact gives them much less security than the traditional form of security for costs. If the judge had been informed of, or had foreseen, the problems that have arisen out of the terms of the ATE policy now that it has been acquired, he would almost certainly, in my view, not have given the claimants' the option of providing security by reference to the ATE insurance in the first place.
6. In fact, it is in any event doubtful if the judge did accept in principle the suitability of an ATE policy. He says in paragraph 10 of his judgment:
"Whilst in principle I find that there should be an order for security of costs, the alternative to that is the claimant providing evidence that it has acquired the relevant insurance cover which would satisfy the defendants that that would be equal to, or even better than, payment of monies into court in respect of security."
7. That, to my mind, is saying that the defendants are entitled to be satisfied that any ATE policy proposed is not in fact equal to, or better than, payment into court, and to reject it if not reasonably so satisfied."
"18. These three cases are not absolutely determinative as to whether ATE insurance can provide adequate or effective security for the defending party's costs. That is not surprising because it will depend upon whether the insurance in question actually does provide some secure and effective means of protecting the defendant in circumstances where security for costs should be provided by the claimant. What one can take from these cases, and as a matter of commercial common sense, is as follows:
(a) There is no reason in principle why an ATE insurance policy which covers the claimant's liability to pay the defendant's costs, subject to its terms, could not provide some or some element of security for the defendant's costs. It can provide sufficient protection.
(b) It will be a rare case where the ATE insurance policy can provide as good security as a payment into court or a bank bond or guarantee. That will be, amongst other reasons, because insurance policies are voidable by the insurers and subject to cancellation for many reasons, none of which are within the control or responsibility of the defendant, and because the promise to pay under the policy will be to the claimant.
(c) It is necessary where reliance is placed by a claimant on an ATE insurance policy to resist or limit a security for costs application for it to be demonstrated that it actually does provide some security. Put another way, there must not be terms pursuant to which or circumstances in which the insurers can readily but legitimately and contractually avoid liability to pay out for the defendant's costs.
(d) There is no reason in principle why the amount fixed by a security for costs order could not be somewhat reduced to take into account any realistic probability that the ATE insurance would cover the costs of the defendant."
"4. It seems to me that the question as to whether or not that deed is acceptable is a matter which arises in relation to the ATE insurance which the claimants have obtained. The claimants can, with some force, submit that that which they propose to offer, namely the deed, is something better than the insurance itself which they previously contemplated offering, since any insurance might be subject to avoidance, misrepresentation or nondisclosure or be such that, in the end, there could be no recovery in respect of it and would not in any event constitute a direct contract with the defendants; whereas the deed that is offered is not subject to those defects. Whether those points are good or bad, it seems to me that the contention that the security should now be permitted to take the form of a deed of indemnity is, as I say, something that arises in relation to ATE insurance which the claimants have obtained."
The judge went on to conclude that in the circumstances, the security that was on offer was acceptable. At paragraph 10 he set out the test which, on his analysis, the deed met:
"10. In my view, it is necessary to take a pragmatic view or, as the Master of the Rolls expressed in Shlaimoun & Anor v Mining Technologies International Inc [2012] EWCA Civ 772, a realistic view. There is no magic in the provision of security from a first-class London bank. The essential question for the court in deciding on what form of security is acceptable is whether what is proposed does indeed provide real security. This it may do if it amounts to a promise which would in all likelihood be honoured, given by an entity with the wherewithal to pay and against whom enforcement can readily be obtained; in short, if given by a truly creditworthy entity."
"20. Ultimately, on an application such as this, the question is not whether the assurance provided by an ATE policy is better security than cash or its equivalent, but whether there is reason to believe that the claimant will be unable to pay the defendant's costs despite the existence of the ATE policy."
(a) Adequate security for costs can be provided to a defendant by means other than a payment into court or a bank guarantee;(b) Depending on the terms of the insurance and the circumstances of the case, an ATE insurance policy may be capable of providing adequate security;
(c) There may be provisions within the ATE insurance policy which a defendant can point to and say that, on the happening of certain events, those provisions may reduce or obliterate the security otherwise provided;
(d) In that event, the court should approach such objections with care: in order to amount to a valid objection that an ATE policy does not provide appropriate security, the defendant's concern must be realistic, not theoretical or fanciful.
4. The Policy
"1. The most we will pay under your policy is shown on the schedule plus the amount, if any, you are liable to pay for your insurance premium.
2. We will:
- pay your solicitor's disbursements and barrister's fees (except if the barrister is acting under a conditional fee arrangement); and
- pay your opponent's legal costs and disbursements you are liable for:
(a) if you lose; or
(b) if your claim is withdrawn by agreement between us and your solicitor; or
(c) if, after a Part 36 offer, you win but a court awards you damages that are less than the offer to settle.
