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Cayman: Will the “real” loser please stand up? Indemnity costs awarded against non-party for bad behavior

The Grand Court has confirmed that it has a very wide discretion in relation to costs and has the power to award costs against a non-party.

During the Primeo litigation, the defendants wanted to obtain documents from EY Cayman. Instead of using the discovery process, the defendants forced the JOLs to exercise liquidator’s powers to obtain documents in an unsuccessful attempt to “circumvent the rules”. The application failed because the JOLs had no entitlement to such documents.

The Grand Court accepted that the JOLs would not have issued the EY Cayman summons but for the defendants’ demands. While recognising that it must place serious emphasis on the matter of fairness, the Court found that the JOLs had not acted in any way that was unreasonable or disproportionate or which was frankly avoidable. The Court found that the defendants caused and were exclusively responsible for the proceedings. They were not innocent bystanders.

The 2004 Privy Council case of Dymocks has been followed and applied in Cayman. In Dymocks, Lord Brown summarized the core principles. Describing the non-party as the “real party to the litigation” he pointed out that “where the non–party not merely funds the proceedings but substantially controls or at any rate is to benefit from them” justice will require that the non-party pay the successful party’s costs if the proceedings fail. In the exceptional circumstances of this case, the defendants were ordered to pay:

1. the costs incurred by the JOLs in their unsuccessful attempt to obtain third party disclosure; and

2. Indemnity costs in favour of EY Cayman.

This case serves as a warning to parties seeking to take advantage of liquidators’ powers to obtain documents, third party funders and non-parties who control or seek to benefit from litigation. A non-party will not be able to escape the loser pays rule. To the contrary, any bad behavior by a non-party could result in a very hefty bill for the legal fees of the parties on the record.

 

Justice Scales

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