Banco Economico v Allied Leasing

• Jurisdiction: Cayman Islands
• Judge: (Graham, J.)
• Judgment Date: 03 December 1998
• Court: Grand Court (Cayman Islands)
• Date: 03 December 1998

Grand Court

(Graham, J.)

BANCO ECONOMICO S.A.

and

ALLIED LEASING AND FINANCE CORPORATION

G.A. Locke for the petitioner;

Ms. L.D. DaCosta for the respondent.

Cases cited:

(1) -Aiden Shipping Co. Ltd. v. Interbulk Ltd., [1986] A.C. 965; [1986] 2 All E.R. 409, followed.

(2) -Bathampton Properties Ltd., In re, [1976] 1 W.L.R. 168; [1976] 3 All E.R. 200, applied.

(3) -Company (No. 004055 of 1991), In re a, [1991] 1 W.L.R. 1003; sub nom. Re Record Tennis Centres, [1991] BCC 509, considered.

(4) -Fairfax (John) & Sons Pty. Ltd. v. De Witt (E.C.) & Co. (Australia) Pty. Ltd., [1958] 1 Q.B. 323; [1957] 3 All E.R. 410.

(5) --Fisher, In re, [1894] 1 Ch. 450; (1894), 63 L.J. Ch. 235, followed.

(6) -McCallister v. Tortuga Club (No. 2), 1984–85 CILR 411, distinguished.

(7) -Symphony Group PLC v. Hodgson, [1994] Q.B. 179; [1993] 4 All E.R. 143, dicta of Balcombe, L.J. applied.

(8) Tajik Air Ltd., Re, [1996] 1 BCLC 317; [1996] BCC 368.

(9) -Tower Corp. Ltd. v. Hadsphaltic Intl. Ltd., 1986–87 CILR 40, -distinguished.

Legislation construed:

Companies Law (1998 Revision) (Laws of the Cayman Islands, 1963, cap. 22, revised 1998), s.123: The relevant terms of this section are set out at page 337, lines 19–22.

Judicature Law (1995 Revision) (Law 11 of 1975, revised 1995), s.24(2): The relevant terms of this sub-section are set out at page 337, lines 11–16.

Supreme Court Act 1981 (c.54), s.51(1): The relevant terms of this sub-section are set out at page 338, lines 29–32.

Companies-compulsory winding-up-costs-‘Bathampton order’-under Judicature Law (1995 Revision), s.24(2), court may order company”s costs of opposing petition not to be paid from company”s assets before payment of petitioner and other unsecured creditors-order to be made only if company guilty of unjustifiable opposition and wasting costs

Companies-compulsory winding-up-costs-petitioner may be awarded costs against non-party principals of company directing unjustified opposition to petition-power under Judicature Law (1995 Revision), s.24(2) to award costs against non-party to be exercised only exceptionally and with reason and justice

The petitioner applied for an order for the winding up of the respondent company.

The petition was opposed by the company, on the instructions of two of its directors and the owner of its corporate shareholder. After lengthy litigation, the court found (in proceedings reported at 1998 CILR 292) that there was no proper basis for opposing the petition and that considerable costs had been wasted, and ordered that the company be wound up.

The petitioner applied for (i) an order that its costs be paid from the assets of the respondent company as an expense of the liquidation, (ii) an order that the company”s own costs should not be paid from those assets before the petitioner and any other unsecured creditors were paid what was owed to them (a Bathampton order), since those costs were occasioned by unwarranted opposition to the petition, and (iii) an order that the company”s principals be made jointly and severally liable for the petitioner”s costs.

The respondent submitted that (a) the court had no jurisdiction to make a Bathampton order, since unlike the English legislation under which the jurisdiction had formerly existed, the Judicature Law (1995 Revision), s.24(2) gave the court no power to determine by whom costs were to be paid, but only to what extent they should be paid; (b) such an order would, in any event, be unfair to the respondent company”s attorneys, since the company”s insolvency meant that their costs would not be paid at all; (c) the court had no power under s.24(2) to award costs against the company”s principals, since they had never been parties to the action; and (d) if such a power did exist, it would be inappropriate to exercise it here, since the principals would suffer injustice.

