The Cayman Islands Court Of Appeal Confirms Orders For Security For Costs In Winding Up Proceedings

INTRODUCTION

In a significant judgment, the Cayman Islands Court of Appeal (CICA) recently held that the Court has an inherent jurisdiction to grant security for costs against a petitioning foreign company in winding up proceedings. In Dyxnet Holdings Limited v Current Ventures II Limited and Current Ventures IIA Limited (Cause CICA 33/2013), the CICA overturned two Grand Court judgments dating back to 2010 which had prevented security for costs from being ordered in winding up proceedings against either a petitioning foreign individual or a petitioning foreign company.

BACKGROUND

Before 1 March 2009, when the Companies Winding Up Rules (CWR) were introduced (and the Grand Court Rules (GCR) were amended), orders for security for costs could be made against petitioners in winding up proceedings which were foreign companies either by application of the GCR to winding up proceedings, or by reliance on the English Insolvency Rules 1986 and Civil Procedure Rules (CPR) rule 25.13. However, following an amendment to the GCR and the introduction of the CWR (which provided that the Insolvency Rules 1986 should cease to have any application), the routes by which security could be ordered were no longer available. The CWR themselves makes no express provision for security for costs.

Section 74 of the Companies Law (2013 Revision) (the Law) provides a statutory power to make an order for security for costs against a Cayman Islands company in a case where that company is plaintiff and the Court is satisfied "that there is reason to believe that if the defendant is successful in its defence the assets of the company will be insufficient to pay his costs". Company is defined in the Law as a company formed and registered under the Law or an existing company (a company which, prior to the 1st December, 1961, has been incorporated and its memorandum of association recorded in the Islands pursuant to the laws relating to companies then in force in the Island). Neither of these definitions applies to a foreign company.

Order 23 of the GCR gives the Court power to order a plaintiff who is ordinarily resident out of the jurisdiction to give security for a defendant's costs if it thinks it is just to do so. However, this rule does not apply to winding up proceedings, which are governed by the CWR.

It is against this background that the Court of Appeal had to consider whether, following the introduction of the CWR, the courts in the Cayman Islands have an inherent jurisdiction to order a foreign company to provide security for costs in proceedings governed by those rules.

FREERIDER

In Re Freerider Ltd [2010] 1 CILR 286, Justice Foster had to...