Ahmad Hamad Algosaibi and Brothers Company v Saad Investments Company Ltd, Maan Al-sanea and Others

• Jurisdiction: Cayman Islands
• Judge: (Smellie, C.J.)
• Judgment Date: 10 November 2015
• Court: Grand Court (Cayman Islands)
• Date: 10 November 2015

Grand Court, Financial Services Division

(Smellie, C.J.)

AHMAD HAMAD ALGOSAIBI AND BROTHERS COMPANY

and

SAAD INVESTMENTS COMPANY LIMITED, MAAN AL-SANEA and OTHERS

P. Hayden, C. Moore, C. Levers and D. Quest, Q.C. for the plaintiff;

M. Crystal, Q.C., S. White and C. Wilkins for GT;

M. Smith and W. Helfrecht, Q.C. for AWAL;

M. Kish and T. Lowe for SIFCO 5.

Attorneys: Mourant Ozannes for the plaintiff; Walkers for the GT defendants; HSM Chambers for the AWALCO defendants; Harneys for SIFCO 5.

Cases cited:

(1)Cleaver v. Delta American Reins. Co., 2001 CILR 34; [2001] UKPC 6; [2001] 2 A.C. 328; [2001] 2 W.L.R. 1202; [2001] 1 BCLC 482; [2001] BPIR 438, applied.

(2) Ford, In re, [1900] 2 Q.B. 211, considered.

(3) Kazakhstan v. Istil Group Inc., [2005] EWCA Civ 1468; [2006] 1 W.L.R. 596; [2006] 2 All E.R. (Comm) 26; [2006] C.P. Rep. 12, followed.

(4) Mordant, Re, [1995] BCC 209; [1995] 2 BCLC 647, applied.

(5) Rosengrens Ltd. v. Safe Deposit Centres Ltd., Practice Note, [1984] 1 W.L.R. 1334; [1984] 3 All E.R. 198, referred to.

(6) Stokors SA v. IG Markets Ltd., [2012] EWHC 1684 (Comm), applied.

(7) W.A. Sherratt Ltd. v. John Bromley (Church Stretton) Ltd., [1985] Q.B. 1038; [1985] 2 W.L.R. 742; [1985] 1 All E.R. 216, considered.

Civil Procedure — costs — security for costs — non-resident plaintiff in financial difficulties not permitted to substitute bank guarantee for cash security previously paid in

Civil Procedure — costs — security for costs — further security — security may be increased if material change in circumstances — court to apply broad-brush approach — further security ordered as defendants' earlier costs estimates shown to have been too low

The plaintiff (“AHAB”) brought an action against the defendants to recover compensation in respect of fraud.

AHAB claimed to have suffered loss of over US$9 bn. as a result of fraud committed by the director of one of its businesses. It alleged that billions of dollars had been used to fund the defendant companies, now in liquidation, including the GT group, the AWALCo group and SIFCO 5. AHAB was itself in financial difficulties.

These proceedings have been very complex, with many applications and appeals since July 2009. The proceedings were now at the late discovery stages but discovery itself had resulted in extensive litigation. In respect of the discovery process, in November 2013 the plaintiff had been ordered to provide US$8m. as security for the costs of the GT and AWALCo defendants, which was in addition to US$5m. that it had already provided having accepted that, as a foreign plaintiff with no assets in the jurisdiction against which costs could be secured, those defendants (and SIFCO 5, also party to the US$5m. security) were entitled to security.

The order for the provision of the previous US$8m. security had provided that AHAB could provide the security by way of a cash deposit to be held in escrow or secured by a guarantee issued by a Class A bank within the jurisdiction. AHAB had elected to pay a cash deposit. It now applied, however, to substitute a bank guarantee for the cash deposit, stating that it intended to put the cash to better use. The proposed Royal Bank (Cayman) Ltd. (“RBC”) guarantee was initially to be for three years, but AHAB later proposed to increase it to five years. The guarantee would also provide, inter alia, that costs could not be resolved until theconclusion of all appeals and that it would “expire forthwith” on the receipt by RBC of a certified copy of a replacement letter of guarantee on substantially the same terms. The GT defendants opposed AHAB's application, submitting that (a) AHAB could not alter the form of security because the defendants had obtained a security interest in the cash; alternatively (b) even if the court could permit AHAB to substitute the security, it should nevertheless refuse to do so.

