Dyxnet Holdings Ltd Respondent to Petition/Appellant v Current Ventures II Ltd Current Ventures IIA Ltd Petitioners/Respondents to Appeal
| Jurisdiction | Cayman Islands |
| Judge | John Martin QC, Justice of Appeal,Sir John Chadwick |
| Judgment Date | 20 February 2015 |
| Judgment citation (vLex) | [2014] CICA J0414-1 |
| Docket Number | CICA No. 33 of 2013 |
| Court | Court of Appeal (Cayman Islands) |
| Date | 20 February 2015 |
From The Grand Court Of The Cayman Islands Financial Services Division
Justice Sir Peter Cresswell (Fsd No 8 of 2012 — Pcj)
In The Matter Of The Companies Law (2011 Revision) (As Amended)
And
In The Matter Of Dyxnet Holdings Limited
The Rt Hon Sir John Chadwick, President
The Rt Hon Sir Anthony Campbell,, Justice of Appeal
The Hon John Martin QC, Justice of Appeal
This is an appeal from the order made on 26 September 2013 by Justice Sir Peter Cresswell in proceedings to wind up the appellant company, Dyxnet Holdings Ltd (‘the Company’), on the petition of the respondents, Current Ventures II Limited and Current Ventures IIA Limited (together ‘the Petitioners’). The order was made on the Company's application, by summons dated 13 March 2013 (as subsequentlyamended), seeking security for costs. The judge dismissed the application. He gave leave to appeal to this Court. At the conclusion of the oral hearing of the appeal in April 2014, this Court allowed the appeal, for reasons to be put in writing and handed down at a later date.
It is accepted on behalf of the appellant — and it was common ground in the court below — (i) that the court's power to order security for costs under Order 23 of the Grand Court Rules, 1995 was not exercisable in winding-up proceedings and (ii) that there was no comparable power in the Companies Winding Up Rules. In those circumstances the order for security for costs was sought on the basis — advanced by amendment to its summons made (with the leave of the judge) on 26 September 2013 — that the court had an inherent jurisdiction to grant security for costs ‘to be exercised in accordance with the principles relating to a non-resident limited liability company when there is reason to believe that its assets will be insufficient to pay the costs of the defendant’.
The judge, following the decision of Justice Foster inIn re Freerider Ltd 2010 (1) CILR 286, held that the inherent jurisdiction relied upon would be inconsistent with the provisions of the Companies Winding Up Rules; so could not be invoked. The underlying issue on this appeal is whether Justice Foster, in Freerider, was correct to reach the conclusion that he did.
The Company was incorporated in the Cayman Islands on 30 October 2000 as an exempt company. It is the holding company of a group the business of which is the provision of internet protocol virtual private network services and contact centre outsourcing services to customers in the People's Republic of China, Hong Kong and Taiwan. The Petitioners are companies incorporated in the British Virgin Islands. They are the holders of shares in the Company. The first-named petitioner, Current Ventures II Limited, has been in voluntary liquidation since August 2011.
The petition was presented in January 2012. As presented, the petition sought an order that the Company be wound up on just and equitable grounds; or, in the alternative, an order pursuant to section 95(3) of the Companies Law (2011 Revision) that the Petitioners' shares be purchased by the other members or by the Company. Thepetition was subsequently amended (on 27 April 2012) to remove the prayer for a winding up order; so that, thereafter, the only relief sought has been a buy-out order. The petition was opposed by the Company. The principal issues in dispute between the parties were whether the conduct of the management and majority shareholders in relation to the Company was oppressive and unfairly prejudicial towards the Petitioners, as minority shareholders; the validity of a rights issue in 2011; and valuation.
As I have said, the Company applied, by summons issued on 13 March 2013, for security for its costs of defending the petition. Following the amendment made on 26 September 2013, the amount in which security was sought was US$1,921,096, or such other sum that the Court might think fit. The summons was listed for hearing on 25 April 2013; but that hearing was adjourned by Justice Cresswell and the summons was re-listed for 26 September 2013.
