Premier Motorauctions Ltd ((in Liquidation)) and Another (Respondents/Claimants) v Pricewaterhousecoopers LLP and Another
| Jurisdiction | England & Wales |
| Judge | Lord Justice Longmore,Lord Justice Kitchin,Lord Justice Floyd |
| Judgment Date | 23 November 2017 |
| Neutral Citation | [2017] EWCA Civ 1872 |
| Docket Number | Case No: A3/2016/4717 & A3/2017/2602 |
| Court | Court of Appeal (Civil Division) |
| Date | 23 November 2017 |
[2017] EWCA Civ 1872
THE RIGHT HONOURABLE Lord Justice Longmore
THE RIGHT HONOURABLE Lord Justice Kitchin
and
THE RIGHT HONOURABLE Lord Justice Floyd
Case No: A3/2016/4717 & A3/2017/2602
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
CHANCERY DIVISION
THE HONOURABLE MR JUSTICE SNOWDEN
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justin Fenwick QC & Mr George Spalton (instructed by DLA Piper UK LLP) for the First Appellant
Mr Adam Zellick QC (instructed by CMS Cameron McKenna Nabarro Olswang LLP) for the Second Appellant
Mr Hugh Sims QC & Mr Jay Jagasia (instructed by Hausfeld & Co LLP) for the Respondents
Hearing date: 7 th November 2017
Judgment Approved
See Order at bottom of this judgment.
Introduction
The main question in this appeal is the extent to which the existence of After-the-Event ("ATE") insurance is relevant when the court is considering an application for security for costs sought by the defendants in a claim brought by an insolvent company in liquidation.
The details of the claim (much trailed in the financial press and Private Eye e.g. in its September 2015 issue) are set out by Snowden J in his judgment now reported at [2017] 2 All ER (Comm) 681. They can be summarised by saying that the business of the claimants (a car auction business in Leeds and a business selling unique registration plates for the DVLA) was in some difficulty in April 2008. Mr Keith Elliott, who owned 97% of the first claimant parent company and was managing director of both claimants ("the Companies") asked the Companies' bank, the second defendant ("the Bank") for additional facilities which the Bank provided; at the same time the Bank introduced a Mr Warnett of the first defendant ("PwC") to Mr Elliott as someone who might act as a non-executive director of the Companies. This led to PwC being engaged to conduct a review of the Companies' cash-flow needs pursuant to an engagement letter of 15 th August 2008 signed by the Companies and the Bank. On 21 st August 2008 PwC reported that the Companies needed an immediate cash injection of ??#xA3??2 million and that receipts in a DVLA Client Account should be treated as trust monies. The Bank agreed to increase the Companies' overdraft facility accordingly and decided that the monies in the DVLA Client Account could not be set-off against that overdraft.
Nothing then came of various proposals for further investment in the Companies or for the sale of some or all of the Companies' businesses or assets. On 22 nd December 2008 two partners of PwC were appointed as administrators and the main businesses and assets of the Companies were disposed of by way of a pre-pack sale. The context of all these events is the subject of considerable dispute. The judge identified the claims now brought by the Companies in the following terms:-
"9. The essential claim of the Companies, now acting by their joint liquidators, Messrs. Khalastchi and Atkins of Menzies LLP ("the Joint Liquidators") is that Mr Warnett was introduced to the Companies on false pretences and that he had no intention of performing a role of non-executive director. It is said that Mr Warnett was used by the Bank and PwC as part of a conspiracy to obtain an internal assessment of the Companies' affairs, to identify a fictitious need for additional finance that could then be provided by the Bank on terms that gave it effective control over the Companies and the means to force them into administration so that their business and assets could be sold at an undervalue by the administrators for the benefit of the Bank. The Companies allege that the defendants thereby breached various duties to them and conspired to cause them loss by unlawful means.
10. Those allegations are denied by the defendants, who contend that in reality the Companies were "run into the ground" by Mr Elliott, who mismanaged the Companies, their assets and their finances, and who drew heavily on their funds to support his own extravagant lifestyle. They contend that the allegations concerning Mr Warnett make no sense, that the need for additional finance that he identified was genuine, and that the change of treatment of the DVLA Client Account was backed up by independent legal advice and did not cause the Companies' financial difficulties. The defendants say that the allegations of conspiracy are spurious and implausible, that there were no breaches of any duties (some of which duties are in any event denied) and that the insolvency of the Companies has caused the Bank significant loss.
