Vol 7 (2010) - Issue 1

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GFN SA and Ors v The Liquidators of Bancredit Cayman Limited (in Official Liquidation) [2009] UKPC 39: Security for Costs in Insolvency and Interlocutory Proceedings

A recent Privy Council decision, GFN SA and Ors v The Liquidators of Bancredit Cayman Limited (in Official Liquidation) has reconsidered the question as to whether or not security for costs can be granted in relation to interlocutory applications.

Background

In May 2004, the Grand Court of the Cayman Islands ordered the winding-up of Bancredit Cayman Limited ('Bancredit'). Thereafter, the liquidators adjudicated upon various proofs of debt. They rejected proofs of debt submitted by GFN SA, Artag Meridian Ltd and Caribbean Energy Company (the 'Appellants') and admitted others. The Appellants then applied to the Grand Court for an order reversing the liquidators’ rejection of their proofs of debt and for orders to expunge the admission of certain admitted proofs. The liquidators applied for security for costs of the Appellants’ applications.

The jurisdiction of the Grand Court to make orders for security for costs in this context was set out in Grand Court Rule O.23, r.1 and section 74 of the Companies Law (2004 Revision). The former required that there be ‘an action or other proceedings’ to which the defendant was a party and the latter required that there be an 'action, suit, or other legal proceeding'.

At first instance, the liquidators’ applications for security for costs were dismissed on the ground that the court had no jurisdiction to make an order for security for costs. The Grand Court construed the relevant provisions as being limited to matters in which the court’s jurisdiction was invoked by writ or some other originating process. As the Appellants’ appeals against the rejection of their proofs were ordinary applications filed in Bancredit’s pre-existing liquidation, which was a proceeding in its own right, each appeal against the rejection of proofs was not considered to be an ‘action or other proceedings’ or 'an action, suit, or other legal proceeding' so as to trigger the court’s jurisdiction to award security for costs.

The liquidators appealed the first instance decision. The Court of Appeal of the Cayman Islands upheld the appeal on the jurisdiction issue and remitted the matter to the Grand Court to reconsider the security for costs application on its merits. The Appellants appealed to the Privy Council after being granted special leave to appeal.

Privy Council decision

The Privy Council dismissed the appeal on the ground that the Grand Court had jurisdiction to award security for costs in the circumstances.

Lord Scott, delivering the leading judgment on behalf of the Board, noted that the court retained an inherent jurisdiction to award security for costs but that the exercise of that jurisdiction is subject to the settled practice of the court as set out in the rules of court. His Lordship noted: