Vol 12 (2015) - Issue 4

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Security for Costs in the Cayman Islands: A Purposive Approach to Filling a Legislative Lacuna

Introduction
It is a widely recognised principle in common law jurisdictions that an award for security for costs may be made against an impecunious plaintiff in certain circumstances in order to avoid injustice being caused to a party defending litigation proceedings with no prospect of recovering its costs, even if ultimately successful. Further, in the context of winding-up proceedings, established authority provides that whenever a person resident abroad comes forward as an actor in a winding-up, whether voluntary, or under supervision, or by the Court, the ordinary rule as to security for costs applies.1
Following the introduction of the Companies Winding Up Rules 2008 (the 'CWR') in March 2009 and two subsequent first instance decisions of the Grand Court of the Cayman Islands, there appeared to be some uncertainty regarding the scope and applicability of the security for costs rule in Cayman Islands’ winding up proceedings. However, two recent decisions of the Cayman Islands’ Court of Appeal have provided useful clarification of the availability of such relief in winding up proceedings, as well as affirming the court’s ability to look to the practice and procedures of other jurisdictions for the purpose of invoking an inherent jurisdiction to make an order for security for costs.

Security for costs in Cayman Islands’ winding up proceedings: an overview
Section 74 of the Cayman Islands’ Companies Law (2013 Revision) (the 'Companies Law') provides the court with a statutory power to make an order requiring an impecunious company to provide security for the costs of litigation. However, the definition of 'company' contained in the Companies Law refers only to a company formed and registered under the Companies Law or an 'existing company' (being a company which, prior to 1 December 1961, had been incorporated and its memorandum of association recorded in the Cayman Islands pursuant to the laws relating to companies then in force). Section 74 therefore has no application to foreign registered companies.
Order 23 of the Cayman Islands Grand Court Rules (the 'GCR') also provides for security for costs to be provided by a foreign plaintiff in litigation proceedings. However, this rule has no application to winding up proceedings commenced in the Cayman Islands, which are governed largely by the provisions of the CWR.2
Prior to the introduction of the CWR in March 2009, insolvency procedures in the Cayman Islands were governed through the application of the UK’s Insolvency Rules 1986 (the 'Insolvency Rules') insofar as such rules were not inconsistent with Cayman Islands’ law. In particular, GCR Order 102, rule 17 provided that in the absence of any rules made under the Companies Law (and, prior to the introduction of the CWR in March 2009, there were none), all winding up proceedings would, so far as practicable, be made in accordance with the Insolvency Rules.
Therefore, prior to March 2009, in the absence of (i) any applicable rule as to the making of orders for security for costs against non-resident petitioners in winding up proceedings in the GCR and; (ii) any specific provision in the Insolvency Rules, the Cayman Court could look to Rule 7.51A(2) of the Insolvency Rules which provided that the provisions of the English Civil Procedure Rules (the 'CPR') and, in particular, Order 25.13(1) and (2) of the CPR (which confer the power on the UK Courts to order security for costs against a claimant company incorporated inside or outside the UK) apply to insolvency proceedings commenced in the UK.