By David Butler From Harneys

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.