Re Freerider Ltd

• Jurisdiction: Cayman Islands
• Judge: (Foster, J.)
• Judgment Date: 07 April 2011
• Court: Grand Court (Cayman Islands)
• Date: 07 April 2011

Grand Court, Financial Services Division

(Foster, J.)

IN THE MATTER OF FREERIDER LIMITED

HEINEN

and

LE COMTE

Ms. K. Brown for Mr. Heinen;

A.J. Walters and Ms. C. McTaggart for Mr. Le Comte.

Cases cited:

(1) Federal Comm. & Navigation Co. Ltd. v. Molena Alpha Inc. (‘The Nanfri’), [1978] Q.B. 927; [1978] 3 W.L.R. 309; [1978] 3 All E.R. 1066, dicta of Lord Denning, M.R. applied.

(2) Geldof Metaalconstructie NV v. Simon Carves Ltd., [2010] 4 All E.R. 847; [2010] 1 CLC 895; [2010] EWCA Civ 667, distinguished.

(3) Hadkinson v. Hadkinson, [1952] P. 285; [1952] 2 All E.R. 567, referred to.

(4) Hanak v. Green, [1958] 2 Q.B. 9; [1958] 2 W.L.R. 755; [1958] 2 All E.R. 141, referred to.

(5) Meynall v. MorrisUNK(1911), 104 L.T. 667, considered.

(6) Pringle v. GloagELR(1879), 10 Ch. D. 676, considered.

(7) Young v. Mead, [1917] 2 I.R. 258, considered.

Legislation construed:

Grand Court Rules 1995, O.62, r.22(1): The relevant terms of this paragraph are set out at para. 14.

O.62, r.23(1): The relevant terms of this paragraph are set out at para. 15.

Civil Procedure-set-off and counterclaim-set-off against costs-no set-off against costs award of substantive claim not established by judgment or order and not raised at time of taxation-Grand Court Rules, O.62, r.23(1)(a) only provides for set-off of costs order against other costs order

Civil Procedure-set-off and counterclaim-set-off against costs-no set-off against Cayman costs award of claim in foreign proceedings concerning different and unrelated issue, even if same parties-must be sufficiently close connection between proceedings that manifestly unjust to allow enforcement of costs award without taking other claim into account

Mr. Heinen petitioned for the winding up of a Cayman company on the just and equitable ground.

The Grand Court (Foster, Ag. J.) directed (in proceedings reported at 2009 CILR 604) that, since the winding-up petition was in reality a dispute between Mr. Heinen and Mr. Le Comte, the winding-up petition would be heard between them, with the company not able to participate. The Grand Court (Foster, J.) then ordered (in proceedings reported at 2010 (1) CILR 486) that the company be wound up on the just and equitable ground. Mr. Le Comte, as the unsuccessful respondent, was ordered to pay Mr. Heinen”s costs of the winding-up proceedings and other related applications. The parties did not agree on the amount of costs payable, and invoked the process of taxation. On taxation, Mr. Le Comte made no submissions proposing any set-off against the costs award. The taxing officer issued a costs certificate to the effect that the costs payable by Mr. Le Comte to Mr. Heinen were US$320,707.62.

Mr. Le Comte refused to make any payment to Mr. Heinen pursuant to the costs certificate. He claimed that money he had previously paid to AHAB BV, a company owned by Mr. Heinen, in consideration for the transfer of shares in the company had amounted to a loan to Mr. Heinen, who as a result owed him US$402,664. Mr. Heinen disputed this claim, but Mr. Le Comte claimed that he was entitled to set this amount off against the costs award. He initiated proceedings in New York claiming this amount. Subsequently, his Cayman attorneys ceased to act for him,

and he was left without representation in the Islands until shortly before the present hearing.

