In modern litigation there is often a strong possibility that
obtaining interim relief from the court of the jurisdiction in
which you are suing your opponent will not fully protect you
against the dissipation by him of assets which you either claim are
yours or will in due course seek to realise to satisfy your
judgment. The defendant may, for example, have sought to put assets
beyond reach by moving them overseas, often into trusts or
corporate structures in one of the International Financial
Centres.
As every good litigator will know, in the common law world service
of process on the defendant is the means by which jurisdiction is
established over that defendant. The service requirement presents a
problem when the defendant in litigation in an onshore jurisdiction
has put his assets offshore in a country in which he is not
resident. The traditional rule holds that if you cannot sue the
defendant in the offshore jurisdiction then you cannot get any
interim relief against him there, either.
In response to the increasing internationalisation of commercial
fraud, and concerned that their jurisdictions would gain a
reputation for being a place where fraudsters could safely hide
assets, the courts of a number of jurisdictions – including
Jersey, the Isle of Man, and the BVI – either ignored,
departed from or circumvented the traditional rules concerning
service and jurisdiction so as to be able to grant interim relief
to claimants in support of the onshore litigation. As this judicial
activism ran contrary to established principle in the common law
world, the legislatures of many of those International Financial
Centres have now put the rules on a statutory footing to avoid the
judicial development being overruled.
In contrast to the judicial activism seen in the Channel Islands,
Isle of Man and other Caribbean jurisdictions, the courts in the
Cayman Islands have adhered to the conventional approach. One
reason for this was that Cayman’s civil procedure rules made
provision for the service of process out of the jurisdiction but
expressly prohibited the Cayman courts from granting permission to
serve a defendant out of the jurisdiction with proceedings where
the only relief sought by the claimant was an interim injunction.
The Cayman court has thus felt constrained to follow the policy
that its legislature set many years previously and has refused to
allow foreign claimants to obtain interim relief against overseas
defendants unless it was part and parcel of substantive proceedings
being litigated here.
A series of recent cases had limited the practical barriers to
freezing assets held by Cayman entities on behalf of wrongdoers,
but adherence to the conventional view has the potential to produce
some anomalous results. If the defendant has put assets into a
Cayman Islands company, it may be possible to obtain interim relief
against that company because it is domiciled in the Cayman Islands.
There is no need for the claimant to show that it has a substantive
cause of action against the company, provided the claimant can show
that the assets which the company holds are held beneficially for
the defendant and that, by some process of enforcement, the assets
can be realised by the claimant to satisfy any judgment which it
might obtain. Conversely, however, if the defendant owns land or
moveable property in his own name in the Cayman Islands, the
claimant cannot obtain interim relief in respect of the land. The
availability of the relief against the company has perhaps become
more important in light of the recent decision of the English Court
of Appeal which reminds litigants that a company is a separate
legal person and its assets belong to it, not to its sole
shareholder (see Lakatamia Shipping Company v Nobu Su
[2014] EWCA Civ 636) such that freezing orders made against a
defendant do not apply directly to the assets of a company in which
the defendant is the sole shareholder.
New legislation came into force on 20 October 2014 in the Cayman
Islands facilitating the granting in the Cayman Islands of interim
relief in aid of foreign proceedings. That legislation – the
Grand Court (Amendment) Law (Amendment
Law) – is in very similar terms to amendments
made to Hong Kong’s High Court Ordinance.
By the Amendment Law a new Section 11A is inserted into the Grand
Court Law of the Cayman Islands. The new section 11A gives the
Grand Court the power to make an order appointing a receiver or
orders for any other interim relief which it would have the power
to grant in proceedings within its jurisdiction in respect of
proceedings which have or are to be commenced in an overseas court
which are capable of giving rise to a judgment which may be
enforced in the Cayman Islands under any Law or at common law. By
section 11A(4) the Grand Court is given the power to make such
orders for interim relief even if the cause of action which is
being litigated in the foreign proceedings is not a cause of action
which could be litigated in the Cayman Islands. It is also
expressly provided in section 11A(4) that the order does not need
to be ancillary or incidental to any proceedings in the Cayman
Islands.
By the new section 11A(5) the Court is entitled to refuse an
application for interim relief if in its opinion it would be unjust
or inconvenient to make an order. And by section 11A(6) the Court
is required to have regard to the fact that the power is ancillary
to proceedings that have been or are to be commenced in a place
outside the Islands and that the purpose of the power is to
facilitate the process of the foreign court that has primary
jurisdiction over the dispute.
The enactment of the Amendment Law is a helpful development. It
will enhance the reputation of the Cayman Islands as a jurisdiction
committed to judicial cooperation in international fraud cases by
making it possible for foreign claimants to obtain interim relief
in Cayman in aid of their foreign proceedings.
For practitioners the important questions are likely to be what the
claimant needs to do to satisfy the Cayman court that it should
make an order and the circumstances in which the court will decline
to make an order. As to the first, the claimant will obviously need
to show that it falls within the conditions specified in section
11A(1), namely that there are proceedings which are or are to be
commenced in a court overseas which are capable of giving rise to
an judgment enforceable in Cayman.
