I INTRODUCTION TO THE 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 (the 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.
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 is 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 always decided by a judge sitting alone, except in a civil case for fraud where the defendant has 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
The year 2019 saw many important decisions on a variety of topics: preference payments or clawback which affect nominee shareholders; the nature of appeal hearings from Cayman governing bodies, which is likely to impact on anti-money laundering regulation; whether recognition of foreign receivers in Cayman is best achieved through common law or statute; a rare decision by the Court in refusing to enforce an arbitration award – for lack of consent to the arbitral process; on use of notification orders rather than freezing orders; on when sanction might be granted for liquidators to settle proceedings despite the existence of a separate proprietary claim; and a review of the principles surrounding shareholder claims and 'reflective loss'.
i Skandinaviska Enskilda Banken AB (Publ) (Appellant) v. Conway and another (as Joint Official Liquidators of Weavering Macro Fixed Income Fund Ltd) (Respondents) (Cayman Islands)2
In an important decision for nominee shareholders in Cayman companies, the Judicial Committee of the Privy Council (PC) considered whether redemption payments made by an insolvent company (Weavering) were preferences over other creditors of the company under Section 145(1) of the Companies Law3 (the Law). The payments had been made to a bare nominee (SEB), which had passed on payments to its principals. It was then discovered that the redemption payments had been based on a net asset value (NAV) which had been set incorrectly as a result of internal fraud.
The joint official liquidators (JOLs) appointed to Weavering argued that the redemption payments were preferences and invalid under Section 145(1) of the Law. They applied to the Cayman Grand Court for an order that SEB repay all of the redemption sum received of US$8,217,761.54 plus interest.
The Grand Court found the redemption payments to SEB were invalid as preferences over Weavering's other creditors. SEB was ordered to repay the redemption sum to the JOLs together with interest and costs. SEB appealed to the Cayman Islands Court of Appeal (CICA), which dismissed the appeal. SEB then appealed to the PC on six points:
- internal fraud meant the NAV was not binding on Weavering, therefore no redemption notices were valid and no money was due to any shareholders. If no money was due there were no creditors and therefore no payment could prefer one creditor over the other;
- preferring one creditor over another means both must be creditors. If redeeming shareholders had not yet become creditors and entitled to payment there could be no preference;
- whether Weavering was insolvent at the relevant time under the Cayman test of a company's solvency under Section 93 of the Law;
- whether the payer made the payments with the required intention to prefer one creditor over another under Section 145(1) of the Law. This considered the difference between an intention to prefer and mere knowledge that other payments could not be made;
- that the last two payments could not count as preferences;
- as Section 145(1) of the Law does not create a statutory cause of action for the recovery of preferential payments, the JOL's claim for repayment is under common law for 'unfair enrichment'. SEB was not enriched as it acted as a bare nominee for mutual investment funds. In paying the redemption proceeds to those funds it suffered an irreversible 'change of position' because it had no means to recover them from its principals.
The PC decided that the payments SEB received were preferences. Although equitable defences were available to SEB, the policy of ensuring that all creditors were paid pari passu overrode the equitable principles that would allow a 'change of position' defence. The PC recognised that this gave rise to a 'harsh result' and commented that legislation in other jurisdictions has addressed this situation to mitigate against such a result.
There was a majority finding on point (a) as to whether internal fraud meant those setting the NAV were not doing so in good faith and so the NAV was not binding. The PC found that situation was distinguishable from that in Fairfield Sentry Ltd v. Migani4 where those within the company who were setting the NAV were completely unaware of the underlying Madoff fraud that had affected the NAV.
All nominee shareholders in Cayman companies will now be vulnerable to preference claims and they should take advice on ways to avoid a similar result.
ii Robert Patraulea v. The Council of the Cayman Islands Institute of Professional Accountants5
Where a professional governing body has exercised a regulatory function given to it by statute and where the statute provides a right of appeal to the Grand Court (the Court), the appeal should be by way of a rehearing which examines whether the discretion has been properly exercised. The Court should not reconsider the whole matter afresh and decide whether it would have reached the same decision. This is a decision that will affect the appeal of decisions taken by professional governing bodies exercising a regulatory function, and in particular those decisions relating to money laundering offences.
