i-Prosperity Pty Ltd (in liquidation) v Crown Melbourne Ltd

1. [1]

   The plaintiffs, who have litigation funding from LCM Funding Pty Ltd (LCM), have agreed that the defendant (Crown) is entitled to security for costs, in tranches, totalling $2,000,000. The only issue in dispute is the form the security should take.

2. [2]

   LCM is the Policyholder under an after-the-event insurance policy (Policy) with seven Lloyd’s syndicates of insurers (Insurers). LCM proposed that security could be provided by way of an “anti-avoidance endorsement indemnity” to the ATE Policy in favour of Crown (Endorsement). A copy of the relevant terms is attached as Annexure A to these reasons.

3. [3]

   The relevant principles concerning a determination of appropriate forms of security were not in dispute and may be summarised as follows:

   1. (1)

      The Court must determine “whether the form of security offered [is] adequate to protect the party seeking it”: Blue Oil Energy Pty Ltd v Tan [2014] NSWCA 81 at [22] (Beazley P and Tobias AJA); DIF III Global Investment Fund LP v BBLP LLC [2016] VSC 401 (DIF III) at [38] (Hargrave J).

   2. (2)

      The plaintiffs bear a “practical onus” of satisfying the court that the proposed security will not impose an “unacceptable disadvantage” on the defendant: DIF III at [39]; APFC No.1 Corporation v Insurance Australia Limited [2024] NSWSC 534 (APFC) at [23] (Nixon J).

   3. (3)

      In order to be adequate, the proposed security must satisfy the protective object of security for costs, being to provide a fund or asset against which the successful defendant can readily enforce an order for costs: DIF III at [40]; Re Tiaro Coal Ltd [2018] NSWSC 746 (Tiaro Coal) at [10] (Gleeson JA).

   4. (4)

      The mere fact that there may be “some delay” in enforcing the form of security, while relevant, is “not decisive”: DIF III at [38]; APFC at [23].

   5. (5)

      A defendant is not considered to be at an unacceptable disadvantage in having to enforce a judgment overseas: Tiaro Coal at [13]; APFC at [23].

   6. (6)

      It is inappropriate to undertake “a comparison exercise of the relative attributes of the security offered by the plaintiff and the ‘conventional’ or ‘familiar’ forms of security by cash deposit or bank guarantee, with a view to determining which form of security was superior”: Tiaro Coal at [22].

4. [4]

   On the eve of the hearing, the plaintiffs proffered a proposed amended Endorsement, in an attempt to deal with the concerns raised by Crown in its earlier served written submissions. Nevertheless, Crown maintained its objections to the amended form of security on the following bases:

   1. (1)

      Crown would not be party to a “contract of insurance” and therefore would have no cause of action against the insurers to enforce the Endorsement.

   2. (2)

      Because the insurance was being offered by various Lloyd’s syndicates, there was a real risk that one or more of those syndicates would legitimately resist paying a claim by Crown.

   3. (3)

      There was insufficient evidence of any fund, against which Crown could have access, should the insurers wrongly refuse to pay on its claim.

5. [5]

   Crown’s position was that only a deed of indemnity from the Insurers would be adequate security.

Is the endorsement indemnity adequate?

1. [6]

   Where an ATE policy is offered as security the question is whether it is adequate, which “requires consideration of the terms of the policy, their meaning and effect, and an assessment of whether there is a risk that the insurer, acting in good faith but in its own commercial interests, could seek, on legitimately contestable grounds, to avoid, limit or reduce its liability under that policy in respect of any costs order made in the defendant’s favour”: APFC at [49].

2. [7]

   As noted above, Crown complains the Endorsement is inadequate, focusing on what it claims are risks of uncertainty as to “all of the issues which the insurers may raise to refuse cover under the endorsement”. Each are dealt with in turn.

3. [8]

   I consider Crown can enforce a “contract of insurance” directly against the Insurers for the following reasons.

4. [9]

   I accept the plaintiffs’ submission that the Endorsement is part of a “contract of insurance”, as it clearly states that it “amends and adds” to the Policy.

5. [10]

   Crown’s submission that there was no “contract of insurance” was developed this way:

   1. (1)

      “[Y]ou can have provisions of insurance, but you can have provision in a contract that are not properly part of the contract of insurance”, because “this is not a promise to pay if something adverse happens” to Crown.

   2. (2)

      “The key point is that it doesn’t involve an adverse event … its’ saying if something good happens to you, we’re going to make sure that you’re secure”.

