Walkers (A Firm) v Arnage Holdings Ltd, Brooklands Holdings Ltd, East Farthing Holdings Ltd, Rabello and Toledo

• Jurisdiction: Cayman Islands
• Judge: (Rix, Martin and Moses, JJ.A.)
• Judgment Date: 02 August 2021
• Court: Court of Appeal (Cayman Islands)

WALKERS (A FIRM)

and

ARNAGE HOLDINGS LIMITED, BROOKLANDS HOLDINGS LIMITED, EAST FARTHING HOLDINGS LIMITED, RABELLO and TOLEDO

(Rix, Martin and Moses, JJ.A.)

Court of Appeal (Cayman Islands)

Civil Procedure — costs — security for costs — foreign personal plaintiff ordinarily resident outside jurisdiction ordered to give security for costs (under GCR O.23, r.1) — if defendant succeeded in proceedings, would be difficult and expensive to enforce costs award against plaintiff in Brazil and real risk enforcement would be impossible because of plaintiff’s bankruptcy in Brazil

Civil Procedure — costs — security for costs — impecunious corporate plaintiffs ordered to give security for costs (under Companies Act (2021 Revision) s.74) in action against law firm for damages for breach of duties — not alleged that security for costs would stifle claim

	Held, ruling as follows:

	(1) In respect of the corporate respondents, the appellant was entitled in principle and in justice to security for costs. There was no allegation that an order for security for costs, even in the large amount requested, would stifle the respondents’ claim. As for the merits of the claim, parties should not attempt to go into the merits unless it could be clearly demonstrated one way or another that there was a high degree of probability of success or failure. As to whether a defendant had caused or contributed to a plaintiff’s impecuniosity, on its own this factor was unlikely to take things much further. On the summary judgment appeal, the question of causation was highly contentious. It could perhaps be said that it was odd or even unjust to permit the appellant, as a fiduciary, to obtain security for costs for the purpose of disputing its liability to its clients for breach of that duty. However, the court had considered that there was considerable uncertainty over the alleged retainer by Ms. Rabello and the other retainers had ended. There was therefore the respondents’ impecuniosity and little else to put into the balance of justice (paras. 31–37).

	(2) In respect of Ms. Rabello, the jurisdiction to order security for costs was not founded on the risk of impecuniosity but, inter alia, on a plaintiff being ordinarily resident out of the jurisdiction. O.23 had to be applied ina way which did not discriminate against foreign personal plaintiffs. The essential question was what additional costs would be caused by the fact that enforcement of a costs award would have to be made outside the Cayman Islands. In the present case the facts were unusual and striking. It was not simply that Ms. Rabello had no known assets in the Cayman Islands or even that there was a real risk that she would be unable to meet a costs order against her out of assets in her country of residence, Brazil. Nor was it merely that there was evidence from a Brazilian lawyer that a delay of up to 10 years and great expense could be anticipated in an attempt to enforce. The position was that Ms. Rabello had been made formally bankrupt in Brazil and all her assets had been taken in that bankruptcy. Nevertheless, she and the other respondents had the wherewithal to conduct extremely expensive legal proceedings over many years. It was reasonably clear that Ms. Rabello was or had at some time been able to find the means to dispose of funds located in several jurisdictions. It appeared that the appellant, if successful in these proceedings, would not merely find it especially difficult and expensive to pursue Ms. Rabello through Brazilian enforcement proceedings, but might suffer the real risk of it being impossible to seek a way through Ms. Rabello’s bankruptcy to obtain any enforcement at all. Therefore there was a real risk that enforcement of a Cayman Islands costs award would be not only delayed but substantially obstructed or ultimately frustrated, even though Ms. Rabello appeared able to draw on assets to support her litigation. It would not be discriminatory or unjust for Ms. Rabello to be liable, alongside the corporate respondents, for security for the costs of these proceedings (paras. 38–43; paras. 51–53).

	(3) When considering the quantum of security, the court took into consideration the length of these proceedings to date (currently seven years); the amount the respondents claimed (some US$490m.); and the fact that the respondents had pleaded among their losses some US$15m. which they alleged they had expended in legal fees in various jurisdictions to deal with the consequences of what they allege to be the appellant’s wrongful conduct. In all the circumstances, security for costs should be given by the corporate respondents and Ms. Rabello in the sum of US$4.25m. (para. 55).

Cases cited:

(1)	Ahmad Hamad Algosaibi & Bros. v. Saad Invs. Co. Ltd., 2016 (2) CILR 208; further proceedings, 2017 (2) CILR 602; further proceedings, November, 16th, 2018, unreported, considered.

(2)	Bestfort Devs. LLP v. Ras Al Khaimah Invs. Auth., [2016] EWCA Civ 1099; [2016] 2 CLC 714, considered.

(3)	Danilina v. Chernukhin, [2018] EWCA Civ 1802; [2019] 1 W.L.R. 758; [2018] 4 Costs LR 859, considered.

