Cayman Islands: Free-Standing Freezing Orders: Now Available In The Cayman Islands?

Introduction

Free-standing freezing orders (or Mareva injunctions) have once again been considered by the Cayman Islands Grand Court.¹ For the first time, a freezing order has been granted despite the absence of substantive proceedings in the jurisdiction. The judgment in Gillies-Smith has grabbed the legal headlines and has been heralded as a groundbreaking development in Cayman Islands law. This update examines the decision and considers its impact.

Facts

The parties to the case were a separated couple who had resided in Ontario, Canada in a property subject to a substantial mortgage. During the marriage the defendant (the husband) won C$15 million in a lottery and acquired significant assets, including a property in the Cayman Islands and at least two bank accounts with Cayman National Bank. According to the plaintiff's evidence, the defendant informed her that he wanted a divorce on April 29 2011 and left for the Cayman Islands on May 1 2011. He had not been in contact since. The plaintiff argued successfully in Canada that under Ontario law, assets acquired during the marriage were matrimonial property, and that the defendant had moved assets out of Canada and into the Cayman Islands while leaving her with joint liability for the mortgage on their Canadian property. The plaintiff obtained an injunction in Ontario freezing the defendant's assets, including the Cayman Islands property and bank accounts. She then sought and obtained ex parte a freezing order in the Cayman Islands in relation to the Cayman Islands property and bank accounts. Although the judgment is silent on the point, it would appear that the plaintiff wanted this freezing order so that she could enforce the Ontario order in Cayman Islands against third parties, including Cayman National Bank.

The plaintiff also sought and obtained leave to serve the defendant out of the jurisdiction, presumably because she did not know his whereabouts.

Decision

The Cayman court considered jurisprudence from the Privy Council, the leading Cayman Islands decisions in Bass v Bass,² Deloitte & Touche, Inc v Felderhof³ and Telesystem International Wireless Inc v CVC/Opportunity Equity Partners LP,⁴ as well as recent developments in Jersey, the British Virgin Islands and the Isle of Man (all three jurisdictions now recognise free-standing freezing orders). It concluded that the plaintiff had a justiciable cause of action in the Cayman Islands - namely, to give effect to the injunction issued in Ontario and to obtain a freezing order in the Cayman Islands until the final determination of the Ontario proceedings. On the facts, the court held that the freezing order should be granted.

This conclusion was apparently influenced by Lord Nicholls' dicta (from his dissenting speech in Mercedes-Benz AG v Leiduck⁵) about what could constitute a 'cause of action':

"They (practicing [sic] lawyers) do not always appreciate that the range of causes of action already extends very widely, into areas where identification of the underlying 'right' may be elusive...

If ... where the court is seized only of a claim for interim relief, that claim must bear the burden of being labeled a cause of action if intervention by the court is to be justified, let that be so. The law continues to adapt and develop."

The court considered the usual tests in freezing order cases, such as the necessity for a good arguable case, a real risk of the dissipation of assets and a consideration of the balance of convenience. It also apparently lent weight to considerations as to whether the grant of a freezing order would render the foreign proceedings more efficacious.

It also granted leave to serve the defendant out of the jurisdiction under Order 11, Rule 1(1)(b) of the Cayman Islands Grand Court Rules, apparently on the basis that the freezing order sought was not in fact interlocutory but final, as no other remedy was sought within the Cayman Islands.

Comment

The court's judgment evidences the development of jurisprudence in offshore jurisdictions in recent times, and illustrates a willingness to offer freezing relief in the Cayman Islands where plaintiffs have been able to obtain a worldwide freezing order in their home jurisdiction which has application to assets in the Cayman Islands.

However, it still leaves several questions unanswered. There will be cases in which the plaintiff has been unable to gain such a freezing order. It is in such circumstances that a freezing order issued in the Cayman Islands may be most desired and needed by the plaintiff. Gillies-Smith did not consider this scenario, since the facts of the case were not aligned with it. But since the grant of a Cayman freezing order in Gillies-Smith was expressly made on the basis that the Ontario freezing order gave the plaintiff her justiciable cause of action in the Cayman Islands, the decision cannot be extended or deemed to apply in cases where the plaintiff has no such cause of action.

