I INTRODUCTION TO DISPUTE RESOLUTION FRAMEWORK

The Cayman Islands is a British Overseas Territory. A Governor, a Cabinet of ministers and a Legislative Assembly have executive and legislative power, subject to a power of disallowance by the British Secretary of State for Foreign and Commonwealth affairs. The Cayman Islands enacts statutes and regulations, and, unless expressly extended to apply there, English statutes enacted after 1727 have no general application to the Cayman Islands.

The Courts of the Cayman Islands reach their decisions in cases before them on the basis of the law of the Cayman Islands and applicable precedent. Where there are no binding Cayman Islands decisions, then decisions from English courts and those of other common law jurisdictions will be considered persuasive argument.

The Grand Court of the Cayman Islands (Grand Court) is, in most cases, a Superior Court of Record of First Instance, having unlimited jurisdiction in both criminal and civil matters. Appeals from the Grand Court go to the Cayman Islands Court of Appeal, which is also a Superior Court of Record. The final level of appeal from the Cayman Islands Court of Appeal is the Judicial Committee of the Privy Council (JCPC).

An action for relief up to a value of CI$20,000 can be brought in the Summary Court. Claims for a higher value, or other matters such as judicial review or winding up companies, should be brought in the Grand Court. The business of the court takes place in six divisions: civil; criminal; matrimonial and family; admiralty; probate and administration and financial services. Civil law claims, for example, for breach of contract, tort, trust matters and companies, would be brought in either the civil division or the financial services division, the latter being used for complex and higher value civil cases that normally arise out of the Cayman Islands’ financial sector. Cases in the civil and financial services divisions are decided by a judge sitting alone and only in a civil case for fraud would the defendant have the option of a jury trial.

Subject to approval by a judge, evidence may be given and hearings conducted by telephone or video link. Employment cases will in the first instance be dealt with by a labour tribunal, with rights of appeal to the Grand Court. Immigration decisions are appealed to the Immigration Appeals Tribunal with rights of appeal to the Grand Court.

II THE YEAR IN REVIEW

2017 saw important decisions on redemptions and the negligence of fund service providers. It also produced key rulings on how to determine the fair value of shares to be purchased from dissenting minority shareholders in corporate mergers and the court’s common-law powers to assist in the insolvency and restructuring of foreign registered companies by sanctioning a scheme of arrangement. These decisions are summarised below.

Significant rulings were also made late in the year, with the Cayman court for the first time recognising the powers of a receiver of a Bermudan segregated account,2 as well as issuing a judgment that indicates when third-party funding of litigation in the Cayman Islands does not constitute champerty or maintenance, providing helpful clarity on the issue.3

i In the Matter of Primeo Fund v. Bank of Bermuda (Cayman) Limited and HSBC Securities Services (Luxembourg) SA FSD30 of 2013

The Grand Court considered whether a custodian and an administrator had been negligent in regard to losses from Madoff investments, based on the lack of ability to verify the assets’ existence and value due to the unusual structure utilised.

Custodian

The custodian accepted the terms for investment of Bernard L Madoff Investment Services (BLMIS)), which combined the roles of sub-custodian, broker and investment manager. The judge found that the custodian could have identified to their client the risks of that structure and suggested ways to protect their client. If their client insisted on continuing to invest, then a reasonably competent custodian would have either resigned or negotiated new terms to limit or avoid its liability.

Administrator

The administrator provided Primeo with investment information, maintenance of records, a monthly net asset value (NAV) calculation and checks on the existence of the assets underlying the investments. In doing so it relied on one source, BLMIS. That reliance was found to be negligent, but as Primeo had structured its investment in BLMIS through two sub-funds, the administrator had not breached any duty to Primeo. Provided there was no obvious error, the administrator had no obligation to look through the sub-funds’ NAVs when calculating Primeo’s NAV. The sub-funds could bring a claim against the administrator, but here Primeo was claiming for a loss suffered by funds in which it had invested. This is ‘reflective loss’ and there is a common law principle that prevents such claims.

