Davidson v Moualem

• Jurisdiction: Cayman Islands
• Judge: (Chadwick, P., Mottley and Campbell, JJ.A.)
• Judgment Date: 08 January 2014
• Court: Court of Appeal (Cayman Islands)
• Date: 08 January 2014

Court of Appeal

(Chadwick, P., Mottley and Campbell, JJ.A.)

G. DAVIDSON, M. DAVIDSON and ALLENDALE LIMITED

and

MOUALEM and FOUR OTHERS

P. Jervis and S. Dawson for the appellants;

T. Lowe, Q.C. and Ms. L. Clemens for the second to fifth respondents.

Cases cited:

(1) Atkas v. Adepta, [2011] Q.B. 894; [2011] 2 W.L.R. 945; [2011] 2 All E.R. 536; [2010] EWCA Civ 1170, dicta of Rix, L.J. applied.

(2) Baly v. Barrett, [1988] N.I. 368, applied.

(3) Cecil v. Bayat, [2011] 1 W.L.R. 3086; [2011] EWCA Civ 135, applied.

(4) Dagnell v. J.L. Freedman & Co., [1993] 1 W.L.R. 388; [1993] 2 All E.R. 161, applied.

(5) Kleinwort Benson Ltd. v. Barbrak Ltd., The Myrto (No. 3), [1987] A.C. 597; [1987] 2 W.L.R. 1053; [1987] 2 All E.R. 289; [1987] 2 Lloyd”s Rep. 1; [1987] 1 FTLR 43, followed.

(6) Masri v. Consolidated Contractors Intl. Co. SAL, 2010 (1) CILR 265, referred to.

(7) Powell v. Port Authority, 2009 CILR 169, referred to.

(8) Waddon v. Whitecroft Scovell Ltd., [1988] 1 W.L.R. 309; [1988] 1 All E.R. 996, referred to.

Legislation construed:

Grand Court Rules 1995, O.6, r.8. The terms of this rule are set out at paras. 2–3.

Civil Procedure-writ of summons-extension of validity-good reason required to extend validity under GCR, O.6, r.8(2)-where good reason exists, court may consider balance of hardship between parties-Court of Appeal not to interfere with Grand Court”s decision unless approached task in wrong way

Civil Procedure-writ of summons-extension of validity-if extension under GCR, O.6, r.8(2) deprives defendant of limitation defence, plaintiff to show satisfactory explanation for failure to serve writ or apply for extension earlier-defendant deprived of limitation defence if plaintiff unable to serve writ before original expiration date, even if writ valid at time of application-pending application to serve out of jurisdiction not to mean applicant able to serve writ before expiration date and failure to apply earlier unsatisfactory reason for failure to serve writ

The appellants brought various claims in the Grand Court alleging fraud by the respondents.

The parties entered into a joint venture agreement in 1996 to develop and sell certain properties. The respondents arranged to sell the properties by tender in 1997, but no offers were made and the bank which funded the joint venture appointed a receiver over the properties. The appellants alleged that the respondents, who had purchased the properties from the receiver, had deliberately and fraudulently caused the joint venture to fail for the purpose of obtaining the properties at a price below their value. The appellants therefore commenced proceedings against the respondents in England in 2003. The respondents made discovery on May 13th, 2005, but those proceedings were dismissed because the appellants were unable to provide security for costs.

The appellants began the present Cayman proceedings by issuing a writ on April 7th, 2011. They failed, however, to obtain leave to serve out of the jurisdiction within the 6-month validity of the writ under GCR, O.6, r.8(1). On the last day of its validity, they made an ex parte application for the validity to be extended under GCR, O.6, r.8(2) and for leave to serve out of the jurisdiction. This was granted by the Grand Court, but the respondents applied for the order to be set aside.

The Grand Court (Henderson, J.) (in proceedings reported at 2012 (2) CILR 312) found that the validity of the writ would only be extended ‘for good reason,’ but that, if the potential defendants would be deprived of a limitation defence, the extension should only be allowed ‘in exceptional circumstances.’ As the limitation period in respect of a fraudulent act begins when the fraud is discovered, or could with reasonable diligence have been discovered, the latest starting point in this case would have been when the appellants had the opportunity to examine the documents disclosed during the UK litigation. The limitation period would therefore have expired, at the latest, on May 31st, 2011. Although the writ had still been valid when the application had been made, the appellants would not have been able to serve it out of the jurisdiction by its original expiry date; the extension would therefore deprive the respondents of an arguable limitation defence. Since the appellants had not given a satisfactory explanation for not serving the writ within the 6 years following the discovery, the validity of the writ could not be extended. Moreover, there was no good reason to extend it.

The appellants submitted that (a) because they would have been entitled to serve the writ on the date of the application, the respondents had not yet accrued a limitation defence. The Grand Court had therefore applied the wrong test and, as the appellants had shown good reason for the extension, it should not have set the order aside. Further, it did not matter that the appellants had been unable to serve the writ (on the ground that they had not been granted leave to serve out of the jurisdiction) because they had applied for leave to do so and so would have been able to serve the writ during the extension; (b) because the court had stated that it would only extend the validity in exceptional circumstances, it had incorrectly applied the ‘good reason’ test; and (c) the court should have conducted a balance of hardship analysis to determine whether the loss of the potential limitation defence outweighed the reason to extend the writ.

The respondents submitted in reply that (a) because the appellants had failed to obtain permission to serve out of the jurisdiction, they would not have been able to serve the writ upon them before its original expiration date. The extension would therefore deprive the respondents of the opportunity to raise a limitation defence and the court had been entitled to require the appellants to show satisfactorily why they had failed to serve the writ before that date. Further, because the application for permission to serve the writ out of the jurisdiction depended on the application to extend the writ, the appellants were not entitled to rely on it as a reason why the extension should be granted; (b) the court had correctly applied the ‘good reason’ test; and (c) there was no good reason to grant the extension and, accordingly, no need to conduct a balance of hardship analysis.

Held, dismissing the appeal:

(1) The appellant had failed to show that the court should extend the validity of the writ. GCR, O.6, r.8 did not contain explicit guidance as to

when the discretion to extend the validity of the writ should be exercised, but the applicable principles were not in doubt and the Court of Appeal would not interfere with the exercise of the Grand Court”s discretion unless it had incorrectly followed them and approached the task in the wrong way. The power would only be used if there were good reason to do so depending on all of the circumstances of the case and, where there was good reason, the court could consider the balance of hardship between the parties. Further, O.6, r.8 had to be read in conjunction with the overriding objective to deal with every cause in a just, expeditious and economical way and the power to extend the limitation period under O.6, r.8(2) had to be read in the context of the rest of O.6, r.8, (e.g. that the purpose of the limited validity of a writ under O.6, r.8(1) was to ensure that a potential plaintiff could not abuse the issuing of the writ to prevent the potential defendant from employing a limitation defence) (paras. 19–22).

(2) There were three main categories of cases where an application for extension could be made: (a) when the writ was still valid and before the limitation period had expired; (b) when the writ was still valid, but after the limitation period had expired; and (c) when the writ had expired and the limitation period had also expired. In the first two categories, the plaintiff would still be able to serve the writ before its validity expired (subject to any difficulties with service) and so no limitation defence would have been accrued. As the appellants had not obtained permission to serve out of the jurisdiction, however, and as they would have been unable to obtain such permission before the writ expired, they were unable to serve the writ before its expiration. Further, it could not be assumed that leave to serve out of the jurisdiction would, or could, be granted simply because it had been applied for. The present case was therefore unlike category (a) or (b) and, as it gave rise to the same limitation questions as category (c), the appellant would be required to show that there was good reason to extend the writ and that there was a satisfactory explanation for its failure either to serve the writ, including its failure to apply for permission to serve out of the jurisdiction, or to apply for an extension before October 5th, 2011. The Grand Court had therefore approached the exercise of its discretion in line with the relevant principles and its ruling would not be disturbed (paras. 24–28).

(3) Nor would the Court of Appeal disagree with the Grand Court”s finding that there was no good reason to extend the writ. The Grand Court had stated that where a potential limitation defence was involved the writ would only be extended in ‘exceptional circumstances.’ When the court had considered how it should apply its discretion, however, it did so in a section entitled ‘Is there a good reason for the extension?’ and it was clear that this was the test that had been applied. There was therefore no reason to disturb the finding that there was no good reason to extend the validity. Although the balance of hardship between the parties may be a relevant consideration, it could only be so if a good reason to extend the writ actually existed, since otherwise the questions of hardship would not arise.

As no good reason had been shown, there...