The relevant legislation in this case6 (the Law) gave a right of appeal to the Court from a governing body's refusal to grant or renew a professional licence to practice. It gave the Court various powers to confirm, reverse, vary or modify the decision, return it to the relevant governing body, or make any order or exercise any power that the governing body could have made.
What the Law did not do was set out the scope of the rehearing or the type of appeal. The Court considered three types of possible statutory appeals procedure it could follow:
- Did the governing body come to the right decision on the evidence it was given at the time?
- Does the Court affirm or overturn the governing body's decision in light of the documents, possibly with further evidence, put before it on the appeal?
- Does the Court redetermine the original application based on a rehearing of all of the evidence and the material presented to it without being limited in any way by the governing body (de novo).
The Court considered that the Law had 'persuasive indications' that the legislature intended that the right of appeal would be by way of rehearing. The Law gave the Court wide powers to 'confirm, reverse, vary or modify the [governing body's] decision 'or' to make an order in the matter that it thinks just'. The Law did not limit the Court's power to receive further evidence under Grand Court Rules7 (GCR) Order 55. Further, had the legislature intended that any rehearing should be de novo, it would not have given the Court the power to remit the matter to the governing body.
The correct approach to the review of the decision was to consider whether the governing body made some error in exercising the discretion the Law had given it. In this case, having had the opportunity to rehear the matter, with a thorough review of all of the evidence, careful consideration of the oral and written submissions and authorities provided by the parties, the judge reached the same decision as that reached by the governing body.
iii Silk Road Funds Ltd8
A judgment published in May 2019 for an application to the Grand Court (the Court) reviewed the basis for recognition of foreign receivers appointed to act by a court outside Cayman. The judgment concluded that, of the three possible ways for foreign representatives to get recognition to act in Cayman, the common law was the most appropriate as it gave the Court jurisdiction without the need to consider Part XVII of the Companies Law or the principles of 'modified universalism'.
The application was for recognition in Cayman of joint receivers (receivers) appointed by the Supreme Court of Bermuda to a fund (M3), which was a 'segregated account', forming part of a 'segregated accounts company' incorporated in Bermuda (Silk Road). As is the case with Cayman segregated portfolio companies (SPCs) a Bermudian segregated account is not a separate legal entity to its segregated accounts company.
The Court recognised the Bermudian court's order appointing the receivers (appointment order) and recognised the receivers had all the functions and powers of the directors and managers of Silk Road in respect of the business and assets linked to the M3 fund, including those powers and functions set out in the appointment order.
The nature of the M3 fund meant that Part XVII of the relevant Companies Law (the 2016 Revision) could not apply. Part XVII applies where the foreign representative is 'a trustee, liquidator or other official appointed in respect of a debtor for the purposes of a foreign bankruptcy proceeding'. A foreign bankruptcy proceeding includes 'proceedings for the purpose of re-organising or rehabilitating an insolvent debtor' where a debtor is 'a foreign corporation or other foreign legal entity'. In this case M3 was not a separate legal entity. It was only one part of a larger entity which was not insolvent.
The Court also declined to recognise the receivers by reliance on principles of 'universality of insolvency or bankruptcy', also known as 'modified universalism'. It distinguished previous cases on those principles as applying, for example, in circumstances where a foreign representative needed to be given powers that were not available under the law of the country where the foreign representative was appointed or under the terms of their appointment. That was not the case here. Under the Bermudian appointment order, the receivers had been given the powers they wanted to exercise in Cayman. There was no need to rely on 'modified universalism' because the Court's inherent jurisdiction in common law was enough to give the power to recognise the receivers powers and functions set out in the appointment order.
