Lloyds Developments Limited v Accor HotelServices UK Limited [2025] EWHC 1238 (TCC)

[2025] EWHC 1238 (TCC)Case No HT-2022-000022
IN THE HIGH COURT OF JUSTICE
KING’S BENCH DIVISION
BUSINESS AND PROPERTY COURTS (TCC)
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 20 May 2025
Before
MR JUSTICE CONSTABLE
Between
Lloyds Developments LimitedClaimantAccor HotelServices UK LimitedDefendant
William Webb KC (instructed by Hill Dickinson LLP) for ClaimantRobert Blackett and Jack Spence of Haynes and Boone LLP for DefendantHearing Hearing date: 13 May 2025
JUDGMENTThis judgment was handed down by the Judge remotely by circulation to the parties'representatives by email and release to The National Archives. The date and time forhand-down is deemed to be 10:30 on Tuesday 20 TH of May 2025.

Introduction

[1]This application is brought by the Defendant, Accor HotelServices UK Limited (‘Accor’) for further security for its costs, to be paid into Court by the Claimant, Lloyds Developments Limited (‘Lloyds’). The claim relates to agreements between Lloyds and Accor for the construction and management of a 290 bedroom hotel at 236-246 Clyde Street, Glasgow (“the Hotel”). This is the latest in a long line of interlocutory skirmishes which have played out before the Court. A summary of allegations and counter-allegations, and a potted history of the procedural background is set out in my recent judgment regarding a number of unsuccessful strike out applications launched by Accor reported at [2025] EWHC 464 (TCC). It is not repeated here.[2]Lloyds is in administration. Lloyds has already paid £900,000, pursuant to an order for security made by Mrs. Justice O’Farrell in July 2022, and a further £425,000 pursuant to an increase ordered by Mrs. Justice Jefford in May 2024. Presently, pursuant to these Orders, a further £600,000 remains to be paid six weeks prior to trial, set for November 2026. Furthermore, in order to resolve a dispute regarding Lloyds’s latest amendment, by a Consent Order dated 2 May 2025, Lloyds agreed to pay in a further £75,000 by way of security for the amendments (albeit subject to the right to repayment if, pursuant to this application, an alternative form of security to payment into Court is approved). The total security paid or ordered to be paid prior to trial is, therefore, £2,000,000. Accor seeks a further £1,162,336. Lloyds accepts that it should provide a further £617,336. It also contends it should be permitted to do so by the provision of an ATE (‘After the Event’) insurance policy instead of a payment into Court.

Security for Costs

[3]Security for costs is governed by CPR Part 25.26 to 25.29. The conditions are set out at CPR 25.27:
“25.27. The court may make an order for security for costs 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) either an enactment permits the court to require security for costs, or one or more of the following conditions apply— (i) the claimant is resident out of the jurisdiction; (ii) the claimant is a company or other body (whether incorporated inside or outside England and Wales) and there is reason to believe that it will be unable to pay the defendant’s costs if ordered to do so; …” (a) it is satisfied, having regard to all the circumstances of the case, that it is just to make such an order; and (b) either an enactment permits the court to require security for costs, or one or more of the following conditions apply— (i) the claimant is resident out of the jurisdiction; (ii) the claimant is a company or other body (whether incorporated inside or outside England and Wales) and there is reason to believe that it will be unable to pay the defendant’s costs if ordered to do so; …”
[4]Subject to the question of the ATE insurance policy, it is accepted by Lloyds that (ii) would apply in circumstances where Lloyds is in administration. Lloyds is also resident outside the jurisdiction, registered as it is in Guernsey. The Court then has a discretion to award security if it satisfied in the circumstances of the case that it is just to make such an Order.

