Court finds that a deed of indemnity from an insurer is acceptable security for costs
By Philippa Murphy and Tom McDonald
On 19 July, in two separate but topically related appeals1, the Victorian Supreme Court accepted that a deed of indemnity from UK insurer AmTrust Europe Limited in favour of the defendants, was an acceptable form of security for costs. A win for plaintiffs, for companies with no presence or assets in Australia, and for companies in liquidation.
In both cases, the need to provide security was never in dispute. The issue for determination by the Associate Justices who first heard each case was what form the security should take.
The defendants in each case argued that security should be provided in the “usual form”, being a bank guarantee from an Australian financial institution, or cash paid into Court. Both sets of plaintiffs resisted this course and argued that security from AmTrust in the form of a deed of indemnity was adequate together with the payment of a small sum of money into Court to cover any enforcement costs if that were to eventuate.
In the first case of DIF III Global Co-Investment Fund LP & Anor v BBLP LLC & Ors  VSC 484 (DIF III Global), Associate Justice Lansdowne found against the plaintiffs (foreign companies with no assets in the jurisdiction) and ordered that the interests of justice required the plaintiffs to provide security in the usual form.
Some months later in Australian Property Custodian Holdings Ltd (in liquidation) v Pitcher Partners (a firm) & Ors  VSC 513 (APCH), Associate Justice Ierodiaconou found in favour of the plaintiff (a company in liquidation) and accepted that the deed of indemnity was satisfactory security.
The unsuccessful parties in each of DIF III Global and APCH appealed the decisions.
Justice Hargrave allowed the plaintiffs’ appeal in DIF III Global and dismissed the defendants’ appeal in APCH, finding in both cases that the deed of indemnity, together with the payment into Court of funds to cover any overseas enforcement costs, was adequate security.
In doing so, his Honour disagreed with the reasoning process of the Associate Justice in DIF III Global which he described as involving a consideration of the relative adequacy of a deed of indemnity against the usual form of security. In his Honour’s view, the central inquiry for the Court is whether the form of security put forward is adequate to achieve its object as security, namely, whether that form will give a successful defendant a fund or asset against which it can readily enforce an order for costs.
Here, his Honour was satisfied that the deed of indemnity proposed in each case met this threshold, for the key reasons that AmTrust was an entity of substance, the deed was unconditional, directly enforceable by the defendants against AmTrust in Victoria and cash equal to the estimated amount required to enforce the indemnity against AmTrust in the UK (should that be required) had been paid into Court by the plaintiffs.
A win for plaintiffs, liquidators and funders
Whilst cash or a bank guarantee might be the "gold standard" security from a defendant perspective, these decisions give liquidators and plaintiffs greater options to meet security for costs and continue with meritorious litigation. It also increases the attractiveness for plaintiffs to access third party funding provided by offshore litigation funding firms who often use ATE insurance placed in the UK market to cover their funded plaintiffs' adverse costs exposure. Indeed, a win for cost effective and efficient justice in Australia.
1. DIF III Global Co-Investment Fund, L.P. & Anor v BBLP LLC & Ors  VSC 401; Australian Property Custodian Holdings (in liq) (rec and mgr apptd) v Pitcher Partners  VSC 399.
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