Zhongzhi Capital (HK) Company Ltd v Geopay Holding Ltd

• Jurisdiction: Cayman Islands
• Judge: Mrs. Justice Ramsay-Hale
• Judgment Date: 12 March 2021
• Court: Grand Court (Cayman Islands)
• Docket Number: CAUSE NO. FSD 132 OF 2020 (MRHJ)

In the Matter of Section 46 of the Companies Law (2020 Revision)

And in the Matter of the Grand Court Rules 1995, Order 102(2)(1)(B)

And in the Matter of Geopay Holding Limited

Between:

(1) Zhongzhi Capital (HK) Company Limited

(2) Dragon Ocean Development Ltd

Plaintiffs

and

(1) Geopay Holding Limited

(2) Geoswift Holding Limited

Defendants

Coram:

Hon Mrs. Justice Ramsay-Hale

CAUSE NO. FSD 132 OF 2020 (MRHJ)

IN THE GRAND COURT OF THE CAYMAN ISLANDS

FINANCIAL SERVICES DIVISION

Headnote

Costs — claim for costs pursuant to a contractual indemnity pursuant to O.62, r.4 (3) — restriction on indemnity costs in O.62, r.4 (11) — availability of indemnity costs where successful party entitled to costs under a contract — exercise of discretion to deprive a successful party of his costs

CONSIDERED ON THE PAPERS

COSTS RULING

Introduction

1 The substantive judgment in this matter was delivered on 28 October 2020 and an order made in terms of the successful application by the First Plaintiff, Zhongzhi Capital (HK) Company Ltd. (“ZZHK”) for the Register of Members of the First Defendant, Geopay Holding Limited (“Geopay”), to be rectified pursuant to section 46 of the Companies Law (2020) Revision, by including ZZHK as the holder of 6,302 ordinary shares in Geopay in place of the Second Defendant, Geoswift Holdings Limited (“Geoswift”).

2 The Court was satisfied on the facts that ZZHK had a right to be registered as a shareholder of Geopay pursuant to a validly executed share transfer certificate of those shares. Those facts were that the shares had been pledged to ZZHK under a security agreement over shares made between the parties to secure a loan of $64,000,000 from ZZHK to Geoswift to facilitate the acquisition of shares in a third-party company by Geopay. Under the loan agreement, the executed share transfer certificate and divers resolutions and undertakings were delivered to ZZHK by both Geoswift and Geopay to allow ZZHK to enforce its security in the event of default. Subsequent to Geoswift's default on the loan, Geopay, which is controlled by Geoswift, refused to register ZZHK in its register of members in place of Geoswift as agreed, causing ZZHK to issue these proceedings.

3 The claim of the Second Plaintiff, Dragon Ocean Development Ltd (“Dragon”) to be registered in place of Geoswift in Geopay's Register of Members was dismissed.

4 The facts are that Dragon was seeking to enforce the rights of a related lender, ZZCI Corporate Services Ltd (“ZZCI”), which had also lent money to Geoswift on the same terms and for the same purpose. Subsequent to Geoswift's default, ZZCI assigned its rights under the loan agreement and the share pledge agreement to Dragon by a Deed of Assignment dated 7 September 2017. The Court dismissed Dragon's claim, holding that it was not entitled to an order for rectification in the circumstances where the share transfer certificate, on which it sought to rely, transferred the pledged shares from Geoswift to ZZCI.

5 In a draft order that the Plaintiffs put before the Court, which had been shared with the attorneys for Geoswift in advance, the Plaintiffs proposed that Geoswift should pay 75% of the Plaintiffs' costs to be taxed on the standard basis if not agreed. At the hand-down hearing, Geoswift asked for time to seek to agree costs. The Plaintiffs submitted that the Court should make an order for costs there and then but ultimately did not resist Geoswift's request and the following order was made in respect of costs:

“5. Costs reserved. The parties shall endeavour to agree on costs and, in the absence of agreement, the parties shall submit written submissions on costs within 7 days of the date of this Order”.

6 No agreement was reached and written submissions on costs were submitted to the Court.

The Plaintiffs' Position

7 The offer that Geoswift should pay 75% of their costs being rejected, the Plaintiffs now first seek an order that Geoswift should pay all of their costs pursuant to their contractual rights to that effect but, if that application is rejected, they seek an order in terms of their original offer.

Costs under the contract

8 Mr. Clifford seeks contractual costs pursuant to O.62, r.4 (3) which provides that:

“A person who claims to be entitled pursuant to a contract to recover the legal fees and expenses incurred in enforcing that contract shall be entitled to judgment for the amount found due under the contract and such amount shall not be subject to taxation pursuant to this Order”.