11. The Companies' primary loss claim is for losses estimated to total between about ??#xA3??45 million – ??#xA3??54 million. In addition to denying liability, the defendants deny this primary case as to quantum on the basis that if the Bank had not provided the additional ??#xA3??2 million overdraft facility the Company would not have been able to carry on trading."
In response to a letter before claim of September 2014, the Bank said it would be seeking security for costs. An amended claim form and particulars of claim were served on 19 th June 2015 and the Companies' solicitors on 29 th June 2015 notified the defendants that ATE policies of insurance had been issued to the Joint Liquidators and the Companies as co-insureds by QBE Insurance (Europe) Ltd ("QBE") for a primary and tertiary layer and by Elite Insurance Co Ltd ("Elite") for a secondary layer. (There are now 4 th and 5 th layers bringing the total sum insured to ??#xA3??5 million.) In August 2015 redacted copies of the policies were provided to the defendants; in December 2015 PwC's solicitors pointed out that the policies could be avoided for non-disclosure or misrepresentation and that they were therefore not the equivalent of payment into court or a bank guarantee or a deed of indemnity issued by an insurer. They asked for a deed of indemnity to be provided to cover their costs but the Companies have declined to procure any such deed. This refusal has led to PwC and the Bank issuing applications for security for costs on 5 th and 27 th April 2016 for the sums of ??#xA3??3.52 million and ??#xA3??3.69 million respectively making a total of about ??#xA3??7.2 million.
So the question of principle arises: does ATE insurance which has no anti-avoidance provisions (and other exceptions or conditions precedent to liability) constitute adequate security for costs in a case requiring such security to be given?
Jurisdiction to order Security for costs
CPR 25.13 relevantly provides:-
"(1) The court may make an order for security for costs under rule 25.12 if,
(a) it is satisfied, having regard to all the circumstances of the case, that it is just to make such an order; and
(b) (i) one or more of the conditions in paragraph (2) applies …
(2) The conditions are:-
(c) The claimant is a company … and there is reason to believe that it will be unable to pay the defendant's costs if ordered to do so."
In Jirehouse Capital v Beller [2009] 1 WLR 751 the Court of Appeal accepted that this test did not require the court to be satisfied on the balance of probabilities that the claimant would be unable to pay the defendant's costs. It only needed reason to believe that it would not be able to do so. Arden LJ indicated at paragraphs 33–34 that, since such non-payment of an order for costs is a future event, what the court has to do is to consider all of the circumstances and evaluate the risk of that occurring. She also indicated that it would be preferable for the court not to paraphrase the relevant words of CPR 25.13(2)(c). That observation was endorsed by Moore-Bick LJ in his judgment in the case and was subsequently repeated in SARPD Oil v Addax Energy [2016] BLR 301, where Sales LJ commented, at paragraphs 13–14:-
"13. It follows that it is not sufficient for the court or the defendant to be left in doubt about a claimant's ability to pay the defendant's costs if the claimant loses. Nor is it sufficient as the first instance judge in Jirehouse had done to paraphrase the wording of the rule by saying that there was a significant danger that the claimants would not be able to pay such costs. The court must simply have reason to believe that the claimant will not be able to pay them.
14. That is, as Arden LJ said, a matter of evaluation…"
It is important to note that the requirement of CPR 25.13(2)(c) is a jurisdictional requirement which has to exist before the court has power to order security for costs.
Terms of the ATE insurance
The terms of the insurance policies (which are essentially the same for each layer) on which reliance was placed are ("the Representative" being the Insured's solicitor):-
"2 Exclusions
2.1 The Insurer shall not, unless otherwise stated in this Policy, pay any claim under the Policy directly caused or attributable to
2.1.1 The Insured's failure to co-operate with or to follow the advice of the Representative;
…
2.1.7 the Insured's decision to abandon or discontinue the Dispute without Insurer's Approval;
…
2.1.9 the Insured's decision to make an offer to settle or compromise the Opponent's claim for Opponent's costs without Insurer's Approval;
2.1.10 any costs assessment proceedings (or any other disputes regarding Costs following the Conclusion of the Dispute) or in relation to any costs management or budgeting procedures which take place during the Dispute;
2.1.11 the Insured's decision to reject an offer of settlement without Insurer's Approval;
2.1.12 the Insured's decision to continue the Dispute after the Insurer has informed the Representative that in their view the Insured is more likely than not to...
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