Lead up to the hearing of this Application

[5]It is, unfortunately, necessary to recite some of the immediate background specific to the hearing of this application. Notwithstanding the exhortations of the Court in the recent past for the parties to enter a new era of co-operation, there has been on the part of Accor and its advisors a regrettable lack of communication leading to Lloyds becoming aware only upon the service of its skeleton argument of the specific bases upon which Accor relies to argue that the provision of ATE insurance would not be appropriate.[6]Lloyds’s proposal to rely on ATE insurance for the purposes of providing further security for costs was set out in the third witness statement of Ms Emerson, a Partner at Hill Dickinson, solicitors for Lloyds, on 16 April 2025, in the context of Lloyds’ application to re-amend its Particulars of Claim. One of the conditions for consent to the amendment by Accor was the provision of further security. A copy of the policy then relied upon was provided as an exhibit to the witness statement.[7]Mr Esly, a Partner at Haynes Boone CDG, solicitors for Accor, responded on 21 April 2025. This amounted, in substance, to a statement that Accor continued to seek security by way of payment into Court. Mr Esly also said, somewhat oddly given that a copy of the policy had been provided 5 days earlier, ‘If and when particulars of such policy are provided, Accor can consider whether such policy might provide adequate security’.[8]Ms Emerson’s further statement dated 23 April 2025 identified the lack of any substantive objections, explaining that the policy itself had not only been exhibited to her witness statement but sent separately to Accor’s solicitors under cover of a letter also dated 16 April 2025. On 29 April 2025, a letter from Haynes Boone responded:
“…Having reviewed the specimen policy, Accor does not consider that any policy on those terms would provide adequate security for its costs of the Proceedings. Accor would not therefore consent to the withdrawing of funds previously paid into court upon its inception.”
No indication of what features of the policy were regarded as unacceptable. On 30 April 2025, Hill Dickinson replied, with some justification, that this response did nothing to facilitate the narrowing of issues, in circumstances where Haynes Boone had not explained why Accor considered the proposed policy would not provide adequate security for its costs. Later the same day, Haynes Boone responded that, in essence, it was incumbent upon Lloyds to procure the appropriate policy and that it was not for Accor to advise Lloyds concerning what form that policy should be or how it should be drafted.[9]A hearing had been listed for 2 May 2025 to deal with the application to amend. By email to the Court on 30 April 2025, Accor specifically requested that this hearing deal with the question of the form of security. The Court indicated a provisional acceptance of this suggestion, but invited comment from Lloyds. Lloyds responded to the Court that it was ‘not agreeable to Accor’s wider security for costs application being dealt with at Friday’s hearing because Accor has not explained the grounds on which it considers Lloyds’ proposed ATE/ AAE policy will not provide sufficient security. The grounds of objection would usually have already been set out in correspondence or in witness statements but that has not happened. This means that Lloyds is unable to address Accor’s objections in its skeleton argument and will have very little time to consider these between receipt of Accor’s skeleton argument and the hearing taking place.’ Having considered this objection, the Court directed that the question of the form of security would be held over to another hearing listed for 13 May 2025. It should have been obvious that, in so directing, the Court had agreed with Lloyds’ submission that it was appropriate for there to be meaningful communications between the parties in advance as to the grounds of objection, so that they could be addressed with insurers (possibly dispensing with the need for a hearing at all) and/or in any event dealt with in skeleton arguments in advance if a hearing remained necessary.[10]Thereafter, Mr Webb KC (for Lloyds) repeated the request in his skeleton argument for the hearing on 2 May 2025, asking for Accor to share its objections in advance so that they could be addressed by Lloyds.The only further answer given was on 6 May 2025 when Accor said:
“…Accor’s current principal concern… is that there are circumstances in which the insurer would be entitled not to (and so would not) pay Accor its costs of the Proceedings for reasons outside of Accor’s control. As such, Accor considers that the specimen policy and endorsement are inferior to payment into court and do not offer sufficient protection to Accor.”
[11]This was not an answer of any substance, and still left Lloyds in the dark about what specific problems (if any) the policy presented for Accor.[12]In his skeleton argument for the hearing on Tuesday 13 May 2025, required to be served by noon on Friday 9 May 2025, Mr Blackett, for Accor, identified three specific points of concern, none of which had therefore been identified or discussed between the parties in advance. As it happens, one of the points had been foreseen by Mr Webb KC and, as explained further below, dealt with both substantively (in seeking a revision of the policy to remove a clause) and by way of submissions from Mr Webb. The other two points were not. This meant that Lloyds had no notice of the points upon which the Court was to be addressed at the substantive hearing and had not been able to address them either with insurers or in Mr Webb KC’s skeleton argument.[13]In answer to the Court’s concern that Accor’s approach had been obviously incompatible with modern ‘cards on the table’ approach to the management of litigation, Mr Blackett, at least at first, repeated Haynes Boone’s previous line that it was not for Accor to advise Lloyds on the terms of the policy. In general terms that is, of course, right; but it completely misses the point. The adequacy of the policy was, given the pending application by which the issue would be dealt with by the Court, going to be considered by the Court. It was, of course, entirely open to Accor to advance no positive case about the inadequacy of specific parts of the policy and limit itself perhaps to a broad point of principle about ATE insurance in general (which would be unlikely to succeed in light of the authorities). However, to the extent that Accor intended to advance a positive case that there existed specific concerns in support of a submission that the policy was inadequate (as it did), it was obviously incumbent upon it in the context of co-operative case management and in an attempt to narrow issues to identify those concerns in good time. This is particularly so given the repeated requests by Lloyds, and where the Court had specifically put back the consideration of the issue to allow such communications to take place. The failure to do so deprived Lloyds not only of the opportunity to deal with points in its skeleton argument (and thus reduced the efficiency of the hearing, and wasted the Court’s time) but also deprived Lloyds of the opportunity to see if any of the points could be resolved with changes to the policy wording.[14]No doubt Accor’s approach will be revisited on the question of costs. However, it is also relevant in circumstances where, as I find below, there are some inadequacies in the ATE policy placed before the Court. Whilst the Court might, having rejected a particular policy, thereafter reconsider a new policy (as it did in Lewis Thermal Limited v Cleveland Cable Limited [2018] EWHC 2654 (TCC) and [2018] EWHC 3033), there are limits to the extent that a party seeking to give security otherwise by payment into Court will be permitted to revisit the question. This is illustrated by Re Ingenious Litigation [2020] EWHC 235 (Ch) in which Nugee J (as he then was) held at [137(3), 138] that there was a real, and not a fanciful risk, that a policy might not respond in full, due to various problems with the policy which “could be cleared up fairly easily. … But it has not in fact been done” and despite that “I suspect the problems that have been identified could be solved… But… I am not persuaded that has been done in the present case”. Moreover, once a payment in has been ordered, revisiting the form of security has to be justified, usually by a material change in circumstances: see e.g. Recovery Partners GB Ltd v Rukadze [2018] 1 WLR 1640 at [42], albeit in the context of revisiting an undertaking where Nicholas Vineall KC sitting as a Deputy High Court

Judge said as follows:

‘42. In my view, and remembering that the burden is on the party seeking release from an undertaking, the factors which might be material on an application of the present type, and which do arise and are material in this case, include the following: (a) how long the old security has been in place and whether the costs which it secured have already been incurred; (b) the extent of the difference (if any) between the quality of the old security and the quality of the new security; (c) the strength of the explanation given for the claimant's change of position; (d) in particular, whether or not, and if so to what extent, declining to permit the change would cause hardship or prejudice to the claimant or inhibit its ability to pursue its claim.’
This is also consistent with Asertis Ltd v Lewis Barry Bloch [2024] EWHC 2393 (Ch), in which ICC Judge Mullen observed that, “It would be contrary to the overriding objective to re-argue the application on the basis of a revised policy. I do not exclude the possibility that Asertis might make an application to vary the order for security in due course on the basis of a further policy, provided that it has the required payments into court under the order that I will make”.[15]However, in circumstances where Lloyds have been deprived of the opportunity of (at least potentially) providing a policy which meets any legitimate concern raised by Accor because of Accor’s failure to engage in any substantive communications in advance of the hearing, it would be wrong to make an order today which cements the position ‘against’ Lloyds.

