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Security for costs: a shareholder’s indemnity does not provide protection

22 February 2017

The case of Dunn Motor Traction LTD (C) v National Express LTD (D) (2017) has decided that an indemnity from the claimant’s shareholder (shareholder) does not give the same protection as after the event insurance (ATE) when deciding whether to grant an order for security for costs.

C brought a claim against D for wrongly repudiating a contract. D sought security for its costs in the proceedings as C’s financial position had dramatically changed. C argued that an undertaking given by its shareholder should be taken into account. C said that the proposed indemnity should be looked at in the same way as ATE insurance when deciding whether security for costs ought to be ordered.

Mr Justice Teare held that an ATE policy was a reliable source of funding as it came from a responsible and reputable insurer, which could not be said for a shareholder. Security for costs was therefore granted in favour of D.

This case demonstrates how indemnities from third parties such as shareholders would not be able to provide security in the same way as ATE insurance. Claimants therefore need to ensure that if security if offered up it needs to be from a reliable source of funds.

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