Primeo’s contributory negligence

Primeo knew and accepted the risks in investing in BLMIS and would have continued to invest even if warned about them by the administrator or custodian. The judge made it clear that had those professionals been liable to pay Primeo damages, the amount would have been reduced by 75 per cent for contributory negligence.

ii Michael Pearson as Additional Liquidator of Herald Fund SPC (in Official liquidation) (Appellant) v. Primeo Fund (in Official Liquidation) (Respondent) [2017] UKPC 19

The JCPC confirmed that redemption of shares occurs when a shareholder ceases to be a shareholder, even if they have not yet been paid for the shares they have redeemed, and then they become a creditor until such time as they are paid the amount due for the share redemption.

This has determined the interpretation of Section 37(7)(a) of the Companies Law (2016 Revision) (the Law), which addresses the situation where a shareholder has redeemed shares in a company that then becomes subject to winding-up (liquidation). Section 37(7)(a) sets out whether that shareholder has stopped being a shareholder and instead becomes a creditor. It also sets out what priority a creditor whose debt arises from share redemption has in regard to other types of creditors and those who are still shareholders. This matters, as in a liquidation, creditors are paid before shareholders.

The JCPC agreed with the Grand Court and the Cayman Islands Court of Appeal that: shares are redeemed when shareholders surrender the status of shareholder; and that payment is not an inherent element of either redemption or of repurchase by a company of its own shares. Primeo had properly redeemed its shares in Herald before redemptions were suspended and before the liquidation commenced. This meant it was no longer a shareholder at the start of Herald’s liquidation and as it was owed payment for the redeemed shares, accordingly, Primeo was a creditor.

The parties had agreed that redeemers judged to be creditors would be entitled to be paid before the shareholders, but after other creditors. This meant the JCPC did not need to decide if Primeo’s debt had priority over shareholders or other creditors and that this issue remains to be definitively resolved.

iii DD Growth Premium 2X Fund (In Official Liquidation) v. RMF Market Neutral Strategies (Master) Limited [2017] UKPC 36

The JCPC found that redemption payments to RMF made by DD Growth from share premiums are within the definition of payments out of capital and as such are unlawful if made when a company is insolvent. Section 37(5)(a), (b) and (f) of the Law states that ‘capital’ for the purpose of Section 37(6) is any payment not made out either of profit or the proceeds of a fresh issue of new shares. Redemption payments made by DD Growth to RMF were not from either of these sources and so were payments from capital.

The JCPC confirmed that redemption payments are debts that fall due in the ordinary course of business and so if they cannot be paid in full then the company is insolvent. As DD Growth made the redemption payments to RMF at a time when it could not make full redemption payments to those entitled (including RMF) it was not able to pay its debts as they fell due in the ordinary course of business. Therefore the payments to RMF that had been made out of capital were unlawful under section 37(6)(a) of the Law.

The JCPC found that while the payments by DD Growth were unlawful the redemptions by RMF were lawful transactions. As RMF had not acted unlawfully and had simply received payments that were due to it, the payment was not recoverable under the common law principle of unjust enrichment. This is because a person cannot be unfairly enriched where they have given full value for the sums received. However, although payment had been received by RMF for lawful consideration, it had been authorised by the DD growth directors in breach of their duties to the company. Accordingly, the question arose of whether RMF could be said to have known it received the money due to such breach of trust. If it did it would be a constructive trustee of the sums paid to it by DD Growth and would have to give them back if asked. As that point had not previously been decided in the lower courts, the JCPC directed the Grand Court to do so. It made the point that knowledge by RMF of the breach of duty by the DD Growth directors, in a situation where there was a routine redemption and any unlawfulness only arose out of the internal affairs of the company, may be hard to prove.

iv Re Shanda Games Limited Unreported 25 April 2017, (Segal J)4

Shanda is a Cayman Islands holding company involved in business as one of China’s largest online games companies. Many such companies have entered into mergers in recent years as part of ‘take private’ reorganisations.

The Law provides for statutory mergers and consolidations of companies. Approval of a plan of merger or consolidation prepared by the company must be obtained via a special resolution, passed by a majority of at least two-thirds of shareholders at a duly convened general meeting of the company. Section 238 of the Law allows shareholders who wish to dissent from the merger to obtain a court determination as to the company’s fair value on the date of the meeting in which the merger was approved and have their shares bought at a price reflecting the fair value of the company.

