Harlequin Property (SVG) Ltd and Another v Wilkins Kennedy (A Firm)(Defendant/Applicant)
| Jurisdiction | England & Wales |
| Judge | The Hon. Mr Justice Coulson |
| Judgment Date | 29 April 2015 |
| Neutral Citation | [2015] EWHC 1122 (TCC) |
| Docket Number | Case No: HT-2014-000038 |
| Court | Queen's Bench Division (Technology and Construction Court) |
| Date | 29 April 2015 |
[2015] EWHC 1122 (TCC)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr. Justice Coulson
Case No: HT-2014-000038
Mr Nicholas Davidson QC and Mr Hefin ReesQC (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
Introduction
On 4 December 2014, the defendant issued an application for security for costs. This application followed many months of correspondence in which detailed but unsuccessful attempts had been made to agree the nature and form of voluntary security to be provided by the claimants. Since the application was issued, further progress has been made by the parties on these issues. It is not now disputed that the claimants should provide security; and it is not disputed that, at present, the relevant amount of the security should be £2.75 million.
The remaining dispute between the parties arises out of the ATE insurance policy into which the claimants have entered and which, they say, provides sufficient security for the defendant's costs. Unusually, perhaps, the claimants are supported in that view by the insurers themselves, DAS Law Assist ("DAS"). The defendant says that, on analysis, the ATE policy does not provide proper security in the circumstances of this case. The argument between the parties focuses on whether the objections now made by the defendant to the terms of the policy are realistic or fanciful.
I propose to deal with the issues in this way. In Section 2 below, I summarise the particular circumstances of this case which, for reasons which I will explain later, I consider to be a critical element in the exercise of my discretion as to the form of security to be provided. At Section 3 below, I deal with the law, and in particular the authorities concerned with the use of ATE insurance as a vehicle for security for costs. In Section 4 below, I set out the relevant terms of the policy and the endorsements, some of which have been added to provide comfort to the defendant in this case. I then address the two particular concerns raised by the defendant at the hearing: the risk of commutation ( Section 5 below), and the risk that the policy may not provide any protection to the defendant if the claimants go into liquidation ( Section 6 below). I should express my thanks to both counsel for the clarity and succinctness of both their written and oral submissions.
Factual Background
The first claimant is incorporated in St Vincent and the Grenadines ("SVG"). The second claimant is incorporated in Grand Cayman. Mr David Ames is a director and main shareholder of each company. He has been involved in property development in various parts of the world.
These proceedings are concerned with a property development in SVG known as Buccament Bay. Money was raised for the development from private investors, mainly resident in the United Kingdom. The money was raised through another company owned by Mr Ames, Harlequin Management Services (Southeast) Ltd, which is now in liquidation. The investors paid deposits of up to 30% of the purchase price of a room or apartment in the Buccament Bay resort.
The construction works were significantly delayed and are still ongoing. There is an investigation into the scheme by the Serious Fraud Office, and there have been a number of different sets of proceedings, some started by disgruntled investors, and some involving attempts to put the claimant companies into liquidation.
The defendant provided accountancy and auditing services in respect of the Buccament Bay resort. The principal person involved on their behalf was a Mr MacDonald. These proceedings centre on what is said to be the various breaches of contract and other duties on the part of the defendant, and Mr MacDonald in particular. Many of these allegations centre on Mr MacDonald's relationship with the ICE Group, owned by Mr O'Halloran, who were the main contractors employed to carry out the construction of the resort at Buccament Bay (and who are also at the centre of fraud allegations). It is said that the defendant, and Mr MacDonald in particular, had a clear conflict of interest by giving financial advice to both the employer (the claimants) and the contractor.
The claimants' allegations against the defendant amount to a case that the defendant was responsible for the delays and the cost overruns on the resort project. It is also said that the defendant was responsible for the claimants' losses suffered as a result of what is alleged to be the fraudulent conduct on the part of ICE Group and Mr O'Halloran. The defendant denies the claims in their entirety.
It will be seen, therefore, that some of the issues in this case are rather different from those that arise in an 'ordinary' TCC case, involving as they do allegations of fraud involving both the employer and the contractor, and an allegedly fundamental conflict of interest on the part of the defendant. Furthermore, even by TCC standards, the claims are significant: the claim is pleaded at a sum in excess of US $60 million.
The Law
Pursuant to CPR 25.12 and 25.13, the court has a wide discretion as to whether or not to grant security and, if so, the method by which such security should be provided. As I have said, in the present case, there is no dispute that security should be given. The only issue is the form of that security.
The first case in which ATE Insurance was considered as a form of security for costs was Al-Koronky and another v Time-Life Entertainment Group Ltd and another [2006] EWCA Civ. 1123. In that case, Sedley LJ said:
"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."
The next case in time was Belco Trading Co v Kondo and another [2008] EWCA Civ. 205, a decision of the Court of Appeal. In that case the judge at first instance had accepted that, in theory, an ATE insurance policy could be used as an alternative to a payment into court, or an acceptable bank guarantee, as a means of providing security for costs. The order provided that the insurance policy should give the defendants an "equal or better security" than that afforded by a payment into court or a bank guarantee. It is clear from the judgment of Longmore LJ in the Court of Appeal that these words were added because the judge did not know anything about the terms of the policy. The Lord Justice went on to say:
"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."
The trio of more recent cases which, to my mind, sets out clearly the general relationship between ATE insurance and the provision of security of costs starts with the decision of Akenhead J in Michael Phillips Architects Ltd v Cornel Clark Riklin and another [2010] EWHC 834 (TCC). Having looked at the relevant cases, Akenhead J summarised the principles as follows:
"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...
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