Court Of Appeal Orders Security For Costs In Winding Up Proceedings

Re Dyxnet Holdings Ltd (Reasons Handed Down 23 February 2015)

Section 74 of the Companies Law ("Section 74") provides that security for costs may be ordered to be provided by a plaintiff Cayman Islands company where the Court is satisfied that the assets of the plaintiff company will be insufficient to pay the defendant's costs.

This statutory provision only applies to Cayman Islands companies. The Grand Court Rules ("GCR") Order 23 provides for security for costs to be provided by a foreign plaintiff. This Rule does not apply to Winding Up proceedings. Winding Up proceedings are governed by the Companies Winding Up Rules, 2008 (as amended) ("CWR") which make no provision for security for costs. It was against this background that the Court of Appeal had to consider whether it had inherent jurisdiction to order a foreign company to provide security for costs in Winding Up proceedings.

In Re Freerider Ltd 2010 (1) CILR 286 ("Freerider") Foster J had held that there was no jurisdiction to make an order for security for costs against a non-resident individual in Winding Up proceedings because any inherent jurisdiction to do so would be inconsistent with the CWR. In Re Dyxnet Holdings Ltd. Cresswell J followed that reasoning and applied it to a foreign company. The Court of Appeal has said that he was wrong to do so.

In relation to the existence of an inherent jurisdiction to order security for costs the Court of Appeal relied upon the observations of Lord Scott in the Privy Council appeal in the Cayman Islands case of Bancredit 2009 CILR 578 at 582-583:

"It seems to their Lordships clear from the case law dealing with security for costs issues that the court has an inherent jurisdiction to make security for costs orders but that the exercise of that jurisdiction is subject to what has become the settled practice of the court.... The Rules of Court did not create or confer the power to do so but, rather, harnessed the power so as to control its exercise."

Lord Scott went on to say at 585:

"The effect, therefore, of statutory provisions such as Section 74, or of Rules of Court such as Order 23 Rule 1, is not to confer a jurisdiction that the courts did not previously have, but, in the case of Section 74 and its statutory predecessors, to exclude impecunious corporate plaintiffs from the established settled practice that security for costs orders could not be based on mere impecuniosity, and, in the case of Order 23 Rule 1, to specify particular...