Tianrui (International) Holding Company Ltd v China Shanshui Cement Group Ltd

• Jurisdiction: Cayman Islands
• Judge: Mr Justice Segal
• Judgment Date: 20 May 2022
• Court: Grand Court (Cayman Islands)
• Docket Number: CAUSE NO. FSD 161 OF 2018 (NSJ)

IN THE MATTER OF THE COMPANIES ACT (2018 REVISION)

AND IN THE MATTER OF CHINA SHANSHUI CEMENT GROUP LIMITED

Between

Tianrui (International) Holding Company Limited

Petitioner

and

China Shanshui Cement Group Limited

First Respondent

Asia Cement Corporation

Second Respondent

China National Building Material Co. Ltd

Third Respondent

Before:

The Hon. Mr Justice Segal

CAUSE NO. FSD 161 OF 2018 (NSJ)

THE GRAND COURT OF THE CAYMAN ISLANDS

FINANCIAL SERVICES DIVISION

HEADNOTE

Application for security for costs — exercise of the Court's inherent jurisdiction in respect offoreign companies who have presented a winding up petition — establishing reason to believe that the petitioner's assets will be insufficient to pay the respondent's costs — inferring a real risk of and reasons to believe insufficiency of assets where the petitioner fails to provide or only provides limited information as to its financial position

Appearances:

Mr David Allison QC instructed by Walkers appeared for the Second Respondent

Mr. Tom Lowe QC instructed by Ogier appeared for the Petitioner

JUDGMENT ON SECOND RESPONDENT'S APPLICATION FOR SECURITY FOR COSTS

Introduction

1 This is an application for security for costs made by Asia Cement Corporation ( ACC), the second respondent to the winding-up petition presented by Tianrui (International) Holding Company Limited (the Petitioner) for the winding up of China Shanshui Cement Group Limited (the Company). The application is made by a summons dated 16 March 2022 ( Summons).

2 ACC seeks an order that the Petitioner gives security for ACC's costs up to the close of the parties' factual evidence in the petition in the sum of US$1,019,294.87. ACC relies on the Court's inherent jurisdiction to order security for costs against a foreign company petitioner in winding-up proceedings. The Summons is opposed by the Petitioner.

3 The Summons was heard on 4 May 2022. Mr. David Allison QC appeared on behalf of ACC and Mr Tom Lowe QC appeared on behalf of the Petitioner at the hearing.

4 For the reasons discussed below, I have decided that the Petitioner must give security for ACC's costs up to the close of the parties' factual evidence in the sum of US$815,347.35.

The Evidence

5 ACC has filed evidence in support of the Summons in the form of the first affirmation ( Wang 1) and the second affirmation ( Wang 2) of Mr Wang Chaoyu ( Mr Wang). Mr Wang is the Assistant Vice President of ACC. The Petitioner opposes the application and relies on the seventh affirmation ( Li 7) and the eighth affirmation ( Li 8) of Ms. Li Xuanqi ( Ms Li). Ms Li is an assistant to the chairman who is a majority shareholder of the Petitioner.

The Sealing Summons

6 There were two exhibits to Li 7. One was labelled “ Confidential LX-7” (which I have not read). Simultaneously with the filing of Li 7, on 18 December 2021 the Petitioner filed a summons (the Sealing Summons) seeking an order this exhibit be sealed and kept confidential until further order of the Court. Ms Li explained in Li 7 (at [12]-[14]) why she considered that there was a need for Confidential LX-7 to be sealed and not disclosed to ACC. She said that this exhibit “ contains the Petitioner's Audited Accounts which include commercially sensitive information of the Petitioner's business operations and which as the Petitioner is a privately held company the Company, ACC and/or [the third respondent to the petition, China National Building Material Co. Ltd] have no entitlement to see. In circumstances where [each of those parties] are competitors of the Petitioner, the information contained in the Petitioner's Audited Accounts must not be disclosed to [those parties].” ACC vigorously opposed and objected to the Sealing Summons, arguing inter alia, that it would be wholly inappropriate and inconsistent with basic principles of procedural fairness for the Court to be asked to adjudicate on an application based on evidence which one party was prevented from seeing.

7 Prior to the hearing, the Petitioner confirmed that it would withdraw and not ask the Court to make an order on the Sealing Summons. In the Petitioner's skeleton argument filed in advance of the hearing, it was said that “ In resisting ACC's application for [security for costs], the Petitioner does not intend to rely on Confidential LX-7, or the information extracted about Confidential LX-7 in the text of Li 7” (see [28] and footnote 21). At the hearing Mr Allison QC sought an order that the Petitioner pay ACC's costs of and associated with the Sealing Summons to be taxed on the standard basis if not agreed, which order Mr Lowe QC did not oppose. I shall therefore make an order in those terms.

