In a recent decision of importance in the context of winding up petitions and proof of debt appeals, the Court of Appeal has clarified that the Cayman court may order that an impecunious corporate petitioner or appellant provide security for the respondent\u2019s defence costs, irrespective of whether the petitioner\/appellant is a foreign or a Cayman company.<\/p>\n
Although Dyxnet Holdings Limited v Current Ventures[1] <\/em>was specifically concerned with the narrower question of the Cayman court\u2019s jurisdiction to order security for costs against a foreign<\/em> company which had presented a winding up petition against a Cayman Islands company, it appears from the judgment that the broader state of the law on this issue is now as follows:<\/p>\n The background was this: until 2009, it was clear that the Cayman court had jurisdiction in winding up proceedings to grant security for costs against an impecunious foreign company, just as it could against an impecunious Cayman company.\u00a0 However, the position became muddled (and highly technical) after the introduction of the Companies Winding Up Rules in 2009, because those rules meant that the Insolvency Rules 1986 (which had granted an express power to award security against either a Cayman or a foreign company) no longer applied to winding up proceedings.[5] \u00a0That, in turn, meant that the only remaining express power governing the award of security against a company was section 74 of the Companies Law \u2013 but, on its face, section 74 applied only to Cayman companies. \u00a0Hence, the Cayman court considered itself to be constrained against awarding security against foreign litigants in winding up proceedings; such relief was refused in In re Freerider Limited[6] <\/em>and in the first instance decision in Dyxnet[7]. \u00a0<\/em><\/p>\n The first instance Judge in Freerider<\/em> felt that any award of security in winding up proceedings would be inconsistent with the scheme of the Companies Winding Up Rules; if the legislature or the Rules Committee had intended the court to have had any such power, they would have stated that expressly in the rules.\u00a0 He was not referred by counsel to section 74 of the Companies Law because the applicant for security in that case was an individual rather than a company, but the logical extension of his analysis was that the court no longer had jurisdiction in winding up proceedings to order security against foreign companies.\u00a0 The first instance Judge in Dyxnet<\/em> followed Freerider<\/em> as a matter of judicial comity because he was not convinced that the decision was wrong, and he therefore held that the court had no jurisdiction in winding up proceedings to order security against a foreign company.<\/p>\n However, in a carefully-reasoned analysis, the Court of Appeal held that the court does<\/em> have an inherent jurisdiction in winding up proceedings to grant an order for security against a foreign company on the basis that it is satisfied the company will not be able to meet any adverse costs award.\u00a0 That jurisdiction is not inconsistent with the Companies Winding Up Rules, because the rules simply do not address the issue at all.<\/p>\n One important factor in the court\u2019s decision was that, by virtue of the Cayman Islands Constitution, the government and, by extension, the court must not discriminate between different classes of litigants.\u00a0 If the court only had jurisdiction in winding up proceedings to order security against Cayman companies, that would provide preferable treatment to foreign companies and be discriminatory against Cayman companies.\u00a0 The only two ways for the court to avoid such discrimination would be: (1) to cease awarding security against Cayman <\/em>companies, despite the express power under section 74 to do so, or (2) to exercise its inherent jurisdiction to make equivalent security orders against foreign companies.\u00a0 It would be wrong in principle for the court to refuse to exercise the statutory power provided by section 74 against Cayman companies unless there was no other means of avoiding discriminatory treatment between different classes of litigant.\u00a0 Exercising its inherent jurisdiction against foreign companies provides that alternative means, and there is nothing in the Companies Winding Up Rules which precludes the court from doing so.\u00a0 Cayman and foreign litigants are therefore now to be treated on an equal footing in this respect, as in all others.<\/p>\n\n
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Background<\/h2>\n
Analysis<\/h2>\n
Comment<\/h2>\n