GFN SA and others v The Liquidators of Bancredit Cayman Limited (Cayman Islands)

The power to order security for costs derives from the court’s inherent jurisdiction. Statutes and rules regulate the exercise of that jurisdiction, but do not themselves create it. Whether an application constitutes “proceedings” under section 74 of the Companies Law (2004 Revision) or Order 23 Rule 1 of the Grand Court Rules of Court 1995 (2003 rev) depends on substance rather than form. An application in interlocutory form qualifies where it determines substantive rights independent of the parent proceedings. Applications challenging or expunging proofs of debt meet that description because they determine the company’s indebtedness to particular creditors.

Bancredit Cayman Ltd was ordered to be wound up and joint official liquidators were appointed. They rejected proofs of debt submitted by GFN SA, Artag Meridian Ltd and Caribbean Energy Company, while admitting proofs submitted by other creditors. The appellants challenged those decisions and sought to expunge the admitted proofs under Insolvency Rules 4.83 and 4.85. The liquidators sought security for their costs under section 74 of the Companies Law (2004 Revision) and Order 23 Rule 1 of the Grand Court Rules of Court 1995 (2003 rev).

The Grand Court held that it lacked jurisdiction. The Court of Appeal of the Cayman Islands reversed that decision and remitted the applications. The central issue before the Privy Council was whether the proof-of-debt applications were “proceedings” for security-for-costs purposes.

Appeal dismissed. Lord Scott delivered the leading judgment. Lord Neuberger, with Lord Rodger, Lady Hale and Sir Jonathan Parker, agreed with the result and the central reasoning. The Board advised that the appeal be dismissed with costs, subject to the order nisi becoming absolute unless a different costs order was sought within 14 days.

1. The court possesses an inherent jurisdiction to order security for costs. Its exercise is governed by settled practice. Section 74 of the Companies Law (2004 Revision) and Order 23 Rule 1 of the Grand Court Rules of Court 1995 (2003 rev) regulate or extend the circumstances in which that jurisdiction may be exercised; they do not confer the underlying jurisdiction.
2. The expressions “action, suit, or other legal proceeding” and “action or other proceedings” require attention to the substance of the application rather than its strict procedural form. An application presented by ordinary summons may qualify if it is substantively originating, raises issues not previously before the court, or determines rights independent of the parent proceedings. An application concerned only with regulating or assisting the conduct of the substantive action will generally not qualify.
3. The appellants’ applications determined whether Bancredit was indebted to them or to other creditors at the commencement of the winding-up. The winding-up order established the procedural framework but did not determine those individual debts. The applications therefore raised new substantive issues and were, in substance, originating proceedings for the purposes of both section 74 and Order 23 Rule 1.
4. Lord Scott approved the reasoning in C T Bowring & Co (Insurance) Ltd v Corsi Partners Ltd [1994] 2 Lloyd’s Rep 567 concerning inherent jurisdiction and substance over form, while explaining that references to originating process should not be treated as imposing a merely formal requirement. Lord Neuberger left open questions concerning counterclaims, committal applications, applications to set aside compromises, and the correctness of the conclusion in that case, because they had not been fully argued.

1. Privy Council: The appeal was dismissed with costs. The Board held that the applications were proceedings within section 74 of the Companies Law (2004 Revision) and Order 23 Rule 1 of the Grand Court Rules of Court 1995 (2003 rev).
2. Court of Appeal of the Cayman Islands: On 23 January 2008, the court reversed the Grand Court’s ruling on jurisdiction and remitted the matter for consideration of the security-for-costs applications on their merits.
3. Grand Court of the Cayman Islands: On 13 March 2007, the court dismissed the liquidators’ security-for-costs applications on the ground that it lacked jurisdiction.