GFN SA and Others v The Liquidators of Bancredit Cayman Ltd
| Jurisdiction | UK Non-devolved |
| Judge | LORD SCOTT |
| Judgment Date | 04 November 2009 |
| Neutral Citation | [2009] UKPC 39 |
| Court | Privy Council |
| Docket Number | Appeal No 0014 of 2009 |
| Date | 04 November 2009 |
[2009] UKPC 39
Lord Scott
Lord Rodger
Lady Hale
Lord Neuberger
Sir Jonathan Parker
Privy Council
Appellant
Thomas Lowe QC
Cherry Bridges
(Instructed by Glovers LLP)
Respondent
Michael Crystal QC
Matthew Crawford
(Instructed by Lawrence Graham LLP)
On 31 May 2004 a winding-up order was made against Bancredit Cayman Ltd by the Grand Court of the Cayman Islands. Mr James Cleaver and Mr Richard Fogerty of Ernst & Young were appointed joint official liquidators. They are the respondents to this appeal.
The liquidators received and adjudicated upon a number of proofs of debt. These included
(i) proofs of debt dated 24 May 2005 and 7 August 2006 from GFN S.A.("GFN") and Artag Meridian Ltd ("Artag") as alternative claimants for US$168,700,000;
(ii) a proof of debt dated 30 October 2006 from GFN and Artag as alternative claimants for US$43,831,576 or, alternatively, US$30,984,486;
(iii) a proof of debt dated 18 April 2006 from Banco Leon S.A. for US$76,341,609;
(iv) a proof of debt dated 20 August 2004 from the Central Bank of the Dominican Republic for US$30,972,809; and
(v) a proof of debt dated 3 August 2004 from Caribbean Energy Co. Ltd ("CAREC") for US$41,613,810 odd.
GFN, Artag and CAREC are the appellants in this appeal. The proofs that had been submitted by them were rejected by the liquidators. The proofs that had been submitted by Banco Leon and by the Central Bank of the Dominican Republic were admitted by the liquidators.
Pursuant to Insolvency Rule 4.83 each of the appellants applied to the Grand Court by summons for an order reversing the rejection by the liquidators of their respective proofs of debt and, pursuant to Insolvency Rule 4.85, they each applied to the Grand Court by summons for orders expunging the liquidators' admission of the proofs of debt of Banco Leon and the Central Bank.
The liquidators, by summonses dated 1 December 2006 and 28 December 2006, applied for orders requiring the appellants to provide security for their (the liquidators') costs of these applications. The security for costs applications were made on the grounds that each of the appellants was ordinarily resident out of the jurisdiction and had no substantial property within the jurisdiction.
On 13 March 2007 the Grand Court dismissed the liquidators' security for costs applications on the ground that the court had no jurisdiction to grant them. However on 23 January 2008 the Court of Appeal of the Cayman Islands reversed the Grand Court's decision on the jurisdiction issue and remitted the matter for the Grand Court to consider the security for costs applications on their merits. This appeal to the Privy Council is an appeal on the jurisdiction issue.
The power for the Cayman Islands courts to make orders for security for costs is dealt with in section 74 of the Companies Law (2004 Revision), the text of which substantially follows section 24 of the Joint Stock Companies Act 1857, and in Order 23 Rule 1 of the Grand Court Rules of Court 1995 (2003 rev). Section 74 provides that
"Where a company is plaintiff in any action, suit, or other legal proceeding, any Judge having jurisdiction in the matter, if he is satisfied that there is reason to believe that if the defendant is successful in his defence the assets of the company will be insufficient to pay his costs, may require sufficient security to be given for such costs and may stay all proceedings until such security is given" (emphasis added).
Section 74 in the 2004 Revision, the applicable Revision when these proceedings were commenced, has been re-enacted, with an identical text, as section 74 of the Companies Law (2007 Revision). Order 23 Rule 1 provides that
"(1) Where, on an application of a defendant to an action or other proceedings it appears to the Court –
(a) that the plaintiff is ordinarily resident out of the jurisdiction
(b) …………
(c) …………
(d) ………….
then if, having regard to all the circumstances of the case, the Court thinks it just to do so, it may order the plaintiff to give such security for the defendant's costs of the action or other proceedings as it thinks just.
