CARIBBEAN ISLANDS DEVELOPMENT LIMITED v. FIRST CARIBBEAN INTERNATIONAL BANK 08-October-2014
[2014 (2) CILR 220]
CARIBBEAN ISLANDS DEVELOPMENT LIMITED v. FIRST CARIBBEAN INTERNATIONAL BANK
GRAND COURT, FINANCIAL SERVICES DIVISION (Smellie, C.J.): October 8th, 2014
Civil Procedure—costs—security for costs—court to consider whether security in acceptable form, whether provider capable of honouring it, whether likely to do so, and whether enforceable—“after-the-event” insurance bond with company out of jurisdiction not acceptable—normal for security to be cash deposit in escrow account under control of court
Companies—liquidators—control by court—imprudent for liquidators to deviate from court order without sanction, even if believe that deviation provides better route for liquidation, especially if deviation likely to be challenged
Companies—liquidators—powers and duties—not obliged to initiate litigation unless sufficient assets to cover costs or indemnity provided by creditor—imprudent to commence litigation if risk that will have to discontinue for lack of funds
The plaintiff company brought an action against the defendant for breach of statutory and fiduciary duties.
The plaintiff went into liquidation and its liquidators brought proceedings against the defendant and separate proceedings against another company. In the proceedings against the defendant, the Grand Court (Smellie, C.J.) ordered the plaintiff to provide security for costs by paying US$100,000 into court. The plaintiff, however, failed to do so and applied for an extension of time. The parties agreed that the plaintiff would be granted an extension but also agreed to an “unless order” that the plaintiff’s claim would be dismissed if it had not complied with the order within seven days from the deadline. The court further ordered that the plaintiff should be liable for the costs of the extension hearing. The plaintiff was unable to obtain a bank guarantee for the security and, although it had sufficient funds to pay it directly, entered into negations for an “after-the-event insurance” bond with Q, a European company.
Five days after the deadline, the plaintiff informed the defendant that it would be unable to secure the bond before the end of the grace period and asked if it would wait to file for dismissal of the claim. The defendant asked the plaintiff to provide more information about the bond within 48
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hours. The plaintiff informed it that the information was confidential and could not be disclosed until Q consented to its doing so and the defendant stated that it would file for dismissal of the claim as soon as the grace period expired. The day before the expiration of the grace period, the plaintiff placed US$100,000 in a seven-day deposit account to serve as security until the bond was issued. The defendant filed for dismissal on the next morning and, after the bond was approved that afternoon, the plaintiff submitted that the claim should not be dismissed and that the deadline should be retrospectively altered to after the bond had been approved.
The plaintiff submitted that the bond was acceptable security and that the defendant had behaved unreasonably. There was English authority to show that after-the-event insurance bonds were equally as acceptable as a guarantee from a bank. Further, although there were sufficient funds to cover the security, the liquidators would have been unable to meet subsequent obligations which they might incur, e.g. the costs for the second litigation and their own costs and expenses. They had therefore acted as prudent liquidators by purchasing the bond and attempting to negotiate with the defendant. Although they had not secured the bond until after the deadline, they had acted reasonably in their actions by ensuring that security existed until the bond was available and by keeping the defendant informed of the delay, whilst the defendant had been unreasonable as it had led them to believe that the bond was acceptable.
The defendant submitted in reply that the plaintiff had failed to comply with the terms of the unless order and the claim should be dismissed. The bond did not comply with the requirements for security as it was not in an acceptable form, did not cover any additional costs which the plaintiff may be required to pay and might not be enforceable in Cayman. Moreover, it was insufficient security because it was unlikely to cover the costs already ordered against the plaintiff. Further, the plaintiff’s liquidators had failed to act prudently as they had commenced litigation before ensuring that they had appropriate funds to complete it, were prioritizing their own remuneration over their obligations under the court orders and should have sought the court’s sanction before acting in a way that did not comply with its orders.
