Dyxnet Holdings Ltd v Current Ventures II Ltd and Current Ventures IIA Ltd

• Jurisdiction: Cayman Islands
• Judge: (Chadwick, P., Campbell and Martin, JJ.A.)
• Judgment Date: 20 February 2015
• Court: Court of Appeal (Cayman Islands)
• Date: 20 February 2015

Court of Appeal

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

DYXNET HOLDINGS LIMITED

and

CURRENT VENTURES II LIMITED and CURRENT VENTURES IIA LIMITED

N.R.F.C. Timms, Q.C. and Ms. C. Hoffmann for the appellant;

N.K. Meeson, Q.C. and M. Mulligan for the respondents.

Cases cited:

(1) Bancredit Cayman Ltd., In re, 2009 CILR 578; [2009] UKPC 39, dicta of Lord Scott of Foscote applied.

(2) C.T. Bowring & Co. (Ins.) Ltd. v. Corsi & Partners Ltd., [1994] 2 Lloyd”s Rep. 567; [1994] BCC 713; [1995] 1 BCLC 148, referred to.

(3) Chequepoint S.A.R.L. v. McLelland, [1997] Q.B. 51; [1996] 3 W.L.R. 341; [1997] 2 All E.R. 384; [1997] 1 BCLC 17, referred to.

(4) Elliott v. Cayman Islands Health Servs. Auth., 2007 CILR 163, referred to.

(5) Freerider Ltd., In re, 2010 (1) CILR 286, not followed.

(6) Gong v. CDH China Mgmt. Co. Ltd., 2011 (1) CILR 57, considered.

(7) HSH Cayman I GP Ltd. v. ABN AMRO Bank N.V., 2010 (1) CILR 114; further proceedings sub nom. In re HSH Cayman I GP Ltd., 2010 (1) CILR 148, followed.

(8) SPhinX Group, In re, 2010 (2) CILR 1, followed.

Legislation construed:

Cayman Islands Constitution Order 2009 (S.I. 2009/1379), Schedule 2, s.16:

‘(1) . . . Government shall not treat any person in a discriminatory manner in respect of the rights under this Part of the Constitution.

(2) In this section, “discriminatory” means affording different and unjustifiable treatment to different persons on any ground such as . . . national or social origin . . .’

Companies Law (2011 Revision), s.74: The relevant terms of this section are set out at para. 9.

Companies Winding Up Rules 2008, O.1, r.2: The relevant terms of this rule are set out at para. 15

O.1, r.4: The relevant terms of this rule are set out at para. 37.

O.24, r.8: The relevant terms of this rule are set out at para. 38.

O.24, r.11: The relevant terms of this rule are set out at para. 38.

Grand Court Law (2008 Revision), s.18: The relevant terms of this section are set out at para.11.

Grand Court Rules 1995 (Revised), O.1, r.2: The relevant terms of this rule are set out at para. 14.

O.23, r.1: The relevant terms of this rule are set out at para. 13.

O.62, r.1: The relevant terms of this rule are set out at para. 12.

O.102, r.17: The relevant terms of this rule are set out at para. 14.

Judicature Law (2007 Revision), s.24: The relevant terms of this section are set out at para. 10.

Companies-compulsory winding up-costs-inherent jurisdiction to order overseas company to provide security for costs, although power to make order omitted from Companies Winding Up Rules 2008-inability to make order would discriminate on basis of national origin since order can be made against Cayman company under Companies Law (2011 Revision), s.74-prior to 2008 Rules, reliance on inherent jurisdiction unnecessary as court could rely on English rules to make order for security against overseas company

The respondents sought an order from the Grand Court to wind up the appellant company.

The respondents were companies registered outside the Cayman Islands which held shares in the appellant company. They petitioned for an order that the company be wound up on just and equitable grounds, or that their shares be purchased by the company. The company was concerned that the respondents had insufficient assets within the jurisdiction to meet its costs if it successfully defended the petition, and it therefore applied for security for its costs.

In the Grand Court, the respondents submitted that the court had no jurisdiction to order security for costs as the Companies Winding Up Rules 2008 (‘the Rules’) did not provide for such a power, and any inherent jurisdiction exercised by the court in ordering that security be provided would be incompatible with the Rules. The company submitted that the omission in the Rules did not prevent the court from exercising its inherent jurisdiction to make an order for security.