The GT defendants applied for US$4.3m. as further security for costs said to be related to the coding of documents disclosed by AHAB. In 2015, AHAB had been directed to disclose to the defendants, without vetting for relevance, the entirety of a database of documents. The GT defendants appeared to have assumed that the database would involve approximately 5m. documents, all of which had to be coded to become searchable for the purposes of discovery, including a very large amount of irrelevant material. AHAB considered that approach to be too elaborate and expensive, and argued that it was not necessary to code all of the documents in order for them to be of practical use and for relevant documents to be identified using key word searches. For the purposes of reviewing the AHAB disclosure, the GT defendants intended to engage a third party provider to code the assumed 5m. documents with eight objective fields. AHAB also considered that the defendants should cooperate in their approaches to the discovery exercise relating to the database and other documents.

The defendants made various other applications for additional security. The GT defendants sought US$20.4m. to cover the period up to the first day of trial, comprising approximately US$6m. as top-up costs that had exceeded the previous orders for security and US$14.4m. as future security. One of the arguments put forward to justify the higher than estimated costs was the lengthy delays in the proceedings. The GT defendants submitted that additional security was justified as they were likely to have very significant difficulties enforcing any costs order against AHAB, which it described as an insolvent foreign plaintiff. The AWALCo defendants sought further security of approximately US$8.5m. to cover the period up to the close of pleadings. Again, AHAB was concerned about the sum requested for the discovery exercise to be taken in respect of its database disclosure. SIFCO 5 sought approximately US$3m. to cover historic costs that had exceeded the US$2m. already provided as well as future estimated costs up to the close of pleadings.

Held, ordering as follows:

(1) The plaintiff was not entitled to substitute a bank guarantee for the cash that had been paid in as security. The defendants had prima facie established a security interest over the money. The payment into court or into escrow of moneys or provision of security in other forms pending the outcome of an action would give rise to a security interest in favour of the party for whose benefit the security was provided. Security for costs was justified on the basis that, in the event that a defendant succeeded, therewould be assets of the unsuccessful plaintiff against which the costs of defending the action could be recovered. The successful defendant thus became as entitled to recover its costs as against the security provided as a successful judgment creditor would become as against a sum paid in pending the outcome of an action (paras. 24-25; paras. 36-40).

(2) Although it might be said that the defendants had acquired a security interest in the cash deposit, the court had a discretion to allow the plaintiff to substitute a bank guarantee for the cash. In the circumstances, however, it would be inappropriate to allow the repayment to the plaintiff of the cash deposit. Repayment of a cash security could be ordered in special circumstances, e.g. where an alternative and adequate form of security was offered and retention of the cash security would prove to be unnecessarily disadvantageous to the plaintiff. In the present case, RBC was doubtless to be regarded as a very reputable Class A bank licensed to carry on business in the Cayman Islands (as required by the order) but the defendants had reasonable concerns as to the terms of the proposed guarantee including that the period might be too short and that it would expire on receipt by RBC of a replacement letter of guarantee in substantially the same terms. The defendants had good reason for wanting to retain their cash security given the plaintiff's admitted financial difficulties and the plaintiff's past conduct in failing to pay in the security until compelled to do so by an “unless order” (paras. 41-61).

(3) The GT defendants' application for a further US$4.3m. as security for costs relating to the coding of the documents disclosed by the plaintiff would be allowed in the sum of US$2.5m. In determining the quantum to be awarded for these purposes, the court would take a broad-brush approach. The court would aim to order security in an amount that was just in the circumstances, it need not be perfect or complete security. The GT defendants' application had been reduced by approximately 50% as the court was concerned about the overly expansive approach they were willing to take in the discovery exercise. The GT defendants appeared to have assumed that the AHAB electronic database directed to be disclosed to them would involve approximately 5m. documents, all of which had to be coded to become searchable for the purposes of discovery, whereas in fact the database comprised roughly 2.5m. documents, some 146,000 of which were already in a format which eliminated the need for further coding. The plaintiff was to remove approximately 3m. duplicated documents from the database before disclosure. In addition, fewer hard copy documents were to be scanned by the plaintiff for disclosure to the defendants. The plaintiff was also properly concerned that the GT defendants' approach to coding would be too elaborate and expensive. In all the circumstances it would be appropriate to award the GT defendants US$2.5m. as further security for these purposes (paras. 62-82).

(4) The defendants sought additional or top-up security up to the close of pleadings, which was the period in respect of which security had previously been awarded. Where security for costs had already beenordered by the court, a defendant who applied to increase the amount of security for the costs of the same stage of the proceedings had to establish a material change of circumstances from those...