Held, dismissing the claim:
(1) The bond was not good security for costs. It was unnecessary for security to be placed with any particular bank, provided that the proposed form gave real security which could be readily enforced. In order to determine whether security was acceptable, the court would therefore consider the form it took; whether the provider was capable of honouring it, was likely to honour it; and whether it could be enforced. Q was a reputable insurer and it was clear that it had sufficient credit and financial strength to cover the bond. The bond, however, was governed by English law and Q did not have any presence within the Cayman jurisdiction. It was therefore uncertain whether the defendant would be able to enforce
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the bond, particularly in relation to the costs which had already been awarded, and its attorneys would be unable to advise it on this matter. As the purpose of security for costs was to ensure that a successful defendant had a fund available within the Grand Court’s jurisdiction against which it could enforce a judgment for costs, the bond could not be accepted as security. The plaintiff should therefore have complied with the usual form of security for costs (
i.e. placed a cash deposit in an escrow account under the control of the court) or, at the least, ensured that the security was within Cayman (
paras. 37–47).
(2) The liquidators had not acted in a prudent manner. At the time that the security for costs order had been made, the liquidation fund had been much larger and, had they placed the required amount in an escrow account at that time, the liquidators would have retained sufficient capital to run the liquidation. It was apparent that they had prioritized their own remuneration over their compliance with the court order as they had failed to create a reserve in respect of costs arising from court orders, which were properly regarded as priority costs, but had created reserves for their own costs. Further, they could not have been said to have acted as prudent liquidators as they had not sought the sanction of the court before attempting to deviate from its orders, particularly as it should have been clear that the decision to utilize a bond as security would be subject to a legal challenge and would give rise to more legal costs and as it had not been issued before the expiration of the grace period. Moreover, the liquidators had not been obliged to initiate the litigation unless there were enough assets to cover its costs and, where there were insufficient assets, a creditor who wished the liquidation to be pursued should either provide an indemnity or fund it itself. The liquidators had failed to ensure that sufficient funding was available and had been unable to secure creditor funding. It had not, therefore, been prudent to initiate the litigation, particularly as, in the absence of an unforseen change of circumstances (of which there was none here), a party who discontinued proceedings for lack of funding was liable for the other party’s costs (
paras. 25–34).
Cases cited:
(1) Ahmad Hamad Algosaibi & Bros. Co. v. Saad Invs. Co. Ltd., Grand Ct., November 15th, 2013, unreported, applied.
(3) Exchange Travel (Holdings) Ltd. (No. 3), Re, [1997] 2 BCLC 579; [1997] BCC 784; [1998] BPIR 30, referred to.
(4) Michael Phillips Architects Ltd. v. Riklin, [2010] BLR 569; [2010] Lloyd’s Rep. I.R. 479; [2010] EWHC 834 (TCC), referred to.
(5) Porzelack KG v. Porzelack (UK) Ltd., [1987] 1 W.L.R. 420; [1987] 1 All E.R. 1074, referred to.
(6) RBG Resources Plc. v. Rastogi, [2005] 2 BCLC 592; [2005] EWHC 994 (Ch), applied.
(7) Versloot Dredging BV v. HDI Gerling Versicherung AG, [2013] EWHC 658 (Comm), distinguished.
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(8) Walker v. Walker, [2006] 1 W.L.R. 2194; [2005] 1 All E.R. 272; [2005] C.P. Rep. 33; [2005] 3 Costs LR 363; [2005] BPIR 454; [2005] EWCA Civ 247, applied.
M. Mulligan for the joint official liquidators;
J.M. Harris for the liquidation committee;
Ms. J.L. Verbiesen and Ms. A. Wallace for the defendant.
1 SMELLIE, C.J.: On March 7th, 2014, I made an order for security for costs in the amount of US$100,000 in the defendant’s favour (“the security order”). A written ruling explaining the reasons for that order was delivered.
