Caribbean Islands Development Ltd v First Caribbean International Bank

• Jurisdiction: Cayman Islands
• Judge: (Smellie, C.J.)
• Judgment Date: 08 October 2014
• Court: Grand Court (Cayman Islands)
• Date: 08 October 2014

Grand Court, Financial Services Division

(Smellie, C.J.)

CARIBBEAN ISLANDS DEVELOPMENT LIMITED

and

FIRST CARIBBEAN INTERNATIONAL BANK

M. Mulligan for the joint official liquidators;

J.M. Harris for the liquidation committee;

Ms. J.L. Verbiesen and Ms. A. Wallace for the defendant.

Cases cited:

(1) Ahmad Hamad Algosaibi & Bros. Co. v. Saad Invs. Co. Ltd., Grand Ct., November 15th, 2013, unreported, applied.

(2) Cybervest Fund, In re, 2006 CILR 80, applied.

(3) Exchange Travel (Holdings) Ltd. (No. 3), Re, [1997] 2 BCLC 579; [1997] BCC 784; [1998] BPIR 30, referred to.

(4) Michael Phillips Architects Ltd. v. Riklin, [2010] BLR 569; [2010] Lloyd”s Rep. I.R. 479; [2010] EWHC 834 (TCC), referred to.

(5) Porzelack KG v. Porzelack (UK) Ltd., [1987] 1 W.L.R. 420; [1987] 1 All E.R. 1074, referred to.

(6) RBG Resources Plc. v. Rastogi, [2005] 2 BCLC 592; [2005] EWHC 994 (Ch), applied.

(7) Versloot Dredging BV v. HDI Gerling Versicherung AG, [2013] EWHC 658 (Comm), distinguished.

(8) Walker v. Walker, [2006] 1 W.L.R. 2194; [2005] 1 All E.R. 272; [2005] C.P. Rep. 33; [2005] 3 Costs LR 363; [2005] BPIR 454; [2005] EWCA Civ 247, applied.

Civil Procedure-costs-security for costs-court to consider whether security in acceptable form, whether provider capable of honouring it, whether likely to do so, and whether enforceable-‘after-the-event’ insurance bond with company out of jurisdiction not acceptable-normal for security to be cash deposit in escrow account under control of court

Companies-liquidators-control by court-imprudent for liquidators to deviate from court order without sanction, even if believe that deviation provides better route for liquidation, especially if deviation likely to be challenged

Companies-liquidators-powers and duties-not obliged to initiate litigation unless sufficient assets to cover costs or indemnity provided by creditor-imprudent to commence litigation if risk that will have to discontinue for lack of funds

The plaintiff company brought an action against the defendant for breach of statutory and fiduciary duties.

The plaintiff went into liquidation and its liquidators brought proceedings against the defendant and separate proceedings against another company. In the proceedings against the defendant, the Grand Court (Smellie, C.J.) ordered the plaintiff to provide security for costs by paying US$100,000 into court. The plaintiff, however, failed to do so and applied for an extension of time. The parties agreed that the plaintiff would be granted an extension but also agreed to an ‘unless order’ that the plaintiff”s claim would be dismissed if it had not complied with the order within seven days from the deadline. The court further ordered that the plaintiff should be liable for the costs of the extension hearing. The plaintiff was unable to obtain a bank guarantee for the security and, although it had sufficient funds to pay it directly, entered into negations for an ‘after-the-event insurance’ bond with Q, a European company.

Five days after the deadline, the plaintiff informed the defendant that it would be unable to secure the bond before the end of the grace period and asked if it would wait to file for dismissal of the claim. The defendant asked the plaintiff to provide more information about the bond within 48

hours. The plaintiff informed it that the information was confidential and could not be disclosed until Q consented to its doing so and the defendant stated that it would file for dismissal of the claim as soon as the grace period expired. The day before the expiration of the grace period, the plaintiff placed US$100,000 in a seven-day deposit account to serve as security until the bond was issued. The defendant filed for dismissal on the next morning and, after the bond was approved that afternoon, the plaintiff submitted that the claim should not be dismissed and that the deadline should be retrospectively altered to after the bond had been approved.

The plaintiff submitted that the bond was acceptable security and that the defendant had behaved unreasonably. There was English authority to show that after-the-event insurance bonds were equally as acceptable as a guarantee from a bank. Further, although there were sufficient funds to cover the security, the liquidators would have been unable to meet subsequent obligations which they might incur, e.g. the costs for the second litigation and their own costs and expenses. They had therefore acted as prudent liquidators by purchasing the bond and attempting to negotiate with the defendant. Although they had not secured the bond until after the deadline, they had acted reasonably in their actions by ensuring that security existed until the bond was available and by keeping the defendant informed of the delay, whilst the defendant had been unreasonable as it had led them to believe that the bond was acceptable.

The defendant submitted in reply that the plaintiff had failed to comply with the terms of the unless order and the claim should be dismissed. The bond did not comply with the requirements for security as it was not in an acceptable form, did not cover any additional costs which the plaintiff may be required to pay and might not be enforceable in Cayman. Moreover, it was insufficient security because it was unlikely to cover the costs already ordered against the plaintiff. Further, the plaintiff”s liquidators had failed to act prudently as they had commenced litigation before ensuring that they had appropriate funds to complete it, were prioritizing their own remuneration over their obligations under the court orders and should have sought the court”s sanction before acting in a way that did not comply with its orders.

Held, dismissing the claim:

(1) The bond was not good security for costs. It was unnecessary for security to be placed with any particular bank, provided that the proposed form gave real security which could be readily enforced. In order to determine whether security was acceptable, the court would therefore consider the form it took; whether the provider was capable of honouring it, was likely to honour it; and whether it could be enforced. Q was a reputable insurer and it was clear that it had sufficient credit and financial strength to cover the bond. The bond, however, was governed by English law and Q did not have any presence within the Cayman jurisdiction. It was therefore uncertain whether the defendant would be able to enforce

the bond, particularly in relation to the costs which had already been awarded, and its attorneys would be unable to advise it on this matter. As the purpose of security for costs was to ensure that a successful defendant had a fund available within the Grand Court”s jurisdiction against which it could enforce a judgment for costs, the bond could not be accepted as security. The plaintiff should therefore have complied with the usual form of security for costs (i.e. placed a cash deposit in an escrow account under the control of the court) or, at the least, ensured that the security was within Cayman (paras. 37–47).

(2) The liquidators had not acted in a prudent manner. At the time that the security for costs order had been made, the liquidation fund had been much larger and, had they placed the required amount in an escrow account at that time, the liquidators would have retained sufficient capital to run the liquidation. It was apparent that they had prioritized their own remuneration over their compliance with the court order as they had failed to create a reserve in respect of costs arising from court orders, which were properly regarded as priority costs, but had created reserves for their own costs. Further, they could not have been said to have acted as prudent liquidators as they had not sought the sanction of the court before attempting to deviate from its orders, particularly as it should have been clear that the decision to utilize a bond as security would be subject to a legal challenge and would give rise to more legal costs and as it had not been issued before the expiration of the grace period. Moreover, the liquidators had not been obliged to initiate the litigation unless...