Fair value is not defined in the Law but a previous Grand Court decision had concluded that the court’s role was to determine the fair value of the company’s entire business as a going concern as at the valuation date, and that the fair value of a dissenter’s shares would be their proportionate share of that amount, with no minority discount or premium for the forcible taking of their shares. There is no presumption that the merger price constituted a minimum price.

This approach was adopted by Segal J in Shanda, who also confirmed the proposition that the court will approach disputed issues on the basis that it is for both parties to establish, on the balance of probabilities, that the valuations their experts have presented are reasonable and reliable. If only one is reasonable and reliable the court should generally follow that expert’s approach. If both appear to be reasonable and reliable then the court must decide which is to be preferred. If neither is reasonable nor reliable, the court must make its own determination.

In Shanda both experts had agreed that the most suitable valuation methodology was to solely use discounted cash flow (DCF) models. However, there were disputes on the DCF analysis that are likely to feature in similar future cases: (i) the discount rate and the inputs to its calculation; (ii) which of the three sets of projections produced by Shanda should be relied upon; (iii) whether a two-stage or three-stage growth model should be used; (iv) the treatment of expenditure on the take-private transaction; and (v) the treatment of restrictive stock units and share options triggered by the merger. The court’s ruling in resolving these questions and determining the fair value made a number of findings that will be of interest to participants in future merger cases.

v Re Ocean Rig UDW Inc and others (Unreported, Grand Court, 18 September 2017)5

Ocean Rig UDW Inc (UDW), a leading international contractor of offshore deep-water drilling services, and three of its subsidiaries successfully applied for the sanction of four schemes of arrangement.

As a result of the decline in oil and gas prices and other changes in the offshore drilling sector, the Ocean Rig group needed to take steps to restructure its financial indebtedness, to manage liquidity and to stabilise its business. The schemes restructured the core financial indebtedness of approximately US$3.7 billion, making use of the reorganisation provisions of the Law. These enable the court to sanction a compromise or arrangement between a company and its creditors or members, or any class of them, that is approved by 50 per cent in number and 75 per cent in value of those present and voting at a meeting called for that purpose. Once sanctioned by the court the provisions of the compromise are binding on all the creditors, even those who dissented.

The four scheme companies were all originally incorporated in the Republic of the Marshall Islands. The parent company, UDW, transferred to the Cayman Islands by way of continuation as an exempted company in April 2016. The subsidiary companies were registered as foreign companies in the Cayman Islands in October 2016. The Law gives the Cayman Islands Court the jurisdiction to sanction a scheme for any company liable to be wound up by the Cayman Islands Court and the Law provides that the Cayman Islands Court has jurisdiction to wind up a foreign company which: (1) has property located in the Cayman Islands; (2) is carrying on business in the Cayman Islands; (3) is the general partner of a limited partnership; or (4) is registered as a foreign company with the Cayman Islands Registrar of Companies. As a result of the transfer of UDW to the Cayman Islands and the registration of the subsidiaries as foreign companies all four companies were able to benefit from the Cayman Islands’ scheme of arrangement regime, the likes of which is not available in the Marshall Islands.

This was the first time the court sanctioned a scheme involving foreign companies.

III COURT PROCEDURE

i Overview of court procedure

Civil litigation in the Cayman Islands involves the commencement of an action by an aggrieved party setting out the nature of the claim made and whom it is made against. There are procedures for both parties to set out the facts and law applicable to the dispute, provide documentary and witness evidence and then have a trial of the issue. There may be rights of appeal of the decision made.