2 By the order, the plaintiff was allowed 21 days until March 28th, 2014 to comply by means of lodgement into court.
3 The action was ordered to be stayed if the plaintiff failed to comply.
4 The draft of the security order prepared by the defendant’s attorneys was approved as to form and content by the plaintiff’s attorneys and presented to the court for signature on March 11th, 2014 in terms in keeping with the pronouncements made on March 7th, 2014.
5 The plaintiff failed to comply with the security order by March 28th, 2014, failed to file a summons for an extension of time to comply and failed to respond to the enquiries of defendant’s attorneys over the course of the ensuing weeks regarding its non-compliance.
6 In response, the defendant filed a summons on April 4th, 2014 seeking orders striking out the plaintiff’s claim or, in the alternative, an order that unless the plaintiff complied with the security order within seven days, the plaintiff’s claim be struck out and dismissed accordingly (“the strike-out summons”). At the hearing of the strike-out summons on May 21st, 2014, the parties, through their attorneys, agreed the following order and it was ordered that—
(a) unless the plaintiff complies with the requirement to give security as set out at para. 1 of the security order within 90 days (that is, by August 19th, 2014), the plaintiff’s claim shall stand struck out and the action will be dismissed accordingly within seven days of the expiry of the 90-day period (that is, on August 26th, 2014) (“the unless order”)); and
(b) the costs of and occasioned by the strike-out summons shall be the defendant’s in any event, on the standard basis, to be taxed if not agreed (“the costs orders”) (together with the security order and the unless order, “the orders”).
7 No application was made to the court by the plaintiff to vary the terms of any of the orders or to apply for an extension of time to comply with the unless order either prior to August 19th, 2014 or at any time thereafter
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until it was presented by summons today during the very hearing for enforcement of the unless order.
8 By this summons, the plaintiff seeks an order to vary the security order retrospectively so that it may be allowed to provide security for costs by way of an indemnity bond, which it claims to have had in place by August 21st, 2014. So as to remedy its breach of the unless order retrospectively, the plaintiff also seeks an order allowing it an extension of time from August 19th, 2014 to August 21st, 2014 to provide security for costs.
9 If the relief sought on this summons is granted, the plaintiff would rely upon a form of indemnity bond purchased from QBE Insurance (Europe) Ltd. with effect from August 21st, 2014 as having provided security in keeping with the security order.
10 In seeking to justify their failure to comply with the term limits of the unless order, Mr. Mulligan for the JOLs cites the difficult position in which the JOLs found themselves in resorting to an indemnity bond instead of payment into court as required by the security order.
11 The explanation comes from the first affidavit of Peter Anderson, one of the JOLs, as follows:
“The JOLs initially hoped that security would be posted by way of a bank guarantee from HSBC (Cayman) Ltd. (‘HSBC’). However, following further discussions with HSBC it became apparent that HSBC would not be able to provide a bond at this time. I understand that this was solely due to the fact that HSBC is selling all its assets in this jurisdiction and was consequently unable to provide any new products to customers.
The JOLs then explored alternative ways of posting security and entered into discussions with QBE Insurance (Europe) Ltd. (‘QBE’), one of the world’s leading international insurers and reinsurers, with a view to providing after-the-event insurance (‘the ATE insurance’) and an unconditional and irrevocable bond in the sum of $100,000 (‘the bond’) to cover security. The JOLs were fully aware of the consequences of the ruling and wished to ensure that they complied with the same. The JOLs were of the opinion that the combination of the ATE insurance and the bond would comply with the intention of the ruling in that the defendant would have absolute certainty that, in the event that it was successful, it would have the sum of $100,000 available to it to satisfy any costs award made in its favour at the conclusion of these proceedings.
