Thanks to all those who took part in our Birthday Quiz… congratulations to Danny of Shore Jelf Professions brokers who wins the champagne.

The four runners up were who each receive a bottle of wine are:

• Warren Putt PYV
• John Lunn, Lark Insurance
• Simon Ashmore, Bell & Co Brokers
• Patrick Bullen-Smith, Hera Indemnity

Collegiate Quiz

1. What was the car of the year in 1986? Make Ford     Model Granada Scorpio

2. What was the number 1 on the 17th October1986? (Artist & Title) Artist Madonna / Nick Berry Title True Blue / Every Loser Wins**

3. Who had a hand in England’s 1986 world cup defeat? Maradona

4. Who completed the league and FA cup double in 1986? Liverpool

5. Which British journalist was kidnapped in Beirut on April 17th 1986? John McCarthy

6. Which Welsh soprano was born on February 21st 1986? Charlotte Church

7. What Colloquial name was given to the radical reform of the London Stock Exchange, which took place in October 1986? Big Bang

8. Who in 1986 was the first male to win the British Rear of the Year Award? Michael Barrymore

9. Which space shuttle exploded 73 seconds into its launch on Jan 28th 1986? Challenger

10. Which family movie featuring David Bowie was released in 1986? Labyrinth

^**As there are reliable charts available showing both answers we have decided to accept Madonna or Nick Berry

Recovery Magazine October 2007 Written by Tony Howe, Managing Director, Collegiate Group

More and more commercial enterprises contemplating litigation are realising the need to manage their exposure, both to their own and their Opponent’s costs.  For some firms it is an astute option and for others obtaining some form of funding or after the event cover is a necessary pre-condition to progressing a claim.

After the event policies are written by a relatively small market, particularly in the commercial field.  For some larger cases protection can be obtained through the use of hedge funds or through assigning a claim to a third party who is prepared to fund the action in exchange for a not inconsiderable slice of any recovery.  The advantages of such a system are obvious.  The Insolvency Practitioner should hopefully be able to make some recovery for his creditors without incurring any exposure himself.  However:

• assignments are potentially open to allegations of maintenance of champerty:


• the product providers will tend to “cherry pick”;


• control as to whether a matter is pursued or not will tend to rest with the assignee rather than the Insolvency Practitioner whose claim it was in the first place;


• lastly, such arrangements may not be available for the run of the mill claim.

Where the Insolvency Practitioner has limited funds at his disposal then two alternative possible routes beckon.  The first is to find an ATE provider who offers a conditional premium, i.e. one will not be payable unless the case succeeds at trial.  In such cases the Insolvency Practitioner’s own lawyer and possibly Counsel are working on a conditional fee agreement.  Buying such a policy offers a good chance of recovery with limited exposure.  The second choice is to find a provider who is prepared to fund the premium and possibly the lawyers’ costs on a commercial basis. 

A problem often arises in that there are limited funds available to pursue the assets and the assets themselves are limited, where there is no real prospect of recovering additional costs from any third party.  In such cases, the prospect of pursuing a claim where the proceeds have to pay not only a lawyer and his success fee but also an insurance premium is not attractive.  Such cases offer very limited prospects for the Insolvency Practitioner himself to get paid and the action is supposed to be for the benefit of the creditors who would like to see some result that actually benefits them.  A solution to this problem may rest in insuring both sides’ costs and arranging funding both for the premium and hopefully the lawyers’ fees so that they can get paid along the way.  The advantage here is that if the insurance premium is less than the success fee that would be charged by the lawyer, then there will be more money to go round at the end of the day.  The creditors actually benefit from such an arrangement.

The gearing effect offered by after-the-event insurance, where there are limited funds available, can be highly beneficial.  Take as an example, a case where there is say £250,000 of assets.  Both sides’ costs are estimated to be £500,000.  Clearly the action will not succeed unless creditors are prepared to take the risk not only of losing the £250,000 in the pot but also an additional £250,000 should the case be lost.  Buying say £500,000 of cover at a premium of £125,000 means that there would still be £125,000 left in the pot at the end of the day.  If the premium itself is insured as a disbursement which does of course have the effect of eroding the limit of indemnity offered] then even in a limited asset situation substantial gearing will have been achieved.

Where there is a limited sum available for pursuing an asset, the ability to insure the premium can also be beneficial.  Not only costs and disbursements are met but the Insolvency Practitioner can recover the premium under the insurance policy.  Thus, the insurance cost just becomes a matter of funding.  There may be an interest payment in respect of the lender’s fee but otherwise there is a very substantial gearing where, for a very limited amount of money, substantial cover can be had.

One big question is whether or not premium will be recoverable.

Section 29 of the AJA specifies:

“Where in any proceedings a costs order is made in favour of any party who has taken out an insurance policy against the risk of incurring a liability in those proceedings, the costs payable to him may, subject in the case of court proceedings to rules of court, include costs in respect of the premium of the policy.”

A receiving party will be entitled to place evidence before the court from their insurer to demonstrate costs reasonably covered by the premium.  The circumstances in which the whole premium will be recoverable will have to be determined by the courts when dealing with the individual cases.

The Courts seem to have ruled that premiums, which cover the following elements, are potentially recoverable from the paying party:

• Both sides costs cover


• Risk of failing to beat Part 36


• Losing an interim application


• Any adverse costs order


• Own disbursements


• The premium itself


• Any shortfall of premium on assessment


• Deferred premiums


• Retrospective cover


• The Ashworth case


• Policy offered 6 months before trial


• £125,000 cover BSI proposed


• Premium of £46,000


• Opportunity given to other side to settle


• On assessment, held that retrospective premium could be recovered in full.

Section 11.10 of the relevant practice direction provides a five-part test as to whether the cost of insurance cover is reasonable:

• The level and extent of the cover


• The availability of any existing LEI cover


• Any rebate for early settlement?


• The amount of commission payable to receiving party or his solicitor of agents


• Where the insurance cover is not purchased in support of a conditional fee agreement with a success fee, how its costs compares with the likely cost of funding the case with a CFA with a success fee and supporting insurance cover.

Depending on the manner in which the policy is written, premiums should therefore be recoverable.

There have been some judicial criticisms of policies where the basis of the underwriting was a percentage of own costs, which might not bear much relation to the actual risk being run. However, as long as they are reasonable, premiums payable in respect of policies where there is a fixed limit of indemnity and staged premiums should, all being well, be recoverable.

Care has to be taken in not taking out the policy where there is already a “before the event” policy in existence.  Recovery may also be denied if cover is taken out before the opposition has really had a chance to consider their position and decide whether or not they are opposing the claim.  The premium on such a policy taken out at that stage may well be objected to, although if the case proceeds to trial and the defendant loses it is hard to see why that should be the case.

On security for costs, the existence of an after the event policy may persuade a Court that it is inappropriate to award security for costs.  However, security may nonetheless be ordered.  Some product providers are in a position to provide security.  Where that is the case that obviously gives the provider an advantage, albeit it may provoke a request for an indemnity from the Insolvency Practitioner or his lawyer in the event there is some vitiating event that means that the underlying policy of insurance is no longer valid.

To summarise, as can been seen, there are a number of providers in the insurance market place.  Insolvency Practitioners should not simply ignore the prospects of making asset recoveries on the grounds that there are no funds available to do so.  Where insurance is used, creditors can take comfort from the fact that at the end of the day there may still be some money left and that not all will have been blown on keeping the lawyers happy at their expense.