Cayman Islands: The Recoverability of Foreign Lawyers’ Fees
7 July 2022
Forbes Hare
Introduction
The recoverability of foreign lawyers’ fees is an issue which has frequently been considered by the British Virgin Islands Courts in recent years. This has resulted in a significant body of case law on the topic.[1]
This issue has attracted less attention in the Cayman Islands though tangential issues, such as the limited admission of foreign lawyers, are frequently considered in the Grand Court. A recent Cayman Islands judgment has addressed the recoverability of foreign lawyers’ fees and it is worthy of review, for the purpose of highlighting to prospective litigants the likelihood that foreign lawyers’ fees will not be recoverable from their opponent.[2]
In this article, ‘foreign lawyers’ means lawyers who have not been admitted to practise Cayman Islands law but who are employed by an offshore firm based overseas which is affiliated with a Cayman Islands law firm.[3]
Overview of the ‘Loser Pays’ Principle and Cayman Islands Costs Regime
The ‘loser pays’ principle (also known as the ‘English Rule’) applies in Cayman Islands litigation. This is the policy that the losing party in litigation reimburses the winning party for its legal expenses (known as ‘costs’), including lawyers’ fees. This is a general rule only and as with every rule, there are exceptions.
The Cayman Courts have the power to make costs orders in favour of a party and give directions as to how those costs are ‘taxed’ (assessed) pursuant to section 24 of the Judicature Act (2021 Revision).[4] The manner in which the Cayman Courts exercise this power is subject to Order 62 of the Grand Court Rules (the “GCR”) and the relevant practice directions.[5] This includes the power to make costs orders in favour of one party or another on the standard basis or the more generous indemnity basis.
A helpful summary of the Cayman Court’s jurisdiction to award costs on the indemnity basis (and when it will be deemed appropriate to do so) may be found in a judgment delivered by Justice Parker in 2021.[6] The relevant points are as follows:
- The Court has the discretion to order costs on the indemnity basis “only if it is satisfied that a party has conducted the proceedings improperly, unreasonably or negligently. Unreasonable or improper does not mean merely wrong or misguided in hindsight.”[7]
- Indemnity costs orders are the exception, not the rule, though the “jurisdiction to make such an order is wide and flexible.”[8]
- This is a punitive measure of taxation and the Court should ask itself whether the case was conducted “improperly, unreasonably, or negligently to a sufficiently high degree to merit a mark of disapproval by the Court?”[9] (emphasis added).
When will Foreign Lawyers’ Fees be Recoverable?
The net effect of the Cayman costs regime is that foreign lawyers’ fees are likely to be recoverable on taxation in three scenarios only:
- Expert Evidence of Foreign Law
Where the foreign lawyer is engaged to give an opinion on a point of foreign law which is in issue in the proceedings, in which case those fees may be claimed as a disbursement.[10]
- The Foreign Lawyer is Granted Limited Admission
Where the foreign lawyer is granted admission for the purpose of appearing and advising in respect of a discrete cause or matter only (“Limited Admission”).[11] In this scenario, the foreign lawyers’ fees incurred after Limited Admission has been granted are recoverable, even on the standard basis. These restrictions on cost recovery apply by virtue of GCR Order 62, rule 18(1) (the “Rule 18 Restrictions”). Any costs incurred prior to the admission date will not be recoverable unless a costs order on the indemnity basis is subsequently made (see point iii. below).
Limited Admission is usually only granted to English Queen’s Counsel on the basis of their specialist skill and knowledge. Recent Cayman Islands case law suggests that any application by a junior counsel or foreign lawyer (solicitor) seeking Limited Admission is unlikely to succeed, except in the most unusual of circumstances.[12]
- Indemnity Costs Orders
Where a costs order is made in the client’s favour on the indemnity basis. In this scenario, the prohibition on the recovery of foreign lawyers’ fees falls away.[13] As outlined above, indemnity costs orders are the exception rather than the rule except in the case of a creditor’s winding up petition where the successful petitioner will usually be granted its costs on the indemnity basis.