Unfortunately, it became apparent that notwithstanding all efforts being made by the JOLs and QBE it was unlikely that the bond and the ATE insurance would be in place by August 19th, 2014, the deadline imposed by the unless order. For this reason, the JOLs
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instructed our attorney, Mr. Ben Hobden of Conyers Dill & Pearman, to telephone Ms. Joanne Verbiesen of Walkers (attorneys for the defendant) to inform her that the JOLs were doing all that they could to put security in place but that they may require an additional day or two than the time frame envisaged by the unless order. Mr. Hobden did so on August 18th, 2014. In any event, it was understood and agreed by both parties (as reflected in the unless order) that there was a grace period of seven days after the expiry of which the proceedings would be struck out and stand as dismissed. This was to allow for any last minute delays in finalising and posting security.
I am informed that having relayed the position of the JOLs on August 18th, 2014 by telephone, Mr. Hobden was informed by Ms. Verbiesen that she would have to take instructions on the matter overnight.
Later that evening, Mr. Hobden received an email from Ms. Verbiesen asking for details of the ATE insurance and the bond to be provided within 48 hours. A copy of this email is at page 1. At first glance, this appeared to be a positive, conciliatory step on the part of the defendant. The JOLs reasonably assumed that as Walkers had asked to review the ATE insurance policy and the bond, their client considered that they would provide adequate security, subject to their terms.
The following morning, on August 19th, 2014, the JOLs instructed Mr. Hobden to write to Ms. Verbiesen informing her that the ATE insurance and the bond were confidential but that the JOLs had asked QBE to consent to their disclosure. Further, we asked Mr. Hobden to formally request that the defendant take no further action pursuant to the unless order pending its receipt of the ATE insurance and the bond. A copy of that email is at page 2. The JOLs were of the opinion that this would be a formality given that Walkers had requested copies of the ATE insurance policy and the bond within 48 hours.
Regrettably, Ms. Verbiesen was unable to provide confirmation that the defendant would not take steps to enforce the unless order and that in the event that security was not posted by 5 p.m. that day, she was instructed to issue a summons for the dismissal of the plaintiff’s claim. A copy of this email can be found at page 3. The content of the email and the plaintiff’s subsequent unreasonable stance came as somewhat of a surprise to the JOLs: the defendant requested documentation within 48 hours but actually intended to take further action within less than 24 hours.
Having been placed in a difficult position by the defendant, the JOLs attempted to do all that they could to give the defendants comfort
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that the sum of $100,000 was secured pending the JOLs entering into the ATE insurance policy and the deed. This being the case, the JOLs approached HSBC who agreed that it would transfer the sum of $100,000 into a fixed term deposit account for seven days in the name of the company, only to be accessible upon the written consent of both Walkers and the JOLs. HSBC confirmed this in writing. A copy of this letter is at 4.
Conyers sent Walkers a letter (‘the Conyers letter’) at 5:01 p.m. on August 19th, 2014, attaching the letter from HSBC. That letter confirmed that:
‘Within the next seven days our clients will procure a further bond in the sum of $100,000, meaning that your client will have security in the sum of $100,000 at all times, in compliance with the ruling.’
The JOLs considered that this would be the end of the matter. It was difficult to see how the defendant could not be content with the situation. In the event that the JOLs posted no further security within the seven day period, the defendant may have had cause for complaint. However, as at close of business on August 19th, 2014, the defendant had security in place. This in effect was holding security . . .
The following morning Walkers sent an email timed at 11:35 a.m. to this Honourable Court advising that it would be filing the summons on behalf of the plaintiff later that day. It had not at this point made any comment in relation to Conyers letter sent the previous day.
During the course of the morning of August 20th, 2014, the JOLs entered into the ATE insurance policy and the deed with QBE. Copies of both documents are at pages 5–39. The deed provides that:
‘QBE Insurance (Europe) Ltd. hereby unconditionally and irrevocably undertakes to pay to First Caribbean International Bank (Cayman) Ltd. (“the defendant”) within seven working days of receipt by QBE Insurance (Europe) Ltd. of the defendants’ written demand of any sum or sums, or within 14 days of the issue of the relevant court order of assessing officer’s certificate for costs whichever is the later, which Caribbean Island Developments Ltd. (in official liquidation) (“the claimant”) is liable to pay in respect of the defendant’s costs of cause number FSD 52 of 2013 (ASCJ), to be assessed if not agreed pursuant to order, statute, agreement or otherwise, providing always that QBE Insurance (Europe) Ltd.’s total liability hereunder shall not exceed the sum of US$100,000 plus any sum which may be due solely in respect of simple interest applicable
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to the original demand at the judgment rate from the date of the presentation of the demand by the defendants under the indemnity until payment by QBE Insurance (Europe) Ltd.’
