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Limelight 05/24

Court finds after-the-event insurance policy not adequate security for costs

In the recent decision of APFC No.1 Corporation v Insurance Australia Limited [2024] NSWSC 534, Justice Nixon of the Supreme Court of New South Wales found that an after-the-event insurance policy was not adequate security for the costs of the second defendant, Tokio Marine & Nichodo Fire Insurance Co Ltd (Tokio Marine).

The decision highlights the importance of closely assessing the provisions of an after-the-event insurance policy to determine whether the policy provides adequate security for costs.  If it does not, then it may be open for defendants to bring an application which could result in a better form of security being provided by the plaintiff(s) and/or litigation funder.


The Plaintiffs in the matter were seven entities incorporated in the Republic of the Marshall Islands, established by a Singaporean investment and asset management firm, Cornerpiece Capital Partners Pte Ltd (Cornerpiece). The Plaintiffs were special purpose vehicles in the business of financing receivables owed to certain commodity sellers.

In 2019 and 2020, various commodities buyers failed to pay the receivables to the Plaintiffs. In August and September 2020, the Plaintiffs submitted claims under seven trade credit insurance policies, three of which were with Tokio Marine (TM Policies). In late 2021, Cornerpiece obtained litigation funding from Burford Capital Limited (Burford) to fund proceedings against Tokio Marine seeking cover under the TM Policies. Burford, through its related body corporate Burford Worldwide Insurance Limited (BWIL), underwrote a policy of after-the-event insurance in respect of the claims made in the Proceedings (ATE Policy). BWIL was a company incorporated in Guernsey with no assets or presence in Australia.

The Plaintiffs proffered the ATE Policy as security for Tokio Marine’s costs.  Tokio Marine did not accept the ATE Policy as providing adequate security and it brought an application seeking security by way of money paid into court or by way of an unconditional guarantee from an Australian bank or other authorised deposit-taking institution.

The Court noted two issues for resolution; the first, whether the ATE Policy was an adequate form of security for costs and second, the quantum of security.  We consider only the form of security issue in this note.

Form of security

 The principles his Honour considered relevant to assessing whether the ATE Policy was an adequate form of security included the following:

  • that the central inquiry is “‘whether the proposed form of security is adequate to achieve its object as security; namely, to provide a fund or asset against which a successful defendant can readily enforce an order for costs against the plaintiff[1];
  • in assessing whether the proposed security meets the object of providing a fund or asset against which a successful defendant can to ‘readily enforce’ an order for costs against a plaintiff, it is necessary to “consider the costs, time and steps involved in taking such enforcement action, as well as any attendant risks in doing so[2];
  • a plaintiff proposing a form of security bearers a “practical onus” of satisfying the Court that the proposed security will not impose an “unacceptable disadvantage” on the defendant[3];
  • the question is not one of “relative adequacy” between the forms of security available, but rather whether the security put forward is adequate to achieve the object of providing a fund or asset against which a successful defendant can readily enforce an order for costs[4];
  • in an appropriate case, a chose in action (such as a legal right to claim) against an insurer may be adequate to achieve the object of an order for security for costs. However, it depends on the terms of the chosen in action and the extent to which there are risks attaching to its enforcement.[5]

In applying the principles to assessment of the ATE Policy, his Honour found that the ATE Policy did not provide adequate security because BWIL could, on legitimately contestable grounds, dispute that it was obliged to pay Tokio Marine the full amount of any costs order made in its favour in the following respects:

  • first, the definition of the term “Adverse Costs” limited cover to the extent that the costs of the defendants had been “fully mitigated”. That limitation, together with other provisions of the ATE Policy that placed positive obligations on the Insureds to take certain steps in respect of costs, would leave open legitimate arguments to BWIL to limit its liability under the ATE Policy for amounts that were less than the full amount of any costs order that may be made in the defendants’ favour;
  • second, the obligation to pay under the ATE Policy was when the Proceedings were “finally concluded”. His Honour found that there would be legitimately contestable grounds for BWIL to argue that the liability to pay under the ATE Policy would be at the point in time when the legal action finally came to an end, which could occur when appeal rights are exhausted.  This could potentially prevent any recovery under the ATE Policy for a costs order made at first instance unless and until all appeal rights had been exhausted; and
  • third, the ATE Policy included a termination provision that triggered in certain circumstances. Although the provision had limited scope, his Honour was not satisfied that the provision was “simply too intractable” to permit any legitimate debate regarding whether BWIL would have any continuing obligation under the ATE Policy if it was potentially terminated in accordance with the provision.

Accordingly, his Honour held that the ATE Policy did not provide adequate security for costs for Tokio Marine in this matter.  His Honour also did not consider it appropriate to propose amendments to an insurance policy to make it adequate.  Instead, his Honour ordered that security be provided either by payment of funds into court or by way of a bank guarantee from an Australian bank or other authorised deposit-taking institution.

Key takeaways

Adequate security for costs can be an important source of financial protection for defendants, and useful leverage in settlement negotiations, particularly where litigation funders are involved.

The decision highlights that, where an after-the-event insurance policy is proffered as security for costs, the question of whether that policy is adequate to provide security will require assessment of the terms of the policy and the steps that will be required to be taken to claim on it.  This is likely to be very fact specific as the terms of the relevant after-the-event insurance and the location of enforcement will need to be considered on a case-by-case basis.

If the policy does not provide adequate security for costs, there may be both financial and strategic benefits to seeking better security arrangements from the plaintiff(s) and funder, including by application to the court if appropriate.


[1] At [21], citing DIF III Global Co-Investment Fund LP v BBLP LLC [2016] VSC 401 (DIF III), per Hargrave J at [38].
[2] At [22].
[3] At [23], citing DIF III at [39].
[4] At [24], citing In the matter of Tiaro Coal Ltd (in liq) [2018] NSWSC 764 per Gleeson JA at [13].
[5] At [27].


This publication constitutes a summary of the information of the subject matter covered. This information is not intended to be nor should it be relied upon as legal or any other type of professional advice. For further information in relation to this subject matter please contact the author.