   3. (3)

      “[T]here is at least a very serious argument that this is nothing more than indemnity so far as it concerns the promise to pay us the amount of any adverse costs order made in our favour…”

6. [11]

   The argument appeared to be that there is not a “contract of insurance” if Crown does not have the benefit of a promise to pay on an “adverse event”, because it would be a “positive event” if Crown obtained a costs order in its favour. I do not accept that construction. The proper construction of the Endorsement is that Crown can take advantage of the insurance LCM has for an adverse event, namely an adverse costs order against it.

7. [12]

   That is evident from the following:

   1. (1)

      Clause 1 of the Endorsement is a “confirmation” that Crown “is indemnified for Adverse Costs” up to the agreed amounts of security tranches. I do not accept that in order for Crown to have the benefit of a “contract of insurance” it needs to be indemnified for a specified risk, in circumstances where LCM has insurance for the risk of being ordered to pay Crown’s costs in the proceedings, and necessarily Crown is indemnified in relation to the costs it has incurred in proceedings, should it succeed.

   2. (2)

      That clause also provides that “any claim made against it by [Crown] for Adverse Costs will be honoured in full… irrespective of any exclusions or any provisions of the Policy or of the general law, or any breach (asserted or actual) of the Policy by the Policyholder which would have otherwise rendered the Policy or the claim unenforceable or entitled the Insurer to avoid, rescind or discharge the Policy or avoid, reduce or deny cover or otherwise repudiate liability or not pay a claim…”

8. [13]

   On the basis that there is a contract of insurance, the issue is whether Crown can sue the Insurers to take advantage of the Endorsement, or whether it cannot because it is not privy to the contract. I consider this is overcome by either the analysis in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 (Trident), or by s 48 of the Insurance Contracts Act 1984 (Cth) (ICA).

9. [14]

   Properly construed, the Endorsement has the effect of demonstrating an intention by the Insurers that Crown has the benefit of the contract of insurance. This arises from the following.

10. [15]

    Clause 3 provides that LCM “irrevocably authorises and instructs the Insurer to pay claims made by [Crown] pursuant to clause 1”. Crown submitted that this clause did not assist it, because it required LCM to enforce, and it did not overcome any reasons why the Insurers may not pay a claim. However, that clause must be read in the context of the other clauses and the Insurers’ obligations of good faith. Clause 3 indicates that from LCM’s position, Crown is entitled to make a claim and will not be involved in the processing of the claim.

11. [16]

    Clause 4.3 provides that a claim made by Crown under the Policy “will be paid by the Insurer” to Crown on the later of the Adverse Costs being agreed between Crown and either LCM or the plaintiffs, or a costs taxation certificate.

12. [17]

    Clause 6(a) and (c) provide an agreement between LCM and the Insurers that:

13. [18]

    In oral submissions the plaintiffs indicated that they would agree to amend the definition of “court” in clause 6(c) to include a court in Australia or the United Kingdom. That amendment is appropriate and ought to occur.

14. [19]

    Crown submitted that there is no such thing as a “defence of privity” and clause 6 did not provide it with assistance in enforcing the Insurers’ agreement with LCM to pay adverse costs. For present purposes, nothing turns on whether privity is a “defence” or whether Crown must establish that it can enforce a contract made for its benefit, to which it is not a party and where it has not provided consideration. That is because, on its proper construction, Crown would be entitled to sue the Insurers for payment of a claim submitted in accordance with the administrative process outlined in clause 4, relying on Trident.

15. [20]

    In that case, McNiece, a contractor of Blue Circle Southern Cement Ltd, sought to take advantage of a policy of insurance issued by Trident which was expressed to apply to “Blue Circle Southern Cement Limited, all its subsidiary, associated and related Companies, all Contractors and Sub-Contractors and/or Suppliers” (defined as the “Assured”) and the site at which McNiece was performing work: Trident at 111 (Mason CJ and Wilson J). The policy indemnified “the Assured against all sums which the Assured shall become legally liable to pay in respect of … death of or bodily injury to or illness of any person…” aside from the employees or apprentices of the Assured.

16. [21]

    McNiece sued Trident directly and was successful for various and different reasons given in the High Court judgments. That difference in reasoning means that Trident lacks any ratio decidendi: see Benson v Rational Entertainment Enterprises Ltd (2018) 97 NSWLR 798 at [113] (Leeming JA, Beazley P and Emmett AJA agreeing) (Benson). Only three of the four members of the majority considered McNiece could succeed based on an exception to the doctrine of privity in relation to contracts of insurance: see Trident at 123-124 (Mason CJ and Wilson J); 172 (Toohey J).