Under cover of letter sent by email timed at 12:27 p.m., Conyers sent these documents to Walkers, stating that it considered that the JOLs had now posted security and that the defendant should withdraw the summons. A copy of this letter is at pages 40–42. Walkers did not respond to this letter. Rather, it served the filed summons together with the fourth affidavit of Patrick Cover by an email timed at 1:33 p.m.”
12 Thus, the battle lines were drawn: the defendant did not consider the bond an acceptable form of security in keeping with the terms of the security order and, through Ms. Verbiesen, made its position known in that regard in a letter of August 22nd, 2014. Apart from her concerns over the terms of the bond not yet being fully disclosed or explained to and understood by the defendant, she protested that it was clear from HSBC’s letter of August 19th, 2014 that the JOLs had sufficient cash deposits to comply with the strict terms of the security order but had chosen not to do so. She also noted the apparently conflicted position being taken by the JOLs that while asserting that the plaintiff had fully complied with the security order by providing the HSBC letter, the JOLs nonetheless provided the QBE bond claiming, under cover of the letter of August 21st, 2014 from Mr. Mulligan, that they had thereby and then complied with the security order.
13 Ms. Verbiesen also explained the defendant’s position that, had the defendant’s agreement to the bond been sought in advance, it would not have been forthcoming for the further reason that the bond came from an insurer who had no corporate presence in the Cayman Islands and her client had had no opportunity to review beforehand any of the transactional documentation or evidence (if there was any) of the JOLs’ disclosure to QBE in respect of these proceedings.
14 In this regard, she noted in her letter that Mr. Mulligan’s letter of August 21st, 2014 stated that the bond: “Guarantees payment of [our] client’s costs (if any award is made in its favour) up to $100,000.” Her letter further stated that—
“as you should be aware, our client already has a costs in any event order against your client, which appears to be, and should be covered by the [bond]. However, the wording in your letter suggests that this material fact has not been considered and has not been disclosed to QBE Insurance. Indeed, we would be very surprised if QBE Insurance would offer an indemnity in respect of a costs order that has already been made against the insured.”
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15 No answer to these concerns has been provided and the impression is left with me that, whatever coverage the bond provides, it does not cover the significant costs already incurred by the defendant in these proceedings and for which it is entitled to security in keeping with the security order.
16 The merits of the JOLs’ position, as a party in default seeking retrospective relief from the consequences of its breach of an unless order, are further weakened by the disclosure of the accounts of receipts and payments relating to the liquidation. These accounts show that as at March 21st, 2014—and still within the deadline for compliance with the security order—the estate had US$273,712.84 in cash available.
17 This was the balance of receipts into the estate of US$1,214,995.45, after payments of the JOLs’ fees and expenses (US$460,582.78); their lawyers’ fees (US$259,751.55) and other legal fees and expenses (of approximately US$220,000) up to the accounting date of March 31st, 2014.
18 The JOLs, had they chosen to do so, could therefore have met the requirements of the security order by lodgement into court of US$100,000.
19 They chose not to do so.
20 At the hearing on September 3rd, 2014, I sought an explanation as to why the plaintiff had not complied with the orders in circumstances where there was clear evidence from HSBC that the plaintiff had the means to comply. The plaintiff then sought and obtained an adjournment on Mr. Mulligan’s representation that the plaintiff had compelling and “highly confidential” reasons which it wished to put before the court.
