Ritter and Geneva Insurance Spc Ltd (in Voluntary Liquidation) v Butterfield Bank (Cayman) Ltd

• Jurisdiction: Cayman Islands
• Judge: (Williams, J.)
• Judgment Date: 31 December 2018
• Court: Grand Court (Cayman Islands)
• Date: 31 December 2018

RITTER and GENEVA INSURANCE SPC LIMITED (in voluntary liquidation)

and

BUTTERFIELD BANK (CAYMAN) LIMITED

(Williams, J.)

Grand Court (Cayman Islands)

Civil Procedure — costs — indemnity basis — defective pleading and lack of evidence for speculative dishonest assistance claim against bank highly unreasonable conduct justifying costs on indemnity basis — plaintiffs informed by defendant that pleadings defective and warned of negative costs implications

Held, ordering as follows:

(1) The general rule in litigation was that costs followed the event and that the successful party would be awarded his costs. GCR O.62, r.4(11) provided that costs could be taxed on the indemnity basis if the court were satisfied that the paying party had conducted the proceedings, or that part of the proceedings to which the order related, improperly, unreasonably or negligently. The discretion under the rule was not fettered or circumscribed, and had to be exercised judicially in light of the facts of the case. Something special or unusual had to be demonstrated to justify a departure from the ordinary costs order, which included that the losing party misconducted itself in relation to the proceedings, where the institution of the proceedings was plainly unreasonable, or where the proceedings were issued for a collateral purpose. The court’s focus should be primarily on the conduct of the losing party, not the merits of the case. Advancing a claim which was unlikely to succeed or did in fact fail would not in itself be sufficient to justify an award of indemnity costs; there should normally be an element in the losing party’s conduct which deserved a mark of disapproval. Such conduct would need to be unreasonable to a high degree, though not necessarily deserving moral condemnation (paras. 36–43).

(2) The defendant’s costs of the dishonest assistance element of the plaintiffs’ claim should be assessed on the indemnity basis. When dismissing the plaintiffs’ dishonest assistance claim the court had noted that due to their serious nature and the resultant tactical litigation pressure exerted on and consequences for the other party whether the allegations were proved or not, the principles of pleading had to be strictly observed from the outset. The plaintiffs’ pleadings had been defective, which the defendant had drawn to their attention from an earlier stage of the proceedings,and the plaintiffs had failed to provide sufficient evidence. The plaintiffs had been made aware of the potential negative costs implications if they persisted with the claim. A formal warning of an intention to seek indemnity costs could make the award of indemnity costs more likely. When considering whether the plaintiffs’ conduct took the case out of the norm (i.e. outside the ordinary and reasonable conduct of proceedings), the test was not necessarily conduct attracting moral condemnation but rather unreasonableness. The court had regard to the plaintiffs’ conduct throughout the proceedings, prior to and during the hearing, and also to whether it was reasonable for the plaintiffs to raise and pursue the dishonest assistance allegations, as well as the persistent and forceful manner in which they did so. The claim was clearly defectively pleaded, speculative, involving high risk, and evidentially very weak. The plaintiffs should have realized that in choosing to improperly pursue the serious allegations of dishonesty over an extended period of time, especially after the defendant’s letter, they were taking a high risk and were aware of the risk of indemnity costs being sought if it failed. The plaintiffs advanced and aggressively pursued the dishonest assistance claim, despite the defective pleading and lack of supporting evidence, and maintained the allegations without apology to the end of the hearing. They recognized the potential damage that such an allegation could inflict on the bank. The nature of the claim and the plaintiffs’ highly unreasonable conduct took the pursuit of the dishonest assistance element of the proceedings out of the norm (paras. 44–45; paras. 49–52).

(3) The costs of the balance of the proceedings should be taxed on the standard basis. The determination of the estoppel issue was not straightforward and required a careful application of the law to the relevant facts. It could not be said that the plaintiffs, who were victims of a fraud perpetrated by a third party in relation to funds held at the bank, had been unreasonable in initiating their primary claim and opposing the estoppel defence raised by the defendant. The court had not found that the first plaintiff was dishonest when giving evidence and in his actions, although some of his actions and the approach he took with the bank were questionable. His evidence was at times unconvincing but his reliance upon such evidence in defence of the estoppel argument did not amount to behaviour that was so unreasonable as to justify an order for indemnity costs. The court was not satisfied that the first plaintiff’s conduct was highly unreasonable and out of the norm. It would therefore order costs on the standard basis in relation to the estoppel issue. The court suggested that the parties assist the Taxing Officer by providing schedules setting out which costs fell under which part of the claim (paras. 64–72).

(4) A costs capping order would not be made. The court was not satisfied that it had the power to introduce costs capping given the more limited case management and costs provisions in the Cayman Islands as compared with the more comprehensive provisions in England and Wales. There had been no move in the Cayman Islands to introduce provisions orguidance in Practice Directions about costs that were consistent with an intent to widen the court’s costs management powers to include the making of costs capping orders. Such a novel concept could only be introduced in this jurisdiction after detailed consideration by the Grand Court Rules Committee and codification by further clarifying costs provisions in the Grand Court Rules and guidance in a Practice Direction (paras. 94–95).

