Algosaibi Bros v Saad Invs

• Jurisdiction: Cayman Islands
• Judge: (Smellie, C.J.)
• Judgment Date: 16 October 2013
• Court: Grand Court (Cayman Islands)
• Date: 16 October 2013

Grand Court, Financial Services Division

(Smellie, C.J.)

AHMAD HAMAD ALGOSAIBI AND BROTHERS COMPANY

and

SAAD INVESTMENTS COMPANY LIMITED and 8 OTHERS

P. Hayden and G. Keightley for the plaintiff;

T. Lowe, Q.C. and D.Herbert for the defendant.

Cases cited:

(1) Al Sadik v. Investcorp, Grand Ct., Fin. Servs. Div., July 3rd, 2013, unreported, not followed.

(2) Bonotto v. Boccaletti, 2001 CILR 292, considered.

(3) Cheltenham & Gloucester Bldg. Socy. v. Ricketts, [1993] 1 W.L.R. 1545; [1993] 4 All E.R. 276, applied.

(4) Excelsior Comm. & Indus. Holdings Ltd. v. Salisbury Hammer Aspden & Johnson, [2002] C.P. Rep. 67; [2002] C.P.L.R. 693; [2002] EWCA Civ 879, considered.

(5) Kiam v. MGN Ltd., [2002] 1 W.L.R. 2810; [2002] 2 All E.R. 242; [2002] EWCA Civ 66, dicta of Simon Brown, L.J. considered.

(6) Mars UK Ltd. v. Teknowledge Ltd., [1999] 2 Costs L.R. 44; [2000] F.S.R. 138, considered.

(7) Reid Minty v. Taylor, [2002] 1 W.L.R. 2800; [2002] 2 All E.R. 150; [2002] 1 Costs L.R. 180; [2001] EWCA Civ 1723, referred to.

(8) Sagicor Gen Ins. (Cayman) Ltd. v. Crawford Adjusters (Cayman) Ltd., 2008 CILR 482, referred to.

(9) Simms v. Law Socy., [2006] 2 Costs L.R. 245; [2005] A.C.D. 98; [2005] EWCA Civ 849, dicta of Carnwath, L.J., applied.

(10) SPhinX Group, In re, 2009 CILR 178, referred to.

(11) Three Rivers D.C. v. Bank of England, [2006] 5 Costs L.R. 714; [2006] EWHC 816 (Comm), dicta of Tomlinson J., considered.

Legislation construed:

Grand Court Rules, O.62, r.4(11): The relevant terms of this sub-rule are set out at para. 6.

Civil Procedure-costs-indemnity basis-decision to grant indemnity costs focuses on conduct of losing party, not substantive merits of case-only to be awarded in exceptional circumstances, e.g. where losing party behaves improperly, negligently or unreasonably-advancing claim unlikely to succeed not itself sufficient to justify indemnity costs-losing party”s conduct should normally deserve mark of disapproval

Civil Procedure-costs-interim payment-Grand Court has no power to award an interim payment on account of costs-jurisdiction granted in England under CPR 1998 but no equivalent provision in Cayman-power to award costs is statutory and enlargement not a matter for inherent jurisdiction

Civil Procedure-costs-security for costs-no leave granted to enforce entitlement to costs against security paid into court until costs quantified and taxed and not paid by losing party-successful party also to await outcome of all related actions and claim security pro rata with other successful parties-no interim payment on account of costs where taxation not postponed

The plaintiff (‘AHAB’) brought an action against the defendants (‘SIFCO 5’) to recover compensation in respect of fraud.

The fraudster in question was the director of one of AHAB”s businesses and caused a loss of several billion dollars to AHAB by making unauthorized borrowings and misappropriating funds. He was alleged to have used a large part of those moneys to fund the several companies, now in liquidation, which included SIFCO 5. SIFCO 5 was largely funded by external banks, but received some funding from a company controlled by the fraudster (SICL), which itself was funded from multiple sources, including the fraudster. AHAB alleged that the companies, including SIFCO 5, had received funds misappropriated by the fraudster and brought tracing actions against them. Before disclosure was made, the companies applied for the tracing actions to be struck out on the grounds that AHAB had not disclosed a reasonable cause of action and that the

claims had not been adequately particularized. At the outset of the proceedings, AHAB obtained a worldwide freezing order against SIFCO 5.

SIFCO 5 submitted that AHAB had not shown a proprietary basis for its tracing claim as it had not identified, as required, any of SIFCO 5”s property in which AHAB had a proprietary interest. Even if AHAB were able to show which unauthorized loans had been paid to SICL, SICL had received funding from other sources which would have been adequate to cover its contributions to SIFCO 5. As AHAB could not simply rely on the fact that SIFCO 5”s assets must have been enlarged due to the receipt of AHAB”s property (the ‘swollen assets’ theory) in lieu of pointing to specific assets in which it had an interest, its claim should be struck out.