The Court set out criteria to be applied for it to recognise a foreign-appointed receiver at common law. There must be a 'sufficient connection' between both the entity over whose assets the receiver has been appointed and the jurisdiction in which the receiver is appointed. The tests to apply to establish this were summarised by the Court and set out in the Cayman Islands Court of Appeal decision in Canadian Arab Financial Corp and Kilderkin Investments Limited v. Player:9
- Has the company in respect of whose assets the receiver and manager has been appointed been made a defendant in the action in the foreign court?
- Has the company in respect of whose assets the receiver and manager has been appointed been incorporated in the country that appointed the receiver and manager?
- Would the courts of the country of incorporation recognise a foreign-appointed receiver?
- Has the company carried on business in the jurisdiction of the appointment or is the seat of its central management and control located there?
The Court considered these were met, setting out a clear path for recognition in Cayman of the powers of a receiver appointed by a foreign court over an entity in a structure such as a segregated accounts company.
iv VRG Linhas Aereas S.A. v. Matlin Patterson Global Opportunities Partners (Cayman) II L.P. & Ors10
In February 2019, the Cayman Grand Court (the Court) took the rare decision to refuse an application to enforce a foreign arbitration award under the New York Convention and Foreign Arbitral Awards Enforcement Law.11 The Court recognised it had only a narrow discretion to exercise the power to refuse to enforce an award and the decision is a useful reminder that it will exercise that power when appropriate.
The defendants (MP Funds) offered three bases for its refusal: a lack of consent to arbitration; the judgments offended against natural justice; and, even had the parties consented to arbitration, the Tribunal that heard the arbitration purported to decide a claim that had never been submitted and award relief that had not been sought. In all the circumstances the Court found it was just to refuse to enforce the award.
The Court found the award offended against the underlying principle of arbitration, that the parties must have agreed to it. It found that MP Funds were not parties to the arbitration agreement and even if they had been, the Tribunal decided matters that had never been pleaded or set out and therefore fell outside the boundaries of the submission to arbitration. Although the arbitration took place in Brazil, the Court was required to apply Cayman standards of fairness and due process. MP Funds could not reasonably have foreseen that they would be held liable as third parties in tort when the claim against them was to hold them responsible for a contractual obligation of their indirect subsidiaries. Under the Brazilian Civil Code they were entitled to express notice of the proposal so they could respond to it. The fact that that they were not given notice offended against the cardinal principle of natural justice that enshrines a party's right to be heard. As such it was contrary to Cayman public policy, the express provisions of the New York Convention, and the Enforcement Law.
v In the Matter of ArcelorMittal USA LLC v. Essar Steel et al12
The Cayman Grand Court (the Court) has accepted that it has the jurisdiction to grant a notification order in circumstances where the applicant has satisfied the grounds for a conventional freezing order but it would not be just and convenient to do so.
As in other jurisdictions, where there is a risk that a party to court proceedings may dissipate their assets to avoid having to satisfy any judgment against them, a party may apply to the Court for an order to freeze that party's assets. A notification order is less onerous, as rather than freezing the subject's assets, they have to give the applicant notice of dispositions of assets of a certain type or over a certain value.
An applicant for either order must show they have a good arguable case on the underlying merits and solid evidence to support a conclusion that there is a real risk, judged objectively, that a future judgment would not be met because of unjustifiable dissipation of assets.
The Court considered Lord Justice Gloster's views in the England and Wales High Court decision in Holyoake v. Candy  Ch. 297 that when deciding to make a freezing order 'the ultimate question a court must ask, . . . was whether it is just and convenient to do so.' She continued:
But it is not every risk of a judgment being unsatisfied which can justify freezing order relief . . . the intrusiveness of relief will be a highly relevant factor when considering the overall justice and convenience of granting the proposed injunction . . . an applicant should consider what form of relief a court is likely to accept as just and convenient in all the circumstances.
vi Saad Investments Company Limited (in official liquidation)13
Joint official liquidators (JOLs) of Saad Investments Company Limited (SICL) applied to the Cayman Grand Court (the Court) to sanction entering into an agreement and mutual release between SICL, AB Ltd and XY Ltd (in voluntary liquidation), to settle claims proven in both of the liquidations of SICL and of XY Ltd. A further company (AHAB) had proprietory claims over the assets of SICL which prevented the JOLs from making the settlement.
