HT-2022-000022 - [2025] EWHC 2011 (TCC)

Mr Blackett took objection to various aspects of drafting which effectively introduced (absent order of the Court) a requirement that it was only with the policyholder/insurer’s approval that agreement between Accor and Lloyds as to the amount of any costs payable would become the sum to be paid. Mr Blackett argued that the position should not depart from that which would pertain if money had been paid into court, in which case the policyholder’s agreement would not be relevant.

This argument ignores the practical reality that the insurer would be sitting behind Lloyds and determining what, if any, agreement Lloyds could reach as to any costs were payable. The wording had a clear and obvious benefit to insurers in maintaining control over the circumstances in which, at least by agreement, costs became payable under the policy but would likely have no practical effect on the ability of Accor either to obtain agreement, if such agreement were ever to be forthcoming, and no effect whatsoever, in the absence of agreement, on the ability to obtain an order of Court. The wording proposed by Insurers (see for example the definition of ‘Incurred Adverse Costs’; and paragraphs 2 and 12(iii) of the AAE) is acceptable.

A further issue was raised as to the definition of ‘Limit’. Mr Blackett argued that there was a drafting mistake. ‘Limit’ is defined as the limit amount stated in the Policy schedule “less any sum paid to the Opponent by the Insurer pursuant to a Security Instrument or which the Insurer is liable to pay to the Opponent pursuant to a Security Instrument” (i.e. pursuant to the Endorsement). It was said that this makes no sense: suppose Lloyds is ordered to pay Accor the full amount insured under the Policy; the Insurer is then “liable to pay” Accor that amount. However, Mr Blackett argues, that unpaid liability is subtracted from the “Limit” reducing the “Limit” to zero, so the Insurer does not have to pay Accor anything. That this clause has such an effect is beyond fanciful. The wording plainly serves the purpose of reducing the pot available once a liability to pay costs arises even if payment out has not happened. It is readily foreseeable that pursuant to a Court order there is a period between a liability arising to pay costs and payment. In some circumstances, that may be some time. The clause has the obvious, and benign, effect of reflecting that reality in the reduction of the available limit within the policy by reference to liability, rather than payment. It would plainly not have the effect of defeating the entire purpose of the policy by allowing insurers to claim that a liability incurred (which they refuse to meet) reduces the limit (and thus the obligation to pay). The insurers’ proposed definition of ‘Limit’ was appropriate.

A final concern was raised by Mr Blackett in circumstances where Accor declined to accept an offer of payment of costs, preferring instead to seek assessment. Pursuant to Clause 7 as originally drafted, it was argued that the Insurer could pay the amount offered to the Policyholder (Omni), and Accor’s protection under the policy would be reduced by a like amount. Accor proposed the wording be amended to refer only to a situation where the Security Payee “unreasonably and unjustifiably” declined a payment. Accor accepted that Omni would, in these circumstances, no doubt hold the sum on trust for it, but regarded that as inferior to a payment into court in circumstances where it was entitled, at least if acting reasonably, to decline offer of payment and seek assessment by the Court. This was a legitimate issue to raise and the proposed wording appropriate. Mr Webb KC did not suggest that the wording (which he said was unnecessary) caused a particular prejudice which meant that the policy could or would not as a result be incepted.

I therefore order that Lloyds be permitted to provide security for costs, in the sum previously ordered, by way of ATE Policy with AAE in the form appended at Appendix A.