……
(4) The references in the foregoing paragraphs to a plaintiff and a defendant shall be construed as references to the person (howsoever described on the record) who is in the position of plaintiff or defendant, as the case may be, in the proceedings in question, including a proceeding on a counterclaim" (emphasis added).
The appellants, in paragraph 2 of their printed Case, have described the issue in the appeal as being
".. whether an application to the Court by a creditor in a compulsory winding up by the Court, challenging a decision of a liquidator (colloquially known as a 'proof of debt appeal') or an application to expunge an admitted proof, is a 'proceeding' in respect of which there is jurisdiction to order the creditor to pay security for the costs of those applications".
They submit that such applications cannot be "proceedings" within the meaning of section 74 or Order 23 Rule 1.
It seems to their Lordships clear from the case law dealing with security for costs issues that the court has an inherent jurisdiction to make security for costs orders but that the exercise of that jurisdiction is subject to what has become the settled practice of the court. For example, the rule that an order for security for costs will not be made against a defendant was part of that settled practice. The rule that such an order will not be made against an impecunious plaintiff was also part of that settled practice but was varied by statute in the case of impecunious corporate plaintiffs by section 24 of the 1857 Act, the statutory predecessor of section 74 of the Companies Act. Order 23 Rule 1, like its predecessors, specifies particular circumstances in which the court may entertain an application for security for costs. The Rules of Court did not create or confer the power to do so but, rather, harnessed the power so as to control its exercise.
In C.T. Bowring & Co (Insurance) Ltd v Corsi Partners Ltd [1994] 2 Lloyd's Rep 567 Dillon LJ, when considering the courts' power to make security for costs orders at the time when section 24 of the 1857 Act was enacted, referred at 570 to
"… the general rule of practice that a party who desires to litigate a claim shall not be prevented by the Court from doing so, at any rate at first instance, on the grounds of his poverty …" (emphasis added)
This was a recognition of an inherent jurisdiction in the court to make security for costs orders and to rules of practice, established by case law, as to circumstances in which that jurisdiction could properly be exercised. This reading is re-enforced by Dillon LJ's remark at 571, when considering the effect of the then Order 23(1) of the Rules of the Supreme Court (in the same terms essentially as the Cayman Islands, Order 23 Rule 1), that
"To add a new category, not covered by any enactment, to those listed in r.1(1) in which a plaintiff can be ordered to give security would now be a matter for the Rules Committee, and not for the discretion, as a matter of inherent jurisdiction, of the individual Judge in the individual case."
Millett LJ, to the same effect at 576 said that
"…. by enacting s.24 of the [1857] Act Parliament was extending the existing power of the Court under its inherent jurisdiction to order security for costs by adding an additional circumstance in which it could be exercised. It was well settled long before 1857 that the Court would not order security for costs against a plaintiff who was resident within the jurisdiction merely because he was impecunious and unlikely to be able to meet an order for costs made against him. Henceforth that would be a ground for ordering security for costs against a plaintiff which was a company incorporated in the United Kingdom with limited liability."
Millett LJ, if their Lordships may respectfully say so, chose his words in the cited passage with care. Section 24 of the 1857 Act did not extend the courts' inherent jurisdiction to make security for costs orders. On the contrary, what it did was to make inroads into the rule of practice, to which Dillon LJ had referred, that had previously prevented the court from ordering security for costs to be given by an impecunious corporate plaintiff. The section thereby extended the circumstances in which the Court could properly order security for costs to be given. At 579 Millett LJ referred to the rule that a defendant would not be ordered to give security for costs as "a settled practice of the Court for over 200 years … made explicit by the terms of s.726 [of the Companies Act 1985] and [Order] 23". In adding that the practice "must now be regarded as going to … jurisdiction" the learned Lord Justice should not be taken to be referring to jurisdiction in its strict sense but rather to the limits on the exercise of jurisdiction that had become established by the "settled practice" of the court.
The third member of the Court of Appeal in the Bowring case was Sir Michael Kerr. He agreed with his learned colleagues that the application for security for costs against the defendant who, pursuant to an undertaking in damages that had been given to the court on the grant of a Mareva injunction, was seeking an inquiry as to the damage caused to it by the injunction, was not franked by section 726 or by Order 23. But he went on to consider the power of the court nonetheless to make an order for security for costs and did so in terms that made clear his opinion that the court possessed an inherent jurisdiction, independent of section 726 or Order 23, to make...
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