The JOLs were required by Section 110(1)(a) of the Companies Law (2018 Revision) (the Companies Law) to distribute the assets to the creditors, however powers conferred on them in SICL's winding up order did not include the power in Part I of Schedule 3 to the Companies Law:
. . . to compromise on such terms as may be agreed all debts and liabilities capable of resulting in debts, and all claims (present or future, certain or contingent, ascertained or sounding only in damages) subsisting, or supposed to subsist between the Company and a contributory or alleged contributory or other debtor or person apprehending liability to the Company.
The JOLs could only exercise that power when sanctioned by the Court.
In its judgment, the Court emphasised this was 'an exceptional application justified by the clear interests of the . . . liquidation estate which are protected by the grant of sanction' and 'that it would be inappropriate for such application to be routinely made'.
vii Primeo Fund (In official liquidation) v. Bank of Bermuda (Cayman) Ltd and HSBC Securities Services (Luxembourg) SA14
The Cayman Islands Court of Appeal (CICA) rejected the claims having considered the legal and public policy basis for the principle of 'reflective loss', which bars a claim by a shareholder for a loss that is fundamentally the same as one that the company in which they hold shares could claim or is claiming. The decision was in proceedings for losses arising from the collapse of the Bernard L Madoff Securities (BLMIS) Ponzi scheme. Key points from the decision were that the claim being made has to have a 'realistic prospect of success' and that you make an assessment of whether a claim is for 'reflective loss' based on the circumstances at the time the claim is made and not before.
CICA defined 'reflective loss' as applying where a company and a shareholder both have a claim against a defendant arising out of the same facts and where all or part of the shareholder's loss is not separate and distinct from the loss to the company, and the shareholder's rights of recovery will be satisfied, if at all, through the company's recoveries against the defendant.
To determine whether this principle is engaged, it is important to establish that the company has a valid claim on the merits. The claimant argued that the correct test for this was whether the company's claim would succeed if it were to bring it, but having considered the various authorities and arguments, CICA considered the correct 'merits test' is 'whether the company's claim has a realistic prospect of success'.
CICA also considered authorities on how losses claimed by a shareholder might be fully 'made good' if the company were to make its own claim. It concluded that 'whether a loss is in fact reflective is to be tested and determined in the light of the circumstances that exist when the claim is made.' Accordingly, it rejected the claimant's argument that the reflective loss principle did not engage because it became a shareholder in the company after the cause of action accrued.
CICA reviewed the rationale behind the principle and suggested that it may apply even where there is no prospect of double recovery (such as there is a defence to the company's claim). It set out four considerations underlying the principle:
- to avoid double recovery against the defendant by the same claim made by the shareholder and the company;
- causation – if a company decides to accept less or not to claim at all, then this may add to the shareholder's loss but it is not the fault of the defendant;
- conflict of interest – the possibility of a shareholder action would make it difficult for the directors or a liquidator to settle an action on behalf of the company, effectively taking the conduct of the litigation out of their hands. Further, where directors are shareholders or creditors, there may be a conflict of interest where settlement of the company's claim at less than its true value would leave them with a personal claim against the defendant as shareholder or creditor; and
- company autonomy – the need to preserve company autonomy and avoid prejudice to minority shareholders and other creditors.
III COURT PROCEDURE
i Overview of court procedure
Civil litigation in the Cayman Islands is commenced by an aggrieved party setting out the nature of the claim made and against whom it is made. 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 (Revised) (GCR),15 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 2018 (as amended).16
ii Procedures and time frames
General: Grand Court Rules
Civil proceedings in the Grand Court may be begun by writ, originating summons, originating motion or petition (originating process) sealed by the court, which 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 that the plaintiff is seeking (a generally endorsed writ). Alternatively, a plaintiff may issue the writ with a statement of claim that gives full details of the facts of the claim (a statement of claim).