ATE Insurance

[16]There was no dispute before me that, in an appropriate case, an ATE insurance policy is capable of providing sufficient protection for the purposes of security for costs. Such policies have been considered in a number of cases. The test for whether the ATE policy is acceptable is whether there is a real risk that the ATE policy will not respond in full. As set out in Asertis: “20. An ATE policy will rarely provide the same level of security as a payment into court but, of course, it may very well be that, in the event, the policy would pay out without difficulty. All the defendant is required to show on an application such as this, however, is that there is a real, as opposed to fanciful, risk that the ATE policy will not respond in full (see Ingenious at paragraph 138) or, in Master Steven's words in Giaquinto, at paragraph 79, an "unjustifiable element of doubt about the extent of the cover". In considering whether there is such a risk the court will approach the matter with pragmatism. In Versloot Dredging v HDI Gerling Industrie Vesicherungag AG [2013] EWHC 658 (Comm) Christopher Clarke J, as he then was, said at paragraph 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." "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."[17]The market has developed in answer to concerns raised in the various cases. Indeed, it is clear that the market developed the concept of an Anti-Avoidance Endorsement (‘AAE’) to meet concerns about the adequacy of policy wording, and the ability for the Insurer to avoid coverage. In the present case, as I will come to consider, the wording central to the AAE is likely to have derived from a recent case (Saxon Woods Investments Limited v Francesco Costa & Ors [2023] EWHC 850 (Ch)) in which the policy together with the AAE was, at least in the context of that case, found to be sufficient. In many of the cases in which ATE insurance was found to be insufficient, no AAE clause existed (or so it appears from the various judgments), but an AAE clause of itself is not a panacea: the outcome will depend on the precise wording and, particularly in the context of fraud, potentially the substance of the litigation. For example, the AAE was insufficient in Asertis. In this context, I echo the words of Nugee J in Re Ingenious Litigation where he observed that there may be something to be said for litigation funders and ATE insurers to seek to develop a form of policy that could both act as insurance for claimants and sufficient protection for defendants. Perhaps understandably, the development of wording in the industry tracks case law development which is inevitably case-specific.[18]In the present case, the Policy was accompanied by an AAE. I set out the material terms of the AAE as originally provided attached to Ms Emerson’s third witness statement:
‘Definitions 1. The following defined terms shall be added to the Policy: a. “Security Payee” means a party nominated by the Opponent and notified to the Insurer. b. “Security Claim” means a claim under the terms of this Endorsement made by the Security Payee, on behalf of the Opponent, or any of them, which, if made by the Policyholder, would have been a claim under the Policy and which satisfies the criteria set out in clause 12 of this Endorsement. c. “Security Limit of Indemnity” means the total aggregate payment stated herein that the Insurer will pay under the Policy in respect of a Security Claim. The Security Limit of Indemnity is within rather than additional to the Limit. The Security Limit of Indemnity is [ ]. Security 2. Provided that the Security Payee makes a Security Claim, the Insurer will pay to the Security Payee the Incurred Adverse Costs quantified by a final costs certificate and/or order of the Court and/or by agreement between the Insurer and the Opponent subject always to the Security Limit of Indemnity. 3. Subject to clause 4 of this Endorsement 1, in respect of any Security Claim, the Insurer confirms: a. that this Policy is non-voidable and non-cancellable; and b. any claim made against this Policy will be honoured in full irrespective of: i. any exclusions or any provisions of the Policy; or ii. any provisions of general law, which would have otherwise rendered the Policy or the claim unenforceable or entitled the Insurer to avoid, rescind, discharge, cancel or vitiate the Policy or avoid, reduce, exclude or deny cover or otherwise repudiate liability under the terms of the Policy. This clause shall in no way prejudice the Insurer’s rights as against any other party including the Policyholder. In the event that the Insurer is subject to a claim which the Insurer would not have been subject to but for the terms of this Endorsement 1, the Policyholder will fully indemnify the Insurer and shall be immediately liable to reimburse the Insurer for all of the costs of the claim which shall include all costs incurred by the Insurer arising from the claim. The Insurer retains full subrogation rights. 4. In respect of a Security Claim; i. the following defined terms continue to apply: Incurred Adverse Costs, Insurer, Case, Limit; Policy, Policyholder; and ii. the Insurer will not make any payment; a. where making any payment to the Security Payee would expose the Insurer to any sanction, prohibition or restriction under United Nations resolutions, and or trade and economic sanctions, laws and or regulations of the European Union, United Kingdom, United States of America and/or Australia; b. where making any payment to the Security Payee would be in breach of any criminal or regulatory law or provision; c. relating to an appeal of the first instance proceedings in the Case unless the Insurer has consented in advance for the Policy to extend coverage to the Incurred Adverse Costs of such appeal; d. in respect of Incurred Adverse Costs incurred after the Litigations Funding Agreement has been terminated; and e. to the extent that the requested payment will cause the Security Limit of Indemnity to be exceeded.’
[19]The AAE also provided that terms were “intended to benefit the Opponent and may be enforced by the Opponent directly pursuant to the provisions of the Contracts (Rights of Third Parties) Act 1999.”[20]Of relevance, in addition, is Clause 11.15 of the Policy which provides:
‘Dishonest and fraudulent claims If the Policyholder makes any claim under the Policy which is fraudulent or dishonest in any way, the Policy will be cancelled on an ab initio basis and all rights that the Policyholder has under the Policy will be forfeit. The Insurer will be entitled to recover any payments previously made under the Policy and may retain any Premium paid.’
[21]I address the various points raised by Accor in turn below.

Clause 4(ii)(d) of the Endorsement

(d) of the Endorsement

[22]Clause 4(ii)(d) of the AAE says that the Insurer will not pay any claim under the Endorsement for “Incurred Adverse Costs incurred after the Litigation Funding Agreement has been terminated”. That Litigation Funding Agreement has not been disclosed. Accor therefore contends that it does not know in what circumstances it might be terminated, or what representations Lloyds or others might have made to induce a funder to enter into it. Whilst Clause 5.1 of the Policy requires Lloyds to give Accor 5 days prior notice if any notice of termination is issued “pursuant to the terms of the Litigation Funding Agreement”, Accor says that it has no rights if the clause is breached, and notice is not given, because Accor cannot enforce terms of the Policy, only the Endorsement. Accor therefore argues that it is not fanciful to suggest that the undisclosed Litigation Funding Agreement might come to be terminated without Accor’s knowledge but replaced by some other arrangement, whereby Lloyds could continue to pursue the claim but without Accor having the protection of the Policy/ Endorsement.[23]This concern is a justified one. The fact that the provision of security in the future may fail (provided it is not with retrospective effect) is not itself objectionable: as Mr Webb KC pointed out, it is no different in principle to the possibility that a party may fail to make a future payment in which has been ordered. The difficulty, however, is the potential lack of knowledge on the part of Accor that the ongoing security had ceased (which obviously does not apply if a future payment in is not made). One solution may have been for the Court to have ordered that the claim would be automatically stayed if the funding agreement was terminated, with an obligation on the part of Lloyds as part of the order to notify the Court (and Accor) in such circumstances. Ultimately, however, it has not been necessary to consider this in circumstances where (being ‘Lloyds’ best guess as to the clause which Accor may allege causes difficulties’, as it was put in submissions), Lloyds has procured a revised policy with Clause 4(ii)(d) of the AAE removed.

Identity of the Policyholder

[24]The re-procured policy, provided under cover of a further witness statement from Ms Emerson served on 12 May 2025, however, identified that the policyholder was to be Omni Bridgeway (Fund 5) S2 LP, the litigation funder, rather than – as Accor had previously assumed to be the case – Lloyds. This has potential advantages, Lloyds says, in the context of the further issue raised by Accor, namely avoidance for fraud. However, Mr Blackett contended, orally, that this change gave rise to a new difficulty. Mr Webb KC responded, hearing the objection for the first time during the hearing. Whilst I plainly do not criticise Mr Blackett for not having been in a position to have raised this particular concern in advance, this change only having been introduced after the service of skeleton arguments, it is likely that had there been proper engagement in good time in advance, the re-procurement of the draft policy would have happened much sooner and the need for new points to be developed and responded to orally would have been avoided.[25]Mr Blackett’s contention was that:(1) On a natural reading of Clause 2 of the AAE, a prerequisite for being paid Incurred Adverse Costs is the making of a ‘Security Claim’.(2) A ‘Security Claim’ is defined as one ‘which, if made by the Policyholder, would have been a claim under the Policy’.(3) The policy provides at Clause 9.1.3 that: ‘A claim can only arise where the Claimant and/or Policyholder has incurred an Insured Liability ….’(4) An ‘Insured Liability’ is defined as: ‘the obligation to pay Incurred Adverse Costs which are not the subject of clause 2, in respect of the Case which (i) the Policyholder has agreed to indemnify pursuant to the Litigation Funding Agreement or (ii) the Policyholder is ordered to pay or agrees to pay with the Insurer’s approval, up to the Limit.’(5) The Policyholder has changed from Lloyds, the Claimant, to the Litigation Funder. There is no transparency with regards to the likely satisfaction of (i), given that the Litigation Funding Agreement has not been disclosed. As to (ii) it is not inevitable that there would be an order by which ‘the Policyholder’ (the Litigation Funder, now) would be ordered to pay Incurred Adverse Costs. Indeed, any order is more likely to be against Lloyds, not the Litigation Funder. Thus, it is conceivable that the definition of ‘Insured Liability’ would not be satisfied, and that, in turn, no ‘Security Claim’ could be made by the Security Payee.[26]In response to this argument, Mr Webb KC pointed out that Clause 2 of the AAE focussed on the direct payment of Incurred Adverse Costs to the Security Payee irrespective of rights between Insurer and Policyholder. He argued that the reference within the definition of Incurred Adverse Costs to include where ‘the Claimant is ordered by the Court to pay the Opponent’ and the reference in Clause 12 of the AAE to ‘a relevant court order’ make it clear that the definition of ‘Insured Liability’ was no longer relevant to the obligation to pay under the AAE.[27]The short answer to this point is that the link between the obligation to pay to the Security Payee and an Insured Liability under the Policy has not, whether intentionally or otherwise, been fully severed in light of the definition of Security Claim. By failing to update the wording of ‘Insured Liability’ to take account of the fact that the Policyholder was not the Claimant, there exists, as Mr Blackett identifies, a lacuna in the drafting through which an Insurer could argue, realistically, that if there would not have been a claim under the Policy (because Insured Liability is unsatisfied), there can be no Security Claim.[28]It may well be that this is an unintentional lacuna and one that is readily fixed: the suggestion that substituting the word ‘the Claimant’ for ‘the Policyholder’ (or adding it with ‘and/or’) was accepted, rightly, by Mr Blackett as something that would close the lacuna. Whilst therefore this is an insufficiency which means that I am not prepared to order that ATE Insurance in line with this draft policy may be an adequate alternative to paying into Court, for the reasons that I have already explained, I am prepared to give Lloyds some time to seek to deal with the point satisfactorily.

