Cayman Islands: Alternative Dispute Resolution ("ADR") In The Cayman Islands

THE CAYMAN ISLANDS

The Cayman Islands are a leading financial centre with an established professional infrastructure. There are over 450 licensed banks and trust companies regulated to the standards of the Basle Convention holding over US$600 billion in deposits and inter bank bookings. Other strengths of the jurisdiction lie in capital markets, asset financing, mutual funds, venture capital, captive insurance (which has a population approaching 500), ship registration and fiduciary services.

The Cayman Islands remain a British Overseas Territory with no desire for independence. Their financial prominence is founded on a common law legal system, modern legislation, a stable political and economic environment with no direct taxation or exchange controls and no restrictions on foreign ownership of land. The development of the Cayman Islands has been aided by their proximity to the United States, infrastructure and efficient communications.

THE LEGAL SYSTEM AND ADR

The substantive law of the Cayman Islands is based on English common law with the addition of local statutes which have in many respects changed and modernised the common law. The Cayman Islands have an excellent legal system, currently being upgraded to meet the demands of the financial industry.

Although historically the Cayman Islands have not been an important centre for the resolution of international commercial disputes by way of alternative means of dispute resolution, the trend is changing rapidly. Cayman law has evolved considerably in recent years in order to meet the changing needs of the international business community which has led to an increasing use of alternative means of dispute resolution.

"ADR" is now understood to include both binding (eg. arbitration) and non-binding (eg. mediation) methods of dispute resolution, although traditionally there was a more marked distinction in the definition separating arbitration from non-binding means of dispute resolution.

Arbitration1 is the most popular means of ADR in the Cayman Islands because it is a means of securing a binding decision enforceable in the courts against the losing party. The other means are instead devices for reaching a consensual settlement between the parties in dispute which is unenforceable, per se, in the courts. The most widely used means of ADR in the Cayman Islands are considered in order of importance below.

Arbitration

The evolution of arbitration in the Cayman Islands has not been totally as a result of dissatisfaction with litigation. In fact, litigation in the Cayman Islands can be an efficient and effective method of resolving disputes that are not appropriate for resolution by ADR. Resolving a dispute by means of litigation before the Cayman courts can be a relatively cheap and swift process. Depending on the nature and complexity of the dispute in question, it can take less than a year for a newly filed action to get to trial. There is very little backlog of cases (compared to other major jurisdictions) and the Cayman judiciary is highly qualified, experienced and competent to deal with the most complex technical and commercial disputes.

Nevertheless, the principal benefits of arbitration, such as, for example, confidentiality, the limited discovery requirements and the fact that the relatively amicable nature of arbitration enables parties to take part in proceedings whilst continuing to engage in business relations, are making arbitration more popular with the Cayman business community. Arbitration clauses, sometimes prefaced with clauses providing for other non-binding means of dispute resolution to be tried before commencing arbitration proceedings, are being included regularly in both domestic and international commercial contracts governed by Cayman law.

Most parties choosing arbitration in the Cayman Islands for the resolution of international commercial disputes will expressly provide in their agreements for the arbitration to be governed by the rules of a particular organisation or arbitral body. Such rules may be trade specific or general. They may be the arbitration rules of an international institution such as the American Arbitration Association ("AAA"), the International Chamber of Commerce ("ICC") or the London Chamber of International Arbitration ("LCIA"). Alternatively, the parties may devise their own rules or adopt the ad hoc rules of an organisation such as the United Nations Commission on International Trade Law ("UNCITRAL"). Whatever formal rules or procedures are adopted, the choice of the Cayman Islands as the seat of the arbitration will facilitate the arbitration process due to the unique combination of features it provides, which includes its favourable legislation, the high calibre and expertise of its judiciary and its commercial and business population and efficient systems of communication.

Mediation

Mediation is a technique which makes use of an independent third party neutral, generally referred to as a mediator, to manage the process of resolving a dispute. The mediator is appointed by the parties to hear their dispute. The mediation itself may consist of a combination of joint and single sessions before the mediator. Initially each disputant has the opportunity to make submissions to the mediator in the presence of the other party (in some cases, written submissions are made). Thereafter, the parties usually withdraw to separate rooms while the mediator discusses the dispute with each in turn. The mediator’s job is to seek to identify the common interests of the parties in order to find a solution satisfactory to both parties. He is not required to focus on the legal merits of the respective parties’ case. Through his discussions with the parties, the mediator is given access to confidential information about the dispute not available to the other side which enables him to make a more impartial assessment of the dispute and to direct the parties towards settlement. As a result of this process, which is sometimes described as mediator-led negotiation, the parties are persuaded towards a reciprocally satisfactory solution that may not have emerged in the course of ordinary negotiations between them.

The mediator plays a variety of roles. He acts as facilitator, assisting in communications; as deal-maker to help the parties to find overlap in their bargaining positions or to encourage compromise on concessions; as problem-solver to assist the parties in identifying creative options; and/or as adjudicator-assessor, to provide the parties with a common sense or legal/technical appraisal of the merits of their case.