The term “a judgment which may be enforced in the
Islands” in section 11A(1)(b) raises an interesting point. A
proceeding in a foreign jurisdiction which imposes a penalty under
that country’s criminal law or seeks the payment of tax will
not be enforceable in the Cayman Islands at common law so there is
little prospect of any orders in aid being obtained in respect of
such proceedings. The issue which raises the most potential for
difficult issues to arise is whether a claim in the foreign court
which seeks a proprietary remedy or an order for specific
performance – for example the transfer of property other than
money said to have been stolen – is a judgment which
“may be enforced” in the Cayman Islands. Judgments
which order specific performance and which are sought to be
enforced in another jurisdiction are strictly speaking the subject
of proceedings for recognition in that other jurisdiction, not
proceedings for their enforcement. There are some decisions of the
Cayman court which hold that it is possible to
“enforce” a judgment or order for specific performance,
but that is a departure from the conventional wisdom which holds
that only a judgment for a sum of money which is ascertained or
ascertainable may be “enforced” at common law and there
are conflicting first instance decisions on the point. It may be
that the Cayman court will adopt a purposive, rather than a literal
interpretation of the provision so as to permit orders in aid of
proprietary claims, and in many cases the difficulty may be avoided
by seeking monetary damages in the alternative in the action in the
primary jurisdiction.
The claimant will also need to demonstrate to the court that it is
not unjust or inconvenient to make the order sought. That
effectively means the Cayman court will need to be satisfied at a
minimum that the claimant would be granted the order if the
application had been made in domestic proceedings in the Cayman
Islands. So in the case of an application for a freezing order, the
court would need to be satisfied that the claimant has a good
arguable case against the defendant and that there is solid
evidence of a real risk that the judgment will remain unsatisfied
if no order is made. In a case where the underlying cause of action
in the primary proceedings is not one that has a readily
identifiable counterpart or analogue in the Cayman Islands, it may
be necessary to obtain expert evidence on the laws of the primary
jurisdiction to establish to the satisfaction of the Cayman court
that the action which has been brought in the primary jurisdiction
is justiciable there.
The Court will also need to be satisfied that considerations of
justice and convenience favour the grant of the interim relief.
This is reflected in section 11A(5), which provides that the court
may refuse the relief if it considers it unjust or inconvenient to
grant the application.
The Cayman court will not be without guidance as to what
considerations of justice and convenience entail when considering
an application for interim relief in aid of foreign proceedings. As
has already been noted, many countries have for many years had
rules permitting the grant of interim relief in aid of foreign
proceedings and this question has already been the subject of
consideration in those courts. Factors which the Cayman court is
likely to take into account include:
(a) Whether
there are assets in the Cayman Islands which are sought to be
frozen or whether any other relief sought would have the greatest
effect if made by the Cayman court.
(b) Whether
the Cayman court can enforce the order effectively once it has been
made.
(c) In
cases involving an application for a freezing order without notice
to other parties, whether the Cayman court can be satisfied that
all of the relevant material has been put before it by the
applicant. In this regard, the Cayman court has been astute to
ensure that full disclosure of all facts and matters which may be
relevant to its decision or to the respondents’ objection to
the order are disclosed. In VTB Capital plc v Malofeev the
Cayman court ordered the plaintiff to disclose to a third party
against whom a freezing order had been made all of the evidence
which had been produced to the primary court in the main
proceedings as the third party was not a party to those main
proceedings.
(d) Whether
the order is necessary or will lead to duplication of relief or
additional cost. If the primary court has made a worldwide freezing
order, for example, it may not be necessary for an ancillary order
to be made in Cayman. Equally, orders for disclosure of assets
(often made as standard as part of the freezing order) may not be
necessary in an order made in Cayman where the order made in the
primary jurisdiction requires disclosure of assets wherever they
are situated. In addition, it may not be necessary for the Cayman
court to make a freezing order if sufficient assets to satisfy any
judgment have been frozen in the primary jurisdiction or in the
primary jurisdiction and another jurisdiction in which an ancillary
order has been obtained.
(e) Whether
the applicant has failed to make, or the primary court has refused,
an application for relief which is sought in the Cayman
court.
The final substantive point of note is that the Amendment Law also
brings about a subtle but important change in respect of the
availability of interim relief against third parties who are
resident within the Cayman Islands and who, it is alleged, hold
assets beneficially on behalf of the defendant against whom the
substantive claim is being prosecuted in the primary jurisdiction.
Before the Amendment Law came into force, the position was that the
third party within the jurisdiction of the Cayman court could be
made the subject of a freezing order only if it could be shown
(among other things) that the cause of action brought against the
defendant in the primary jurisdiction was justiciable in the Cayman
Islands. That was the position arrived at by the Cayman Islands
Court of Appeal in VTB Capital plc v Malofeev [2013] (2)
CILR 94. Sections 11A(1) and (4) of the Amendment Law have,
however, removed that limitation such that interim relief is
available in relation to foreign proceedings without the need to
show that the foreign cause of action is justiciable in the Cayman
Islands.
While the Amendment Law is now in force, the changes which it is
necessary to make to the Grand Court Rules to provide for service
out of the jurisdiction of this new form of relief have not yet
been implemented. It is to be hoped that those changes are
implemented swiftly, and that the absence of the necessary
amendments to the rules of court does not impede the availability
of this relief in the interim.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