21 The sum effect of that explanation, as Mr. Peter Anderson explains in his latest affidavit, is that the JOLs intended and still intend to use the available cash to meet obligations for accrued costs in respect of their lawyers’ and the liquidation committee’s lawyers’ fees for the ongoing prosecution of the claim against the defendant and for the prosecution of another claim in a separate action against Simba Ltd., trading as REMAX Cayman, in Cause FSD 53 of 2013 AJJ, relating to that defendant’s marketing and sale of the same property over which the defendant bank here is sued.
22 As at August 19th, 2014, the latest account statements show that the JOLs have a balance of cash in hand of only US$23,357.75, once certain accrued (but as yet unpaid) fees are taken into account.
23 This remaining cash in hand is net also of the sum of US$20,000 spent by the JOLs for the purchase of the QBE Insurance and bond.
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24 The JOLs argue that no prudent liquidator would have behaved differently. They insist that to have lodged into court the amount of US$100,000 as required by the security order would have meant having to abandon their claims in the two actions which comprise the only remaining assets of the liquidation estate. Their creditors having refused to provide funding for the litigation (here, I interject, without satisfactorily establishing that they are unable to provide or raise funding), the JOLs determined that the only prudent thing to do was to purchase the QBE insurance and bond which, at a cost of US$20,000, allowed them to retain approximately US$250,000 to fund the litigation and/or meet their own fees.
25 I am bound to note that it is, to say the least, surprising that the JOLs could have taken this course without first seeking the approval of this court as it involved a decision not to pay in the security while having the means to do so and while continuing to act in breach of the orders. This occurred even while the JOLs—between March 31st, 2014 and July 31st, 2014—continued to pay out of the estates over US$150,000 in costs (including their lawyers’ costs of defending both of the defendant’s summonses issued to compel compliance with the security order (see balance as at July 31st, 2014 ($123,387.76) as compared with the balance as at March 31st, 2014 ($273,712.84) as these appear from the respective receipts and payments accounts)).
26 In this regard, the JOLs state that—
“whilst the JOLs had a balance of cash in hand of $123,387.76 as at July 31st, 2014, once again accrued costs meant that the JOLs were unable to post security for costs by way of cash deposit. Even leaving accrued costs aside, to do so would have left only a few thousand dollars with which to run the liquidation. In my view, no prudent liquidator would have done so.”
27 Ms. Verbiesen makes two compelling points in response to this statement:
(a) First, the situation was very different as at March 28th, 2014 when security was first due—at that time the plaintiff would still have had over $170,000 to run the liquidation after satisfying the security order which would be, in an estate of this size, a relatively large amount; and
(b) Secondly, a prudent liquidator should not be expected to fail repeatedly to comply with court orders and while, in so doing, incur further expenses in the liquidation in the form of costs in any event orders—which is exactly what the JOLs did here. In this regard, it must be noted that the JOLs have failed to make a reserve in respect of the costs in any event orders so far made in favour of the defendant as an accrued cost in the liquidation, despite such costs being a priority expense and where,
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in the case of fees or costs accrued to the account of others (including the JOLs’ own fees and expenses, and its lawyers’ and the liquidation committee’s lawyers’ amounting to $141,493.69 in the receipts and payments accounts as at September 8th, 2014), such provisioning has been made—the Companies Winding Up Rules (2008 Revision), O.20 explains that the security order ranks ahead of the JOLs’ remuneration in the liquidation rights of distribution.
28 Indeed, the hypothetical balance of US$17,746.95 identified by Mr. Grant of the JOLs as being available as at March 31st, 2014 serves to confirm the fact that the JOLs consider their own costs to be of higher priority than compliance with the security order as that is the balance shown after the provisioning for their own fees.
29 I am clear that there is to be no such “competing obligations to the court and to creditors” as asserted by Mr. Anderson in seeking to explain the failure to comply with the orders.