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.
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 the plaintiff has served a generally endorsed writ they must serve the statement of claim within 14 days of the date for filing the AS. Once served, a defendant has 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 of the date for filing the AS.
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.
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, to ask the court to determine matters such as procedure or points of law, or applications to strike out a claim or to 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.
A plaintiff or counterclaiming defendant can apply to the court for various injunctions, usually where it considers urgent action is needed. These hearings 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, and there is a strict responsibility on the applicant to disclose all relevant matters, including those that are contrary to their case. 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:
- to prevent action being taken or to compel someone to do something;
- to prevent assets being dissipated by freezing them (a Mareva injunction);17
- 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);18
- 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);19
- to enter and search premises to find documents or movable property and prevent their destruction (an Anton Piller injunction);20
- to appoint a receiver or to prevent disposal of company property before the appointment of a receiver (under GCR Order 30);
- 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 stand-alone Mareva injunction).
iii Class actions
There is no formal process for class actions in the Cayman Islands. 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 who 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 in proceedings or can instruct a Cayman Islands qualified attorney to represent them. Those whose claims are 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
A party wishing to serve an originating process on a person (natural or unnatural) located outside the Cayman Islands needs to apply for leave of the court to do so, unless the action is one where a law provides that leave is not required. 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 of service 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 where the defendant did not appear) which is for money, which is not contrary to Cayman Islands public policy (e.g., 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),21 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)22 or the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958).23
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.
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 Agrotech24 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.25
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. While the Grand Court has previously approved third-party funding agreements subject to certain conditions,28 the scope for such agreements has been limited to liquidation proceedings involving impecunious estates.
However, recent decisions of the Grand Court29 have approved funding agreements in commercial disputes. 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 2015,30 which included a draft bill.31
IV LEGAL PRACTICE
i Conflicts of interest and Chinese walls
Conflicts of interest
Under the Code of Conduct for Cayman Islands Attorneys at Law,32 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.
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
Many laws and regulations that cover this sector apply in the Cayman Islands.33 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 (2019 Revision) (PoCLaw), under which the Anti-Money Laundering Regulations 2018 (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.
In addition, an attorney who has any information that may be of assistance in preventing an act of terrorism or which would secure an arrest or prosecution under the Terrorism Law (2018 Revision) (including the 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) came into effect on 30 September 2019. The DPL imposes 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.34 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 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
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 legal 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.
Where there has been a genuine attempt to resolve a dispute, without prejudice privilege can prevent such communications between the parties for that purpose from being put before the court.
ii Production of documents
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 that another party 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 can ask the court to limit the extent of discovery.
VI ALTERNATIVES TO LITIGATION
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)35 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).36
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.
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 (ADR), 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 two important decisions awaited in 2020 from the ultimate appeal court of the Cayman Islands, the Judicial Committee of the Privy Council. In Pearson (in his capacity as Additional Liquidator of Herald Fund SPC (in Official Liquidation)) (Appellant) v. Primeo Fund (in Official Liquidation) (Respondent) (Cayman Islands) Case ID: JCPC 2018/0064 the question of whether an in specie subscription, where all the calculations were made on fraudulent and fictious figures provided by Bernie Madoff's Fund, is subject to a liquidator's power under Section 112(2) of the Companies Law (2013 Revision) 'to settle, and, if necessary, rectify the company's register of members, thereby adjusting the rights of members amongst themselves' given that it would be pre-existing rights to which the power would be applied. In Shanda Games Ltd (Appellant) v. Maso Capital Investments Ltd and others (Respondents) (Cayman Islands) JCPC 2018/0062 JCPC 2018/0058 the issues are whether the requirement to award a fair rate of interest following a Section 268 of the Companies Act (2016 Revision) determination (fair value of shares) requires the Court to award interest in accordance with the same principles on which the Court awards interest on an award of damages, and whether or not the Court of Appeal was correct to hold that a minority discount was to be applied in the determination of the fair value of the shares.37
On a more macroeconomic level the US litigation market is poised for its third consecutive year of growth as although the current US economic expansion is in its 11th year, many predict slow growth in 2020 and litigation is a practice area that increases as others start to fall off during downturns. This will have an inevitable trickle-down effect in the Cayman Islands. This growth could be fuelled by the increasingly litigation funding friendly environment in the Cayman Islands, which is tapping into the 237 per cent increase in litigation finance worldwide since 2012. Litigation finance is one answer to clients' pressuring firms to keep legal fees low and provide alternative fee arrangements when an economy slows. Another solution to fees pressure is use of boutique firms and smaller litigation teams that can innovate, take advantage of new technology and flexible staffing and achieve efficiencies by operating on a leaner approach.