If the parties agree (before or during the mediation), a mediator may issue a written report recommending terms of settlement or giving an opinion of the case.

Other methods of non-binding ADR

The other methods of non-binding alternative dispute resolution, as opposed to arbitration, though differing in procedure, revolve around the same principle as mediation: a neutral third party is given access to information about how each side sees their case, and uses it to suggest a solution which each party must agree to if the dispute resolution is to succeed.

These are the following:

  1. The Executive Tribunal (also called the "mini trial") is a more formal type of mediation hearing. Its major feature is to allow senior executives to assess the case between their companies. A formal presentation is made by company representatives to a panel consisting of the neutral chairman and a senior executive from each party (usually someone with no previous direct involvement in the dispute). After hearing the presentations and a period of questioning, the executives attempt in private to negotiate a settlement with the assistance of the third party.
  2. Expert Appraisal (as opposed to expert determination which is not the subject of this article) offers the parties (either jointly or individually) a technical expert’s assessment of their case to assist negotiations.
  3. Adjudication, in which a neutral third party gives a non-binding finding on the case or an aspect of the case (e.g. technical merits).

The assessments and findings referred in (2) and (3) above can then be used as the basis for further negotiations between the parties. Alternatively, the parties may agree to treat them as a temporarily binding decision until a certain time has passed (e.g. completion of contract performance in construction disputes) when parties are free to seek a legally binding adjudication (ie. a judgment or arbitral award) to revoke the earlier decision.

Unlike arbitration, neither the mediator nor any other neutral third party can produce a resolution of the dispute that is binding on the parties. Therefore, one of the preconditions for a successful resolution of the dispute using mediation or one of the other means of non-binding ADR is that there must be agreement between the parties as to the use of mediation as well as considerable common ground between the parties. If one side is unwilling to settle for anything less than its initial demands, refusing to compromise, the dispute has no hope of resolution other than as a result of arbitration or litigation.

In most cases, where there is agreement to try alternative dispute resolution, it is likely that both parties are willing to have a negotiated settlement and will compromise on their desired positions. If a mediation or other form of non-binding ADR is successful, the compromise between the parties is usually drawn up in writing, signed by the parties and witnessed by the mediator or other neutral third party. If the "losing" party later decides to renege on the agreement, the other party’s remedy is to sue him in the courts for breach of the settlement agreement. However, if the mediation or other ADR procedure is unsuccessful, the parties have no alternative to an arbitration or litigation.

The costs involved in preparing for the mediation or mini trial can be considerable, particularly in complicated cases where it may take some weeks for the parties to prepare their position in order to present it to the third party. To ensure that these are not wasted with no result, and to promote mediation, certain of the major institutional arbitral bodies now encourage the parties to try mediation shortly after filing a request for arbitration as part of the resolution process, as an attempt to bring about an earlier resolution of their dispute. The attraction of this is that it can be tried in tandem with the arbitration, without unnecessary delays and relatively cheaply.

MAKING USE OF ADR

It is generally accepted that a case is appropriate for ADR in circumstances where:-

  1. The parties want to resolve a dispute or to find a solution to a negotiating problem whilst preserving a business relationship or reputation and minimising the costs, risks and stress of litigation or arbitration;
  2. ADR is also appropriate in circumstances where the dispute is too complex to resolve satisfactorily in straight negotiations or by adjudication, (for example, because there are too many parties involved, or delicate issues to be considered, difficult technical questions to be determined or evidential uncertainties); or
  3. Where the parties would like an independent and confidential appraisal of the merits of their case at an earlier stage than in the courtroom or before an arbitral tribunal in order to preserve their business relationship and avoid spending considerable sums of money in disputes.

Appropriate method of ADR

The advantages of ADR mean that the parties should give it adequate consideration before resorting to litigation or arbitration in most cases. However, it is not always appropriate. For example ADR will not be effective in any cases where one side to the dispute has no genuine interest in settlement, or where there are important legal issues at stake, or if one of the parties requires a legal precedent out of their case, or needs an injunction quickly to preserve its rights and/or its property.

How and where to use it

The best time to use ADR in a dispute is to be determined by the parties based on all the circumstances of the dispute. Both sides must have reached a point where they have a genuine interest in seeing an end to the dispute or to ineffective negotiations whilst preserving their business relationship and avoiding what may turn out to be considerably expensive alternatives.

The prospects for the future of ADR appear promising because whilst ADR can benefit the parties in terms of costs, timesaving and preservation of business relations, it does not present any major disadvantages in that, if ADR fails, the parties’ respective positions are preserved and the parties can institute legal proceedings or commence arbitration proceedings to resolve their dispute at any time.

1 Arbitration is dealt very briefly in this article. The subject is covered in much more detail in a separate article also published on this website.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.

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