At the hearing of the summons on 26 September 2013 the parties addressed the judge on both (i) the question whether the court had jurisdiction to order security for costs against a non-resident limited liability company in proceedings under the Companies Winding Up Rules; and (ii) the questions whether, if jurisdiction were established, security should be ordered in this case and, if so, what the amount of such security should be. The judge found against the Company on the first of those questions: holding that he ought not to differ from the decision by a judge of co-ordinate jurisdiction unless convinced that that decision was wrong; and that, because he was not convinced that the decision of Justice Foster inFreerider was wrong, he would follow that decision. He stated that he would give leave to appeal so that the question of jurisdiction could be considered by this Court. In those circumstances he did not find it necessary to decide the remaining questions — whether, if jurisdiction were established, security should be ordered in this case and, if so, what the amount of such security should be.
By its notice of appeal, served on 28 October 2013, the Company sought an order reversing the judge's decision on the question of jurisdiction; and an order remitting the remaining questions to a judge of the Financial Services Division for further hearing.
Section 74 of the Companies Law (2011 Revision) — the text of which substantially follows that first enacted in section 24 of the Joint Stock Companies Act 1857 in the legislation of the United Kingdom — provides for the exercise by the court of a power to order an impecunious company to provide security for the costs of litigation. The section is in these terms:
‘74 Where a company is plaintiff in any action, suit or other legal proceeding, any Judge having jurisdiction in the matter, if he is satisfied that there is reason to believe that if the defendant is successful in his defence the assets of the company will be insufficient to pay his costs, may require sufficient security to be given for such costs, and may stay all proceedings until such security is given.’
In that context ‘company’ means a company formed and registered under the Companies Law or an ‘existing company’. Neither of the Petitioners is a company formed and registered under Companies Law; and neither is an ‘existing company’ for the purposes of the Law (that is to say, a company which, prior to the 1st December, 1961, has been incorporated and its memorandum of association recorded in the Islands pursuant to the laws relating to companies then in force in the Islands). Each is an ‘overseas company’ (that is to say, a company existing under the laws of a jurisdiction outside the Islands).
Section 24(1) of the Judicature Law (2007 Revision) provides that, subject to the provisions of that or any other Law and to rules of court, the costs of and incidental to all civil proceedings in the Grand Court shall be in the discretion of that court. In that context ‘proceedings’ includes insolvency proceedings: section 24(7). Section 24(2) of the Judicature Law is in these terms:
‘24 (2) Without prejudice to any general power to make rules of court, such rules may make provisions for regulating matters relating to the costs of those proceedings including, in particular, the entitlement to costs, the taxation of costs, the powers of taxing officers and the powers of judges to review decisions of taxing officers.’
Section 18 of the Grand Court Law (2008 Revision) was in these terms:
‘(1) Subject to this or any other law, the jurisdiction of the Court shall be exercised in accordance with any Rules made under this Law.
(2) In any matter of practice or procedure for which no provision is made by this or any other law or by any Rules, the practice and procedure in similar matters in the High Court in England shall apply so far as local circumstances permit and subject to any directions which the Court may give in any particular case.’
Section 19 of the Law provided for the constitution of a Rules Committee, with power — subject to that and any other law — to make rules for the purposes set out under section 19(3). Those purposes included the regulation of practice and procedure in respect of the conduct of civil business before the Grand Court in relation to all matters within its jurisdiction; and, generally, for such other matters ‘as may be reasonably necessary for or incidental to the administration of this Law’.
GCR Order 62 is headed ‘Costs’. Rule 1(2) provides that:
‘1(2) The powers and discretions of the Court under Section 24 of the Judicature Law (2002) Revision (which relates to the costs of proceedings in the Court) shall be exercised subject to and in accordance with this Order.’
Order 62 contains seven Parts: ‘Preliminary’ (Part I), ‘Entitlement to Costs’ (Part II), ‘Wasted Costs Orders’ (Part III), ‘Taxation of Costs’ (Part IV), ‘Powers of Taxing Officers’ (Part V), ‘Procedure on Taxation’ (Part VI) and ‘Review of Taxation and Appeal on Points of Construction’ (Part VII). None of those Parts contains any power enabling the court to order that security be provided by one party for his potential liability for the costs of another party.
That power is conferred by GCR Order 23, rule 1(1) which provides (so far as material) that:
‘1(1) Where, on the application of a defendant to an...
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