Procedures, forms and fees for civil proceedings worth over CI$20,000 are governed by the Grand Court Rules 1995 (GCR),6 subsequent amendments, sub-rules and practice directions. The GCR do not apply to disputes governed by Parts I to III of the Succession Law (Probate and Administration) Rules 1977 (as amended); the Matrimonial Causes Rules 1986, (as amended); the Grand Court (Bankruptcy) Rules 1977 (as amended); Summary Court Rules 2004; and The Companies Winding Up Rules 2008 (as amended) (CWR).7

ii Procedures and time frames
General: Grand Court Rules

Originating process

Civil proceedings in the Grand Court may be begun by writ, originating summons, originating motion or petition (originating process) sealed by the court. All originating process must be in the prescribed form. The majority of claims commence with the aggrieved party (plaintiff) issuing a writ, endorsed with a general statement of the nature of the claim and the relief the plaintiff is seeking (generally endorsed writ). Alternatively they may issue the writ with a statement of claim that gives full details of the facts of the claim (statement of claim).

Service

The writ must be served on the party named in the writ (defendant) together with a form of acknowledgement of service (AS) within four months of the writ being issued if the defendant is located or domiciled in the Cayman Islands, or six months if the writ must be served outside of the jurisdiction. The plaintiff may apply to extend the deadline.

Other pleadings

Where a writ has been served on a defendant in the Cayman Islands, the defendant has 14 days to complete and file the AS with the court to indicate whether they will defend the claim. Where a generally endorsed writ has been served the plaintiff must serve the statement of claim within 14 days of the date for filing the AS. When the defendant has been served with the statement of claim they have 14 days from the date for filing the AS to file a defence and any counterclaim. The plaintiff then has 14 days from the date for filing the defence and any counterclaim to file any reply and any defence to counterclaim. The defendant may then file a reply to the defence to counterclaim within 14 days of the date for filing the reply and any defence to counterclaim.

Challenges to jurisdiction

Any challenge by the defendant to the jurisdiction of the Grand Court must be brought by motion or summons within 14 days from the date for filing the AS.

Case management

Once the pleadings are deemed to be finalised (14 days from the expiry of the time for filing the last pleading) the plaintiff then has one month to file for an order for directions from the court on how to proceed.

Discovery

Within 14 days of the pleadings being finalised, the parties must serve on the other party a list of the documents that are or have been in his possession, custody or power relating to any matter in question between them in the action.

Extensions of time

All the above 14-day deadlines can be, and usually are, extended by agreement between the parties or order of the court.

Interlocutory applications

Interlocutory applications to determine matters such as procedure or points of law, or applications to strike out a claim or give summary judgment, are begun by asking the court to issue a summons. The summons must be served on the other party not less than four clear business days before the hearing date given by the court. Depending on the urgency, degree of complication and time required to hear the application, the court will be able to hear a summons within two to six weeks of it being issued. Evidence is given by affidavit. Cross-examination on affidavit evidence may be sought by court order but is not usual.

Injunctions

A plaintiff or counterclaiming defendant can apply to the court for various injunctions, usually where it considers urgent action is needed. These are generally held with only the applying party present (ex parte) with a subsequent hearing held later with both parties present (inter partes). To prevent the process being abused, the party making the application will usually be required to provide the court with an undertaking or money paid into court as security for any loss caused. This is in the event that the court later decides, when all the facts are available that the injunction should not have been granted. The types of injunction include:

  • a to prevent action being taken or to compel someone to do something;
  • b to prevent assets being dissipated by freezing them (a Mareva injunction);8
  • c to trace assets by ordering someone who is not a party to the action but who has innocently facilitated a wrongdoing to disclose information (a Norwich Pharmacal injunction);9
  • d to trace assets by ordering a non-party such as a bank to make full disclosure of confidential information to trace assets (a Bankers Trust injunction);10
  • e to enter and search premises to find documents or moveable property and prevent their destruction (an Anton Piller injunction);11
  • f to appoint a receiver or to prevent disposal of company property before the appointment of a receiver (under GCR Order 30);
  • g to appoint a receiver or grant other interim relief in aid of proceedings outside the Cayman Islands (under Section 11A of the Grand Court Law 2015 Revision) (including a standalone Mareva injunction).
iii Class actions

There is no formal process for class actions in the Cayman Islands as exists in other jurisdictions such as the United States. Where many plaintiffs would like to bring similar claims the Grand Court can allow a representative claim to proceed, rather than have many actions with the same subject matter and issues. The result of a representative action is binding on all the parties to that action, but others that are represented but not named cannot have a judgment enforced against them without leave of the court.