(5) If the court were wrong in considering that it lacked the power to make a costs capping order, it was not satisfied that it would be appropriate to make such an order in the present case. In England and Wales, the purpose of costs capping orders was to case manage costs before they were, or possibly as they were being, incurred. Such orders should be made prospectively rather than retrospectively, and as soon as possible in proceedings in order to enable the capped party to plan the appropriate level of expenditure (paras. 96–104).

Cases cited:

(1)AB v. Leeds Teaching Hospitals NHS Trust, [2003] EWHC 1034 (QB); [2003] 3 Costs L.R. 405; [2003] Lloyd’s Rep. Med. 355, considered.

(2)Ahmad Hamad Algosaibi & Bros. Co. v. Saad Invs. Co. Ltd., 2013 (2) CILR 344, considered.

(3)Arroyo v. Equion Energia Ltd. (formerly known as BP Exploration Co. (Colombia) Ltd.), [2016] EWHC 3348 (TCC); [2017] 1 Costs L.O. 31, dicta of Stuart-Smith, J. considered.

(4)BDO Cayman Ltd., In re, 2018 (1) CILR 187, considered.

(5)Billson v. Residential Apts. Ltd., [1992] 1 A.C. 494; [1992] 2 W.L.R. 15; [1992] 1 All E.R. 141; (1992), 63 P. & C.R. 122; [1992] E.G.L.R. 43, referred to.

(6)Black v. Arriva North East Ltd., [2014] EWCA Civ 1115, dicta of Briggs, L.J. considered.

(7)Esure Servs. Ltd. v. Quarcoo, [2009] EWCA Civ 595, referred to.

(8)Euroption Strategic Fund Ltd. v. Skandinaviska Enskilda Banken AB, [2012] EWHC 749 (Comm), followed.

(9)Henry v. British Broadcasting Corp., [2005] EWHC 2503 (QB); [2006] 1 All E.R. 154; [2006] 3 Costs L.R. 412, considered.

(10)Huntsman Chemical Co. Aust. Pty. Ltd. v. International Pools Aust. Pty. Ltd. (1995), 36 NSWLR 242, referred to.

(11)King v. Telegraph Group Ltd., [2004] EWCA Civ 613; [2005] 1 W.L.R. 2282; [2004] 3 Costs L.R. 449; [2004] E.M.L.R. 429, followed.

(12)Leigh v. Michelin Tyre plc, [2003] EWCA Civ 1766; [2004] 1 W.L.R. 846; [2004] 2 All E.R. 175; [2004] 1 Costs L.R. 148; [2004] C.P. Rep. 20, dictum of Dyson, L.J. referred to.

(13)Petursson v. Hutchinson 3G UK Ltd., [2004] EWHC 2609 (TCC); [2005] BLR 210, followed.

(14)Sagicor Gen. Ins. (Cayman) Ltd. v. Crawford Adjusters (Cayman) Ltd., 2011 (2) CILR 471, referred to.

(15)Smart v. East Cheshire NHS Trust, [2003] EWHC 2806 (QB), considered.

(16)Solutia UK Ltd. v. Griffiths, [2001] EWCA Civ 736; [2001] 2 Costs L.R. 247; [2001] C.P. Rep. 92; [2002] P.I.Q.R. P16, considered.

(17)Talent Business Invs. Ltd. v. China Yinmore Sugar Co. Ltd., 2015 (2) CILR 113, followed.

(18)Various Ledward Claimants v. Kent & Medway Health Auth., [2003] EWHC 2551 (QB); [2004] 1 Costs L.R. 101, referred to.

(19)Willis v. Nicolson, [2007] EWCA Civ 199, referred to.

Legislation construed:

Grand Court Rules 1995 (Revised), O.62, r.4(2): The relevant terms of this sub-rule are set out at para. 32.

O.62, r.4(11): The relevant terms of this sub-rule are set out at para. 37.

The plaintiffs sought damages for, inter alia, breach of contract, negligence and breach of fiduciary duty/dishonest assistance.

The first plaintiff was a director, sole shareholder and beneficial owner of the second plaintiff, a captive insurance company incorporated in the Cayman Islands. In 2008, the second plaintiff opened a corporate bank account with the defendant bank. A director of the second plaintiff made fraudulent transactions on the account by forging the first plaintiff’s signature. The payments were honoured by the bank. The plaintiffs brought proceedings against the defendant claiming damages for breach of contract, negligence and dishonest assistance. They contended that by allowing the withdrawals based on forged signatures the bank breached its mandate, with a resultant net loss of US$529,191.

The defendant denied liability. It claimed that the first plaintiff became aware of the fraudulent transactions in September 2011 but failed to inform it until August 2012...