30 August 2019
Cayman Islands: Trends and developments in international arbitration
The Cayman Islands continues to enhance its reputation as a pro-arbitration jurisdiction, with recent court decisions affirming the judiciary's readiness to enforce arbitral awards and to hold parties to the bargain of arbitration clauses. These and other developments discussed below increasingly bring the Cayman Islands in line with the criteria for an effective and efficient seat of international arbitration promulgated by the Chartered Institute of Arbitrators in its London Centenary Principles. While the jurisdiction continues to develop and improve, parties can legitimately start considering the Cayman Islands as a potential choice of seat for arbitrating disputes in the international financial services industry.
Cayman has been a major centre of the global financial services industry for decades. It hosts nearly 11,000 hedge funds, which constitutes more than 60% of the world's hedge funds by number and by net assets. Cayman is also the world's second largest captive insurance centre, and is the domicile of 50% of the companies listed on the Hong Kong Stock Exchange. Of the world's 50 largest banks, 40 have a presence on the Islands.
Consequently, Cayman is home to a legal profession, judiciary, and a body of accountancy, audit and other financial professionals with unique and extensive expertise in the resolution of funds and other complex financial services disputes – a concentration of know-how which belies the Islands' diminutive size and idyllic location. To give but one recent example, in 2018 the Grand Court delivered a 1,300-page judgment in the landmark trial of AHAB v Al-Sanea, which lasted for a little over a year and concerned claims in excess of USD9 billion in relation to what has been called "one of the largest Ponzi Schemes in history". On a daily basis, the legal profession and the courts of the jurisdiction deal with numerous other high-value multi-jurisdictional financial services disputes, ranging from contract claims to fraud, and involving parties the world over: New York to Beijing, and Buenos Aires to Moscow.
This deep sectoral expertise and breadth of experience is grounded on a stable democratic government and an independent legal and judicial system based on English common law and offering ultimate recourse to the Privy Council in London (which is comprised of the same Judges who sit in the Supreme Court of England and Wales). Despite this, to date, the Cayman Islands has not been known as a seat of international arbitration.
Yet, with the introduction of the modern Arbitration Law, 2012 ("Arbitration Law"), which is based on the UNCITRAL Model Law and the English Arbitration Act 1996, and the development of the jurisdiction since then, the Cayman Islands measures up increasingly well against the ten benchmarks laid down for an effective and efficient seat of international arbitration by the CIArb London Centenary Principles. This increasingly positions the jurisdiction to deploy its expertise in financial services disputes in the context of international arbitration.
The first of the London Centenary Principles is that the arbitration seat should offer a clear, effective and modern international arbitration law that recognises and respects the parties' choice of arbitration as the method for settlement of their disputes by providing the necessary framework for facilitating fair and just resolution through arbitration, limiting court intervention, and striking an appropriate balance between confidentiality and appropriate transparency.
The Arbitration Law meets all of these criteria, and the manner in which the Cayman Courts have interpreted and implemented it over the years is consistent with the spirit of the London Centenary Principles.
The Arbitration Law provides the essential framework for a fair and just arbitration process, but without unnecessarily impinging on the parties' freedom to contract a procedure of their own design or adopt one from an established arbitral institution, while providing fall-back default rules for use where parties fail to address a key area. The parties are free to agree their own procedures for selecting arbitrators, and the Cayman Islands Association of Mediators and Arbitrators ("CIAMA") (http://ciama.ky/) will act as appointing authority if called upon to do so, but alternative appointment procedures under the Arbitration Law are available in default of such agreement, with the Grand Court acting as the appointing authority of last resort. The Arbitration Law also imposes disclosure requirements on arbitrators with regard to circumstances that might reasonably compromise their impartiality or independence, and provides for a procedure by which an arbitrator might be challenged and removed.
The Arbitration Law takes a similar approach to procedure and powers of the arbitral tribunal. The starting point is the parties' wide discretion to agree or adopt such rules for their arbitration as they desire, and to endow their arbitral tribunal with such powers as they wish. A set of fundamental fall-back rules is provided in the Arbitration Law, however, if the parties neither agree a set of rules of their own nor adopt a set devised by an arbitral institution.
