The Companies Law (2009 Revision) v Wyser-Pratte Eurovalue Fund Ltd

• Jurisdiction: Cayman Islands
• Judge: Hon Mr Justice Andrew J. Jones
• Judgment Date: 16 November 2010
• Court: Grand Court (Cayman Islands)
• Docket Number: Cause No. FSD 167 of 2010 (AJJ)
• Date: 16 November 2010

In the Matter of the Companies Law (2009 Revision)

and

In the Matter of Wyser-Pratte Eurovalue Fund Ltd

[2010] CIGC J1125-2

Hon Mr Justice Andrew J. Jones QC

Cause No. FSD 167 of 2010 (AJJ)

IN THE GRAND COURT OF THE CAYMAN ISLANDS

Ruling on Costs

Introduction

1 On 9^th September 20101 made an order that the Petitioner's costs of and incidental to the petition (up to and Including 1^st September 2010) be paid out of the assets of the Company such costs to be taxed on the indemnity basis If not agreed. The issue which J am now asked to determine Is whether the legal fees payable by the Petitioner to its US lasers in connection with this proceeding are irrecoverable to the extent that they fall outside the limitations imposed by GCR. 0. 62, r.18.

2 The issue was presented as a pure point of law. I was not shown any bill of costs. Nor was I asked to make any determination about the reasonableness of engaging foreign lawyers or the reasonableness of the work done and fees paid. These will be matters for the taxing officer to determine in the absence of agreement.

3 I was invited to put my reasons into writing on the basis that there is apparently some uncertainty amongst the profession about the purpose and effect of GCR O. 62, r.18, at least in the context of winding up petitions.

Rules as to costs in liquidation proceedings

4 The general rules as to costs in liquidation proceedings are contained in the Companies Winding Up Rules, Order 24, Part II.

5 The effect of CWR O. 24, r.8(l) and (4) is that a creditor who successfully presents a winding up petition on the grounds of insolvency is entitled to have his costs paid out of the assets of the company unless the Court is satisfied that there are exceptional and special circumstances which would justify making some other order or no order for costs. The successful petitioning creditor's costs are an expense of the liquidation which, by virtue of CWR 0. 20, r.1(1)(a), rank ahead of all other expenses. The amount of his costs must be agreed with the official liquidator, failing which the petitioning creditor is entitled to have his bill of costs taxed on the indemnity basis. The principle underlying this rule is that, by presenting a winding up petition, the petitioner is invoking class rights. Every creditor is entitled to be heard on the petition; in the event that the petitioner decides not to pursue his petition for whatever reason, any other creditor may be substituted; and any winding up order takes effect for the benefit of and is binding upon the creditors as a whole, whether or not they participated in the proceeding. CWR 0. 24, r,8 is designed to ensure that a successful petitioning creditor is not left out of pocket or put in a position in which he is effectively subsidizing other members of the creditor class.

6 In the case of a contributory's petition presented on just and equitable grounds, the general rule as to costs depends upon what direction is made by the Court pursuant to CWR O. 3, r.11. If the Court characterizes the petition in question as a proceeding against the company in which it can properly participate as a defendant, CWR O. 24, r.8(2)(a) puts a petitioning contributory in the same position as a petitioning creditor. I made such a direction in this case. Having successfully obtained relief, which takes effect for the benefit of the shareholders as a whole, the Petitioner is entitled to have its costs paid out of the assets of the Company. Whilst Rule 8(2)(a) does not actually say that such costs should be taxed on the indemnity basis, it would be wrong in principle to apply the standard basis because that would have the effect of making the successful petitioning shareholder subsidize the other members of the class who will benefit equally from whatever order has been made on the petition. This is the basis upon which the order for costs was made in favour of the Petitioner.

7 Different policy considerations apply when the Court makes a direction pursuant to CWR 0. 3, r.11(2) that a contributory's petition should be treated as aninter partes proceeding between the petitioning shareholder(s) as applicant and the other sharehoider(s) as respondent. Typically, the Court will give a direction to this effect if the petition pleads that the company is a ‘quasi-partnership’, if the proceeding is characterized as ordinary adversarial litigation between individual shareholders, none of them will be allowed to finance their case out of the company's assets. By virtue of CWR 0. 24, r,8(2)(b), the genera! rule in this type of case is that the unsuccessful shareholder(s) should pay the costs of the successful shareholders), such costs to be taxed on the standard basis if not agreed, The purpose and effect of this rule is that the opposing parties will be subjected to the same costs regime as that which applies to any other ordinary inter partes litigation governed by GCR 0.62.

Taxation of costs In liquidation proceedings

8 The rules relating to the taxation of costs contained in Parts IV (Taxation of Costs), V (Powers of Taxing Officers) and VI (Procedure on...