iv Representation in proceedings

Natural persons can represent themselves or can instruct a Cayman Islands qualified attorney to represent them. Those whose claim is for under CI$5,000 are encouraged to act for themselves in the Summary Court. For claims in the Grand Court the Judicial Administration recommends using an attorney. Companies must be represented by an attorney. Overseas lawyers, generally senior advocates, may be granted limited admission to the Grand Court for the duration of the hearing for which they have been retained by local attorneys.

v Service out of the jurisdiction

Unless the action is one where a Law provides that leave is not required for service out of the jurisdiction, a party wishing to serve a originating process on a person (natural or unnatural) located outside the Cayman Islands needs to apply for leave of the court to do so. A supporting affidavit must set out the cause of action, show that it has a good chance of success, demonstrate that there is a real issue which the court should try, where the defendant is or is likely to be and the method of service needed. The method need not be in person, so long as it is in accordance with the law of the country in which service is to be effected. The court will not grant leave unless the party makes it sufficiently clear to the court that the case is a proper one for service out of the jurisdiction.

vi Enforcement of foreign judgments

A final and conclusive foreign judgment on the merits (i.e., not obtained by default in appearance of the defendant) for money, which is not contrary to Cayman Islands public policy (for example a tax judgment or punitive award) may be enforced by an action in the Cayman Islands for debt, if it is shown that the judgment debtor has assets in the Cayman Islands. A writ is issued and served and if the judgment debtor enters an appearance, summary judgment can be sought on the basis that there is no defence, using the foreign judgment as evidence of that fact. This includes where the judgment is under appeal provided that execution of the judgment has not been stayed. The plaintiff will need to satisfy the court that the foreign court had jurisdiction over the defendant as they were ordinarily resident in that jurisdiction, voluntarily participated in the proceedings (not simply to challenge jurisdiction) or submitted to that court’s jurisdiction. The defendant may be able to show that it would be contrary to public policy to recognise or enforce the foreign judgment, for example: because it was obtained by fraud; the foreign court was not competent to pronounce the judgment; or it was obtained in proceedings contrary to natural justice or where the defendant’s rights were grossly violated.

Under the Foreign Judgments Reciprocal Enforcement Law (1996 Revision),12 a foreign judgment may be registered in the Cayman Islands on application to the Cayman court, after which the judgment is deemed to have the same force and effect as if originally made by the Cayman court. However, this law has only been extended to foreign judgments from Australia and its external territories.

Foreign arbitration awards can be enforced in the Cayman Islands under the Foreign Arbitral Awards Enforcement Law (1997 Revision)13 or the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958).14

vii Assistance to foreign courts
Part XVII of the Companies Law

On the application of a foreign liquidator or other insolvency representative, the Grand Court may make orders recognising the right of the representative to act in the Cayman Islands on behalf of the debtor; to stay proceedings against the debtor; to examine witnesses and have documents produced to it; and transfer property of the debtor to the representative.

Non-statutory power

The Grand Court also has jurisdiction at common law to assist a foreign liquidation, even if the liquidator is not appointed in the jurisdiction where the company is incorporated. The September 2017 judgment in China Agrotech15 granted recognition and assistance to liquidators appointed by the High Court of Hong Kong to present a scheme of arrangement under Section 86 of the Companies Law (2015 Revision) on behalf of the company. The assistance sought must be of a type available to the liquidator under the law governing the liquidation.

Evidence in support of foreign proceedings

On a request by a court with jurisdiction in foreign proceedings, the Grand Court can make orders to produce documents or examine witnesses to obtain evidence in support of foreign proceedings.16

Hague Convention

The Hague Conventions apply to both service of documents abroad17 and taking evidence abroad.18

viii Access to court files

The clerk keeps a register of writs and other originating processes. This file contains an office copy of all originating process documents issued by the Grand Court and is available for public inspection upon payment of the prescribed fee. The Clerk must also keep a register of judgments that must be available to the public for inspection and copies are available on payment of the prescribed fee. The Grand Court may give leave, on application, to any person to inspect or to take a copy of any document on the court file. All hearings in open court are publicly accessible and hearings in Chambers are generally accessible but the parties to the case can object and it is at the judge’s discretion whether to accede to the objection or not.

ix Litigation funding

The common law torts of maintenance (where a third party assists or encourages a claim without any benefit to the third party) and champerty (where the assistance or encouragement is given in return for an interest in the proceeds of litigation) still apply in the Cayman Islands. Whilst the Grand Court has previously approved third-party funding agreements subject to certain conditions,19 the scope for such agreements has been limited to liquidation proceedings involving impecunious estates.

