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04 May 2021
In a costs ruling delivered on 12 March 2021, the Honourable Justice Ramsay-Hale provided welcome clarity on the circumstances in which the Grand Court will make a costs award on the indemnity basis.(1) A successful party can expect to recover a higher proportion of its costs when an award is made on the indemnity basis (rather than the standard basis) since only costs that are unreasonably incurred or of an unreasonable amount will be disallowed on taxation and any doubts as to reasonableness are resolved in favour of the successful party.(2)
Zhongzhi Capital (HK) Company Ltd (ZZHK) succeeded in its substantive application to rectify the register of members of Geopay Holding Limited (Geopay) so as to register ZZHK as the holder of certain shares in Geopay in place of Geoswift Holdings Limited. Geoswift pledged its shares in Geopay as security in return for a loan advanced to Geoswift by ZZHK. After defaulting on the loan, Geoswift resisted ZZHK's attempts to enforce its security. Pursuant to the terms of the loan, ZZHK also had a contractual entitlement to recover its costs of the rectification application from Geoswift.
Ramsay-Hale J concluded that "the Court can, in the exercise of its discretion to award costs, where the contractual entitlement is self-evident, order costs on the indemnity basis";(3) indeed, in such circumstances, the court's discretion "should ordinarily be exercised so as to reflect that contractual right".(4) An indemnity costs award in these circumstances avoids the need for a successful party to pursue its litigation costs in a separate contractual claim.(5)
In reaching this conclusion, Ramsay‑Hale J considered the Court of Appeal's decision in Weavering Macro Fixed Income Fund Ltd v Peterson,(6) in which it made a standard costs award, notwithstanding that the successful parties – the directors of Weavering – had sought an indemnity costs order in reliance on an indemnity provision in the company's articles of association. Ramsay-Hale J explained that the Court of Appeal's decision was that "where the contractual entitlement to be indemnified is not clear, and there was no misconduct on the part of the unsuccessful party, costs should be taxed on the standard basis".(7) In the present case, unlike in Weavering, ZZHK's right to be indemnified was clear and the court therefore awarded ZZHK's costs to be taxed on the indemnity basis.(8)
Ramsay-Hale J's ruling on costs provides helpful guidance as to when an unsuccessful party's conduct of the litigation may result in an indemnity costs award. She observed that while an indemnity costs award usually signifies the court's disapproval of "conduct deserving moral condemnation", the court may also order a party to pay costs on the indemnity basis "even if the [party's] conduct was not of such a degree and there had been no moral lack of probity."(9)
Ramsay-Hale J referred to the decision of Justice Henderson in Bennett v The Attorney General of the Cayman Islands,(10) which distinguished between "[a]dvancing a defence which is merely week or unlikely to succeed" and "maintaining a defence which is manifestly hopeless", confirming that "the latter can be characterised as unreasonable". Henderson J further observed that a finding that a party's claim or defence to a claim is unreasonable will usually result in an order that the party pay the successful party's costs on the indemnity basis.
Ramsay-Hale J concluded that Geoswift, having accepted that an event of default had occurred and that it had delivered the necessary documents to allow ZZHK to enforce the share pledge, had no grounds to challenge ZZHK's application for rectification of the register of members of Geopay, rendering its defence "utterly meritless".(11) Geoswift's decision to challenge ZZHK's application was therefore unreasonable to the requisite degree and warranted the making of an indemnity costs award.(12) Accordingly, Ramsay-Hale J, having found that ZZHK's contractual right to be indemnified in costs was clear, exercised her discretion to award ZZHK its costs on the indemnity basis. Such an outcome was consistent with the overriding objective to deal with matters justly.
For further information on this topic please contact Victoria King at Ogier's Grand Cayman office by telephone (+1 345 949 9876) or email (firstname.lastname@example.org). Alternatively, contact Jean Lau at Ogier's Hong Kong office by telephone (+852 3656 6000) or email (email@example.com). The Ogier website can be accessed at www.ogier.com.
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