Australian court backs ATE insurance as security for costs in funded litigation

An Australian court has accepted an after the event insurance policy backed by a litigation funder as adequate security for costs, delivering a detailed judicial roadmap for when ATE insurance can satisfy defendants’ protection concerns in funded litigation.

In i-Prosperity Pty Ltd (in liquidation) v Crown Melbourne Ltd [2025] NSWSC 1525, the Supreme Court of New South Wales held that an ATE policy arranged by funder LCM Funding Pty Ltd, together with a strengthened anti-avoidance endorsement in favour of defendant Crown Melbourne Limited, was capable of meeting the protective purpose of security for costs. The plaintiffs, all in liquidation, had agreed to provide $2 million in staged security, with the sole dispute centring on whether insurance could substitute for cash or a bank guarantee.

Justice Peden reaffirmed that the court’s task is not to compare insurance with conventional forms of security, but to assess whether the proposed instrument provides a fund or asset against which a successful defendant can readily enforce a costs order. The plaintiffs bore a practical onus to show that the ATE structure would not impose an unacceptable disadvantage on Crown, including by exposing it to material enforcement risk or legitimate avoidance by insurers.

Crown argued that the policy was inadequate because Crown was not a party to the insurance contract, the cover was underwritten by multiple Lloyd’s syndicates with several liability, and there was uncertainty as to the availability of assets if insurers refused to pay. The Court rejected those concerns after closely analysing the endorsement’s terms and the surrounding insurance framework.

Central to the ruling was the Court’s conclusion that Crown could enforce the policy directly against the insurers. Justice Peden held that the endorsement formed part of a contract of insurance and was expressly intended to benefit Crown, allowing enforcement either under the High Court’s decision in Trident v McNiece or as a third-party beneficiary under section 48 of the Insurance Contracts Act 1984. The endorsement went further by contractually waiving defences that insurers might otherwise have relied on, including non-disclosure or misrepresentation by the policyholder, and by requiring insurers to consent to judgment if payment was not made.

The Court was also satisfied that the policy could not be readily, legitimately, or contractually avoided. Unlike earlier Australian cases where ATE policies had failed, the endorsement prohibited cancellation or amendment without Crown’s consent, required payment within defined timeframes following agreement or taxation of costs, and removed conditions that could delay payment pending appeals. Concerns about offshore insurers were mitigated by reliance on the Lloyd’s Australian trust arrangements and amendments confirming the policy’s status as an Australian policy.

Justice Peden ordered limited further amendments, including clarifying that enforcement could occur in Australian or English courts and requiring insurers to confirm acceptance of the policy within the Lloyd’s trust structure. Subject to those changes, the ATE policy was held to provide adequate security for costs.

For litigation funders, the decision is a significant endorsement of ATE insurance as a viable security solution in Australian courts, provided the policy includes robust anti-avoidance protections, clear third-party enforcement rights, and credible mechanisms for recovery against insurers. The judgment closely aligns Australian practice with recent English authorities and offers a practical template for structuring ATE products that can withstand judicial scrutiny.

Read the decision here.

Tom O’Brien of Eleven Wentworth (instructed by Norton Rose Fulbright) acted for the liquidators, while Michael Izzo SC of Eleven Wentworth and Ryan Jameson of Banco Chambers (instructed by White & Case) acted for Crown.