9 Mr. Clifford submits that, pursuant to divers clauses in the finance documents, Geoswift is contractually bound to pay ZZHK its untaxed costs of the proceedings (including the costs of preparing these written submissions), as the costs were incurred by ZZHK in connection with the enforcement of its rights under the finance documents.

10 Among the clauses to which he has referred the Court as conferring this contractual right to costs is Clause 11.3 of the ZZHK Loan Agreement which provides as follows:

“The Borrower shall promptly indemnify the Lender and every Receiver and Delegate against any costs, loss or liability incurred by any of them (acting reasonably) as a result of…

(d) any failure by the Borrower to comply with its obligations under clause 13 (Costs and expenses);

(e) taking, holding, protection or enforcement of the Transaction Security;”

11 Clause 13.3 of the same agreement provides:

“13.3 Enforcement and preservation costs

The Borrower shall, within three Business Days of demand, pay to each Secured Party the amount of all costs and expenses (including legal fees) incurred by that Secured Party in connection with the enforcement of, or the preservation of any rights under, any Finance Document or the Transaction Security and with any proceedings instituted by or against that Secured Party as a consequence of it entering into a Finance Document or taking or holding the Transaction Security, or enforcing those rights”.

12 Mr. Clifford has also drawn the Court's attention to the provisions of the Share Charge including clause 17.1 which he submits give ZZHK a contractual right to its costs of the proceedings. Clause 17.1 states as follows:

“The Chargor shall, within three Business Days of demand, pay to the Chargee the amount of all costs, losses, liabilities and expenses (including legal fees) incurred by the Chargee or any Receiver in relation to any Finance Document (including the administration, protection, realisation, enforcement or preservation of any rights under or in connection with this Deed, or any consideration by the Chargee as to whether to realise or enforce the same…).”

13 In his submissions on costs on behalf of Dragon, Mr. Clifford relies on clauses in the ZZCI finance documents which are substantially in the same terms as those in the ZZHK finance documents. He contends that, although Dragon was not successful in its application, Dragon is nonetheless entitled to its costs and expenses incurred in seeking to enforce the Share Charge Agreement pursuant to GCR O.62 r.4(3).

14 He says further that, in the circumstances where the Court has no power to tax the costs incurred by the Plaintiffs as they are a matter of contract, it would be in the interests of both parties to agree contractual costs, if those costs are ordered by the Court.

15 If the costs cannot be agreed, then he invites the Court to insert a provision within the Order that the Plaintiffs have liberty to apply so that the costs incurred by the Plaintiffs, which Geoswift is contractually bound to pay, can be determined in these proceedings.

Costs in the discretion of the Court

16 Alternatively, Mr. Clifford invites the Court to award the Plaintiffs 75% of their costs in the exercise of its jurisdiction to award costs. Counsel submits that such an order would substantially reflect the principle in the Rules that a successful party is ordinarily entitled to his costs.

17 In making this submission he relies on GCR O.62 r.4 which states, inter alia:

• “(2) The overriding objective of this Order is that a successful party to any proceeding should recover from the opposing party the reasonable costs incurred by him in conducting that proceeding in an economical, expeditious and proper manner unless otherwise ordered by the Court.

• …

• …

• “(5) If the Court in the exercise of its discretion sees fit to make any order as to the costs of any proceedings, the Court shall order the costs to follow the event, except when it appears to the Court that in the circumstances of the case some other order should be made as to the whole or any part of the costs.

• “(6) The amount of the costs which a successful party shall be entitled to recover from any other party is —

  the fixed costs prescribed in rule 7;

  the amount assessed by the Judge in accordance with rule 8;

  the amount allowed after taxation on the standard basis; or

  the amount allowed after taxation on the indemnity basis.

• “(7) The orders which the court may make under this rule include an order that a party must pay—

  (a) a proportion of another party's costs;…”

18 Mr. Clifford submits further that such an order would award Dragon a proportion of its costs if that was the effect of the Order. He says further that, if the effect of the Order is that Geoswift pays any of Dragon's costs — and he does not suggest that this will indeed be the effect of the Order — then such an Order is permissible pursuant to GCR O.62 r. 4(7) which provides that the Court may make an order that a party pay a proportion of another party's costs.

19 He also submits that the Court is entitled to refuse to order Dragon to pay Geoswift's costs in order to achieve the overall costs order that the Plaintiffs seek, in the event that their application for contractual costs is rejected.

20 In support of his proposition that Geoswift pay 75% of the...