Cayman Islands: Award Of Costs Against Non-Parties In Proceedings Outside Of Their Control

Last Updated: 22 August 2017
Article by Andrew Pullinger and Hamid Khanbhai

In a novel judgment of Mr Justice McMillan delivered on 1 August 2017, the Grand Court of the Cayman Islands awarded costs against non-parties that did not fund or control the proceedings in issue. The Court also clarified that the costs rule for sanction applications (CWR O.24 r.9) is applicable to an application by a liquidator under sections 103 and/or 138 of the Companies Law.

The judgment, which considers the scope of the non-party costs jurisdiction in the context of a liquidation proceeding, may have unintended implications for creditor participation in liquidation proceedings.


Within the context of the long-running inter partes litigation between Primeo Fund (in Official Liquidation) ("Primeo") and the Bank of Bermuda (Cayman) Ltd et al (the "HSBC Defendants"), the HSBC Defendants urged the joint official liquidators of Primeo (the "JOLs") to exercise their statutory powers under sections 103 and/or 138 of the Companies Law to obtain certain documents relevant to the matters in dispute from Primeo's auditors, Ernst & Young Cayman Ltd ("EY Cayman").

In December 2015, Mr Justice Jones QC made an order in the litigation requiring the JOLs to "request" that EY Cayman conduct searches for certain categories of documents belonging to Primeo, or to which Primeo was otherwise entitled, but which had not been discovered by the JOLs in the litigation. These included certain documents relating to Ernst & Young Luxembourg SA ("EY Lux"), which had carried out the relevant audit 'fieldwork' in respect of Primeo on behalf of EY Cayman.

Within the Primeo liquidation proceedings, the JOLs subsequently made an application under sections 103 and/or 138 against EY Cayman ("EY Cayman Summons") seeking that EY Cayman use its "best endeavours" to obtain certain categories of documents from EY Lux. The JOLs had not been compelled by court order to make the application, although the judge had provided some encouragement to that course being taken.

The EY Cayman Summons was heard by a different judge, Mr Justice McMillan, albeit still within the liquidation proceedings. The HSBC Defendants sought but were refused permission to appear on the EY Cayman Summons as interested parties ("Leave to Appear Summons"). The JOLs did not allow the HSBC Defendants to have any input in the formulation of the EY Cayman Summons, the evidence or the legal argument.

The judge dismissed the EY Cayman Summons, with written reasons in a judgment of 21 November 2016, with the question of costs held over.


Only the JOLs' costs and EY Cayman's costs of the EY Cayman Summons were in issue, the HSBC Defendants having previously agreed to pay the costs of the JOLs and EY Cayman in relation to the unsuccessful Leave to Appear Summons.

JOLs' non-party costs application

The JOLs sought to recover their costs of the EY Cayman Summons from the HSBC Defendants, under the non-party costs jurisdiction, and on the standard basis. As part of that application, the JOLs also sought to displace any liability that Primeo might have for EY Cayman's costs of the EY Cayman Summons onto the HSBC Defendants, as part of the JOLs' "costs".

The key issue was whether the Court should order costs against the HSBC Defendants as a non-party under section 24 of the Judicature Law.

EY Cayman's costs application

EY Cayman applied for its costs of the EY Cayman Summons to be paid out of Primeo's assets on the indemnity basis, under CWR O.24 r.9(4)(a). That rule relates to "costs of sanction applications" and relates to the costs of official liquidators, the liquidation committee, creditors and contributories. The key issue was whether the rule applied at all and, if so, on what basis EY Cayman should get its costs.

EY Cayman did not apply for its costs to be paid by the HSBC Defendants.

Decision: JOLs' non-party costs application

The HSBC Defendants argued that this was not an appropriate case to order costs against a non-party. The usual situation would involve an application for costs against a litigation funder or a director of an insolvent company, in circumstances where there had been unsuccessful litigation brought by an impecunious party unable to meet the costs of the successful defendant.

In Dymocks [2004] 1 WLR 2807, the Privy Council held that "Where... the party not merely funds the proceedings but also substantially controls... them, justice will ordinarily require that, if the proceedings fail, he will pay the successful party's costs"

The JOLs' costs were the costs of the unsuccessful party, not the successful party. The non-party costs jurisdiction had not been used before to allow an unsuccessful applicant to recover its costs from a non-party. That was contrary to the general principle of costs following the event. Moreover, any costs order against the JOLs in favour of EY Cayman could not be "costs" of the JOLs. An order for costs is an indemnity for a party's liability to its own attorney together with expenses incurred. That is the indemnity principle which governs costs. An order for costs did not extend to indemnifying that party from its liability to satisfy an adverse costs award to another party.

Even if the non-party jurisdiction could be considered, the HSBC Defendants argued that they were not the "real party" to the application within the meaning of the case law. The HSBC Defendants did not fund or stand to gain any financial benefit from the substantive application. Nor did they control the JOLs' application by having some management of it: the JOLs had effectively shut out the HSBC Defendants from formulating and participating in the application; they were not the "mere creatures" of the HSBC Defendants. Moreover, the judge had not made any finding of impropriety or bad faith on the part of the HSBC Defendants.