However, a recent decision of the Grand Court20 approved a funding agreement in a commercial dispute, which involved a Korean company seeking to enforce a judgment in the Cayman Islands. This represents a notable evolution in the judicial interpretation of the law as it applies to the Cayman Islands, as well as a perceived shift in public policy.

The decision will be welcomed by litigation funders and is likely to encourage further development in this sensitive area of law in the near future. It should also prompt law makers to reconsider the discussion paper prepared by the Cayman Islands Law Reform Commission in 2015,21 which included a draft bill.22

IV LEGAL PRACTICE

i Conflicts of interest and Chinese walls
Conflicts of interest

Under the Code of Conduct for Cayman Islands Attorneys at Law,23 without the prior informed consent of a client, an attorney must not act for a client where there is or it is reasonably foreseeable that there might be in the future, a conflict of interest with the attorney or an existing or prospective client, nor may the attorney act for more than one party in the same matter or transaction.

Chinese walls

The use of Chinese walls is provided for under Rule 1.13(2) of the Code of Conduct, which provides:

Unless the relevant parties have given their prior informed consent, it is not acceptable for attorneys in the same firm to continue to act for more than one client in a transaction. The use of an information barrier such as a ‘Chinese wall’ should be considered carefully and appropriate safeguards adopted with respect to segregating confidential information. Such a device does not overcome a conflict of interest that has already arisen.

ii Money laundering, proceeds of crime and funds related to terrorism

There is a long list of laws and regulations that apply in the Cayman Islands.24 Further, the UK government has issued overseas territories orders for sanctions or restrictive measures against countries, regimes or individuals deemed to be in violation of international law on matters relating to money laundering, terrorism financing and proliferation financing.

The most significant of the Cayman Islands laws is the Proceeds of Crime Law (2016 Revision) (PoCLaw), under which the Anti-Money Laundering Regulations 2017 (AML) have been issued. The AML applies to those carrying out relevant financial business, defined in Section 2 (definitions and interpretation) and in Schedule 6 of the PoCLaw and so do not generally apply to dispute resolution.

Under the PoCLaw, an attorney, who in the course of his or her profession knows or suspects or has reasonable grounds to know or suspect that another person is engaged in criminal conduct, commits an offence if they do not report that information to the Financial Reporting Authority as soon as is practicable. There are exceptions, including where the information or other matter came in privileged circumstances. The privilege exception does not apply where the information or other matter was communicated or given with the intention of furthering a criminal purpose.

Also an attorney who has any information which may be of assistance in preventing an act of terrorism or which would secure an arrest or prosecution under the Terrorism Law (2017 Revision) (including belief that a person has committed an act of terrorism) must report that to the relevant authority. The exception is where the information came in privileged circumstances that did not involve the intention of furthering a criminal purpose.

iii Data protection

The Data Protection Law, 2017 (DPL) has been passed in the Cayman Islands but is not yet in force. It is expected to come into effect in January 2019. Once in force the DPL will impose restrictions (based on eight principles) on the processing of any personal data relating to an identifiable living person, by or on behalf of, a Cayman Islands-established individual responsible for determining the manner in which the data will be processed. Under the DPL sensitive personal data such as racial or ethnic origin, religion, health, sex life, offences or court sentences is afforded special protection. As well as the DPL, how attorneys treat or process personal data is governed by the Code of Conduct for Cayman Islands Attorneys at Law.25 This requires attorneys to protect the confidentiality of the affairs of present or former clients, unless otherwise allowed or required by law or applicable rules of professional conduct as well as common law duties on the treatment of information that must by its nature be confidential (such as health, legal or financial information), which is neither common knowledge nor in the public domain, and which is disclosed in circumstances where it gives rise to a duty of confidence.