Fraud

[29]Accor contends that its right to draw down under the AAE could be challenged if Lloyds loses because Lloyds’ factual allegations by its key witnesses (and former directors of Lloyds) are not believed. It could then be the case that Lloyds was reckless or dishonest in presenting the risk to the Insurers when procuring the AAE, as Lloyds would necessarily not have disclosed the true status of its claim (i.e. that it was untrue) to the Insurers.[30]This is not, in itself (and subject to the Insurer’s ability to take the point) an inherently implausible scenario. In Persimmon Homes Ltd v Great Lakes Reinsurance (UK) Plc [2010] EWHC 1705 (Comm) an insurer successfully avoided an ATE policy, essentially because the claimant had failed to disclose to the insurer that its claim, based on an alleged oral agreement, was not true.[31]This issue has been considered in a number of other cases. In Lewis Thermal Ltd v Cleveland Cable Company Ltd [2018] EWHC 2654 O’Farrell J concluded that where (as in this case) a claim raises serious allegations of fraud by way of fraudulent misrepresentation which are stated in terms by the defendant to be unjustified, it is very likely that there will be allegations of dishonesty made against the witnesses on both sides. “In those circumstances, it is not beyond the realm of possibility that a finding might be made that one of the witnesses has misled the court in its evidence. If that were to be the case, it would give rise to an argument by the insurer that there was a misleading representation entitling it to avoid liability …” The question is, therefore, the extent to which this scenario presents a realistic risk that insurers may seek to avoid the policy on these grounds.[32]In Premier Motorauctions Ltd & Anor v Pricewaterhousecoopers LLP & Anor [2017] EWCA Civ 1872, Longmore LJ held that a policy did not give sufficient protection where neither the defendants nor the court had been provided with the placing information put before the insurers but, even if that had been provided, it was unlikely that the court could be satisfied that the prospect of avoidance is illusory. However, the policy being considered did not (it seems) have an AAE.[33]In Candy & Ors v Holyoake & Anor [2017] EWCA Civ 92 the claimants obtained an injunction to prevent the defendant dealing with certain assets. In giving a cross undertaking in damages, they were ordered to give fortification for that undertaking and obtained insurance against that liability. This featured an anti-avoidance provision which said “The Insurer will not exercise any right to void, reduce or deny its liability to pay on the Insured's behalf Loss on any grounds whatsoever”. The Court of Appeal held such insurance was not reasonably satisfactory fortification because, as was common ground, a possible scenario in which insurers might challenge the defendants’ rights to draw down under the policy would be if, after trial, the principal of the claimant was to be found to have been fraudulent and dishonest. It might then be the case that the claimants had also been dishonest in presenting the risk to the insurer when procuring the policy, on the basis that the claimants had necessarily not disclosed the true status of their claim (on this hypothesis, that it was a dishonest claim) to the insurer. The defendants identified two arguments by which the insurer might seek to deny liability in this situation, suggesting that the policy was thereby rendered objectively unsatisfactory:(i) The terms of the policy did not expressly preclude the insurer from avoiding for fraud; therefore the insurer would be entitled to do so;(ii) even if the policy terms purported to do so, an insurer’s right to avoid the contract for fraud of the insured could not be restricted, as a matter of public policy. The claimants submitted that there was no real prospect of an insurer succeeding on either argument, in that the only sensible construction of the policy, read in the relevant context, was that it did exclude the right to avoid for fraud, and that such an exclusion was not contrary to public policy.[34]The claimants’ arguments did not succeed. Of particular relevance to Gloster LJ’s reasoning were the general principles relevant to the construction of clauses said to exclude remedies arising for fraud, articulated in HIH Casualty & General Insurance Ltd v Chase Manhattan Bank [2003] 1 All ER (Comm) 349, para 16, by Lord Binghamof Cornhill who said:
‘It is in my opinion plain beyond argument that if a party to a written contract seeks to exclude the ordinary consequences of fraudulent or dishonest misrepresentation or deceit by his agent, acting as such, inducing the making of the contract, such intention must be expressed in clear and unmistakable terms on the face of the contract….’
[35]As Mr Blackett pointed out in his written submissions, there are a number of cases in which this approach has been confirmed, and where, specifically, general language of exclusion was not construed to extend to fraud (e.g. Regus (UK) Ltd v Epcot Solutions Ltd[2008] EWCA Civ 361; Trident Turboprop (Dublin) Ltd v First Flight Couriers Ltd[2008] EWHC 1686 (Comm)).[36]In light of this general principle, Gloster LJ held that there was (at a minimum) a real risk of the insurer properly arguing that as a matter of construction it would be under no liability in the case of fraud by the insured in placing the policy. She observed (at [96(ii)]): ‘[the clause] excludes the insurers' rights to deny liability “on any grounds whatsoever”. These are general words of the type contemplated in HIH by Lord Bingham, not express words as envisaged by Lord Hoffmann…it does not in terms purport to limit the rights of the insurer to avoid for fraud at all’.[37]Although the judge also concluded that there is at least a real prospect that (on the hypothesis that the respondents lose the action and are found to have been dishonest) the insurer could properly argue that there is a rule of public policywhich would entitle it to avoid on the grounds of the insured's fraud, regardless of the policy terms, the judge also said (at [107]):
‘In my judgment it is not appropriate to rule out the possibility of an insurance policy being adequate fortification, even in a case where allegations of fraud were being made against a claimant. For example, it might be thought that a policy which in clear and specific terms waived the duty of disclosure altogether, coupled with an equally clear term and representation by the insurer that it would not avoid for fraud of the insured in presentation of the risk (or any other ground), would be good fortification, notwithstanding any principle of so-called public policy.’
[38]That such a policy may exist was confirmed in the decision of ICC Judge Raquel Agnello in Saxon Woods Investments Ltd v Costa & Ors [2023] EWHC 850 (Ch). In this case, the claimant originally had an ATE policy which said:
“If an Insured fails to provide a fair presentation, but such failure was neither deliberate nor reckless, then notwithstanding any provision of the Insurance Act 2015, the Insurer shall indemnify the Insured in full, subject to the other conditions of the Policy”
. Thus, the original policy (absent an AAE) provided that the policy would not be avoided for non-deliberate or non-reckless non-disclosure (and by implication that the policy could be avoided for deliberate or reckless non-disclosure). There was, however, an AAE in identical terms to Clause 3 of the AAE in the present case, as I have set out above.[39]In concluding that the ATE policy, together with AAE, was sufficient, the Judge held as follows (which I quote in full given the centrality of this reasoning to the parties’ arguments):
‘65. In my judgment, the clause in the AA endorsement did go further than what was originally excluded for insurance cover under the policy. The clause covers, in my judgment, reckless and fraudulent non disclosure entitling the insurer to avoid the policy. The Insurer agreed that the policy was non-voidable and non-cancellable. This in itself would alert the Insurer to the type of agreement it was being asked as a commercial party to enter into, namely one which did not allow the Insurer to seek to cancel or declare the policy void. The Insurer also agreed to meet any claim made against the policy irrespective of any exclusions or any provisions of the Policy or any provisions of general law, ‘which would otherwise have rendered the Policy or the claim unenforceable or entitled the Insurer to avoid, rescind, discharge , cancel or vitiate the Policy or avoid, reduce, exclude or deny cover or otherwise repudiate liability under the terms of the Policy’