17. [22]

    Mason CJ and Wilson J concluded at 123-124:

18. [23]

    However, it is accepted that Trident binds this Court in relation to the relaxation of the doctrine of privity in insurance contracts in circumstances which are not reasonably distinguishable: Benson at [113], citing Re Tyler; Ex parte Foley (1994) 181 CLR 18 at 37 (McHugh J) and Scruttons Ltd v Midland Silicones Ltd [1962] AC 446 at 479 (Lord Reid); see also Central Coast Council v Norcross Pictorial Calendars Pty Ltd [2021] NSWCA 75 at [152], [158] (Bathurst CJ, Macfarlan and Gleeson JJA agreeing).

19. [24]

    The circumstances of the Policy and Endorsement here are not reasonably distinguishable from Trident, such that Crown is entitled to sue the Insurers for payment of a claim submitted in accordance with the administrative process outlined in clause 4.

20. [25]

    Alternatively, Crown could have the benefit of s 48 ICA. Crown is a “third party beneficiary” under the ICA, because of the language of the Endorsement.

21. [26]

    Section 48 provides:

22. [27]

    I accept that there are no obligations imposed upon Crown as a “third party beneficiary” for the purposes of s 48(2) other than the manner in which a claim must be made.

23. [28]

    While s 48(3) purports to preserve to the Insurers any defences relating to the conduct of the insured in order to not pay on a claim, the Insurers here have agreed not to raise any such defences by virtue of cl 6, even if they exist.

24. [29]

    I reject Crown’s submission that s 28 ICA remains to operate in favour of the Insurers. That section provides that where there is a material non-disclosure or misrepresentation then the insurer may either avoid the contract if there is fraud, or the insurer’s liability is reduced. The natural reading of clauses 1 and 6 is that the Insurers will not take advantage of any rights that may arise that have the effect of reducing or avoiding the payment of a claim, including those it may have against LCM under, inter alia, s 28. Crown vaguely suggested (and the plaintiffs did not direct submissions to this point) that this could amount to “contracting out” prohibited by s 52 ICA. But s 52 only prohibits contracting out where the relevant provision excludes, restricts or modifies the operation of the ICA “to the prejudice of a person other than the insurer”: s 52(1) ICA. To the extent there is any contractual restriction of s 28 here, it is to the Insurers’ prejudice, not of any other person.

25. [30]

    Therefore, I consider that there is no real risk that Crown could not enforce the policy.

26. [31]

    The plaintiffs relied upon the Lloyd’s Australian Trust Deed as providing a source of assets in Australia, to which Crown could look when enforcing any costs judgment.

27. [32]

    Crown raised three concerns.

28. [33]

    First, Crown submitted that Clause 4.1 of the Trust Deed only permits claims on the relevant trust fund to be made by “Policyholders”, who hold an “Australian Policy” in respect of which the “Relevant Underwriter” has a liability to that holder. Crown submitted that it is not a “Policyholder” in respect of the Endorsement and Policy, relying on cases concerning s 17C of the Insurance Act 1973 (Cth) (which deals with, inter alia, the provision of notice to any “affected policyholder” before an application can be made for approval of a scheme for the transfer or amalgamation of an insurance business): see Insurance Australia Limited, in the application of Insurance Australia Limited [2016] FCA 1387 (Gleeson J). I do not consider that different statutory context assists, and in any event, the point is an academic one; the submission was made before the terms of the Endorsement were amended (including by email in response to a query from me) to provide that Crown is a “Third Party Policyholder”, which “is a holder of the Policy in respect of which the Insurer has liability to, as a holder”. I do not accept that this amounts to merely an agreement between the Insurers and LCM. Instead, the Insurers are accepting that Crown is a holder of the Policy and can make claims directly against them, as privity does not pose an issue for the above reasons.