Mr. Heinen applied for an order requiring Mr. Le Comte to pay the sum owing under the costs order, submitting that (a) he was not entitled to the set-off he sought, as it was not in respect of a quantified sum that was the subject of a judgment or order for payment; (b) he appeared only to have initiated his claim in response to the request for payment of the costs certificate; (c) the claim, which should have been asserted against AHAB BV, was without merit; (d) moreover, it was not sufficiently closely connected to the costs order deriving from the winding-up petition, as it was filed in a different country and concerned an unrelated issue; (e) the court should not delay ordering enforcement of the costs order pending appeal by Mr. Le Comte, as an appeal did not act as a stay nor had Mr. Le Comte applied for one; (f) the court should attach a penal notice to its order clarifying that it was Mr. Le Comte”s plain and unqualified obligation to pay; and (g) since he had already delayed these proceedings by refusing to pay the costs he owed, the court should order that, unless he paid the sum owing within a short time frame, he would be debarred from participating further in the proceedings.

Mr. Le Comte submitted in reply that (a) he should not be required to pay the costs order, as he was entitled to set off against it the debt he claimed in the New York proceedings, which exceeded the value of the costs award; (b) it was permissible to allow a set-off in respect of a claim which had not been reduced to a judgment or order for payment; (c) his claim was sufficiently closely connected with the costs award to justify a set-off, since the parties were the same in both cases and the money was paid as consideration for the acquisition of shares in the company; (d) alternatively, the court should delay ordering enforcement of the costs order pending his potential appeal to the Privy Council; and (e) the court should not order that, unless he paid the sum owing within a short time frame, he would be debarred from participating further in these proceedings, since any delay thus far could be attributed to his attorneys becoming unwilling to act for him.

Held, allowing the application in part:

(1) Mr. Heinen would be entitled to enforce the costs order in full, and Mr. Le Comte would not be entitled to a set-off in respect of the debt he alleged in the New York proceedings. It appeared that the only type of set-off provided for by the Grand Court Rules was the setting off of one costs order against another, pursuant to O.62, r.23(1)(a). It did not appear permissible to set off Mr. Le Comte”s substantive claim against a costs order, particularly as there was no evidence that the taxing officer was notified of the claim for a set-off before issuing the costs certificate. Nor was it appropriate to set off a claim which had not been established and reduced to the form of a judgment or court order. Rather, Mr. Le Comte”s claim was strongly disputed by Mr. Heinen, appeared only to have been initiated in response to the request for payment of the costs certificate, and

arguably should have instead been directed to AHAB BV. Mr. Le Comte”s claim therefore did not appear to be of a type which could be set off against the costs award (paras. 21–23; para. 31).

(2) Even if it were possible to allow set-off of a claim of this type against a costs order, Mr. Le Comte”s claim was not sufficiently closely connected with Mr. Heinen”s claim for costs that it would be manifestly unjust to allow Mr. Heinen to enforce payment without taking it into account. The costs certificate derived from winding-up proceedings against the company on just and equitable grounds, whereas Mr. Le Comte”s claim was filed in a different country and concerned the different and unrelated issue of whether money he had paid constituted a loan repayable to him. The facts that the parties were the same in both cases and that the money was paid as consideration for the acquisition of shares in the company did not establish a sufficiently close connection. It would therefore not be unjust to refuse Mr. Le Comte a set-off-and in fact, it would be unjust not to allow Mr. Heinen to enforce payment of the costs in full (paras. 24–26; para. 31).

(3) The court would not delay ordering the enforcement of the costs order pending a potential appeal by Mr. Le Comte to the Privy Council against the winding-up order. An appeal did not automatically operate as a stay of the order appealed against, and Mr. Le Comte had never applied to stay the winding-up order, costs order, taxation proceedings or costs certificate. The court would order Mr. Le Comte to pay the whole sum owing under the costs certificate within two weeks, and would attach a penal notice to the order clarifying that this was his plain and unqualified obligation (paras. 27–28; para. 32).

(4) It would not, however, order that, unless Mr. Le Comte paid the sum owing within a short time frame, he would be debarred from participating further in these proceedings. Although he had caused significant delay since the costs certificate had been issued, the court would take into account the fact that his attorneys had become unwilling to act for him, leaving him, for a time, without Cayman legal representation. He should now be given the opportunity to pay the sum owing before any sanction for non-compliance was imposed...