. In my judgment, the words used are clear, unambiguous and unequivocal. Not only was the Insurer agreeing to meet any claims regardless of any exclusions in the policy or in relation to any provisions in the policy but additionally any provisions of general law. This would include claims arising under the Insurance Act 2015 and any other claims arising under law. In my judgment, these words clearly provide to a commercial party, being the Insurer, the knowledge of what has been called the ‘extraordinary bargain’. This was not a clause which stated in general terms, ‘on any grounds whatsoever’ but clearly focussed the parties on what the Insurer agreed to, namely that notwithstanding the Insurer’s entitlement to avoid the policy or rely on any of the other remedies normally available to it, the Insurer agreed that it would not do so under this clause. 66. The remedy for a fraudulent non-disclosure is clearly set out that part of the clause. There is in the clause a focus on the Insurer being unable to exclude either along the lines set out in the policy, or under any provisions of general law and also being able to rely on any of the listed remedies which would normally be available to the Insurer. The policy in its original form prevented the insurer relying on any negligent breach of disclosure or fair presentation by the insured. It stipulated that neither deliberate or reckless conduct would be covered by the terms of the policy. So that expressly preserved the Insurer’s entitlement to avoid on other grounds, being fraudulent or reckless or deliberate non-disclosure. The AA endorsement clause expressly set out to exclude the Insurer’s ability to avoid or have any remedy along the lines set out in the policy, the words being ‘any exclusions or any provisions of the Policy’. This was in my judgment a clear reference to ‘deliberate or reckless’ non-disclosure or conduct set out in the terms of the original policy. That encompasses fraud. 67. The last part of clause 3 makes it clear to the Insurer the types of remedies normally which would be available to the Insurer are effectively excluded by the clause. All the above would alert the Insurer, if more ‘alerting’ was required at this stage, that the clause encompassed excluding the ability of the Insurer to avoid or rely on any of the other remedies on the grounds of fraudulent or reckless non-disclosure. The final provision in that clause confirms that the insurer retains the ability to pursue the Insured for claims which would have entitled the Insurer to avoid, rescind, discharge, cancel or vitiate, avoid, reduce, exclude or deny cover or otherwise repudiate liability but for the terms of the endorsement. To my mind, this also goes towards confirming the clarity of the clause in excluding avoidance for fraudulent and reckless non-disclosure. … 70. …The case before me is therefore not one where there is such a diametrically opposed bilateral choice for the judge at trial as in Lewis Thermal. The facts in Holyoake v Candy, which I have set out above, are also very different from those in the pleaded case before me. The assessment of risk is therefore very different from those types of cases.’[40]Mr Blackett argues that the judge’s conclusion that the policy offered sufficient protection was incorrect because the clause uses general words and there is (at a minimum) a real risk of the Insurer properly arguing that as a matter of construction it is under no liability in the case of fraud by the insured in procuring the policy and endorsement. In the alternative, insofar as the construction in Saxon Woods was correct, it was the result of having read the clause against the background of other terms, and a particular factual matrix, both absent in the present case. As to the first point, the clause was read against the pre-existing clause in the policy which had preserved the right to avoid the policy on grounds of deliberate or reckless non-disclosure (which would include fraud), such that the express exclusion of the ability to rely upon any exclusion or provision of the policy could be taken as a clear reference to fraud. As to the factual matrix, Mr Blackett points to the fact that, contrary to the judge’s conclusion in Saxon Woods at [70], this very much is (at least potentially) a case where there is a diametrically opposed choice for the Court as to the truth telling in the context of a case of fraudulent misrepresentation.[41]Mr Webb KC seeks to frame the ratio of the judgment as the reasoning contained in paragraph 65, which deals in principle with the adequacy of the wording of the AAE, which wording is identical to the wording before me. He contends that the consideration of the interaction between the AAE wording and the policy wording in paragraph 66 and the further considerations of the factual matrix in [70] are very much subsidiary to the reasoning in paragraph 65. Mr Webb KC also argues that it produces a peculiar result where in the Saxon Wood policy, there was an express right to vitiate the policy for fraudulent inception, and in the instant policy there is no such right; yet by insertion of the identical AAE into each policy, under the instant policy that (unexpressed) right remains, and where it was expressly referenced, the right is lost. A similar peculiarity, he says, arises when considering the fact that whilst the instant policy does not have a clause dealing expressly with fraudulent inception, it does (at Clause 11.15) deal with fraudulent claims. It would be odd, it is said, if the proper construction of the policy and AAE together was that the right to vitiate for a fraudulent claim had been expressly waived, but the (unexpressed) right to vitiate for fraudulent inception remained. In other words, why would the insurer be taken to have waived one type of fraud and not another? These peculiarities, Mr Webb KC contends, demonstrate the artificial and somewhat strained construction of Clause 3 of the AAE (particularly when read together with Clause 2) unless it is construed as removing all rights of the insurer to avoid a claim, including in circumstances of either fraudulent inception or claim.[42]Mr Webb KC also argues that the fact that it is now proposed that it is the Litigation Funder who would be incepting the policy, rather than the Claimant, reduces the potential that an adverse finding as to the truthfulness of the Claimant’s principals would give rise to an ability to avoid the policy.[43]As to these arguments, first, I do not accept that Saxon Woods is on all fours with the present circumstances, even if the wording in Clause 3 of the AAE is identical. The ratio of the case cannot be confined to [65] of the decision. Even if it was, it is clear from the first few and last few sentences, that the judge was even in [65] construing the wording of the AAE in the context of the other terms in the policy. Similarly, I do not consider that her views about the nature of the underlying dispute at [70] can be considered subsidiary when reaching her overall conclusion. In other words, the answer in Saxon Woods cannot simply be transplanted to the present case.[44]Second, whilst there is undoubtedly some force in the points of construction made by Mr Webb KC, it is to be remembered that, in considering the policy, it is not for this Court to determine the outcome of any argument which may be adopted in due course by an insurer seeking to avoid making what is likely to be a substantial payment under a policy of this nature. It may be that the insurer would have what I described in argument as an uphill struggle in seeking to argue that Clause 3 of the AAE had not removed its rights at general law to avoid the policy for fraud at the point of inception or indeed at any other point. However, even the prospect of a dispute with insurers, providing that prospect is not fanciful, means that the security provided by an ATE insurance policy is materially less beneficial to a defendant than a payment into Court. It would require a defendant to be subjected to a collateral dispute to recover the costs to which it is entitled following lengthy litigation in which it had succeeded. Whilst a Court should not allow fanciful risks prevent sensible alternative security for costs to be put in place – particularly where a requirement to do so would or might stifle a genuine claim – the bar for demonstrating a material risk is a relatively low one.[45]It is unarguable in the present case that, contrary to the clear guidance of the Court of Appeal in Candy and the well-established general principles of construction when it comes to the framing of an exclusion clause so as to respond to fraud, the AAE is in ‘general’ terms. It may be that insurers have been overly reliant upon the decision in Saxon Woods to frame the AAE in this way. The AAE is plainly wide enough to encompass fraud, but it does not do so in terms. Why not simply refer in clear and express terms to excluding the right to avoid for fraud if that is the intention? As a matter of construction, if it did so, the ATE insurance would meet the concern head on. As to general public policy, in circumstances where such fraud as there may be, on the hypothesis which underlies this debate, is, by definition, not fraud by the person seeking to benefit from the insurance, it is not realistic that a general ‘public policy’ argument would enable insurers to avoid being held to the effect of a clearly expressed anti-avoidance clause which expressly refers to fraud. This is particularly so in circumstances where there is clear public policy in positively enabling products like ATE insurance to allow claims to be brought where the provision of security might otherwise be impossible.[46]In these circumstances, I consider that, by reason of the generality of wording, there is (at a minimum) a realistic risk of the insurer properly arguing that as a matter of construction it would be under no liability in the case of fraud by the Claimant (or its principal or agents) in placing the policy, whether or not the insurance was placed in the name of the Claimant or the litigation funder. It is unnecessary for me to decide whether I would have decided Saxon Woods differently on the (different) facts of that case, and I am not, in any event, bound to follow it.[47]Whilst therefore this is an insufficiency which means that I am not prepared to order that ATE Insurance in line with this draft policy may be an adequate alternative to paying into Court, for the reasons that I have already explained, I am prepared to give Lloyds some time to seek to deal with the point by introducing express wording to reflect that which it says, in any event, is the true construction of the AAE.

