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

• Jurisdiction: Cayman Islands
• Judge: (Smellie, C.J.)
• Judgment Date: 08 November 2013
• Court: Grand Court (Cayman Islands)
• Date: 08 November 2013

Grand Court, Financial Services Division

(Smellie, C.J.)

AHMAD HAMAD ALGOSAIBI AND BROTHERS COMPANY

and

SAAD INVESTMENTS COMPANY LIMITED, MAAN AL-SANEA, AWAL FINANCE COMPANY LIMITED and OTHERS

D. Quest, Q.C., P. Hayden and G. Keightley for the plaintiff;

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

M. Smith, Q.C. and I. Lambert for the AWALCos.

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

Cases cited:

(1) Ahmad Hamad Algosaibi & Bros. Co. v. Saad Invs. Co. Ltd., 2013 (2) CILR 344, referred to.referred to.

(2) Air Express Ltd. v. Ansett Transp. Indus. (Operations) Pty. Ltd. (1981), 146 CLR 249; [1981] HCA 75, considered.

(3) Al-Koronky v. Time Life Entertainment Group Ltd., [2005] All E.R. (D.) 457; [2005] EWHC 1688 (QB), referred to.

(4) Berkeley Admin. Inc. v. McClelland, [1996] I.L. Pr. 772, referred to.

(5) Berkeley Applegate (Investment Consultants) Ltd., In re, [1989] Ch. 32; [1988] 3 W.L.R. 95; [1988] 3 All E.R. 71, referred to.

(6) CIGNA Worldwide Ins. Co. v. ACE Ltd., 2012 (1) CILR 55, applied.applied.

(7) Columbia Pictures Indus. Inc. v. Robinson, [1987] Ch. 38; [1986] 3 W.L.R. 542; [1986] 3 All E.R. 338, referred to.

(8) Cybervest Fund, In re, 2006 CILR 80, referred to.referred to.

(9) Dadourian Group Intl. Inc. v. Simars, [2009] EWCA Civ 169; [2009] 1 Lloyd's Rep. 601, distinguished.

(10) Harley St. Capital Ltd. v. Tchigirinsky, [2005] EWHC 2471 (Ch), referred to.

(11) Hoffmann-La Roche (F.) & Co. A.G. v. Trade & Indus. Secy., [1975] A.C. 295; [1974] 3 W.L.R. 104; [1974] 2 All E.R. 1128, considered.

(12) Innovare Displays plc v. Corporate Broking Servs. Ltd., [1991] BCC 174, referred to.

(13) Keary Devs. Ltd. v. Tarmac Constr. Ltd., [1995] 3 All E.R. 534; [1995] 2 BCLC 395; (1994), 73 B.L.R. 115, followed.

(14) Kloeckner & Co. AG v. Gatoil Overseas Inc., C.A. (Civ. Div.), March 16th, 1990, unreported, followed.

(15) Les Laboratoires Servier v. Apotex Inc., [2009] F.S.R. 3; [2008] EWHC 2347 (Ch), referred to.

(16) M.V. Yorke Motors v. Edwards, [1982] 1 W.L.R. 444; [1982] 1 All E.R. 1024, referred to.

(17) Porzelack K.G. v. Porzelack (U.K.) Ltd., [1987] 1 W.L.R. 420; [1987] 1 All E.R. 1074; [1987] 2 C.M.L.R. 333; [1987] E.C.C. 407; [1987] F.S.R. 353, followed.

(18) Roburn Constr. Ltd. v. William Irwin (South) & Co. Ltd., [1991] BCC 726, referred to.

(19) Sagicor Gen. Ins. (Cayman) Ltd. v. Crawford Adjusters (Cayman) Ltd., 2011 (1) CILR 130, applied.applied.

Civil Procedure — costs — security for costs — cash deposit under control of court is preferred form of security — charge over real property may be problematic and time consuming to realize — although defendants previously accepted as security first charge over English property, as property now further encumbered, additional security to be cash deposit or secured by bank guarantee

Injunctions — worldwide freezing orders — cross-undertaking in damages — if cross-undertaking to be enforced, loss assessed on same basis as damages for breach of contract — whether summary assessment of loss or full inquiry depends on complexity of issues

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.

AHAB, as a plaintiff outside the jurisdiction, had provided initial security for costs in the sum of US$5m. by way of a first charge over a property in London. That security had been accepted by the joint official liquidators and the court. Since then, the property had become further encumbered by a second charge in favour of HSBC and several interim charging orders in favour of other banks. AHAB submitted that the London property, which had been valued at US$18m., was more than sufficient to secure the JOLs' costs up to and including the trial.