The Grand Court (Cresswell, J.) held that an inherent jurisdiction to make such an order would be inconsistent with the Rules as, in the absence of provisions governing the making of orders for security, it was seemingly intended that in winding-up proceedings the court should have no jurisdiction to make such orders.

On appeal, the appellant submitted that (a) the absence of any provisions regulating the making of orders for security did not necessarily imply that, in winding-up proceedings, such orders could not be made under the court”s inherent jurisdiction, as it was possible that the court”s jurisdiction was to be left untouched, or that an oversight had been made;

(b) previous case law which indicated that an inherent jurisdiction was inconsistent with the Rules should not be followed in light of contrary case law suggesting that lacunae in the Rules could be corrected by the court; and (c) a lack of jurisdiction to make an order for security under the Rules was discriminatory in that the Companies Law (2011 Revision), s.74 allowed an order to be made when the petitioner was a Caymanian company, and there was therefore an unjustified disparity of treatment based on the national origin of the petitioning company.

In reply, the respondents submitted that (a) the Insolvency Rules Committee had conducted a comprehensive review of the Rules with full knowledge that no provision was made for orders for security for costs in winding-up proceedings, and had deliberately excluded such a power; (b) the case law which suggested that omissions in the Rules could be corrected by exercise of the court”s inherent jurisdiction primarily involved procedural issues, whereas the jurisdiction to make an order for security entailed the creation of a substantive power for itself by the court; and (c) any discriminatory treatment might justify amendment of the Companies Law by the Legislative Assembly but did not justify creation of a jurisdiction to make orders for security in winding-up proceedings contrary to the provisions of the Rules.

Held, allowing the appeal:

The courts had inherent jurisdiction to order a plaintiff non-resident company to provide security for the costs of a defendant in winding-up proceedings, and previous case law indicating the contrary should not be followed. The Companies Law (2011 Revision), s.74 provided that, in winding-up proceedings, an order for security of costs could be made against a plaintiff company registered in the Cayman Islands if the court was satisfied that the company would not be able to pay the costs of a successful defendant. As the Bill of Rights, s.16 prohibited discrimination on the grounds of, inter alia, national origin, the court was required to avoid discriminatory treatment in applying s.74. Prior to the introduction of the Companies Winding Up Rules, it had been possible to do so by relying on the English Rules of the Supreme Court (latterly, the Civil Procedure Rules) to order that overseas companies provide security for costs; subsequently, the court could only avoid discrimination by either ceasing to apply s.74 to Cayman companies or exercising its inherent jurisdiction to make orders for security against overseas companies. As it would be wrong in principle for the court to refuse to exercise a statutory power, it would therefore exercise its inherent jurisdiction to make an order for security for the defendant”s costs. The omission of any provisions governing such orders in the Companies Winding Up Rules 2008 did not curtail the court”s inherent jurisdiction as it was unlikely that the

Insolvency Rules Committee intended to allow discrimination (paras. 48–50).

1 CHADWICK, P.: This is an appeal from the order made on September 26th, 2013 by Cresswell, J. in proceedings to wind up the appellant company, Dyxnet Holdings Ltd. (‘the company’), on the petition of the respondents, Current Ventures II Ltd. and Current Ventures IIA Ltd. (together ‘the petitioners’). The order was made on the company”s application, by summons dated March 13th, 2013 (as subsequently amended), 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.

2 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 the Grand Court Rules 1995 (Revised), O.23 was not exercisable in winding-up proceedings; and (ii) that there was no comparable power in the Companies Winding Up Rules 2008. 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 September 26th, 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.’

3 The judge, following the decision of Foster, J. in In re Freerider Ltd. (5), held that the inherent jurisdiction relied upon would be inconsistent with the provisions of the Companies Winding Up Rules and so could not be invoked. The underlying issue on this appeal is whether Foster, J. was correct in Freerider to reach the conclusion that he did.

The company”s application for security for costs

4 The company was incorporated in the Cayman Islands on October 30th, 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...