Sanctions, prohibitions or restrictions under various foreign laws

[48]Accor objects to Clauses 4(ii)(a) and (b) of the AAE, which says that the Insurer will not make any payment where this would “expose the Insurer to any sanction, prohibition or restriction under United Nations resolutions, and or trade and economic sanctions, laws and or regulations of the European Union, United Kingdom, United States of America and/or Australia” or “be in breach of any criminal or regulatory law or provision”. Mr Blackett argues that Insurers must have some exposure to all these jurisdictions, and must consider there is some real possibility that laws might exist or be enacted in these jurisdictions which would prohibit them paying to Accor monies which the English court had ordered Lloyds to pay. Otherwise the Insurers would not include these terms. The ability to avoid payment should be contrasted to the position of Lloyds, who could not escape a liability to pay Accor on these bases. He argues that Accor should not be forced now to investigate and then, for the rest of the proceedings, continuously to monitor UN, EU, US and Australian laws to look for anything that might render the policy unenforceable. If monies are simply paid into Court, this issue is avoided. Finally, Mr Blackett argues that international tensions and the US legal and policy landscape is such where one cannot dismiss, with Accor in the hotel, casino, resort and golf club sectors, as fanciful the possibility that the US, or another nation, might take some unforeseen step which would operate to relieve the Insurer of having to pay Accor under the terms of the AAE.[49]Mr Webb KC argues that non-payment under this boilerplate term is fanciful in the circumstances of this case. Whilst the term could be of relevance to different parties in different circumstances, there is no real risk in the circumstances of these parties.[50]There is no existing sanction, prohibition or restriction identified as causing any specific concern. I consider that the possibility of such a sanction, prohibition or restriction coming into force in the future so as to prevent payment out pursuant to an adverse costs Order issued by an English Court, payment being made to a UK registered company (Accor) by a regulated insurer incorporated in England is, notwithstanding recent US trade policies and the identity of the US President (to which Mr Blackett is effectively referring), insufficiently realistic to render the proposed policy inadequate security. Whilst the inclusion of a boilerplate exclusion of this type is likely required for reasons of governance, its mere existence does not itself establish a real risk in the context of this case. With different parties on different facts, such a clause may present a real concern.

Discretion

[51]Although Lloyds asserts that, in practice, it has no funds to make payments into Court, Mr Webb KC was fair in conceding that there is no evidence before the Court upon which it could conclude that, were an order for payment into Court (rather than by ATE Insurance) to be made, Lloyds’ claim would be stifled. There is no evidence, as there should be in order to make good such a submission, in relation to other sources of funding which might realistically be expected to be provided, particularly in circumstances where the Lloyds’ own ongoing costs of the litigation are being funded by other sources.[52]In Recovery Partners, above, the judge held at [17] that on an application for security for costs, the Court has wide discretion not only whether, and in what sum, such security should be provided, but also as to the means by which it should be provided. If two different forms of security would provide equal protection to the defendant the Court should, all else being equal, order the form which is least onerous to the claimant.[53]I have found, that at present, the policy before the Court does not provide equal protection as a payment into Court. I am not presently prepared to permit Lloyds to rely upon it in lieu of a payment in. However, in the circumstances I have described in which Accor failed to engage constructively in advance of the hearing, I am prepared to provide Lloyds with a further period of 10 days, until 30 May 2025, in which to refine the policy to as to meet the two areas of concern I have identified above. Providing that those concerns are fully met, and providing the policy is in all other respects as per that provided by Ms Emerson in her fifth witness statement, I consider that it will then provide sufficient protection, and that, in my discretion, Lloyds is entitled to rely upon it for the purposes of providing Accor with further security for costs presently sought by Accord. This should extend to the £75,000 of security agreed in respect of the amendment (which was paid subject to substitution with an ATE policy if it is found to be acceptable), and the security of £600,000 which has been ordered but not yet been paid into Court. For the avoidance of doubt, although Ms Emerson intimates in her third witness statement that after placing the insurance, Lloyds will make an application for the money previously paid into Court to be released back to Lloyds, there is no such application before me. Mr Webb KC’s skeleton argument specifically reserves the right to make such an application. At present, there is no evidence before me that there is material change of circumstances or other factors such as a particular hardship or difficulty caused by the status quo in respect of the existing orders which warrants payment out of the sums already paid into Court, as opposed merely to entitlement to satisfy further payments yet to be made by way of ATE insurance (see Recovery, cited above).[54]If the parties cannot agree within 17 days, by 6 June 2025, whether any revised policy provided by Lloyds satisfactorily meets the concerns identified (having properly communicated with each other to discuss the nature of any ongoing concerns), I will decide the matter, preferably by way of written submissions (although the parties have the right to request a short oral hearing).

Amount of security

[55]The Limit of Security in the proposed ATE policy is the aggregate of the sums paid and ordered to be paid, together with the full further amount sought, perhaps assuming an entitlement thereby to payment out of sums already ordered to be paid into Court.[56]However, on the basis that I do not presently consider it appropriate to order payment out of sums already provided by way of security, it may be that the Lloyds would wish the limit of indemnity to reflect only the amount of further security ordered (plus the £75,000 in respect of which a reservation had been recently provided). I therefore decide the appropriate amount of further security in the following paragraphs.[57]Accor seeks an increase of £1,162,336. In correspondence, Lloyds sought a general decrease to reflect a standard recovery of 70%, and further specifically queried the sum sought for an increase of costs at trial. In argument before me, Lloyds’ position was that an appropriate figure was £617,336. I deal below with each of the categories of costs claimed. In doing so, I bear in mind that in circumstances where any under-valuation may leave Accor with no security, whereas an overvaluation should not prejudice Lloyds.(1) Agreeing a List of Issues and discussing directions for Scott Schedules. Accor seeks £15,000. Mr Esly says in his witness evidence that neither were specifically envisaged at the point at which security was originally ordered. Mr Webb KC contends that, irrespective of any particular order, it would always be envisaged that a List of Issues would form part of preparation in the run up to trial, and that the sum would be excessive for a discussion about Scott Schedules (not the preparation of Scott Schedules themselves). There is force in Mr Webb’s argument; the need for a List of Issues should readily be foreseen (by reference to the TCC Guide if not otherwise), and the sum is excessive. I will assume £5,000.(2) Costs of amendments to the DRD and seeking the determination of issues concerning existing disclosure issues. Mr Esly considers that £40,000 is a conservative estimate of the further work required, particularly in the light of the difficulties it says it has faced already with respect to disclosure issues. Mr Webb KC offers £20,000 as reasonable and proportionate. Insofar as there are specific disclosure inadequacies remaining which the Court is required to resolve, costs for that will be considered separately. I consider £30,000 is an appropriate sum for further (potential) debate about the DRD.(3) Costs of dealing with Lloyds’ existing disclosure. Mr Esly identifies the difference between 2,000 documents, originally identified by Lloyds, and well over 50,000 documents (and 330,000 pages) in fact disclosed. He calculates that even assuming only 10% of this additional disclosure remains to be reviewed (at 1 minute per page and £400 per hour) there would be a further cost of £220,000. The difficulty with this submission is that the discrepancy identified was the very basis upon which an increase in security was previously sought. It does not matter that some of the delta remains to be considered. Jefford J did not, in May 2024, consider this delta and award 90% of the additional costs she considered appropriate, on the basis that there would be a further review of security when there was 10% remaining. She uplifted the security on the basis that the entirety of the ‘new’ disclosure required dealing with. The majority of the existing disclosure has already been accounted for. The only disclosure made since Jefford J’s ordered increase in security has been the various Whatsapp/phone documents. I allow £10,000 increase in this regard.(4) Hosting disclosure. This is accepted by Lloyds in the sum of £185,196.(5) Additional costs for Accor’s existing experts. Accor claims £240,000. It says, in essence, that the original allowance within the security has been wasted either by reason of Lloyds’ change in case, the need for the experts to refamiliarise themselves given the long hiatus caused by interlocutory matters, the unnecessary ‘acceleration’ of preparation in the face of Lloyds’ unrealistic attempt to keep the original trial on track, together with the increase in the scope now required of the experts. Notwithstanding Mr Webb KC submissions to the contrary, I accept this explanation and consider that the additional sum claimed is realistic.(6) PTR. The additional sum claimed of £12,140 (representing the increased costs now that the PTR is listed for a day rather than half a day) is not disputed by Lloyds.(7) Trial. The original trial was listed for 3 weeks, and it is now 6 weeks. The claimed sum is substantially higher. Accor consider that the original £450,000 allowance should be increased by a further £450,000. Mr Webb KC argues that this is excessive and a further £300,000 is appropriate. I consider, taking a conservative view, a further £400,000 is allowable.[58]The total further security to be given is £882,336.

Cited in 2 later judgments