By contrast, the JOLs relied heavily on a decision of the Cayman Islands Court of Appeal in relation to another application made by them under their statutory powers to obtain documents from Primeo's promoter and some of Primeo's former directors in Austria (the "Pioneer Application and Appeal"). On that occasion, the JOLs applied for and obtained an order for a letter of request to issue, after being compelled to do so by an order of Mr Justice Jones QC made on an application by the HSBC Defendants. The order for a letter of request to issue was successfully appealed by an interested party and the HSBC Defendants were ordered to pay their costs.

The HSBC Defendants argued that the Pioneer Application and Appeal was not analogous. On that occasion, the JOLs were compelled by court order to make the application for a letter of request; the HSBC Defendants appeared and made submissions on the application at first instance and on appeal; and the Court of Appeal ordered that the HSBC Defendants pay the costs of the JOLs and the successful appellant not under the non-party costs jurisdiction, but as parties who had appeared and made submissions. The Court of Appeal did not consider the exceptional non-party costs jurisdiction at all.

However, Mr Justice McMillan appears to have been persuaded by the JOLs' reliance on the outcome of the Pioneer Application and Appeal, and ordered that the HSBC Defendants pay (on the standard basis) the JOLs' costs, which were to include the JOLs' costs liability to EY Cayman.

Decision: EY Cayman's costs application

In relation to EY Cayman's application for costs, a question arose whether the costs of the EY Cayman Summons fell within CWR O.24 r.9 ("Costs of sanction applications"). That in turn depended on whether (i) an application under sections 103 and/or 138 of the Companies Law was a sanction application for the purpose of the CWR, even though it is not a power that is set out under Part I of the Third Schedule of the Companies Law as a power exercisable with sanction; and (ii) EY Cayman was a creditor for the purpose of CWR O.24 r.9.

In relation to the meaning of a sanction application, CWR O.11 r.1 provided that it included any application to the Court by an official liquidator "for an order sanctioning his exercise or proposed exercise of any power conferred upon him by Part I of the Third Schedule of the [Companies] Law or otherwise". Although the statutory powers under sections 103 and/or 138 of the Companies Law were not within Part I of the Third Schedule of the Companies Law, the words "or otherwise" in O.11 r.1 broadened the scope of what applications would constitute sanction applications for the purpose of the CWR.

As to the separate issue of whether EY Cayman was a "creditor" for the purpose of CWR O.24 r.9, the judge held that EY Cayman was not a creditor or did not oppose the substantive application in its capacity as creditor. EY Cayman was merely the respondent to the application under section 103 and/or 138 of the Companies Law, resisting an order to obtain and provide documents.

Nevertheless, the judge found that EY Cayman could still avail itself of CWR O.24 r.9(5), which provides that "The Court shall make orders for costs in accordance with these general rules unless it is satisfied that there are exceptional circumstances and special reasons which justify making some other order or no order for costs".

EY Cayman was found to be entitled to its costs from the JOLs on the indemnity basis, albeit that such costs would form part of the JOLs' costs for the purposes of the costs order against the HSBC Defendants.


In relation to EY Cayman's costs application, the judgment clarifies that CWR O.24 r.9 ("Costs of sanction applications") may apply to applications by liquidators for permission to exercise statutory powers under Part V, even if they are not powers specifically set out under Part I of Schedule 3 ("Powers exercisable with sanction").

However, in relation to the JOLs' non-party costs application, the judgment is novel and, in our respectful opinion not entirely welcome, in the following three respects.

First, this appears to be the first time that the non-party costs jurisdiction in the Cayman Islands or in England has ever been used by a losing party to recover its costs from a non-party. That subverts the principle that costs follow the event. The non-party costs jurisdiction is normally relied on by a winning party who seeks his costs from a non-party only because the losing party is impecunious – the non-party might typically be a litigation funder or the director of an insolvent company or a liquidator.

Second, it may encourage non-party costs applications by liquidators in liquidation proceedings against specific creditors for the benefit of the estate as a whole, which may have a chilling effect on creditor participation in liquidation proceedings. In particular:

  • A creditor who appears and opposes a liquidator's application, and is unsuccessful, will not ordinarily face any adverse costs, in the absence of impropriety, misleading the court or adopting a wholly unreasonable position: CWR O.24 r.9(4)(b).
  • By contrast, a creditor who does no more than encourage a liquidator to make an application under the liquidator's statutory powers may now be vulnerable to meet the liquidator's costs of such application if made and unsuccessful, notwithstanding the fact that (i) the liquidator makes the application without compulsion, (ii) the creditor does not exercise any control over the application and (iii) the creditor does not appear on the application.

Third, a person's liability to pay another person's costs has been held to fall within the scope of the first person's "costs". This appears to infringe the indemnity principle which governs costs principles – i.e. that one party may only be ordered to reimburse another party in relation to costs insofar as the party being reimbursed has a liability to pay his attorney for such sums.

We therefore expect that the issues addressed in this judgment are likely to be considered further in due course.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions