Cayman Islands: How Much Is Too Much?: Security For Costs Against Non-Resident Plaintiffs

Last Updated: 31 October 2017
Article by Ian Lambert and Mark Russell

A non-resident plaintiff in the Cayman Islands may be required by the Court to post security for a potential adverse costs award in favour of the defendant. But does the exercise of this judicial power impugn constitutional principles prohibiting discrimination on grounds of nationality? And if so, how should the Court interpret and apply the security for costs rules? In a 19 October 2017 judgment given in the long-running AHAB v Saad litigation, Chief Justice Smellie considered these questions in light of recent Cayman and English case law, and clarified the test defendants must meet to be awarded "full security" rather than just the additional costs of enforcement in a foreign jurisdiction.

The plaintiff, AHAB, is a Saudi Arabian partnership. The trial of its fraud, conspiracy and knowing receipt claims against a group of Cayman companies in liquidation commenced on 18 July 2016 and was originally expected to conclude in February 2017. Ultimately, the trial did not conclude until 27 July 2017. The defendants applied for additional security for costs to account for the unanticipated extension of trial. Although the previous security for costs orders made against the plaintiff proceeded on the basis that the defendants were entitled to security for the full amount of their potentially recoverable costs, on this application the plaintiff took the position that only an amount to secure the additional costs of enforcing a costs award in Saudi Arabia was warranted. The main argument focused on what evidential burden the defendants had to overcome in order for the Court to award full security.

The Court found that:

  • Section 16 of the Bill of Rights prohibits the government from treating any person in a discriminatory manner on grounds of domicile or nationality with respect to the right to a fair trial guaranteed in section 7 of the Bill of Rights. Because the security for costs regime set out in the Grand Court Rules is promulgated by a government organ and the Court is a creature of the Constitution, the Court must exercise its jurisdiction to award security for costs in a manner consistent with the non-discrimination requirements.
  • The non-discrimination and fair trial principles set out in the Bill of Rights require that security for costs orders cannot be made merely because a plaintiff is a non-resident.
  • To justify an award of full security, a defendant must adduce evidence that there is a real risk that enforcement in the plaintiff's home jurisdiction might fail because of difficulties or obstacles to enforcement. Those difficulties or obstacles must be shown to exist on objectively justified grounds. This does not require a defendant to show that enforcement will be impossible or that insurmountable hurdles to enforcement exist, but simply that the difficulties or burdens likely to be encountered objectively render enforcement problematic in the foreign jurisdiction.
  • Where a defendant cannot show that a real risk of unenforceability exists, it may still be entitled to security for costs based on the anticipated additional costs that would be incurred to enforce a costs award in the applicable foreign jurisdiction.
  • On the evidence adduced by the defendants, there existed a real risk that efforts to enforce a costs award in Saudi Arabia will fail. The Court cited, among other factors, uncertainties over Saudi Arabian recognition of a Cayman Islands judgment and AHAB's stated intent to oppose enforcement in Saudi Arabia. Accordingly, the defendants were entitled to a security for costs order covering for the full amount of potentially recoverable costs, as determined by the Court.

The decision is a confirmation of a recent line of Cayman cases on the applicability of the non-discrimination obligations to security for costs orders, including Elliott v CI Health Service Authority, 2007 CILR 163, Gong v CDH China Management, 2011 (1) CILR 57, Dyxnet Holdings Limited v Current Ventures II Limited, 2015 (1) CILR 174 and Locke v CWM Limited (Grand Ct, 7 April 2017, Unreported). There can now be no doubt about how a Cayman Islands court should approach a security for costs application based on the non-residency of the plaintiff.

Practically, the application of these principles will mean that defendants facing claims from plaintiffs resident in jurisdictions with familiar and predictable private international law rules like the United Kingdom, the United States, Canada and Australia will generally only be entitled to security for costs awards for the additional costs of enforcement. States or jurisdictions with a different legal tradition or lacking an established practice of recognizing foreign judgments will continue to raise issues that may justify awards of full security. Defendants with concerns about enforcement in a plaintiff's home jurisdiction should adduce evidence clearly describing the potential obstacles and difficulties in enforcement. Where the obstacles arise from foreign law or practice, expert evidence on the foreign law should ideally be produced.

It is worthwhile to note that different considerations will apply in proceedings brought by an impecunious foreign plaintiff company. The Cayman Islands Court of Appeal has found that the court has an inherent power to make security for costs orders against a foreign company in the same way it does against a local company under section 74 of the Companies Law. The jurisdiction under that provision is exercisable when it appears that the assets of the plaintiff company will be insufficient to pay the costs of a successful defendant. As these rules apply to both resident and non-resident companies – unlike the security for costs rules considered in AHAB v Saad – the same discrimination concerns do not arise and awards of full security would seem to be justified even where the ability to enforce a costs award in the foreign jurisdiction is not in doubt. It will be interesting to see whether and how the law and practice on the section 74 power will intertwine with the principles discussed in AHAB v Saad.

HSM Chambers represents the joint official liquidators of six of the defendant companies in AHAB v Saad.

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.

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