Security for Costs – Costs Recovery Protection for Litigants in the Cayman Islands

In Cayman Islands litigation the general rule is that costs "follow the event". In other words, the losing party is obligated to pay not only their own legal costs, but a portion of the costs of the successful party as well. The portion of the successful party's costs that is payable is determined by way of taxation, conducted based on the type of costs order awarded to the successful litigant by the court. Taxation on an indemnity basis would result in the successful party being entitled to 100% of their recoverable costs, whilst a standard taxation would normally lead to a recovery by the successful party of approximately 60-70% of their costs.

Therefore, a defendant to legal proceedings in the Cayman Islands may need to expend substantial resources in defending a claim brought against them but, if they are ultimately successful, they would be entitled to recover a significant portion of those costs from the plaintiff. However, if there is reason to believe that a plaintiff will be unable to satisfy an adverse costs award, the defendant is left in the unenviable position of being required to pay to defend a claim with little to no prospect of costs recovery.

A security for costs order can provide defendants (including counterclaim defendants) with some comfort in such a situation. However, there is no guarantee that security for costs will be awarded to either party in any given case.

Whether, how much, and in what form security is awarded is entirely at the discretion of the court based on the facts and circumstances of the particular case at bar. The Cayman Islands Grand Court (the "Court") is most concerned with ensuring the promotion of justice between litigants when considering whether or not to exercise its jurisdiction to make a security for costs order in the defendant's favour.

Commercial Litigation

Order 23, rule 1 of the Grand Court Rules (GCR) provides that where one of the stipulated preconditions (or jurisdictional thresholds) is met, the Court may in its discretion, and having regard to all of the circumstances of the case, order the plaintiff to give such security for the defendant's costs of the action or other proceedings as it thinks just.

The most commonly relevant jurisdictional threshold is that the plaintiff is ordinarily resident outside of the jurisdiction. Importantly, there is no presumption that the Court will ordinarily require a foreign plaintiff to give security for costs; rather the Court's discretion will be exercised on a case-by-case basis (Re Cybervest Fund [2006 CILR 80], per Smellie CJ at [23]).

Just in the circumstances

The relevant circumstances, and the respective weight given to them by the Court, will turn on the particular facts of any given case. Issues previously identified by the Court as being important in an assessment of whether it is "just" for a security for costs order to be made, include the following.

Assets of the plaintiff

The Court will often look at the extent to which the plaintiff provides information about the nature, value and location of assets that could potentially be enforced against when determining whether to order security for costs (In the Matter of Jafar v Abraaj Holdings and others, Justice Segal, Unreported, 10 August 2021).

Obstacles to enforcement

The Court would need to be satisfied that if a costs order is made against the plaintiff, enforcement of that order would not be an unduly onerous process for the defendant. In this regard, the Court will first consider whether the plaintiff has substantial assets within the jurisdiction to satisfy a costs award. Security will not normally be awarded against a foreign plaintiff with substantial assets in the jurisdiction. If there is no evidence that substantial assets are available in the jurisdiction, the Court will then consider how difficult it would be for the defendants to enforce the award in the relevant foreign country and, in particular, whether there is a real and serious risk that the defendant would ultimately not be able to enforce the award (Kuwait Ports Authority and ors v Port Link GP Ltd and ors (Unreported, Justice Parker, 25 November 2021)).

Balance of prejudice

The key question here would be whether it would be more prejudicial to the plaintiff if a security for costs order were made, than it would be to the defendant if no security was granted. This consideration also informs the quantum of security awarded (In the Matter of Jafar v Abraaj Holdings and others, Justice Segal, Unreported, 10 August 2021).

Potential for stifling the claim

Here the Court will look at whether the plaintiff is unable to afford a security for costs payment such that making the order would stifle or inhibit the conduct of the proceedings. It is incumbent on a plaintiff that raises this argument in opposition to the application to establish in the evidence that a security for costs order would stifle its claim (Sir Lindsay Parkinson & Co Ltd v Triplan Ltd [1973] QB 609 as applied in In the Matter of Jafar v Abraaj Holdings and others, Justice Segal, Unreported, 10 August 2021).

Alternative protections/security

It may be that instead of a security for costs order, the plaintiff could feasibly provide comfort to the defendant by entering into a contractual undertaking for the settlement of a costs order. A key factor in whether this type of arrangement would be appropriate, and provide "good security" is the ease of enforceability of the proposed undertaking or contractual arrangement (Caribbean Islands Developments Limited v First Caribbean International Bank [2014 (2) CILR 220]).

Merits of the claim

The Court will have regard to the relative strength and weakness of each party's case when determining whether or not to make an award for security, but it will not undertake a detailed assessment of the merits of the claim unless it can clearly be demonstrated that there is a high probability of success or failure as regards the plaintiff's case (Chernukhin and others v Danilina [2018] EWCA Civ 1802).

