Cayman Islands International Arbitration Developments

A number of recent decisions from the courts in the Cayman Islands affirm the judiciary’s experience in dealing with arbitration-related disputes.

In China CVS (Cayman Islands) Holding Corp. (unreported, 25 February 2019), Justice Kawaley reconciled divergent views in the authorities to bring clarity to the question of when the Court will stay a winding up proceeding in favour of a contractual obligation to arbitrate. Uncertainty had arisen because the Cayman Islands Court of Appeal had, in Re Cybernaut Growth Fund LP [2014] (2) CILR 413, rejected an application to strike out a petition, holding that an arbitration clause is inoperative to the extent that it purports to confer the Court’s exclusive power to make a winding up order on an arbitral tribunal (see Harney’s review of the case). In China CVS, the Court noted that while only the Court can grant a winding up order, that did not necessarily mean that the subject matter of a petition could not be arbitrated; following the obiter comments in Fulham Football Club (1987) Ltd v Richards [2012] Ch. 33, the Court considered that petitions may be stayed where the disputed matters underlying the petition can be properly “hived off” for determination by an arbitral tribunal. See the reviews of this case by Harneys and Walkers.

In VRG Linhas Aereas SA v Matlin Patterson Global Opportunities Partners (Cayman) II LP & Ors (FSD 137 of 2016), the court applied a basic principal of arbitration — that it must be consensual — in refusing to enforce a R$93 million arbitral award obtained in Brazil in 2010 against two funds, dealing also with the concepts of issue estoppel, natural justice and public policy in the context of international arbitration proceedings. The court concluded [184]:

The matter of the Court’s power to refuse to enforce an arbitration award is a matter of discretion but this discretion is not at large. It must be exercised upon a principled basis, in respect of which there is a long line of cases that provide some guidance, and which have been referred to in this judgment. In all of the circumstances it is my view that it is just to refuse to enforce the Award, as it offends the underlying principle of arbitration, that it must be consensual. That this Award does so is made out on two bases: (a) the purported exercise of jurisdiction pursuant to an arbitration agreement to which the MP Funds were not parties; and (b) the purported exercise of jurisdiction whereby the Tribunal found the MP Funds liable for a particular provision of the Brazilian Code that had never been pleaded or set out, and therefore falling outside of the boundaries of the submissions. The Award also offends against the cardinal principle of natural justice that enshrines a party’s right to be heard and is contrary to the public policy of the Cayman Islands. This is contrary to the express provisions of the New York Convention…”

See the review of VRG by Harneys.

In Arcelormittal USA LLC v Essar Steel Limited & Ors (Cause No. FSD 74 of 2019, 2 July 2019, unreported), the Cayman Islands Grand Court clarified important procedural points in relation to enforcement of foreign arbitral awards, noting the following:

  • There had previously been some uncertainty as to the interplay between the service provisions in Order 73, rule 31 and in Order 11, rule 1(m). The former provides that on hearing the application for leave to enforce an arbitral award, the Court may direct that the application be served out of the jurisdiction with leave of the Court, but that service of an order (granting leave to enforce an arbitral award) out of the jurisdiction is permissible without leave of the Court. The latter provides that leave is required to serve a claim to enforce any arbitral award within the meaning of the Arbitration Law (2012 Revision);
  • Order 73, rule 31 of the Grand Court Rules is a self-contained code for the enforcement of foreign arbitral awards. Order 11(1)(m) is not relevant to the enforcement of foreign arbitral awards and it is not clear why it was seemingly submitted by Counsel in the earlier decision of Globeop Financial Services v Titan; it is only relevant in the context of enforcing domestic awards, i.e. where the seat of arbitration is the Cayman Islands.
  • There is no requirement for prior service of the application for leave to enforce an arbitral award. The structure of Order 73 is such as to permit an applicant to obtain leave to enforce an award without prior notice. What is mandatory is service of the order. The correct procedure ordinarily is that an application under Order 73, rule 21(1) should in fact not be served without prior permission of the Court.
  • The criteria to be applied as between leave to enforce a foreign arbitral award and a foreign judgment are different. There is no “tangible benefit” test for enforcing foreign arbitral awards, that being relevant only in relation to enforcement of foreign judgments. The only grounds for challenging the enforcement of a foreign arbitral award are those in section 7(2) of the FAAEL, which relate to defects in the procedure of obtaining the award.

See the review of the Arcelormittal case by Harneys.

Cayman has, for decades, been a major centre of the global financial services industry, hosting nearly 11,000 hedge funds (constituting more than 60% of the world’s hedge funds by number and net assets), one of the world’s largest insurance centres and the domicile of 50% of the companies listed on the Hong Kong Stock Exchange. Forty of the world’s fifty largest banks have a presence on Cayman. It is home to an established legal profession, judiciary, accountancy, audit and other financial professional with unique and extensive expertise in the resolution of funds and other complex financial services disputes. See the overview of arbitration practice on the Cayman Islands by Carey Olsen.

In keeping with offshore jurisdictions, see also the review by Harneys of the BVI International Arbitration Centre, where the authors note the following three main features of the BVI Act:

  • It incorporates the UNCITRAL Model Law;
  • The BVI is signatory to the New York Convention; and
  • It allows the option to opt-in to a right of appeal to Court on a question of law arising from an arbitral award.

And see further Harneys note on the decisions in C-Mobile Services Ltd v Huawei Technologies Co Limited (BVIHCMAP 2014/0006 and BVIHCMAP 2014/0017) and Jinpeng Group Limited v Peak Hotels and Resorts Limited (BVIHCMAP 2014/0025 and BVIHCMAP 2015/0003).

About Phillip Rompotis

Phillip practices as a barrister and arbitrator in Hong Kong. He has over 25 years’ litigation and arbitration experience in commercial disputes relating to construction & engineering, financial services, joint venture & shareholders agreements, technology, trusts, property and landlord & tenant. He is a Fellow of the Chartered Institute of Arbitrators, the Singapore Institute of Arbitrators, the Malaysian Institute of Arbitrators, and a member of various lists/panels of arbitrators.

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