The recent High Court decision in Asertis Ltd v Bloch [2024] EWHC 2393 (Ch) gives clear guidance on: i) the circumstances in which the Court will find that there is reason to believe that a claimant will not be able to meet an adverse costs order; and ii) the adequacy (or lack thereof) of after-the-event (ATE) insurance to fund adverse costs awards, including policies with an anti-avoidance provision.
Background
The defendant in this case, Mr Bloch, represented by Mishcon de Reya LLP, is facing a claim brought by litigation funder and claims acquisition company, Asertis Ltd (Asertis). Mr Bloch denies the claim against him entirely.
Having reviewed Asertis' filed accounts, Mr Bloch became concerned that Asertis would be unable to pay his costs if ordered to do so (in respect of which, see 'Asertis' Financial Position' below). Accordingly, Mr Bloch applied for an order that Asertis provide security for Mr Bloch's costs by way of a payment into court.
Asertis resisted the application for Security for Costs on two grounds. First, it argued that there was no reason to believe that it would not be able to pay Mr Bloch's costs if ordered to do so. Second, it provided Mr Bloch with a copy of an ATE insurance policy in respect of the claim (the Policy). ATE insurance policies can be taken out by parties to litigation to cover their exposure to pay their opponents costs if they lose at trial. However, the nature and extent of that protection will depend upon the terms of the policy in question. Asertis argued that, even if there were a genuine concern that it would not be able to pay Mr Bloch's costs, the Policy provided security that it would. It therefore argued that no further or alternative security should be ordered.
Finding in Mr Bloch's favour, ICC Judge Mullen ordered Asertis to pay £101,317.31 into court. The Judge considered that: (i) there is "reason to believe" that Asertis will not be able to meet an adverse costs order; and (ii) there was a real risk that the policy would not meet an adverse costs order in full.
Asertis' financial position
ICC Judge Mullen considered Asertis' financial position and concluded that "there is "reason to believe" that Asertis will not be able to meet an adverse costs order". In particular, he noted that:
- "[Asertis] is a new company, which only began trading in 2020. It has been trading at a loss. Its assets are overwhelmingly the value of the claims that it is pursuing, the value of which is inevitably uncertain and might not necessarily be easily realisable. The trajectory shown by these limited financial statements suggests a worsening trading position and an eroding balance sheet. "
- No "weight" could be given to the statements on Asertis' website that refer to it being funded by "two investors [with] assets under management of several billion euros". He expressed that "even accepting those statements to be true tells me nothing about the likelihood of funds being made available to [Asertis] in the event that it was unable to meet a costs order from its own assets."
The policy
Having determined that there is reason to believe that Asertis would not be able to meet an adverse costs order, ICC Judge Mullen considered whether the policy was adequate security for Mr Bloch's costs. The Judge noted that it would be rare for an ATE policy to provide the "same level of security as a payment into court". That said, a defendant must show that "there is a real, as opposed to fanciful, risk that the ATE policy will not respond in full" in order to justify an order for additional or alternative security. This is a high hurdle to clear. However, in this case the defendant did so. Accordingly, alternative security was required.
In reaching this conclusion, the Judge's findings in relation to the policy included the following:
Under Clauses 17 and 18 the insurer was entitled to refuse to pay out to Asertis for a wide range of reasons, all of which would be outside of Mr Bloch's knowledge or control.
- The policy wording stated that it should be "read carefully in conjunction with Your Retainer". The Judge observed that he did not know the terms of the retainer between Asertis and its solicitors.
- Under Clause 3 of the policy, if Asertis " breach[ed] the duty of fair presentation" prior to entering into the insurance contract, and such breach is deliberate or reckless, the insurers could "avoid the policy and refuse all requests for payment". This right to "avoid the policy" was excluded in relation to the first £160,000 of cover by an "anti-avoidance" provision. However, this amount was "likely to be below the level of an adverse costs order against the claimant in the case".
- The anti-avoidance provision also only covered avoidance for non-disclosure prior to the policy being taken out. It did not clearly deal with a failure to disclosure a material circumstance during the life of the policy. Accordingly, a failure by Asertis to disclose a material circumstance arising during the policy might entitle the insurer to terminate the policy. Mr Bloch would not be aware of the termination.
- Further, the effect of Clause 4 of the policy was that, "Asertis’s solicitor could “deem” the claim to have less than 50% prospects of success and notice could be given of termination of cover, without Mr Bloch’s solicitors being made aware of this, or perhaps without being made aware of the cancellation of the policy in due course at all."
- The policy expressly excluded any third party rights. Therefore, any monetary award payable to the defendant under the policy would have to be paid first from the insurer to Asertis, and then from Asertis to Mr Bloch. If Asertis were to go insolvent, then Mr Bloch might not be paid in full or at all. The Judge opined that "if one accepts that there is "'reason to believe" that Asertis will not be able to meet a costs order, then… the company may be unable to meet its liabilities more generally…" and that this is a "real risk in the circumstances that have led me to believe that an adverse costs order might not be paid."
- Under Clauses 17 and 18 the insurer was entitled to refuse to pay out to Asertis for a wide range of reasons, all of which would be outside of Mr Bloch's knowledge or control.
The Judge concluded that "the ATE policy cannot be regarded as providing sufficient protection to Mr Bloch… There is a real risk that the policy will not meet an adverse costs order in full."
Further, "Mr Bloch has no means of enforcing [the policy] directly for his benefit, exposing him to a risk that the proceedings of the policy would not be available to him in the event of the insolvency of Asertis, and no means of policing compliance with the numerous conditions on which payment is contingent. The termination provisions provide no mechanism for informing Mr Bloch if the policy was to be brought to an end and it is not clear…. whether in the event of termination the insurer would remain liable to pay a sum to cover Mr Bloch's reasonable costs up until that point."
What are the consequences?
This is an important judgment on the validity of ATE policies as providing security for costs.
Claimants and defendants alike will need to carefully consider the nuances of any ATE policies that are in place when making or responding to a security for costs application. The High Court's decision makes it harder for claimants to rely on more restrictive or limited ATE policies as security for costs. Should an application for security for costs be made, it is likely that claimants that have purchased such ATE policies will nevertheless be expected to pay a sum of money into court. Defendants facing claims from claimants which are seeking to rely on ATE insurance, meanwhile, should make sure to obtain and thoroughly review the policy to ensure its position is adequately protected.