Sun, sea and silks
10 November 2008
It is 10am on another sunny day in the Cayman Islands. The Judge’s chambers are housed in an unobtrusive building within sight of four large cruise ships. The dispute is of a type very familiar to the Judge but the parties are new to him.
A well-known European fund manager has fallen out with the creator of the fund. They have parted company and the institutional investors are trying to withdraw their funds without incurring a redemption penalty.
The combatants are based in New York, Dublin, London and Geneva. None of them have ever visited Cayman and yet the Grand Court of Cayman is about to determine whether or not the fund’s assets should be frozen pending the resolution of the dispute. At stake are tens of millions of dollars and big reputations.
At the same time, 1,000 miles away at the eastern end of the Caribbean archipelago, another set of parties is disputing ownership of one the largest telecommunications companies in Russia. Bewildered US tourists are accompanied by a crowd of English silks taking the ferry daily from their hotel to the island of Tortola, which houses the British Virgin Islands’ (BVI) civil courts.
What brings these disparate parties to litigate in the Caribbean rather than the Commercial Court, the Federal Courts of the Southern District of Manhattan or the Moscow Court of Arbitration? The answer is domicile and stability.
The fund in question was a Cayman company, which means that the plaintiffs could bring suit in the Grand Court “as of right”. The Cayman Islands remains a UK dependent territory, which means that the parties can be assured of a stable and familiar common law system to resolve their dispute and judges appointed by the Governor, himself appointed by the British Crown.
It is a little known fact that a good proportion of the world’s major ;international commercial disputes are determined in the Caribbean and in particular in the courts of Cayman and the BVI. There are some 80,000 companies registered and active in Cayman and 430,000 in the BVI. Such companies are very often part of an international structure involving very substantial asset flows. Some may be part of structured finance transactions involving hundreds of millions of dollars, or funds with assets of a similar size. When a dispute arises in relation to the transaction a Caribbean court is often in the frame as a potential forum.
The parties will very often be faced with a choice of forum. A combination of domicile of companies, choice of jurisdiction clauses and location of assets may mean that several national courts will accept initial jurisdiction. The skill of choosing between the competing jurisdictions to the best advantage of the client is an essential tool for the international litigator.
Location, location, location
The choice of where to sue is not an easy one to revisit if the result is not what was expected. Committing to one court usually means creating a forum non conveniens problem in the other potential jurisdictions.
The courts of Cayman and the BVI compare very favourably with their larger competitors. The legal systems in both jurisdictions are based very largely on English common law. Each has its own companies legislation and a somewhat familiar insolvency regime. The court rules in Cayman are the English Rules of the Supreme Court, and the BVI actually has a modified form of the Civil Procedure Rules. The judges in both jurisdictions generally derive from a common law background and are recruited from the UK, Ireland and Canada as well as from the Caribbean, where there are a number of law schools.
Lawyers in New York and London tend to feel at home with litigation there compared with, for instance, a civil law jurisdiction where many of the fundamental assumptions of the common law practitioner may not hold true.
Injunctions tend to be very important tools in the sort of international commercial litigation that takes place in Cayman and the BVI. It is no surprise that applications for injunctive relief form a large part of the staple diet of the courts there. Some of these injunctions are very large.
One of the largest companies in Brazil obtained an injunction in Cayman for $1bn (£620m) in 2005, and injunctions in the $500m (£310m) plus category are not unusual.
The resulting familiarity of the courts with the principles of injunctive relief and willingness to grant an injunction where the tests are met is another attraction of litigating if one is the plaintiff or claimant; less so, perhaps, if one is the defendant. Forum battles are very common and again the courts at all levels deal with the issue on a regular basis.
Perhaps the best testimony in favour of the advantages of litigating in Cayman is the deliberate choice of Cayman Islands jurisdiction frequently inserted into international contracts involving a Cayman holding company.
In one such transaction a Canadian plc and a South American company each preferred the jurisdiction clause to be their home jurisdiction, but eventually settled upon the courts of Cayman because they were perceived to be a neutral and reliable middle ground.
In the event, litigation and senior personnel from both companies found themselves visiting the Islands for a hearing rather than a holiday.
Seamus Andrews is managing partner at SimmonsCooper Andrew