The limitations on costs recovery outlined above reflect the long-established public policy of the Cayman Islands. This was summarized by Justice Jones in 2010 in the following terms:
“Engaging foreign lawyers is not improper and will not necessarily cause delay, but it is inherently uneconomic. Engaging foreign lawyers, who are not admitted as attorneys in the Cayman Islands, inevitably results in some duplication of work and some extra cost. [The limitation on cost recovery] is intended to protect a party from the financial consequences of his opponent’s decision to conduct his case in an extravagant manner by engaging foreign lawyers in addition to local lawyers. [It] is also intended to deter litigants from conducting their case through unqualified persons who are not subject to the disciplinary regime applicable to Cayman attorneys….”[14] (Emphasis added)
Recent Developments in the Cayman Islands
A recent ‘fair value’/238 decision has caused the Grand Court to look again at the recoverability of foreign lawyers’ fees.[15] The sums at issue were not insignificant in this case; the company had incurred costs of US$8,468,488.86[16] in total (by duly admitted lawyers and foreign lawyers) and the dissenting shareholders (the “Dissenters”) had incurred recoverable costs of US$2,703,163.06 by 27 December 2018.[17]
The company sought ‘Costs Limitation Orders’ i.e., the disapplication of the Rule 18 Restrictions, discussed above, so that the fees incurred by foreign lawyers employed by the Hong Kong and Shanghai affiliates of the Cayman Islands’ firm would be recoverable on taxation on the standard basis.
As matters transpired, the Court declined to make any costs order leaving the company and the Dissenters to bear their own costs.[18] The Court, however, did indicate that had it made a costs order in the company’s favour, it would not have granted ‘Costs Limitation Orders’. While the comments in question were, strictly speaking, obiter, they are likely to be relevant in the future. Indeed, they mirror the recent obiter comments in the Cayman Islands Court of Appeal that “the costs of foreign lawyers who have not been temporarily admitted are not recoverable where costs are awarded on the standard basis and the Respondent did not seek to argue otherwise.”[19]
The company’s arguments in favour of ‘Costs Limitation Orders’ can be summarized as follows, namely:
- The Rule 18 Restrictions could be disapplied pursuant to GCR Order 62, rule 17(1);[20]
- Ritchie Capital Management v Lancelot Investors Fund was authority for the proposition that foreign lawyers’ fees could be recovered where costs were allowed on the standard basis (not the indemnity basis);[21]
- GCR Order 62 and GCR Order 62, rule 18(1), in particular, were “outdated and in need of reform” and that “in the modern age, it was entirely reasonable for a litigant in the Company’s position to wish to communicate with attorneys in its own language and time zone (as the Company did in this case which was why personnel in [the] Hong Kong and Shanghai offices were used)…”.[22]
The Court declined to follow the approach in Ritchie Capital Management v Lancelot Investors Fund noting that the decision was delivered ‘on the papers’ i.e., without the benefit of oral argument and a hearing, and, as a result, it was appropriate to treat the judgment on this issue as, at most, “preliminary”.[23]
Further, the Court held that it did not have the power to disapply the Rule 18 Restrictions.[24] While the Court did express sympathy with the company’s views on the practice of law in the modern age, it held that “it is not open to a judge of this Court to change the law and ignore the clear and mandatory terms of the GCRs.”[25]
Practical Considerations
For some clients, communicating with their lawyers in their own language and/or in their own time zone will be the key consideration and they will accept that restrictions on the recoverability of costs is the price that they must pay for the convenience of staffing a matter with foreign lawyers.
For other clients, particularly those who are extremely cost-conscious, ensuring that the lawyers who work on their files are all duly admitted in the Cayman Islands will be the key consideration.
Finally, there will be clients who will wish to strike a balance by, for example, ensuring that a small team of foreign lawyers are engaged in their time zone with the bulk of the work being carried out by duly admitted Cayman lawyers, particularly the more costly aspects of the work.
When considering the issue of costs/planning at the outset of a matter, the following points will likely be helpful to clients, namely:
- If the client is relying on insurance to defend the proceedings (e.g., Director and Officer Insurance or After the Event Insurance), the client should read the policy and consult with the insurer before prioritizing convenience over cost recovery. Depending on the terms of the policy, insurers may refuse to cover the cost/reimburse clients for work carried out by foreign lawyers which is irrecoverable on taxation or seek to recoup those costs from the client in due course.
- With the abolition of champerty and maintenance under Cayman Islands law[26] and the introduction of litigation funding, subject to regulation, by way of the Private Funding of Legal Services, Act, parties will be accessing more funding options in the future. This includes litigation funding agreements and contingency fee agreements. Litigation funding agreements with third party funders should expressly address how non-recoverable legal fees will be treated, if the client wishes to instruct foreign lawyers for reasons of convenience.