30 In the first place, it is well understood that liquidators are not obliged to institute proceedings unless there are enough assets available to cover the costs of that litigation. See, for instance, Bailey & Groves, Corporate Insolvency Law and Practice, 3rd ed., at para. 15.33 (2007) where the obvious advice is given that “in any event, when the liquidator is undertaking litigation, he would be wise to first obtain an indemnity in respect of the costs of litigation and he is not obliged to litigate unless there are enough assets available to cover the cost of that litigation.”
31 Moreover, if the creditors wish the liquidators to pursue the litigation where the estate is impecunious, they should be expected to fund the proceedings themselves or provide an indemnity: McPherson’s Law of Company Liquidation, 3rd ed., at paras. 9–074 – 9–075 (2013), citing the observations of Morritt, L.J. in Re Exchange Travel (Holdings) Ltd. (No. 3) (3) ([1997] 2 BCLC at 595), adverting to the fact that indemnities from creditors for these purposes is a commonplace. This principle was recently re-affirmed by this court in Ahmad Hamad Algosaibi & Bros. Co. v. Saad Invs. Co. Ltd. (1) (November 15th, 2013, unreported, at paras. 68–94).
32 Seeking to defend as prudent their preferred use of the available funds for their litigation rather than for satisfaction of the orders, Mr. Anderson asserts that to have not done so would have caused prejudice to the creditors. But I am obliged to note that the impecunious state of the liquidation estate has not changed since before these proceedings were instituted and, in such circumstances, the JOLs were obliged to secure that appropriate funding was in place before commencing proceedings. Otherwise, the risk of having to discontinue before completion would have been apparent and it is well established that where a liquidator discontinues proceedings for lack of funding, the usual rules as to costs apply in the absence of evidence of an unforeseen change of circumstances, precisely
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because the liquidators should not have chosen to take a course of action that they could not properly pursue: Walker v. Walker (8); and RBG Resources Plc. v. Rastogi (6).
33 In the former of these cases, Chadwick, L.J. stated the law (in terms as applicable here as in England and Wales on this point) ([2006] 1 W.L.R. 2194, at para. 36):
“The rule recognises that justice will normally lead to the conclusion that a defendant who defends himself at substantial expense against a plaintiff who changes his mind in the middle of the action for no good reason—other than that he has re-evaluated the factors that have remained unchanged—should be compensated for his costs.”
Here, the re-evaluated factor that would have remained unchanged from the outset of these proceedings would be the likely unavailability of funds to the JOLs to see the proceedings to conclusion.
34 In his second affidavit, Mr. Anderson acknowledged that he understood that “it would be unwise to assume that the court would automatically accept [the QBE bond] alone.” In light of that understanding it is, I repeat, surprising that the JOLs did not consider it prudent first to apply to the court for its approval of this form of security before entering into and paying for the QBE insurance and bond.
35 Thus it seems to me that the JOLs seek to present the court and the defendant with a fait accompli—the acceptance of the QBE bond as good security whatever the proper concerns and reservations in that regard may be.
36 Mr. Mulligan, in support of the JOLs’ action, points to recent case law in England and Wales which recognizes that after-the-event insurance (“ATE insurance”) has become an acceptable form of security for costs. Two recent cases are relied upon as being illustrative: Versloot Dredging BV v. HDI Gerling Versicherung AG (7) and Michael Phillips Architects Ltd. v. Riklin (4).
37 In Versloot, Christopher Clarke, J. declared ATE insurance from a reputable provider—in that case none other than the same QBE involved here—to be an acceptable form of security for costs. He stated ([2013] EWHC 658 (Comm), at para. 10):
“In my view, it is necessary to take a pragmatic view, or as the Master of Rolls expressed in Shlaimon and Anor v. Mining Technologies International Inc. [2012] EWCA Civ. 772, a realistic view. There is no magic in the provision of security from a first-class London bank. The essential question for the court in deciding on what form of security is acceptable is whether what is proposed does indeed provide real security. This it may do if it amounts to a promise which would in all likelihood be honoured, given an entity
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with the wherewithal to pay and against whom enforcement can readily be obtained; in short, if given a truly creditworthy entity.”