In 2009, AHAB had obtained a worldwide freezing order in respect of the GT defendants and the AWALCos, among others. AHAB had given an undertaking that “if the court later finds that this Order has caused loss to a Defendant, and decides that the Defendant should be compensated for that loss, the Plaintiff will comply with any order the Court may make.” The order had frozen the defendants' assets up to US$9.2m., required the provision of financial information and the appointment of receivers. The order had later been amended to discharge the receivers after liquidators had been appointed in respect of the defendants. The order had been discharged in 2011 because AHAB had failed to comply with its obligation to make full and frank disclosure. AHAB accepted that it was liable to indemnify the GT defendants and AWALCos for consequential costs and expenses.

The GT defendants and the AWALCos sought (a) additional security for costs; and (b) the summary assessment and order for payment of damages for losses caused by the worldwide freezing order, namely (i) the fees and expenses of the receivers appointed pursuant to the order; (ii) the fees and expenses of the liquidators incurred in providing the information required by the order; and (iii) an inquiry as to any other losses caused by the order.

The GT defendants and the AWALCos submitted that (a) if the court were to direct that the London property be used for further security for costs, the property should be discounted to no more than 65% of its valuation price; (b) further security should, however, be provided in cash; (c) there was a risk that any further security over the property would be unenforceable; (d) AHAB should be considered capable of providing security for costs by way of cash deposit as it had failed to prove otherwise; and (e) there should be a summary assessment of the losses caused by the worldwide freezing order, namely the appointment of the receivers and compliance with the mandates.

AHAB submitted that (a) the JOLs should be permitted to pay their costs from the assets of the liquidation estates; (b) the existing security of US$5m. secured over the London property should be extended by a further US$3m., which would be sufficient security for the defendants; (c) security by way of a cash deposit or equivalent would stifle its claim; (d) in respect of determining what would be sufficient security for the GT defendants, the court should bear in mind their substantial counterclaim; and (e) the losses caused by the worldwide freezing order were not amenable to summary assessment and some of the work undertaken by thedefendants would have been required in any event to meet their disclosure obligations in the present action.

Held, ordering as follows:

(1) Security for costs ordered against a plaintiff ordinarily resident outside the jurisdiction was to ensure that in the event that a defendant succeeded there would be assets of the unsuccessful plaintiff available within the jurisdiction of the court against which the costs of defending the action could be recovered. If the defendants succeeded in the present action there could be no question as to their entitlement to recover their costs from AHAB because the assets expended in defence of AHAB's claim would have been found to be the defendants' assets, not AHAB's. Although a charge over the London property had previously been accepted as security, it was not the preferred or conventional type. A cash deposit in an escrow account under the control of the court was the usual form of security for costs. Real property was a relatively illiquid asset and could be problematic and time consuming to realize. Enforcing security against real property could also be a costly process, particularly when it was located in another jurisdiction. Moreover, the ascription of market value to real property could never be exact, as the true market value of a property could not be known until it was sold. The JOLs' proposition that, if it were used for further security, the London property should be discounted in value to no more than 65% of its valuation price would have been accepted. Any less conservative and prudent approach would have involved ascribing a value to the property that might, in reality, be unattainable and, even if attainable, placed the risks and costs of realization on the JOLs. Circumstances had, however, changed since the property had been accepted as security. A second charge had been secured over the property and several interim charging orders. There was a real risk that any amounts to be secured now beyond the US$5m. would be unenforceable. Further security would not therefore be attached to the London property (paras. 32-61).

(2) AHAB had failed to produce evidence to support its allegation that the provision of further security by way of cash deposit or equivalent would stifle its claim. The mere statement that further security would stifle the claim was insufficient. The available evidence was contradictory: AHAB acknowledged that it had substantial assets in Saudi Arabia that were subject to an asset freeze there but also asserted that its Saudi businesses generated sufficient revenue to pay its ordinary debts and obligations, including its very considerable legal fees and expenses. It was not unreasonable in the circumstances for AHAB to be regarded as able to provide security for costs by way of a cash deposit from its own resources or by way of litigation funding from its creditor banks, and the burden of proof to the contrary rested on AHAB. AHAB had not produced evidence to justify its claim of impecuniosity. It would be unreasonable of AHAB's creditor banks to expect it to prosecute its claim while not providing sufficient security for the defendants' costs. The circumstances required atleast a reliable and...