Held, making the following orders:

(1) The petitioner would be awarded its costs of obtaining the winding-up order, to be paid from the assets of the respondent company (page 343, lines 14–17).

(2) The court would exercise its discretion to order that the company”s own costs of opposing the petition should not be paid from company assets in priority to the company”s liabilities to the petitioner and any other unsecured creditors. The result otherwise would be that the petitioner had effectively financed the company”s legal representation. The court had a wide discretion under s.24(2), including the power to make a Bathampton order, since no rules existed to restrict it. The court would do so in the exceptional circumstances of this case, since the respondent and its principals had persistently deceived the court and wasted costs and had declined the opportunity to attend the present hearing to oppose such an order. Furthermore, since the company was insolvent, the court would order that its costs be paid last in order of priority under s.123 of the Companies Law (1998 Revision). The respondent”s attorneys had only themselves to blame if they remained unpaid, since they should have anticipated this eventuality (page 337, lines 23–28; page 338, line 34 – page 339, line 24; lines 36–44; page 340, line 29 – page 341, line 5).

(3) The company”s principals would be ordered jointly and severally to pay the petitioners” costs, notwithstanding that they were not parties to the proceedings. The court”s discretion to make a non-party costs order under s.24(2) in an appropriate case was clear from the absence of any rule of court stating otherwise, though the power should be exercised with caution and in accordance with reason and justice. The individuals concerned here had orchestrated the company”s opposition to the petition entirely without regard for expense, and would, accordingly, be made responsible for the petitioner”s costs which, when recovered from any available assets of the company, would diminish the petitioner”s own claim as creditor (page 341, line 38 – page 342, line 8; page 342, line 42 – page 343, line 12).

GRAHAM, J.: This ruling is to be read with the principal judgment in
this case dated October 23rd, 1998. I shall make specific references to
20	extracts from that judgment in the course of this ruling. The judgment
ended as follows (1998 CILR at 312):
‘This dispute has been litigated by the company based on
insubstantial and unreliable evidence. There never was a basis for
the proper opposition to this petition. The result of that is that a very
25	great deal of money has been wasted. This finding will govern
certain findings as to costs which I am likely to make at the
appropriate stage. Mrs. DaCosta informs me that a decision as to the
appropriate legal representation of Messrs. Donnelly, Azevedo and
Mello and White Lightning will have to be made before submissions
30	as to costs can be made. I order that such submissions be made
within 14 days of today”s date.’
The matter next came on before me on November 16th, 1998. I asked
Mrs. DaCosta whether she now represented Messrs. Donnelly, Azevedo
and Mello and the company White Lightning Corp. She told me that she
35	had no instructions from any of those persons or from the company. I
directed her to send to those people and to the company, a copy of the
judgment together with an invitation to them to appear before this court
and make such submissions as they chose.
The case was re-listed for hearing on November 26th, 1998. On that
40	day, Mrs. DaCosta told me that she had faxed copies of the judgment and
a note as to the comments made by me on November 16th, 1998 to
Messrs. Donnelly, Azevedo and Mello and White Lightning Corp. by
courier. She informed me that she still represented the respondent but that
she appeared as amicus curiae in respect of those persons already
45	mentioned and would simply draw to the court”s attention such arguments

and authorities as might assist it in the interests of justice. She so
informed me because she had received neither acknowledgement nor
instructions from any of the persons to whom she had sent the judgment
and its accompanying documents. I am bound to say that I was not the
5	least bit surprised by that attitude on the part of those individuals and
White Lightning, as it is all of a piece with their attitude to this court
throughout these proceedings.
The summons before the court dated November 16th, 1998 seeks the
following:
10	‘(1) Without prejudice to any order made under para. (2) below,
the petitioner”s costs of and incidental to the petition be paid out of
the assets of Allied Leasing and Finance Corp. (‘the company’) as
an expense of the liquidation, to be taxed if not agreed.
(2) Save only for the costs which would have been incurred by
15	the company had it appeared at the first hearing of the petition
before Smellie, J. on February 20th, 1998 and consented to an order
for winding up, the costs of the company were incidental to its
opposition to the petition and shall not be paid out of the assets of
the company in priority to the payment in full of the petitioner
20	and/or unsecured creditors of the company.

...