AHAB submitted in reply that the funds which came through SICL ‘must have’ been derived from the unauthorized loans by virtue of the fraudster”s ownership of SICL and that this inference was so strong that the burden of proof had been satisfied. SIFCO 5 therefore had to show that the funds from SICL had not been AHAB”s property.

AHAB”s action against SIFCO 5 was struck out by the Grand Court (Smellie, C.J.) on February 22nd, 2013 (in proceedings reported at 2013 (1) CILR 202) on the basis that there was no prospect that AHAB could successfully establish a proprietary tracing claim against SIFCO 5. As tracing involved the identification of something new as the subject-matter of the claim, on the basis that the new thing was a substitute for the original, AHAB had to identify property belonging to it which had been taken, identify a series of transactional links by which that property had been used to acquire other identifiable properties, and show that chain of substitutions had to be unbroken. AHAB was only required, at the interlocutory stage, to show that there was an end product which represented its property if, after discovery, it would be able to establish the other requirements. AHAB had failed, however, to show that SIFCO 5 held an end product which represented its property. The nature of SIFCO 5”s funding meant that AHAB”s tracing claim relied solely on the idea that SIFCO 5”s assets must have been increased by virtue of the payment from SICL. A tracing claim could not simply rely on the ‘swollen assets’ of the defendant.

SIFCO 5 submitted that it should be awarded its costs of the action on the indemnity basis because of AHAB”s unreasonable conduct as (a) AHAB”s proprietary claim to SIFCO 5”s assets had always been denied; (b) SIFCO 5 was liquidated as a result of the proprietary claim and a worldwide freezing order obtained against it by AHAB at the outset of the proceedings; (c) AHAB persisted in its claim for 3½ years when it should have known the facts on the basis of the report provided in response to the freezing order; (d) even after it had received SIFCO 5”s defence, AHAB persisted in the proprietary claim, further keeping SIFCO 5”s stakeholders from their money; and (e) the claim was always spurious and untenable and there was never any evidential basis for the allegations-the claim was pursued merely in the hope that evidence would turn up. AHAB had

made serious allegations without sufficient evidence, which was unreasonable and warranted a mark of disapproval, i.e. an award of costs on the indemnity basis.

SIFCO 5 further submitted that it should be allowed to proceed to taxation immediately as the action against it was at an end, and further applied for leave to enforce its entitlement to costs against the security paid into court by AHAB and for directions for an enquiry into the loss incurred by it as a result of the freezing order.

AHAB submitted in reply that (a) it had lost the case but not acted unreasonably or improperly such that an award of costs on the indemnity basis should be made; (b) SIFCO 5 should not be allowed to proceed to taxation immediately as (i) the action relating to other defendant companies was ongoing; (ii) the usual rule was that costs should not be taxed until the conclusion of the matter; (iii) the usual rule had already been applied in these proceedings; (iv) since AHAB had been awarded some of its costs and would be entitled to set them off against any costs awarded to SIFCO 5, it would be necessary to tax both AHAB and SIFCO 5”s costs together; (v) other defendant companies were liable for a part of AHAB”s costs and would therefore also have to participate in the taxation; (vi) the freezing order costs could not be isolated, so if the taxation of costs incurred in the actions were deferred, so should be the freezing order costs; (vii) SIFCO 5 maintained its strike-out application alongside a fresh summary judgment application after it was suggested by the court that the latter was the most appropriate, thus knowing it would waste the costs associated with the summary judgment application if the strike-out application succeeded, so AHAB should not be liable for those wasted costs; and (viii) the summary judgment application was never heard and so it would be wrong to assume SIFCO 5 would have been successful and therefore SIFCO 5 should withdraw it and bear the costs associated with it; (c) SIFCO 5 should not be allowed to enforce its entitlement to costs against the security paid into court as it was not conceded that the court had the jurisdiction to make such an order; and (d) it was not appropriate for SIFCO 5 to seek to include directions for an inquiry into damages arising from the freezing order as inter alia, such an inquiry would be substantial; the claims involved would be substantial and complex, including difficult questions of causation and expert evidence; and SIFCO 5 had yet to formulate detailed proposals for the directions and seek to agree them with AHAB.

Held, ruling as follows:

(1) An order for indemnity costs would not be made and AHAB would be liable in the ordinary way for costs. In considering awards for indemnity costs, the court”s focus should be primarily on the conduct of the losing party, not on the substantive merits of the case. Such an award should be made only in exceptional circumstances, such as where the losing party had behaved improperly, negligently or unreasonably. Advancing a claim which was unlikely to succeed, or which did in fact fail, was not by itself sufficient for the...