Security for costs — the law

8 The jurisdiction to make an order for security for costs against a foreign or overseas company that has presented a winding-up petition arises under the Court's inherent jurisdiction, as was explained by Chadwick P in Dyxnet Holdings Ltd v Current Ventures II Ltd [2015] (1) CILR 174 ( Dyxnet). As Chadwick P said (at [52]) when summarising his decision on the appeal (and agreeing with the appellant's submissions) “ the Court [has] 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.”” The inherent jurisdiction is to be exercised in relation to foreign company petitioners in the same manner as the Court's statutory jurisdiction to make orders for security for costs against Cayman registered companies pursuant to section 74 of the Companies Act (2022 Revision). This is necessary to avoid improper discrimination between Cayman and foreign corporations (see Dyxnet at [48(f)] and [48(g)]). Section 74 is in the following terms (underlining added):

“Where a company is plaintiff in any action, suit or other legal proceeding, any Judge having jurisdiction in the matter, if that person is satisfied that there is reason to believe that if the defendant is successful in that person's defence the assets of the company will be insufficient to pay that person's costs, may require sufficient security to be given for such costs, and may stay all proceedings until such security is given.”

9 Both parties accept that in deciding whether to make an order for security for costs in this case there is a two-stage test to be applied (see Cesar Hotelco (Cayman) Limited v Ryan [2012] 2 CILR 164 at [45] ( Cesar Hotelco)).

• (a). the first question is whether there is reason to believe that if ACC is successful in defending the petition, the Petitioner's assets will be insufficient to pay ACC's costs (as ordered to be paid by the Court). This is a matter of evaluation. The Court has to consider whether there is a real risk that ACC's costs will not be paid. The onus is on ACC as applicant to satisfy the Court as to this, but ACC does not need to prove on the balance of probabilities that the Petitioner will be unable to pay a costs order. However, something more than mere doubt or concern about the future ability to pay is required. It is not sufficient for the Court or ACC to be left in doubt about the Petitioner's ability to pay ACC's costs. The test is will not be able to pay, not might not be so able (see Eagle Ltd v Falcon Ltd [2012] EWHC 2261 at [22]). The Court has to consider whether the Petitioner will pay the costs ordered to be paid by the Court within the time ordered, usually fourteen or twenty-eight days of the end of the trial or a subsequent costs order ( Holyoake v Candy [2016] 6 Costs LR 1157 at [63] and [64] ( Holyoake)). As Nugee J said in Holyoake at [67] (although I would substitute “ a real risk” for “ more than fanciful”):

  “The general principle is that a defendant who is sued by an impecunious company should not be at risk, if he succeeds in his defence and has an order for costs in his favour, of that order being left unsatisfied. It is therefore generally just, once the risk has been shown to be more than fanciful, that security should be ordered.”

• (b). the second question, which arises if the Court is satisfied that there is a real risk that ACC's costs will not be paid if its defence of the petition is successful, is whether the Court is satisfied, in the exercise of its discretion, that it would be just to order security for costs having regard to all the circumstances of the case. Some guidance is found in the authorities as to the matters which the Court should take into account (see for example Lord Denning's list of seven factors in Sir Lindsay Parkinson v Triplan [1973] QB 609 at 626) but the Court must have regard to the facts and circumstances of the case before it.

Security for costs — the first question

The Evidence

10 So I must begin by asking whether ACC has adduced sufficient evidence of the Petitioner's inability to satisfy a costs order. It is necessary to review all the evidence filed (the Court's evaluation has to be made on the totality of the evidence: see Sarpd Oil International Ltd v Addax Energy SA [2016] EWCA Civ 120, [2016] 1 CLC 336 (CA) ( Sarpd)) and consider whether that evidence demonstrates that the Court has reason to believe that the Petitioner will be unable or unwilling to meet an order for costs.

11 It is convenient to start with the evidence adduced and relied on by the Petitioner. I recognise that since the burden of proof is on ACC, the evidence it has adduced is important. But the Petitioner's evidence as to its assets and ability to pay a costs order sets the scene for considering ACC's case and the evidence on which it relies:

• (a). Ms Li avers (in Li 7 at [11]) that “ The Petitioner is a financially sound company. It has sufficient assets and will be able to pay ACC's costs if ordered from its current assets” (although as I discuss below ACC argues...