Nicola Locke v (1) CWM Ltd

• Jurisdiction: Cayman Islands
• Judge: Mr. Justice Robin McMillan
• Judgment Date: 07 April 2017
• Date: 07 April 2017
• Docket Number: CAUSE NO. FSD 104 OF 2016 (RMJ)
• Court: Grand Court (Cayman Islands)

Between:

Nicola Locke

and

Those Others Listed in Schedule A

Plaintiffs

and

(1) CWM Limited

(2) DMS Bank & Trust Ltd

Defendants

Before:

The Hon. Mr. Justice Robin McMillan

CAUSE NO. FSD 104 OF 2016 (RMJ)

IN THE GRAND COURT OF THE CAYMAN ISLANDS

FINANCIAL SERVICES DIVISION

HEADNOTE

The construction of GCR O.23 r. 1 (1) — No intention to discriminate against foreigners — A security for costs must be a real security — A successful defendant must have a fund available within the jurisdiction of the Court against which a judgment for costs can be enforced.

Appearances:

Mr. Samuel Dawson and Mr. Tim Baildam of Carey Olsen for the Plaintiffs

Mr. Mark Goodman and Mr. Jeremy Durston of Campbells for the Second Defendant

The First Defendant was not represented

IN CHAMBERS

REASONS FOR JUDGMENT

Introduction

1 On 29 ^th March 2017 the Court granted an application by DMS Bank and Trust Ltd (“the Second Defendant”) for security for costs against Nicola Locke and Those Others Listed in Schedule A (“the Plaintiffs”) in the sum of U.S$75,000 in the form of either a payment into Court or alternatively of payment into an agreed escrow account. In reaching this decision the Court reminded itself that the Court must not order security in an amount which would stifle a claim or be unaffordable. The Court acts because it is just to do so.

The Background

2 There are 318 individual Plaintiffs, 300 (approximately 95%) of those being ordinarily resident in England. The other 18 individuals are resident in one of the following 13 jurisdictions: Gibraltar, Italy, Switzerland, Belize, Malta, Dubai, Ireland, Seychelles, New Zealand, Brunei, Northern Ireland, France or Spain. Indeed, further issue has also been taken by the Second Defendant as to whether all of the Plaintiffs are actually covered by a relevant policy of insurance.

3 The Second Defendant is a company incorporated in the Cayman Islands and it carries on the business of banking and trust services. It acted as banker to the First Defendant.

4 The Plaintiffs each invested funds with CWM Limited (“the First Defendant”), a company incorporated in the British Virgin Islands which is currently struck off the Register of Companies. A number of the Plaintiffs transferred funds directly to the Second Defendant for the account of the First Defendant as part of the investment process. The First Defendant's operations are said to be dishonest, fraudulent, and involved the operation of a “Ponzi” scheme, and the Plaintiffs seek damages from the First Defendant for breach of trust and breach of the client agreements. In March 2015, the London police raided the First Defendant's offices and arrested a number of persons, including the First Defendant's Chief Executive Officer, on suspicion of fraud related offences.

5 The First Defendent has failed to file an Acknowledgement of Service or Defence in the Proceedings.

6 The Plaintiffs allege that the Second Defendant dishonestly assisted the First Defendant in its breaches of trust by operating the accounts and permitting the transfer of the Plaintiffs' invested funds in and out of those accounts, and that the Second Defendant became a constructive trustee and was negligent in avoiding payments being made other than for the purpose for which the Plaintiffs invested their funds. Alternatively, the Plaintiffs seek restitution of the funds paid to the Second Defendant as funds paid by mistake.

7 If the Court is to order the Plaintiffs to provide security for costs, it must be satisfied on objectively justified grounds that the Second Defendant will encounter obstacles or burdens in enforcing a costs order against the Plaintiffs outside the Cayman Islands. In the case of 318 overseas Plaintiffs such considerations are practically unavoidable.

The Applicable law in the Cayman Islands

8 GCR O. 23 r.1 (1) upon which the Second Defendant relies states as follows:

“1. (1) Where, on the application of a defendant to an action or other proceedings it appears to the Court—

• (a) that the plaintiff is ordinarily resident out of the jurisdiction; or

• (b) that the plaintiff (not being a plaintiff who is suing in a representative capacity) is a nominal plaintiff who is suing for the benefit of some other person and that there is reason to believe that he will be unable to pay the costs of the defendant if ordered to do so; or

• (c) subject to paragraph (3), that the plaintiff's address is not stated in the writ or other originating process or is incorrectly stated therein; or

• (d) that the plaintiff has changed his address during the course of the proceedings with a view to evading the consequences of the litigation,

then if, having regard to all the circumstances of the case, the Court thinks it just to do so, it may order that plaintiff to give such security for the defendant's costs of the action or other proceedings as it thinks just”

9 The interpretation of these provisions has given rise to considerable judicial commentary and guidance.

10 However, it is now settled law in the Cayman Islands that the Court must approach the matter with certain clear principles in mind.

11 The Cayman Islands Court of Appeal has held in Dyxnet Holdings Limited v Current Ventures II Limited [2015] 1 CILR 174 that the Court must avoid discriminatory treatment between different classes of litigant under section 16 of the Bill of Rights, Freedoms and Responsibilities (the “Bill of Rights”). The Bill of Rights came into effect on 6 November 2012. Chadwick P states at paragraph 48(c):

“Section 16 in Part I (“Bill of Rights, Freedoms and Responsibilities”) of the Cayman Islands Constitution requires that the government shall not treat any person in a discriminatory manner in respect of the rights under that Part. In that context, discriminatory means affording different and unjustifiable treatment to different persons on any ground such as, inter alia, national origin or other status. The rights under Part I include, at s.7, the right to fair and public hearing in the determination of his or her legal rights and obligations. In exercising its own powers, the court is required to give effect to those provisions by avoiding discriminatory treatment between different classes of litigant. The principle was recognized in the context of security for costs in the decisions of Jones, J., to which I have referred earlier in this judgment ( Gong v. CDH China Mgmt. Co. Ltd.) and in the earlier decision of Sanderson, Ag. J. Elliott v. Cayman Islands Health Servs. Auth”.

12 A practical example of these principles as they operate may be found Kernohan v. H.E. The Governor et al [2011] 2 CILR 7.

13 In the Kernohan case Sir Alan Moses states at paragraph 117:

“The costs that should be ordered should be those which might reasonably be foreseen to be incurred over and above those which would anyway be incurred for enforcing costs within the Cayman Islands. Costs have already been incurred in tracing the Plaintiff and in finding out whether he has assets in California. There is a risk that there will be costs...