The Confidential Information Disclosure Law 2016 (CIDL) also applies to confidential information where it is necessary to apply to the court for directions in proceedings where confidential information is required to be given in evidence.

V DOCUMENTS AND THE PROTECTION OF PRIVILEGE

i Privilege

A person or entity may claim that documents in their possession or control are protected from disclosure in litigation. This protection is known as privilege and only the client can claim privilege and only the client can waive it. A lawyer is under a professional obligation to assert it on behalf of the client until such time as it is waived by the client. Privilege continues even if the client ceases to exist. Privilege can be expressly waived by the client if it chooses, and care must be taken not to waive privilege inadvertently. The two categories of privilege are litigation privilege and leal advice privilege.

Litigation privilege applies to confidential documents that are sent between an attorney and a client, or an attorney and a third party, or a client and a third party, and are brought into being when litigation has been commenced or is reasonably in contemplation. The test for whether litigation is contemplated is an objective one, and is satisfied if litigation is ‘reasonably in prospect’. Where there is more than one purpose behind the creation of the document, the party claiming privilege must establish that the ‘dominant purpose’ was the litigation.

Legal advice privilege applies to documents that record confidential communications between attorneys acting in their professional capacity and their clients and created for the purpose of obtaining or providing legal advice.

Without prejudice

Where there has been a genuine attempt to resolve a dispute then without prejudice privilege can prevent such communications between the parties for that purpose from being put before the court.

ii Production of documents
Discovery

Once the pleadings close, within 14 days of the last pleading each party must serve on the others a list of all the documents (including those held electronically, film, photographs etc) which are or have been in his or her possession, custody or power relevant to the matters between them in the action which the court is being asked to decide. (The definition of documents includes all forms of electronic documents.) Disclosure of documents is not limited to those documents on which a party wishes to rely in the proceedings, but also documents that may harm or undermine a claim or defence. Documents that may not be in the possession of a party may be under its power or control, for example, they are held by a related third party such as a subsidiary.

If a party considers another has not disclosed all the documents it should, then it can apply to the court to order that further documents be disclosed, identifying which documents it considers are missing. The documents or class of documents need to be identified carefully and their relevance explained, as the courts will not allow a party to abuse the process by going on a ‘fishing expedition’ to see what it might find.

Where full disclosure would result in the parties spending a disproportionate amount of time comparing the value or complexity of the issues in dispute or the relevance or usefulness of the documents to be disclosed, parties or can ask the court to limit the extent of discovery.

VI ALTERNATIVES TO LITIGATION

i Arbitration

The Cayman Islands Arbitration Law (2012) (the Arbitration Law) provides procedural rules regulating the Grand Court’s practice and procedures in relation to arbitrations (which can be varied by agreement) and sets out the duties of arbitrators. It is based on the UNCITRAL Model Law and the English Arbitration Act 1996. Foreign arbitration awards can be enforced in the Cayman Islands under the Foreign Arbitral Awards Enforcement Law (1997 Revision).26 or the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York 1958). The court supports the arbitration or mediation process where it has the power to do so, for example: in adjourning or staying proceedings to enable an arbitration or mediation to take place; enforcement or support for procedural or other interlocutory decisions; or (with leave) hear an appeal on a point of law of an arbitrator’s decision. An arbitral award can be appealed to the Grand Court on a point of law and set aside under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958).27

Under Section 28 of the Arbitration Law an arbitral tribunal must act fairly and impartially, allow each party a reasonable opportunity to present his or her case, and conduct the arbitration without unnecessary delay or expense.

ii Mediation

Aside from the introduction of compulsory mediation by the Family Division of the Grand Court, there is no provision, currently, in the Cayman Islands court rules for court-mandated alternative dispute resolution, with consequent costs consequences for failure to comply.

The court may apply a stay of proceedings where the parties have contractually agreed to submit to an ADR process. However, ADR is not commonly used in Cayman Islands disputes.