3. We will indemnify you against your liability to pay your insurance premium for your policy:
(a) if you lose; or
(b) if your claim is withdrawn by agreement between us and your solicitor.
4. We will pay your opponent's legal costs and disbursements arising from an interim order made against you by the court following a pre-action disclosure or interim application."
The policy went on also to deal with 'What Is Not Covered':
"1. Any claim brought outside England and Wales.
2. Any fees or costs incurred before the start date of your policy.
3. Fines, penalties, compensation or damages that a court orders you to pay.
4. Any counterclaim against you or any appeal you make against the final judgment or order without our agreement.
5. Any fees or costs arising from any pre-action disclosure or interim applications brought by your solicitor without our agreement.
6. Any fees or costs arising from enforcement proceedings brought by your solicitor without our agreement.
7. Any fees or costs arising from negotiations about costs and any detailed assessment proceedings relating solely to your solicitor's fees without our agreement.
8. Any fees or costs arising from a fraudulent, exaggerated or dishonest claim.
9. Any fees or costs arising from not following the court's process.
10. Any increased fees or costs arising as a result of a failure by you or your solicitor to take reasonable steps to mitigate your liability.
11. Any fees or costs arising if your claim is abandoned as a result of you, either not having the funds to continue, or not being willing to commit funds to continue, with your claim.
12. Any claim where you may be one of a number of people involved in a legal action resulting from one or more events arising at the same time or from the same cause, which could result in the court making a Group Litigation Order.
13. Any claim where you take legal action that we or your solicitor have not agreed to or where you do anything that hinders us or your solicitor.
14. Any increased fees or costs arising from any delay or other default by you which, in our opinion, affects the way the claim is handled.
15. We will not pay any claim covered any other policy, or any claim that would have been covered by any other policy if your policy did not exist.
16. An application for judicial review."
"6. The cover we provide will end at once if:
(a) your solicitor refuses to continue acting for you with good reason; or
(b) you dismiss your solicitor without good reason; or
(c) you stop a claim without our agreement; or
(d) you do not give suitable instructions to your solicitor without good reason.
We will then be entitled to reclaim from you any payments made under your policy.
…
9. A person who is not a party to this contract of insurance has no right under the Contracts (Rights of Third Parties) Act 1999 (or any amending or subsequent legislation) to enforce any term of this contract but this does not affect any right or remedy of a third party which exists or is available other than by virtue of this Act."
"The insurers confirm that this policy of insurance is now non-avoidable and any claim made against it will be honoured irrespective of any provisions of the policy or of the general law, which would have otherwise have entitled the Insurers to void or deny cover under this policy and without limiting the generality of the forgoing, clauses 8-15 of "WHAT IS NOT COVERED" and "Conditions" 1-4, 6, 7 and 8.
In the event that the Insurers have to indemnify the opponent's costs and own disbursements, where there has been a breach of a warranty, the insurers reserve the right to claim such costs directly from the Insured.
If either or both of the Claimants enter in to an insolvency event then the policy will be assigned to a liquidator or administrator should they decide to continue the claim.
If the case is lost, discontinued, or there is a failure to beat a Part 36 offer, Insurers will deal directly and make any payment directly to the opponent's solicitors in respect to adverse costs.
It is noted that BC Investments Limited have been assigned as interest in this policy limited to the sum of £250,000, as per Deed of Partial Assignment dated 16th February 2015."
5. Commutation
6. The Defendant's Status as a Third Party
(a) In the United Kingdom, prior to the Third Parties (Rights Against Insurers) Act 1930, the proceeds of any insurance policy covering a liability which the insured had incurred to a third party, were payable to the insurer's insolvency practitioner. Once paid over, they formed part of the insured's assets and were distributed as such to his general creditors. The third party whose loss had triggered the claim against the insurer was likely only to recover a small dividend as one of those creditors.(b) The 1930 Act, which conferred rights against insurers by third parties in the event of the insured becoming insolvent, was designed to deal with this problem. However, the 1930 Act does not apply in SVG. Thus the pre-1930 Act position, where the money is paid to the insured's insolvency practitioner, continues to apply there.
(c) On that basis, the defendant might find that any sums due under the ATE policy, which would otherwise have constituted its security, have been paid out to the claimant's insolvency practitioner, and the defendant would have no greater claim on the money than any of the other (numerous) creditors of the claimant companies.
(d) The defendant might be protected if the Contracts (Rights of Third Parties) Act 1999 applied but, as noted in paragraph 23 above, it has been expressly excluded by the words of this ATE policy. What is more, DAS have so far refused to allow the deletion of that exclusion, saying that it would "fundamentally alter" the contract of insurance.
(e) The Third Parties (Rights Against Insurers) Act 2010 is not yet in force and would in any event only apply where the insured has been declared bankrupt or wound up in the United Kingdom which, as a result of the decision of Mr N Strauss QC noted above, is not this case.
7. Where to Next?