The Arbitration Law provides for the privacy and confidentiality of all arbitral proceedings, save to the extent that the parties might agree otherwise. Where arbitral proceedings have to be brought into court (for example, for purposes of the enforcement of awards or other ancillary matters), the Grand Court has shown itself to be sensitive to the parties' confidentiality concerns, sealing specific documents on the court record where this was deemed appropriate (Sasken Communication Technologies Limited v Spreadtrum Communications Incorporated [2016 (1) CILR 1]). On the other hand, where confidentiality is not insisted upon on good grounds, court judgments in relation to arbitrations are made public in the usual course.
As for the scope of court intervention, while the Arbitration Law vests the Grand Court with a number of powers necessary to support a fair and just arbitration process, the Arbitration Law is explicitly founded on the key principles of non-intervention and party and tribunal autonomy, trammeled only by exceptional considerations of public interest. This brings the legislative framework in the Cayman Islands in line with major seats of international arbitration around the world.
The second of the London Centenary Principles is that the seat should be endowed with an independent judiciary, which is competent and efficient, has expertise in international commercial arbitration and is respectful of the parties' choice of arbitration as their method for settlement of their disputes.
The independence and professionalism of the Cayman Islands judiciary is a given and is safeguarded by the Code of Conduct for the Cayman Islands judiciary promulgated pursuant to s. 106(10)(a) of the Cayman Islands Constitution Order 2009. The Code of Conduct for the judiciary is founded on the commonly accepted values adopted by the international judicial community more than 20 years ago and known as the Bangalore Principles of Judicial Conduct. As noted above, the judiciary regularly deals with some of the largest and most complex financial litigations worldwide, such as the USD9 billion AHAB case.
The Grand Court and the Court of Appeal of the Cayman Islands also have considerable expertise in international commercial arbitration, having dealt with dozens of arbitration-related cases, ranging from the enforcement of arbitral awards through to the grant of anti-suit injunctions to restrain breach of arbitration clauses, as well as rulings on the interpretation of arbitral awards, the arbitral procedure, issues of confidentiality, and applications in the context of the discovery process.
As recently as 25 February 2019, the Grand Court reaffirmed its readiness to give effect to arbitration clauses, even in the context of applications for winding up, in its decision in the case of In re China CVS (Cayman Islands) Holding Corp (FSD 195 of 2018, Kawaley J, 25 February 2019, unreported). In China CVS, the Grand Court stayed a petition for the just and equitable winding up in favour of arbitration of the underlying issues pursuant to the arbitration clause in the relevant shareholders' agreement. While the decision acknowledges that the actual remedy of just and equitable winding up could only be granted by the court, it also demonstrates that the court is prepared to leave distinct arbitrable issues underpinning the application for such relief (particularly when alternative non-winding up relief is also sought) to the arbitral tribunal, in accordance with the relevant arbitration clause. The China CVS decision is a logical development of the nexus between arbitration and insolvency law in the Cayman Islands and follows on from a line of previous decisions that pay appropriate deference to valid arbitration agreements, including the Court of Appeal decision in In Re Sphinx Group (CICA No. 6 of 2015, 2 February 2016), and the Grand Court decisions in BDO Cayman Ltd concerning Argyle Funds SPC Inc [2018 (1) CILR 114] and in Re Times Property Holdings Ltd [2011 (1) CILR 223].
This line of cases, culminating in China CVS in February 2019, demonstrates the judiciary's acknowledgment of the parties' right to choose arbitration as their method for settlement of their disputes. The same line of cases further demonstrates the judiciary's considerable expertise in navigating the line between the parties' contractual choice of arbitration and the class nature of remedies in a winding up.
The third of the London Centenary Principles is that the seat should offer the arbitrating parties an independent and competent legal profession with expertise in international arbitration and international dispute resolution, so as to provide a significant choice for parties who seek representation in the courts of the seat or in the international arbitration proceedings conducted at the seat.
Like the jurisdiction's judiciary, its legal professionals have extensive experience in litigating international arbitration matters, such as the enforcement of awards and anti-suit injunctions or applications to set aside an arbitral award, in the Cayman Islands courts.
While the jurisdiction is yet to become a seat of international arbitration in its own right and, therefore, its legal professionals are yet to develop substantive expertise in arbitrating international arbitration disputes in the Cayman Islands, the jurisdiction has a number of practitioners who have substantive prior arbitration experience.
The nature of the legal profession in the Cayman Islands means that its attorneys generally – and dispute resolution attorneys in particular – come from a wide variety of jurisdictions and legal backgrounds. Multiple jurisdictions are represented, including Australia, Canada, England and Wales, New Zealand, the Republic of Ireland and others, as are diverse practice areas. Among them, there are attorneys with substantive past experience of commercial international arbitration as well as investment treaty arbitration. Some of those attorneys organise as members of CIAMA. Furthermore, due to the fused nature of the legal profession in Cayman – whereby attorneys are entitled to and frequently do appear as advocates in front of both the Grand Court and the Court of Appeal – legal professionals in the jurisdiction have considerable experience of advocacy.
At this stage, only the gradual development of the jurisdiction as a seat of international arbitration will substantially promote the further broadening and deepening of arbitration expertise in the seat.
Recent developments in third-party funding rules in the Cayman Islands should also facilitate the parties' access to counsel of their choice. While third-party litigation funding outside of liquidation context has not, until now, been developed in the Cayman Islands, recent Grand Court decisions in Company v A Funder [2017 (2) CILR 710] and in Trustee v The Funder (Cause No. 98 of 2018, 26 July 2018, Segal J, unreported) suggest that third-party litigation funding may now be possible, whether in litigation or in arbitration, subject to the arrangements satisfying similar tests to those applicable in England and Wales.
The fourth of the London Centenary Principles is that there should be an implemented commitment to the education of counsel, arbitrators, the judiciary, users and students of the character and autonomy of international arbitration, and to the further development of learning in the field of arbitration.
Few jurisdictions can boast institutions on the scale of the Chartered Institute of Arbitrators, the promulgator of the London Centenary Principles, which serve to, among other things, promote the education of counsel, arbitrators and the judiciary in a jurisdiction. The Cayman Islands is in the early stages of developing similar institutions and practices.
CIAMA is a not-for-profit organisation that has for a number of years been dedicated to creating a culture of best practice in arbitration and mediation in the Cayman Islands through encouraging continuing education in the field.
Furthermore, it is anticipated that 2019 will see the establishment of the Cayman International Arbitration Centre ("CIAC"), which, it is hoped, will also help promote these objectives as part of its work.
Right of representation
The fifth of the London Centenary Principles calls for a clear right for parties to be represented at arbitration by party representatives of their choice (including but not limited to legal counsel), whether from inside or outside the seat.
This right is enshrined in the Arbitration Law, which provides that, unless otherwise agreed by the parties, a party may be represented by an attorney-at-law qualified to practise in the Cayman Islands, by a legal practitioner qualified to practise in another jurisdiction, or, indeed, by any other person.
Accessibility and safety
The sixth of the London Centenary Principles requires that the seat be free from unreasonable constraints on entry, work and exit for parties, witnesses and counsel in international arbitration, and calls for adequate safety and protection of the participants, their documentation and information.
Needless to say, parties, witnesses and counsel already regularly come to the Cayman Islands for the purposes of attending the numerous court proceedings that take place in the jurisdiction. The Cayman Islands lie within easy reach of Miami, New York and some of the other cities on the Eastern Seaboard of the United States, as well as a direct flight away from London. No visa is required to visit the islands for citizens of a large number of countries, including the USA, most European states, China, many states in Central and South America, the Caribbean, Africa, the Middle East, Oceania and Asia, as well as most former Commonwealth states. Should work permits be required in some circumstances, there is considerable experience among the firms of attorneys in the jurisdiction in obtaining such visas quickly and efficiently in the context of Leading Counsel coming in from London for the purposes of major court hearings and trials.
As to safety, the Cayman Islands is an inherently safe and stable jurisdiction, with a low crime rate and superb hotel facilities.
The seventh of the London Centenary Principles demands that the seat should possess functional facilities for the provision of services to international arbitration proceedings, including transcription services, hearing rooms, document handling and management services, and translation services.
In addition to the real-time transcription services available on the Islands, the jurisdiction enjoys easy access to transcription and translation services from the USA, with Miami less than a 90-minute flight away. All of the major law firms in the jurisdiction have adequate document handling and management facilities. These services and facilities have been successfully utilised in some of the largest trials that took place in the Cayman Islands courts.
In terms of hearing rooms, the island of Grand Cayman is home to numerous high-quality hotels, all of which offer multiple meeting and conference rooms, and all of which have extensive experience in hosting regular conferences and business meetings.
Moreover, the anticipated establishment of CIAC is expected to provide parties with alternative facilities, including technological solutions that will permit, where this is necessary, remote appearances for arbitrators, counsel and witnesses from anywhere in the world, and the visual presentation of electronic evidence during hearings.
The eighth of the London Centenary Principles calls for the establishment of professional and other norms which embrace a diversity of legal and cultural traditions, and the development of norms of international ethical principles governing the behaviour of arbitrators and counsel.
The ethical standards of the legal profession in the Cayman Islands are safeguarded by the courts and promoted by the Cayman Islands Legal Practitioners Association ("CILPA") by way of its voluntary code of conduct for Cayman Islands attorneys-at-law ("Code of Conduct"). In addition to its own provisions, the Code of Conduct requires all Cayman Islands attorneys to have regard to the provisions of the International Bar Association International Principles on Conduct for the Legal Profession.
Local arbitration institutions such as CIAMA and, soon, CIAC may be expected to contribute to the further development of arbitration-specific norms in due course.
The ninth of the London Centenary Principles is that the jurisdiction must demonstrate adherence to international treaties and agreements governing and affecting the ready recognition and enforcement of foreign arbitration agreements, orders and awards made in other countries.
The Cayman Islands' ability to adhere to these principles as an arbitral seat is backed by the experience and expertise of the jurisdiction's legal professionals and courts in evaluating foreign arbitral awards against those same principles in the process of their enforcement.
The jurisdiction has developed a strong track record of enforcing arbitral awards that adhere to the relevant international principles (as embodied in Cayman Islands' Foreign Arbitral Awards Enforcement Law (1997 Revision) ("FAAEL"), which gives domestic effect to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("New York Convention")). At the same time, the jurisdiction is astute to refuse enforcement where an award offends against the fundamental precepts of the New York Convention and the FAAEL.
Most recently, on 29 May 2019, the Grand Court granted an application for the enforcement in the Cayman Islands of a USD1.5 billion arbitral award made by an ICC Arbitration Tribunal sitting in Minnesota, USA (Arcelormittal USA LLC v Essar Steel Limited and Others (Cause No. FSD 74 of 2019, Kawaley J, 2 July 2019, unreported)). This is only the latest in a long line of decisions that required the jurisdiction's judiciary and legal profession to consider the enforceability of an award, stretching as far back as the 1989 decision in In re Swiss Oil Corporation [1988-89 CILR 277] and spanning numerous decisions since the introduction of the FAAEL in 1997.
That the judiciary and legal profession in the jurisdiction have a keen appreciation of the norms governing the ready recognition and enforcement of arbitral awards in other countries is also demonstrated by decisions such as the 19 February 2019 judgment in VRG Linhas Aereas S.A. v Matlin Patterson Global Opportunities Partners (Cayman) II L.P. & others (FSD 137 of 2016, Mangatal J, 19 February 2019, unreported), in which the Grand Court refused to enforce an ICC arbitration award from Brazil because the award offended against the fundamental principles of the FAAEL and the New York Convention, which require the defendants to be parties to the arbitration agreements and the findings of liability to be made on grounds that have been pleaded in the arbitration.
The tenth and final of the London Centenary Principles is that there should be a clear right to arbitrator immunity from civil liability for anything done or omitted to be done by the arbitrator in good faith in his or her capacity as an arbitrator.
This protection is enshrined in the Arbitration Law, which provides that an arbitrator is not liable for any consequences resulting from his or her negligence or mistake of law, fact or procedure, but will be so liable if they acted in bad faith.
The above survey of the recent trends and developments in the Cayman Islands shows that, while the jurisdiction undoubtedly has room for further development in certain areas, it has developed a strong foundation and track record in many of the London Centenary Principles, including in particular in the crucial areas of Law, Judiciary and Enforceability.
Combined with the jurisdiction's excellent expertise in complex financial services disputes, and even as the jurisdiction continues to develop in the other areas identified by the London Centenary Principles, the Cayman Islands is now at a stage of its development as an arbitral jurisdiction where parties can legitimately start considering the Cayman Islands as a potential choice of seat for arbitrating disputes in the international financial services industry.
An original version of this article was published in Chambers Global Practice Guide 2019 - International Arbitration, Cayman Islands, August 2019