The Cayman Islands is home to many Latin American based structures, which, as a region is experiencing vulnerability to slowing global trade and a weakening of capital flows. This, together with a worldwide financial tightening, ongoing trade tensions and Brexit uncertainties, means that economic difficulties may well lie ahead, which would increase the need for restructuring and insolvency advice.
1 Kai McGriele is a partner and Richard Parry is a managing associate at Bedell Cristin.
2  UKPC 36.
3 2013 Revision.
4 [2014 1 CLC 611];  UKPC 9.
5 Unreported Judgment dated 21 July 2019, Grand Court: Civil (General) G70 of 2018 – Justice Williams.
6 The Accounrants Law, 2016, Section 13.
7 Grand Court Rules, 1995 (Revised).
8 Unreported, 8 February 2018, Smellie CJ, FSD Cause No. 234 of 2017.
9 [1984-85 CILR 63].
10 Unreported Judgment – 19 February 2019, Mangatal J, FSD Cause No. 137/2016.
11 1997 Revision.
12 Unreported Judgment, 2 July 2019, Justice Kawaley, FSD Cause No. 2 of 2019 and No. 74 of 2019.
13 Unreported Judgment, 1 October 2019, Smellie CJ, FSD 15 of 2010.
14 Unreported, 13 June 2019, CICA (Civil ) Appeal No. 21 of 2017.
15 Grand Court Rules 1995 (Revised). G24/2003 Section 1.
16 Companies Winding Up Rules, 2008. GE5/2009 Section 3.
17 Mareva Compania Naviera SA v. International Bulkcarriers SA  2 Lloyd's Rep. 509.
18 Norwich Pharmacal Co. v. Customs and Excise Commissioners  AC 133.
19 Bankers Trust Co. v. Shapira  1 WLR 1274.
20 Anton Piller KG v. Manufacturing Processes Ltd & Ors  EWCA Civ 12,  1 All ER 779 (8 December 1975).
21 Foreign Judgments Reciprocal Enforcement Law (1996 Revision) G1/1997 Section 1.
22 Foreign Arbitral Awards Enforcement Law (1997 Revision) G21/1997 Section 3.
23 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958), Article III.
24 In The Matter Of China Agrotech Holdings Limited 19 September 2017.
25 Evidence (Proceedings in Other Jurisdictions) (Cayman Islands) Order 1978.
26 Convention of 15 November 1965 on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters.
27 Convention of 18 March 1970 on the Taking of Evidence Abroad in Civil or Commercial Matters.
28 Re ICP Strategic Credit Income Fund Ltd  1 CILR 314.
29 A Company v. A Funder (unreported, 23 November 2017, Justice Segal).
30 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.
31 The Private Funding of Legal Services Bill, 2015 (Draft).
32 Code of Conduct for Cayman Islands Attorneys at Law.
33 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.
34 Code of Conduct for Cayman Islands Attorneys at Law Section 4.
35 Foreign Arbitral Awards Enforcement Law (1997 Revision) G21/1997 Section 3.
36 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958), Article V.
37 JCPC decision on 27 January 2020 held minority discount should be applied and interest rate should reflect reality.