29. [34]

    Secondly, Crown submitted that there was no evidence that the Policy was an “Australian Policy” as required under the Trust Deed, and that may be a basis to deny a claim. There was evidence that Mr Philip Lomax, the Managing Director of Litica Australia Pty Ltd, a Coverholder at Lloyd’s and the authorised underwriter for the Insurers, had informed the plaintiffs’ solicitor that the Insurers would consider the Policy and Endorsement as an Australian Policy. Crown complained that the evidence was merely an assumption by Mr Lomax with no direct evidence. However, Mr Lomax is prepared to amend the terms of the Endorsement to ensure its adequacy as security. For abundance of caution, I will require the Insurers to take steps to ensure the Policy is accepted as an “Australian Policy”.

30. [35]

    Thirdly, Crown submitted that clause 4.2(b) reserves to the Insurers the right to determine whether a judgment or order falls within an Australian Policy and the relevant syndicate and year of account. I do not consider this represents a real risk to Crown. The clause is a mechanical or administrative process to allocate a claim to the correct account.

31. [36]

    I do not accept there is any real risk that the security is inadequate merely because the Insurers are syndicates with specifically allocated liability for a claim by LCM or Crown identified in clause 7. Each syndicate has significant net assets, as revealed by financial statements provided by the plaintiff. While those assets may not be within the jurisdiction, that is not determinative, noting the existence of the Lloyd’s security trust fund and the amendments proposed to entitle Crown to claim against it.

32. [37]

    Crown submitted that there are no Australian authorities where an ATE policy has found to be an adequate form of security, and that instead a deed of indemnity ought to be proffered to Crown.

33. [38]

    However, there are authorities in the United Kingdom where such policies, including anti-avoidance endorsements, have been accepted after an analysis of their terms: see eg Musst Holdings Ltd v Astra Asset Management Ltd [2024] EWHC 2310 (Ch) (Musst Holdings); Saxon Woods Investments Limited v Costa [2023] EWHC 850 (Ch) (Saxon Woods). In some cases the terms of the ATE policy in question have not been considered satisfactory: see Asertis Ltd v Lewis Barry Bloch [2024] EWHC 2393 (Ch) (no ability for third party to enforce the policy directly); Premier Motor Auctions Ltd (in liq) v Pricewaterhouse Coopers LLP [2018] 1 WLR 2955 (no anti-avoidance clause or endorsement); Michael Phillips Architects Ltd v Riklin [2010] EWHC 834 (policy provided no real security for defendants’ costs).

34. [39]

    In determining whether to accept an ATE policy as adequate security, the English cases focus on those matters identified by Nixon J in APFC:

    1. (1)

       the meaning of the policy, and

    2. (2)

       how readily it may be avoided legitimately and contractually, and

    3. (3)

       the likelihood of circumstances arising which will enable to the policy to be readily, legitimately and contractually avoided: see Saxon Woods at [33]; Musst Holdings at [22].

35. [40]

    The Australian cases where proffered ATE policies have been rejected included the following features:

    1. (1)

       There was no endorsement in favour of the defendant, and the insurer did not have any presence of assets in the jurisdiction (in the context of a policy issued by an insurer not authorised in Australia and without any presence or assets in the jurisdiction): Petersen Superannuation Fund Pty Ltd v Bank of Queensland Ltd [2017] FCA 699 (Yates J).

    2. (2)

       In APFC, Nixon J found there were unacceptable risks because:

36. [41]

    None of those concerning features exist here because:

    1. (1)

       There is an endorsement in Crown’s favour.

    2. (2)

       There is no right of termination or change to the policy terms without Crown’s consent: see clause 2.5.

    3. (3)

       There is no right of delaying payment of a claim, for example until an appeal is determined; instead, any claim it is to be paid within specific timeframes based on agreement of quantum or taxation: clause 4.3.

    4. (4)

       Any concerns about the absence of assets within the jurisdiction are ameliorated by the existence of the security trust fund, and the syndicates have assets overseas.

Conclusion and orders

1. [42]

   For the reasons above, I consider the natural and ordinary meaning of the Policy, including the Endorsement, entitles Crown to enforce it directly against the Insurers. I do not consider it may readily be avoided by reason of the clauses identified above. I further do not consider there is a real likelihood of circumstances arising which would enable the Policy to be readily, legitimately and contractually avoided.

2. [43]

   That conclusion is made on the basis that:

3. [44]

   I consider it appropriate to make the following orders:

   1. (1)

      Parties to confer as to the appropriate orders to give effect to these reasons, including issues of costs, and send a single joint communication to the Chambers of Peden J by 10am, 18 December 2025, with consent orders.

   2. (2)

      If no joint communication is received, the matter will be listed at 9.15am on 19 December 2025 for determination of final orders, if appropriate.