VII OUTLOOK and CONCLUSIONS

There are significant decisions expected from the Cayman Islands courts related to redemption claw back claims during 2018 and the Ocean Rig decision is expected to generate more applications by foreign companies for sanction of a compromise or arrangement between a company and its creditors or members. There will undoubtedly be more ‘fair value’ cases brought by dissenting shareholders to mergers as well.

While generally company winding-up petitions are down in number, there are a number of significant liquidations in progress that will produce interesting decisions, including in regard to auditors’ liability and in-kind redemptions.

Legislation for new legal entities such as limited liability partnerships and foundation companies are likely to spawn litigation that will be watched with great interest.

The Cayman Islands courts are dedicated to providing a ‘best in class’ service and the appointment of a number of judges and acting judges in 2017 will continue to reap rewards in speedy listings and effective disposal of cases in 2018.

1 Kai McGriele is a partner and Richard Parry is an associate at Solomon Harris.

2 In the matter of Silk Road Funds Ltd et al and a Request for Recognition (FSD 234 of 2017) – Sealed Order dated 11 December 2017.

3 A Company v. A Funder (unreported, 23 November 2017, Justice Segal).

4 In the Matter of the Companies Law (2013 Revision) and In the Matter of Shanda Games Limited.

5 In The Matters Of Ocean Rig Udw Inc., et al.

6 Grand Court Rules 1995 (Revised). G24/2003 s1.

7 Companies Winding Up Rules, 2008. GE5/2009 s3.

8 Mareva Compania Naviera SA v. International Bulkcarriers SA [1975] 2 Lloyd’s Rep. 509.

9 Norwich Pharmacal Co. v. Customs and Excise Commissioners [1974] AC 133.

10 Bankers Trust Co. v. Shapira [1980] 1 WLR 1274.

11 Anton Piller KG v. Manufacturing Processes Ltd & Ors [1975] EWCA Civ 12, [1976] 1 All ER 779 (8 December 1975).

12 Foreign Judgments Reciprocal Enforcement Law (1996 Revision) G1/1997 s1.

13 Foreign Arbitral Awards Enforcement Law (1997 Revision) G21/1997 s3.

14 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958), Article III.

15 In The Matter Of China Agrotech Holdings Limited 17-Sep-19.

16 Evidence (Proceedings in Other Jurisdictions) (Cayman Islands) Order 1978.

17 Convention of 15 November 1965 on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters.

18 Convention of 18 March 1970 on the Taking of Evidence Abroad in Civil or Commercial Matters.

19 Re ICP Strategic Credit Income Fund Ltd [2014] 1 CILR 314.

20 A Company v. A Funder (unreported, 23 November 2017, Justice Segal).

21 The Cayman Islands Law Reform Commission Discussion Paper, A review of litigation funding in the Cayman Islands – Conditional and contingency fee agreement, 29 December 2015.

22 The Private Funding of Legal Services Bill, 2015 (Draft).

23 Code of Conduct for Cayman Islands Attorneys at Law.

24 Criminal Justice (International Cooperation) Law (2015 Revision); Mutual Legal Assistance (United States of America) Law 2015 Revision; Misuse of Drugs Law (2017 Revision); Misuse of Drugs (Amendment) Law, 2016; Anti-Corruption Law (2016 Revision); Proceeds of Crime Law (2017 Revision); Proceeds of Crime (Amendment)(No. 2), 2016; The Proceeds of Crime (Amendment) Law, 2017; The Terrorism Law (2017 Revision); The Terrorism (Amendment) Law, 2017. Proliferation Financing (Prohibition) Law (2017 Revision); Anti-Money Laundering Regulations (2017). The Cayman Islands Law Society has indicated that they expect their members to observe the Guidance Notes on the Prevention and Detection of Money Laundering and Terrorist Financing in the Cayman Islands August 2015 (soon to change to a new 2017 version) and the List of Amendments to the Guidance Notes August 2015 insofar as they conduct relevant financial business, within the scope of the regulations. See also the Cayman Islands Monetary Authority – http://www.cimoney.com.ky/AML_CFT.

25 Code of Conduct for Cayman Islands Attorneys at Law s4.

26 Foreign Arbitral Awards Enforcement Law (1997 Revision) G21/1997 s3.

27 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958), Article V.