As an international finance and investment centre, the Cayman Islands courts regularly serve as a venue for litigation initiated by foreign claimants.
During the early stages of litigation, a well-advised defendant will consider how to enforce a Cayman Islands court costs order in the foreign jurisdiction where the claimant's assets are located, and whether it should seek security from the claimant for the costs of doing so.
In Worthing Properties Limited v Sterling Macro Fund the Court of Appeal considered whether a foreign claimant should give security limited to the costs of enforcing an order in the foreign jurisdiction only or for the (much greater) amount of defending the appeal.
It is well established under Cayman Islands law that security should not be awarded against a foreign claimant for more than enforcement costs merely because it is a foreign party. However, in Worthing the respondent asked the Court of Appeal to follow the UK Court of Appeal decision in Bestfort Developments LLP v Ras Al Khaimah Investment Authority ((2016) EWCA 1099) and grant an order for security for the respondent's projected costs of the appeal. Bestford Developments is an authority for the proposition that if an applicant for security can demonstrate on objectively rational grounds relating to obstacles or the burden of enforcement that there is a real risk (as opposed to a merely fanciful one) that it will not be in a position to enforce an order for costs, then the court may grant security for the costs of the proceeding (and not just the costs of enforcement). In short, the court must be satisfied that there is a real risk of some barrier to enforcement over and above putting the respondent to the trouble of seeking an enforcement order in a foreign court.
In the first-instance Grand Court proceeding, the third party funding the claimant's claim provided the respondent with an undertaking to pay any adverse cost order in the respondent's favour. This was in circumstances where the claimant's only disclosed asset could not be relied on to be available to meet an order for costs due to a dispute regarding the beneficial owner of the asset. The court ordered the funder to fortify the undertaking in circumstances where the funder had refused to disclose anything regarding its financial position. The court considered this reasonable because the undertaking may otherwise be without substance.
By the time of the respondent's application for security before the Court of Appeal, the funder had continued to refuse to provide any details of its financial position. The respondent adduced evidence that raised questions as to:
- whether the funder was incorporated in the British Virgin Islands (as contended by the appellant) or in Hong Kong; and
- how the funder was related to the appellant.
The claimant did not clarify the position by affidavit, despite being given the opportunity to do so.
The court held that the claimant's own asset position, coupled with the funder's refusal to disclose its financial position or clarify its corporate organisation, was such that the 'real risk' test was satisfied. The court distinguished the circumstances in Worthing from the well-established principle that security will not be granted merely because a claimant refuses to provide evidence of its asset position on the basis that it was the funder which had refused to provide the evidence and there was no argument as to the doubtful substance of the claimant.
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