The High Court's recent judgment in Lloyds Development Ltd v Accor Hotelservices UK Ltd [2025] EWHC 1238 (TCC) considers whether certain features of after-the-event (ATE) policies present a real, as opposed to fanciful, risk that the ATE policy would not respond in full. In particular, the court examined the Anti-Avoidance Endorsements (AAE), matters related to the identity of the policyholder, exclusions for fraud, and restrictions under foreign laws. Such considerations are increasingly important – as noted in this judgment, similar issues were raised relatively recently in Asertis Ltd v Bloch [2024] EWHC 2393 (Ch) (in respect of which, see our previous article).
This decision is also a reminder of the importance of co-operation between the parties.
Background
Lloyds (which is in administration) had already made payments into court as security for costs pursuant to various orders throughout the proceedings, and was due to make further payments prior to trial. Accor brought an application for further sums to be paid into court by way of security. Lloyds accepted that some further security was necessary, but disputed the amount sought by Accor and argued that an ATE policy was sufficient security.
In correspondence prior to the hearing, Accor refused to accept that the ATE policy would provide it with sufficient protection. However, Accor failed to set out its specific concerns. Notwithstanding requests from Lloyds for an explanation as to why Accor considered the ATE policy to be insufficient, it was not until service of its skeleton argument, two business days before the hearing, that Accor set out specific concerns. Lloyds was therefore unable to address Accor's concerns by amending the policy (although it did seek to predict and address them insofar as it was able).
ATE policy wording
The court reaffirmed that, in principle, an ATE policy is capable of protecting a defendant against the risk that its costs will not be paid. However, an ATE policy is in most cases not as good security as money paid into court. In order to challenge the use of ATE as security, the relevant test that a defendant must meet is that, in the event of an order being made against the claimant, there is a "real risk" that the policy would not respond in full. That depends on the specific wording of the policy, including any AAE, and potentially the circumstances of the case. Policy wording that is acceptable in one case is not necessarily sufficient in another, and the existence of an AAE is not itself a panacea.
The policy
Accor raised four concerns with Lloyds' ATE policy.
First, the AAE provided that the insurer would not pay any claim under the AAE for "Incurred Adverse Costs incurred after the Litigation Funding Agreement has been terminated". The Litigation Funding Agreement had not been disclosed, and Accor therefore did not know in what circumstances it might be terminated. Further, Accor said that, while there was a separate clause in the policy requiring Lloyds to notify Accor if any notice of termination of the LFA is issued, Accor had no rights if Lloyds breached that notification requirement. As a result, Accor might be left with no protection without knowing that was the case. Mr Justice Constable found that the possibility that Accor might not be aware that the ongoing security had ceased was a justified concern. However, in the event, Lloyds procured a revised policy with the relevant clause removed.
Second, the identity of the ATE policyholder was revealed to be a funder rather than Lloyds itself, despite certain key provisions having been drafted on the basis that the policyholder would be Lloyds. Mr Justice Constable found that this gave rise to a lacuna in the drafting through which an insurer could argue, realistically, that it was not required to make a payment.
Third, the ATE policy included a clause that rendered the policy void in the event of a fraudulent or dishonest claim. The risk to Accor arose because it is possible that Lloyds' claim might fail on grounds that the claim was brought dishonestly. In these circumstances the insurers could properly, and might successfully, argue that they were not liable to pay out under the policy. This risk is particularly acute in claims involving allegations of fraud. Whether this was a genuine risk was essentially a question of construction. In particular, whether an insurer can rely on a fraud exclusion depends on whether there is a clear and unmistakable wording. However, Mr Justice Constable ultimately applied a low bar to the matter in the context of determining whether it rendered the insurance insufficient security. The judge held that even the "prospect" of a dispute with the insurers (providing that the prospect was not fanciful) would mean that security provided by an ATE policy is materially less beneficial to a defendant than payment into court. The wording of the policy in this case raised a "realistic risk" of such an outcome. In particular, it did not state in terms that fraud was excluded, which would meet any concern "head on".
Fourth, the court considered whether a clause excluding payments that would expose the insurer to any sanction, prohibition or restriction under various resolutions and laws meant that there was a real possibility of the insurer not making a payment to Accor. Mr Justice Constable found that there was no existing sanction that would cause any concern, and that it was "insufficiently realistic" to worry that a sanction may come into force that would prevent a payment by a regulated insurer to a UK-registered defendant pursuant to an order of the English court. The court did note, though, that in a different case such an exclusion might present a "real concern" for defendants.
Inter-partes co-operation
Although the court found that two clauses in the policy (the identity of the policyholder and the fraud exclusion) meant that the policy provided insufficient protection to Accor, such that the ATE policy was not an adequate alternative to payment into court, Lloyds was given 10 days to remedy the offending clauses. This was because "Accor failed to engage constructively in advance of the hearing". Mr Justice Constable stated that if the concerns with the policy were fully met, the ATE policy would provide sufficient protection.
In this regard, Mr Justice Constable noted that ordinarily, 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". However, in this case, Accor's conduct meant that Lloyds had been "deprived of the opportunity" to provide a policy which met Accor's concerns. Accor had failed to engage in any substantive communications in advance of the hearing, repeatedly saying little more than it did not consider the policy provided adequate security. That was even the case, after the court postponed a hearing, to allow the parties more time to correspond on the issues.
Conclusion
This is a helpful decision from the court, providing further guidance on what ATE policy wording will be adequate to provide sufficient protection for defendants, but, as the court noted, case law on adequate ATE policies is "inevitably case specific". The particular wording approved by the court in this case will be of use for claimants obtaining their own policies, but parties should always remember that copying and pasting clauses from one policy to another is no substitute for carefully considering the protection required in each individual case. Moreover, the judgment emphasises that the court, while recognising that an ATE policy may, in principle, be sufficient, is quite willing to find that there is a real risk of the policy not responding in full.
This case is also a reminder of the importance of proper engagement between the parties to seek to narrow the issues between them as much as possible without wasting the court's time. Failure to do so may result in applicants being denied timely remedies to which they might otherwise have been entitled.