A more academic, but nonetheless relevant, question concerns the legal process which renders a worldwide freezing order enforceable with regard to third parties in the Cayman Islands. In cases where a plaintiff has obtained a worldwide freezing order in his or her home jurisdiction, but is concerned by an inability to enforce it against third parties in the Cayman Islands, he or she could (in theory) have two options. The first is to seek an order declaring that the worldwide freezing order is enforceable in the Cayman Islands⁶. The second is to obtain a further freezing order in respect of the Cayman Islands assets. The Gillies-Smith decision does not discuss these two options; the court was not asked to do so. Instead, it ordered a new freezing order, but one purportedly designed to enforce the Ontario freezing order. This appears to be a form of hybrid order between a declaration that the Ontario freezing order is enforceable in the Cayman Islands and a new freezing order relating to the Cayman Islands assets. The court did not comment on whether, if asked to do so, it would have declared the Ontario freezing order to be enforceable in the Cayman Islands.

A final question raised by Gillies-Smith is the relevance to this scenario of Order 11 Rule 1(1)(b) of the Grand Court Rules, which provides that a claim for an interlocutory injunction is not of itself sufficient grounds for service of a writ out of the jurisdiction. The court granted leave to serve the claim on the defendant outside the jurisdiction (his whereabouts being uncertain), apparently on the basis that the freezing order sought was a final injunction pending the determination of the Canadian proceedings, and not an interlocutory injunction. The exception in Rule 1(1)(b) was therefore held to be inapplicable. The reasoning of the court on the point is somewhat opaque and apparently contrary to earlier judicial thought in relation to similar injunctions. While the decision navigates a path around what appears to be an obstacle to the practical availability of free-standing freezing relief in the Cayman Islands against foreign defendants, the question of whether a free-standing freezing order can be seen not to be interlocutory will doubtless attract debate.

Further clarity in this developing area of law is welcome. Deploying the Gillies-Smith precedent, a plaintiff who has a worldwide freezing injunction against a defendant who has assets in the Cayman Islands can now argue that he or she has a sufficient cause of action in the Cayman Islands to obtain a local freezing injunction. However, by way of caveat, it must be noted that the reasoning of the Gillies-Smith decision has not been tested on an inter partes basis. Further, the decision diverges from English precedent and breaks new ground in the Cayman Islands, and as such is particularly vulnerable to a successful appeal or to being distinguished in future cases. While it is understood that an inter partes challenge is unlikely in the Gillies-Smith case itself, the position may develop as more applications for similar injunctions are presented to the Grand Court.

So the answer to the question of whether free-standing freezing orders are now available in the Cayman Islands is a qualified 'yes' at best. It must be noted that the court, on its own analysis, did not grant a free-standing freezing order in Gillies-Smith at all. Instead it found the plaintiff to have a cause of action in the jurisdiction. While the judgment does broaden the scope for the award of freezing orders, it does not open the door for free-standing freezing orders to be awarded in the Cayman Islands in all cases. A further category of free-standing freezing order, where the plaintiff does not have a worldwide freezing order from his or her home jurisdiction, remains untouched by the Grand Court's grant of relief to the plaintiff in Gillies-Smith. We must await another case on different facts to test whether the Grand Court will show as much enthusiasm for such free-standing freezing orders.

Footnotes

1 Gillies-Smith v Smith (Cause 173 of 2011)

2 2001 CILR 317

3 Cause No 845 of 1997

4 2002 CILR note 22

5 [1996] 1 AC 284

6 It is long established that a worldwide freezing order obtained in England may be declared enforceable should the freezing order so provide, the English court grants permission and the court in the relevant jurisdiction makes the relevant declaration: for example, Dadourian Group International Inc and others v Simms and others [2006] EWCA Civ 399.

Originally Published in International Law Office, August 11 2011

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