Contingency fee arrangements will not impact on cost recovery as between the client and the opposing side e.g., if an uplift on charge-out rates or a percentage of recoveries is payable in the event of success, the client will be limited to recovering costs from the opposing side in the usual manner (standard basis or indemnity basis) without reference to the uplift/percentage.[27] If the client wishes to staff the matter with qualified lawyers only but the law firm wishes to staff the matter with foreign lawyers, whose fees are irrecoverable, the client may wish to factor this into its calculations when agreeing any uplift or percentage of recoveries.
[1] Garkusha v Yegiazaryan (BVIHCMAP2015/0010, 6 June 2016); Shrimpton v Scriven (BVIHCMAP2016/0031, 3 February 2017); Gany Holdings (PTC) SA v Zorin (2020) 96 WIR 378; Yao v Kwok (BVIHCMAP2018/0042, 1 June 2021).
[2] In the Matter of Trina Solar Limited (Unreported, 8 December 2021, Segal J).
[3] The regulatory issues associated with this state of affairs is outside the scope of this article. With regard to Cayman Islands law, the reader should bear in mind that if/when the Legal Services Act, 2020 is commenced and assuming, of course, that this occurs without substantive amendment, the regulatory regime for foreign lawyers practising Cayman Islands law abroad will change dramatically.
[4] Section 24 of the Judicature Act (2021 Revision) is similar but not identical to section 51 of the English Supreme Court Act 1981 (see In the Matter of Primeo Fund (In Official Liquidation) 2017 (2) CILR 99 at 115 for a brief discussion of this point).
[5] Practice Direction No.1/2001 – Guidelines relating to the Taxation of Costs and Practice Direction No.1/2011 – Guidelines relating to the Taxation of Costs.
[6] Ritchie Capital Management LLC v Lancelot Investors Fund, Ltd and General Electric Company (Unreported, 4 March 2021, Parker J) at paragraphs 3-11.
[7] See GCR Order 62, rule 4(11) and paragraph 3 of Ritchie Capital Management LLC v Lancelot Investors Fund, Ltd and General Electric Company (Unreported, 4 March 2021, Parker J)
[8] Ibid at paragraph 4, applying the dicta of Chief Justice Smellie in AHAB v SAAD [2012] (2) CILR 1 at paragraphs 9-12.
[9] Ibid at paragraph 9, applying the dicta of Chief Justice Smellie in AHAB v SAAD [2012] (2) CILR 1 at paragraph 11.
[10] Section 6.4 of Practice Direction 1 of 2001.
[11] Order 62, rule 18(1).
[12] See In the Matter of an Application for the Limited Admission of Luka Krsljanin an Attorney-at-Law of the Cayman Islands (Unreported, 1 March 2022, Segal J); and In the Matter of an Application by Ciaran Joseph Keller to be admitted to practise as an Attorney-at-Law in the Cayman Islands (Unreported, 1 April 2021, Segal J).
[13] The actual fees recovered on taxation may still be limited where there is duplication of work between the Cayman lawyer and foreign lawyer teams and by reference to the other restrictions set out in GCR Order 62, rule 18(1) and the relevant practice directions.
[14] Re Wyser-Pratte EuroValue Fund [2010] (2) CILR 233 at 240.
[15] In the Matter of Trina Solar Limited (Unreported, 8 December 2021, Segal J)
[16] Ibid at paragraph 49.
[17] The judgment does not provide a comprehensive breakdown of the parties’ respective costs, including what was ostensibly recoverable (incurred by Cayman Islands-admitted lawyers and English QC duly admitted) and what was not recoverable under the Cayman Islands’ costs regime i.e., fees incurred by unqualified foreign lawyers. The trial took place in May and June 2019 with a further hearing taking place in April 2020 (see In the Matter of Trina Solar Limited (Unreported, 23 September 2020, Segal J)).
[18] Ibid at paragraph 69(l).
[19] Scully Royalty Limited v Raiffeisen Bank International AG (Unreported, 8 April 2022, CICA) at paragraph 39.
[20] GCR Order 62, rule 17(1) provides that: “Where the costs of any action or matter are to be taxed the Court may, if it thinks fit, direct that any item of work shall be allowed, disallowed, restricted or qualified on taxation.”
[21] Ibid at paragraph 81.
[22] Ibid at paragraph 87.
[23] Ibid at paragraph 86.
[24]Ibid at paragraph 86.
[25] Ibid at paragraph 87.
[26] Section 17 of the Private Funding of Legal Services Act, 2020.
[27] Section 6 of the Private Funding of Legal Services Act, 2020.