(4)	De Beer v. Kanaar & Co., [2001] EWCA Civ 1318; [2003] 1 W.L.R. 38; [2002] 3 All E.R. 1020; [2002] CLC 114; [2002] I.L. Pr. 24; [2001] C.P. Rep. 118, considered.

(5)	Deleclass Shipping Co. Ltd. v. Ingosstrakh Ins. Co. Ltd., [2018] EWHC 1149 (Comm), considered.

(6)	Fernhill Mining Ltd. v. Kier Constr. Ltd., [2000] C.P. Rep. 69; C.A., January 27th, 2000, considered.

(7)	Fine Care Homes Ltd. v. National Westminster Bank plc, [2019] EWHC 3623 (Ch), referred to.

(8)	Gong v. CDH China Mgmt. Co. Ltd., 2011 (1) CILR 57, considered.

(9)	Keary Devs. Ltd v. Tarmac Constr. Ltd., [1995] 3 All E.R. 534, referred to.

(10)	Mastermailer Stationery Ltd. v. Sandison, [2011] EWHC 4304 (Ch), considered.

(11)	Nasser v. United Bank of Kuwait, [2001] EWCA Civ 556; [2002] 1 WL.R. 1868; [2002] 1 All E.R. 401; [2001] C.P. Rep. 105, considered.

(12)	Porzelack K.G. v. Porzelack (U.K.) Ltd., [1987] 1 W.L.R. 420; [1987] 1 All E.R. 1074; [1987] 2 C.M.L.R. 333; [1987] E.C.C. 407; [1987] F.S.R. 353, referred to.

(13)	Sir Lindsay Parkinson & Co. Ltd. v. Triplan Ltd., [1973] Q.B. 609; [1973] 2 All E.R. 273, considered.

(14)	Spy Academy Ltd. v. Sakar Intl. Inc., [2009] EWCA Civ 985, considered.

Legislation construed:

Companies Act (2021 Revision), s.74: The relevant terms of this section are set out at para. 13.

Grand Court Rules, O.23, r.1: The relevant terms of this rule are set out at para. 14.

Civil Procedure Rules, r.25.13: The relevant terms of this rule are set out at para. 41.

	The appellant sought security for costs.

	The first and second respondents were Cayman Islands companies which were owned and controlled by the fourth respondent, Katia Rabello, a member of a prominent Brazilian family. The third respondent was a Cayman Islands company of which the sole shareholder was the fifth respondent, Fernando Toledo, a friend and business associate of the Rabellos. The appellant, Walkers, was a Cayman Islands law firm. The respondents claimed to have been clients of Walkers at various times. They brought proceedings against the appellant for damages for breach of contractual and fiduciary duties of confidence, trust and loyalty and tortious duties of care concerning the disclosure of documents obtained in the Cayman Islands and deployed in litigation in Brazil in alleged breach of retainers between the appellant and the respondents. The litigation in Brazil arose out of attempts to make the Rabello family business empire and Ms. Rabello personally responsible for the losses of another Brazilian business, the Petroforte Group.

	In 2019, the Chief Justice gave summary judgment on liability in favour of the plaintiffs, with damages to be assessed. The appellant’s applications for summary judgment and for security for costs were rejected. The Court of Appeal subsequently reversed the summary judgment, with the result that the respondents’ claim would have to go to trial (that judgment is reported at 2021 (1) CILR 347).

	The appellant appealed against the Chief Justice’s judgment refusing its application for security for costs. (The appellant did not pursue its appealagainst the fifth respondent.) As against the three corporate respondents, the appellant’s application for security for costs relied on s.74 of the Companies Act (2021 Revision). As against Ms. Rabello, the appellant relied on O.23, r.1 of the Grand Court Rules. The appellant claimed security on the grounds that the respondents appeared to be impecunious and that, as regarded Ms. Rabello, it would be much more difficult and costly to enforce a judgment for costs against her in Brazil, even if she had assets, than it would be to enforce against an individual in the Cayman Islands. The appellant claimed security at present in respect of the costs so far expended in the litigation. Costs up to April 30th, 2021 were US$8,490,441.12. The appellant sought security in the sum of two-thirds of that expenditure or such other sum as the court thought fit.

	The respondents accepted that they could not say that the ordering of security would stifle their claim but they submitted that the Chief Justice was right to focus on two matters: (a) the merits of their claim were very strong; and (b) their impecuniosity had been caused by the appellant’s wrongdoing as a fiduciary. In respect of Ms. Rabello, security could only be ordered for the extra costs and difficulties of enforcing in Brazil as compared to the Cayman Islands.

	The appellant submitted that (a) the merits were poised and therefore could not assist either way on the application for security for costs; (b) in the circumstances the allegation that the appellant had caused the respondents’ loss and impecuniosity took the matter no further; and (c) in respect of Ms. Rabello, her impecuniosity was highly relevant...