Affiliation with a foreign state

Connection of the plaintiff to "a foreign state or foreign state agency that enjoys good standing in the international community" has been held to be a factor indicating that the plaintiff would be able, and indeed incentivised by comity, to honour its obligations if a costs award is made against it (Kuwait Ports Authority and ors v Port Link GP Ltd and ors (Unreported, Cayman Islands Court of Appeal (CICA), 20 January 2023)).

The above is by no means an exhaustive list of potentially relevant factors in the exercise of the Court's discretion but provides a roadmap to the Court's analysis when determining whether or not to award security to a defendant.

Insolvency Litigation

In the context of insolvency litigation, security for costs applications are generally made in circumstances where claims are brought on behalf of or against a company in liquidation. As a matter of law, liquidators are entitled to bring proceedings on behalf of an insolvent company to recover losses incurred by that company before the commencement of the liquidation.

The jurisdiction for security for costs in a liquidation context is found in Section 74 of the Companies Act (as revised) (Companies Act). That provision states that where a company is the plaintiff and the defendant has reason to believe that the assets of the company will be insufficient to pay the defendant's costs, the Court may require sufficient security to be given by the company for those costs. As in the case of commercial litigation, the Court's power to order security under Section 74 is discretionary and will be exercised in light of all of the relevant circumstances of the matter.

As the Cayman Islands Bill of Rights prohibits discrimination on the grounds of, among other things, national origin, the Court is required to avoid discriminatory treatment in the application of Section 74. Accordingly, notwithstanding that the Companies Act defines a "company" as a company registered in the Cayman Islands, Section 74 has been held to apply to foreign (petitioner) companies as well as Cayman companies (In the Matter of Dyxnet Holdings Limited (Cayman Islands Court of Appeal, 20 February 2015)).


The threshold consideration in applying Section 74 is whether or not there is reason to believe that the corporate plaintiff would be unable to satisfy an adverse costs award made against it. At this initial stage of the assessment, the Court will evaluate whether there is a real risk that the defendant's costs will not be paid were they to successfully defend the claim against them.

In this regard, the fact that the plaintiff company is the subject of an insolvent liquidation is important, but not determinative. That the plaintiff company is in insolvent liquidation is prima facie evidence that it would be unable to satisfy an adverse costs order. However, it is possible for the liquidator bringing the claim to illustrate to the Court that the company does, or will, have the ability to satisfy an adverse costs order awarded against it (with reference to detailed evidence on the financial state of the company). It should be borne in mind that the Cayman Islands test for insolvency is the cash-flow test. Consequently, a company could theoretically be balance sheet solvent but, insolvent as a matter of Cayman law because it is unable to pay its debts as they fall due. In such instances, the Court may well be persuaded that the Company's illiquid assets are sufficient to negate the need for a security for costs award.

It is trite that impecuniosity is only the first stage of the security for costs analysis in the insolvency context. If satisfied as to the company's impecuniosity, the Court has discretion as to whether to order security for costs in light of all the circumstances of the case (Traded Life Policies Fund and anor v Jeremy Leach et al, (Unreported, CICA, 21 December 2021). If this were not so, claims brought by liquidators on behalf of insolvent companies would almost always be stifled by security for costs orders on the grounds of impecuniosity.

Exercise of discretion

GCR Order 23 does not apply in the context of a liquidation but, as might be expected, once the Court has found that the plaintiff company is impecunious, similar considerations apply when determining whether a security for costs order should be made.

These include, but are not limited to, the following, which were set out in the English case of Sir Lindsay Parkinson & Co. Ltd. V Triplan Ltd. (1973 Q.B. 609) and applied by the Court in Traded Life Policies Fund and anor v Jeremy Leach et al (Unreported, Justice Richards, 19 January 2021):

A balancing exercise

This includes, on the one hand, weighing up the injustice to the plaintiff if it is prevented from pursuing a proper claim, and on the other hand, the injustice to the defendant if the claim fails and the defendant is unable to recover its costs. The Court will be concerned that security for costs is not used as an instrument of oppression whereby a genuine claim is stifled, or a weapon whereby an impecunious company can put pressure on a more prosperous company.

Prospects of success

The strength of the Plaintiff's claim will be considered but this, generally, will not include a detailed analysis of the merits of the claim.

Stifling the claim

Before refusing an application for security for costs on the grounds that granting the relief would stifle the plaintiff's claim, the plaintiff must satisfy the Court that it is probable, in all the circumstances, that the claim would in fact be stifled if a security for costs order were made. In this regard, the Court will explore whether the plaintiff company might be able to raise money to pay security from another source.


The Court will consider the lateness of the application for security for costs in determining whether the relief should be granted.


Insolvency litigation often involves liquidators advancing breach of duty claims against former directors of an insolvent company to recover losses incurred by the company as a result of those directors' conduct. It would be patently unjust for the defendant directors to use the fact that the plaintiff is impecunious to demand payment of security in circumstances where the company's financial state is alleged to be a direct result of the actions of the defendant directors. Insolvent plaintiff companies often make this argument when defending against a security for costs application brought by a company's former service providers.

The Court has historically found it challenging to make a finding with respect to causation of the plaintiff's impecuniosity without making a determination as to the merits of the claim and by extension, the liability of the defendant, which are matters that should be reserved for trial. Generally, where the Court has found it difficult to separate causation and liability, it has given more weight to the impecuniosity argument of the defendant. The result of this has been that security for costs is generally granted in favour of the defendant directors in order to avoid a causation analysis that could lead to an inappropriate assessment on the merits of the claim, at an interlocutory stage of the proceedings.

However, the Cayman Islands Court of Appeal in Traded Life (Unreported, CICA, 21 December 2021) has helpfully clarified that it is possible to distinguish responsibility (causation) from liability of the defendants. Depending on the facts of the case, it is open to the Court to determine that security for costs should be refused because the defendant caused the impecuniosity of the claimant, without there being any "prejudgment of the substantive issues raised in the proceedings".


Once the Court has determined that an Order for security for costs should be made, the next question is, naturally – how much?

The Court recently confirmed in the case of Abdulhameed Dhia Jafar v Abraaj Holdings (In official liquidation) and ors (Unreported, Justice Segal, 2 October 2023) that it has a discretion to award security in an amount which it considers just, having regard to all the circumstances of the case. The appropriate amount will generally be the sum which the Court considers, having reviewed the evidence, the defendant applicant would be likely to recover following a detailed costs assessment on the standard basis. Taxation on the standard basis allows for the recovery of costs that were reasonably incurred and proportionate having regard to (i) the amount of money involved (value of the claim); (ii) the importance of the case; and (iii) the complexity of the issues.

The objective of the Court when determining quantum is to arrive at "a fair and realistic but not necessarily precise or generous" estimate of costs recoverable on a standard taxation. To enable the Court to arrive at this estimate, the applicant for security must provide sufficient detail regarding the anticipated total costs in respect of which security is sought (whether those costs have already been incurred, or are estimates of costs yet to be incurred).

The Court has also indicated that, as it is likely that the full amount claimed by the defendant will not be recovered on taxation, a discount will normally be applied. There is no "hard and fast rule", but the discount applied will depend on the view that the Court forms as to the categories of work and associated time costs as set out by the applicant in their evidence. The extent to which the costs identified are likely to be discounted on taxation will also inform the level of discount.

Applicants can be given liberty to apply for further security to provide additional protection as the litigation develops.

Form of Security

Where an Order for security for costs is made, the manner in which security shall be given will be directed by the Court. The Court has found that the key consideration in deciding what form of security is appropriate is whether what is proposed does in fact provide "real security" to the defendant.

The usual form the security takes is a cash deposit into an escrow account under the control of the Court, but another form of security may be acceptable if it amounts to "real" security. In this regard, the Court in the case of Caribbean Islands Development Ltd v First Caribbean International Bank ([2014] (2) CILR 220) explained that, outside of a payment into Court, real security is "a promise which would in all likelihood be honoured, given [by] an entity with the wherewithal to pay and against whom enforcement can be readily obtained; in short, if given [by] a truly creditworthy entity".

In determining whether the proposed security would be real security, the Court will consider whether the security is offered from an entity in the jurisdiction, and/or is to be enforced against assets available in the jurisdiction.


It is clear that the Court has been, and will continue to be, flexible in the exercise of its inherent discretion to order security for the defendant's costs of defending litigation in the Cayman Islands. Impecuniosity of the plaintiff is only one of several considerations in the Court's analysis. The primary objective is to do justice between the litigants in applying the principles that have been established by precedent.

Given the approach adopted by the Court in this area, security for costs can operate as a form of insurance for defendants who consider that they have a good chance of defeating the claim brought against them. At the same time, the Court is clearly concerned to ensure that vulnerable plaintiffs with valid claims are not prohibited from pursuing those claims simply because they are unable to establish, often at the outset of the litigation, an ability to satisfy what might ultimately be a substantial adverse costs order.

In our view, the Court should be slow to award security for costs against a plaintiff liquidator of an insolvent company. It should always be borne in mind that Cayman Islands liquidators are first and foremost officers of the Court. As such, they owe a duty to the Court to exercise their own discretion judiciously when electing whether or not to bring claims on behalf of an insolvent company. In our experience, that decision to exercise their discretion to bring claims on behalf of a company will not be made lightly and, usually, is made with the benefit of legal advice. Bad actors should not be able to avail themselves of the ability to stifle a proper claim with reasonable prospects of success, purely by virtue of the plaintiff's insolvency.

Originally pulished by Chambers and Partners Global Practice Guide 2024

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.