Two recent court decisions handed down in the Cayman Islands serve as a valuable reminder that, no matter how hard won the finer points of a negotiation, one should never forget the basics.

The cases – Medley Opportunity Fund Ltd. v. Fintan Master Fund Ltd & Nautical Nominees Ltd and Lansdowne Limited & Silex Trust Company Limited v. Matador Investments Limited (In Liquidation) & Ors – both concern side letters entered into pursuant to investments made into Cayman-domiciled funds.

There has been some good commentary already on these cases, and I would recommend readers with more time to look at Maples and Calder’s article on Medley and Appleby Global’s article in Hedgeweek on both cases.

However, there are three clear and important points to take away:

1)       Ensure the correct entities are signatories to the side letter; failure to do so may render the terms of the side letter unenforceable against the relevant party.

2)       Ensure the constitutional documents of the fund have enough flexibility to allow it to enter into side letters; there is little point in negotiating the terms of a side letter if a fund’s constitutional documents render it worthless.

3)       Beware of subsequent conduct which departs from the terms of the side letter; whilst not directly amending the terms of the side letter, such conduct may have the unforeseen – and undesired – effect of superseding it.

For more on this go to:

http://www.privatefundslaw.com/hedge-funds/two-recent-court-decisions-handed/

Also see our stories:

http://www.ieyenews.com/2012/09/cayman-court-lays-down-more-guidelines-for-enforceability-of-side-letters/

http://www.ieyenews.com/2012/08/cayman-islands-court-decides-on-effectiveness-of-side-letters/

http://www.ieyenews.com/2012/07/cayman-court-upholds-restructuring-arrangements-and-delineation-of-legal-and-beneficial-interests/

Note:

A side letter or side agreement is a collective bargaining agreement that is not part of the underlying or primary collective bargaining agreement (CBA), and which the parties to the contract utilize to reach agreement on issues the CBA does not cover, to clarify issues in the CBA, or to modify the CBA (permanently or temporarily). One may distinguish side letters from “side settlements” or “settlement agreements”, which settle a dispute arising from the underlying CBA.In rare cases, bargaining parties may use a side letter to adjust the focus of the contract if the parties are not yet ready or willing to adapt the contract formally.

Source: Wikipedia