38 The learned judge went on to conclude (ibid., at paras. 11–15):
“11 I am satisfied on the evidence presently before me that QBE is a reputable and creditworthy insurance company, present in London, and that the security constituted by the deed is equal to or better than many first-class London banks. QBE is one of the largest managing agents at Lloyds and has been established in London since 1904, with many regional offices throughout the United Kingdom. In terms of rating, that is to say, the credit rating of Standard & Poor’s, it fairs slightly better than ABN AMRO and better than all but one of the underwriters who are defendants in this case . . .
12 It is apparent from the Standard & Poor’s data that QBE Insurance has an A-plus rating in relation to both issues of credit and financial strength . . .
13 There is also evidence that QBE Insurance has been accepted by litigants as sound security . . .
15 In the end, whether security from an insurer should be accepted is a matter of judgment . . . It also seems to me consistent with the overriding objective that I should vary the order in the way sought [to allow security by way of the QBE Insurance] since it seems to me that that is the best way of ensuring that this dispute is in fact resolved rather than knocked out and that that can be done without unacceptable prejudice to the interests of the defendants and I propose to order accordingly.”
39 That approach of Christopher Clarke, J. to the issue of whether ATE insurance should be regarded as an acceptable form of security for costs seems eminently sensible to me. Indeed, had I been sitting on this matter in a court in London, I should have felt compelled by his reasoning to follow suit.
40 But the difference in circumstances here is more than merely geographical. The defendant’s concern that neither QBE itself nor the QBE bond is amenable to the jurisdiction of this court is a matter of real significance.
41 For instance, whether or not the QBE bond would be enforceable by the defendant according to its terms as a matter of the English law which governs it is a matter about which the defendant’s local lawyers have not, and may not, advise the defendant. The defendant would therefore be required to go to the expense of obtaining English legal advice before it could be satisfied about that issue. Already there is a significant area of uncertainty as to whether the QBE bond would cover costs orders in any
2014 (2) CILR 233
event already made in the defendant’s favour and which already would consume half of the security to be provided by the security order. Moreover, the defendant would be required to seek enforcement of the QBE bond in England if a dispute arose, notwithstanding that it is entitled to the enforcement of the security by the court before which it has been sued. All of these considerations arise against the background of recalcitrance and lack of relevant disclosure on the part of the party proffering the bond.
42 These are important concerns which must be addressed in answering the “essential question” posed by Christopher Clarke, J. in Versloot (7) (at para. 10)—“whether what is proposed does indeed provide real security [in respect of which] enforcement can readily be obtained.”
43 In my judgment, that essential question has not been satisfactorily answered by the JOLs’ proposal for the QBE bond.
44 I think it must be regarded as settled principle that the purpose of an order for security for costs is “to ensure that a successful defendant will have a fund available within the jurisdiction of [the] court against which it can enforce the judgment for costs”—see
In re Cybervest Fund (2) (2006 CILR 80, at para. 22), applying
Porzelack KG v.
Porzelack (UK) Ltd. (5).
45 This principle must be a fortiori applicable to security for costs ordered pursuant to s.74 of the Companies Law to be provided by a company which is in liquidation.
46 A cash deposit in an escrow account under the control of the court is the usual form of security for costs and, in any event, the security should, for enforceability reasons, be within the jurisdiction: Ahmad Hamad Algosaibi & Bros. Co. v. Saad Invs. Co. Ltd. (1) (at paras. 32–60).
47 The JOLs’ proposal for the QBE bond does not satisfy these principles.
[48 The learned Chief Justice proceeded to find that the plaintiff was in breach of the unless order and dismissed the claim.]
Orders accordingly.
Attorneys: Walkers for the applicant; Conyers Dill & Pearman for the joint official liquidators; Higgs Johnson for the liquidation committee.