Versloot Dredging BV v HDI Gerling Industrie Vesicherung Ag

It is necessary for me to determine whether I should accede to the application made on the part of the claimants that I should vary the order of Beatson J, as he then was, on 11 September 2012 so as to provide that in relation to the first tranche of security ordered, namely £550,000, the security may be provided in the form of an indemnity from QBE Insurance (Europe) Limited. The history of the security applications and the orders made is well known to the parties and I do not propose to set it out.

The first question is whether the claimants should now be allowed to make an application for a variation of this order. The order provided for a general liberty to apply and, in particular, that the claimants should have liberty to apply to the court in relation to any ATE insurance which they might obtain. Mr Nigel Jacobs QC for the defendant insurers submits that either as a matter of principle or, in any event, as a matter of discretion, it should not be open to the claimants to make the application which they make. There has, he submits, been no sufficient change of circumstance to allow them to seek to vary an order which they never appealed; and, he further submits, the general liberty to apply is inapplicable because, in order to take advantage of that, it will be necessary to show that there had been a significant change of circumstances. The particular liberty to apply is not available to the claimants either.

I have come to the conclusion that this is a matter that falls within the particular liberty to apply. The claimants indicated before Beatson J that they might secure after the event insurance, in which case, they suggested, all questions of security would be resolved because the ATE insurance could stand in the place of security and would be something against which, in the event the claimants failed, the defendants would be able to secure a recovery of costs. It is true that the claimants do not now put forward the ATE insurance which they have obtained from QBE Insurance (Europe) Limited as the security. What they proffer as security is a deed of indemnity in favour of the defendants which that company has executed.

It seems to me that the question as to whether or not that deed is acceptable is a matter which arises in relation to the ATE insurance which the claimants have obtained. The claimants can, with some force, submit that that which they propose to offer, namely the deed, is something better than the insurance itself which they previously contemplated offering, since any insurance might be subject to avoidance, misrepresentation or nondisclosure or be such that, in the end, there could be no recovery in respect of it and would not in any event constitute a direct contract with the defendants; whereas the deed that is offered is not subject to those defects. Whether those points are good or bad, it seems to me that the contention that the security should now be permitted to take the form of a deed of indemnity is, as I say, something that arises in relation to ATE insurance which the claimants have obtained.

The next question, therefore, is whether or not the claimants should be allowed to proffer the deed of indemnity which they have obtained from QBE Insurance in substitution for the first-class London bank guarantee that they were ordered to obtain. There are substantial points to be said for and against that proposition. Mr Jacobs points out that the court ordered security to be provided in the form of a first-class London bank guarantee after a contested hearing in September. That is a conventional provision to make. The claimants had indicated at the hearing that such a guarantee would be forthcoming. There was no appeal from that decision.

On 10 October an extension of time was granted by an order made by Burton J by consent following an assurance that security from a first-class bank was on the way, given Mr Sashi’s(?) witness statement of 9 October and confirmed just before the hearing was held. The defendants, Mr Jacob submits, would not have agreed to an extension of time but for the indication that a bank guarantee would be forthcoming. As it happened, at the last moment, the time having been extended until 31 October, and without forewarning, let alone an application, the claimants produced on 31 October security, as they termed it, in the form of a deed of indemnity from QBE Insurance.

The court had previously been told that the bank had been waiting for sight of an ATE policy before issuing a guarantee and that the putative ATE insurer had been waiting for sight of a bank guarantee before issuing the policy. What is not explained in the present evidence is that how it is that, although a bank guarantee has come to be given in respect of the second tranche, no bank guarantee has been provided in relation to the first tranche; a circumstance, Mr Jacobs submits, which prompts the inference, which he submits is in any event correct, that a deed from an insurer is not as good as a bank guarantee.

Moreover, there has, he observes, been neither an apology nor a sufficient explanation for the sequence of events. Indeed, no application was made to vary Beatson J’s order until the defendants themselves took out an application for an “unless” order. If not more importantly, as he submits, a deed from an insurance company is not as good as and is less reliable than the first-class London bank guarantee which the court ordered. Accordingly, the defendants should not be required to accept a substitution of that which is inferior to that which they would previously receive.

Mr Chirag Karia QC for the claimants submits that there is no reason in principle why an ATE insurance and a fortiori a deed of indemnity provided by the ATE insurer cannot constitute sufficient security. He has referred to me to the case of Michael Phillips Architects Ltd v Riklin & Anor [2010] EWHC 8344 in which Akenhead J reviewed the authorities and reached that conclusion: see paragraph 18. In fact, as Mr Karia submits, the security which will be provided by the deed of indemnity from QBE Insurance is at least as good as many first-class banks and better than several of them.

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.

I am satisfied on the evidence presently before me that QBE is a reputable and creditworthy insurance company, present in London, and that the security constituted by the deed is equal to or better than many first-class London banks. QBE is one of the largest managing agents at Lloyds and has been established in London since 1904, with many regional offices throughout the United Kingdom. In terms of rating, that is to say the credit rating of Standard & Poor’s, it fairs slightly better than ABN AMRO and better than all but one of the underwriters who are the defendants in this case. I fully accept that it is not the underwriters who are providing security for costs. It is they who are seeking it. But some comparison between the financial strength of underwriters such as the present and the putative provider of security seems to me relevant.

It is apparent from the Standard & Poor’s data that QBE Insurance has an A-plus rating in relation to both issues of credit and financial strength. The last time there was a change of that rating appears to have been November 2012. It is true that at that stage the outlook was described as negative but that is simply an indication that the rating may be lowered. The notes to the ratings specifically indicate that an outlook is not necessarily a precursor of a rating change.

There is also evidence that QBE Insurance has been accepted by litigants as sound security. The evidence of Mr Cashman in his second witness statement is that, according to QBE Insurance (Europe), indemnities have been accepted and are still accepted by litigating parties in the English courts over the last few years and that their reliability or creditworthiness has never been challenged before in the way in which it is now sought to be challenged or at all.

Some reliance was placed in the evidence on that fact that HIH Insurance, the second-largest general insurer in Australia, went into liquidation in 2001, having been promoted beforehand as a first-class security; and on the fact that insurance companies and banks are really rated differently and, as it was suggested, that the Government might be more likely to rescue a bank than an insurer. These are points which are not without force, but they are not, in my judgment, determinative. Insurers can fail and so can banks. Whether the State would have the appetite and ability to rescue any first-class London bank which was not a clearing bank is perhaps itself debatable.

In the end, whether security from an insurer should be accepted is a matter of judgment. Mine is that the security offered for a portion of the amount ordered by Beatson J from this insurer in the present circumstances is acceptable. It also seems to me consistent with the overriding objective that I should vary the order in the way sought since it seems to me that that is the best way of ensuring that this dispute is in fact resolved rather than knocked out and that that can be done without unacceptable prejudice to the interests of the defendants and I propose to order accordingly.