Costs Orders: Insolvency v litigation proceedings

In the recent judgment In the matter of Abraaj Holdings (FSD 95 of 2018, Unreported 4 January 2019), the Grand Court of the Cayman Islands clarified that petitioning creditors in insolvency proceedings who have not acted unreasonably should not be subject to an adverse costs order. This contrasts with the position in adversarial litigation proceedings, where typically the unsuccessful applicant in the proceedings will be ordered to bear costs.

This matter concerned the hearing of an application brought by the Joint Provisional Liquidators ("JPLs") for a further adjournment of a winding up petition ("Petition") brought against Abraaj Holdings (the "Company"). This was supported by two individuals, one of whom was a creditor of the Company and member of the Liquidation Committee, and the other was a director of, shareholder and founder of the Company. The adjournment was opposed by the Public Institution for Social Security of Kuwait ("PIFSS"). The Court decided to allow the adjournment of the Petition, but stated that the PIFSS had not been unreasonable in opposing the adjournment. As such, since PIFSS had not acted unreasonably, Justice McMillan did not grant the costs orders sought by the two individuals, in spite of the fact that they had supported the successful Petition. McMillan J further ruled that he was not satisfied that one of the individuals was a party to the proceedings, and hence his entitlement to seek a costs order.

The general position under the law of the Cayman Islands is set out in the Companies Winding Up Rules 2018 ("CWR"). In particular, Order 24, rule 8(1) provides that the costs incurred by a person who successfully presents a creditor's winding up petition should have his costs paid out of the assets of the company, with such costs to be fixed on an indemnity basis unless agreed with the official liquidator. However, the CWR does not provide for the scenario where a petitioner has been unsuccessful, but not because the grounds for the making of a winding up order have not been established, but because the Court concluded that it would be in the best interests of the Company's creditors for the Company to remain in provisional liquidation for the time being. As such, this judgment is a welcome clarification. In reaching his decision, McMillan J referred to CWR Order 24, rule 9(4), which provides (in the context of sanction applications) that no order for costs should be made against a creditor or contributory whose application or opposition is unsuccessful, unless the Court is satisfied that his position was wholly unreasonable or he is guilty of having misled the Court or otherwise acting improperly in connection with the application.

What is unique about this decision is that it demonstrates that the Court will not necessarily impose a costs order on a party that, although unsuccessful, has not been unreasonable in submitting its arguments. This is important, particularly in insolvency proceedings that often involve a multitude of competing stakeholders with complex interests and issues, because it avoids discouraging these different stakeholders from making legitimate commercial arguments for fear of being subject to an adverse costs order.

CAYMAN ISLANDS
Shelley WhitePartnerT +1 345 914 4205shelley.white@walkersglobal.com
Fiona MacAdamSenior CounselT +1 345 914 4273fiona.macadam@walkersglobal.com
Xia LiSenior AssociateT +1 345 914 6360xia.li@walkersglobal.com

DUBAI
Barnaby GowriePartnerT +971 4 363 7942barnaby.gowrie@walkersglobal.com