Cayman Islands: Cayman Islands Case Notes, October 2014

Last Updated: 6 November 2014
Article by Marc Kish

The following case notes outline two significant recent developments in the Cayman Islands.

Caribbean Islands Development Ltd. (in Official Liquidation) v First Caribbean International Bank (Cayman) Limited (unreported)
In a ruling handed down on 8 October 2014, the Cayman Islands Court sent a strong reminder to litigants of the importance of providing security for costs in a form appropriate for enforcement by a Cayman resident defendant and, in doing so, highlighted the dangers of proposing alternative solutions without the prior approval of the Court.
The plaintiff, a Cayman Islands company in court-ordered liquidation and acting through its joint official liquidators at Rawlinson & Hunter (the JOLs), had issued proceedings against a local bank alleging that it had failed to fulfill its duties to the plaintiff in selling a property on its behalf.
On 7 March 2014 the Court had ordered that the plaintiff provide security for the defendant's costs of the litigation within 21 days, in the amount of US$100,000. Although the plaintiff had sufficient money in its bank account, the JOLs claimed they had been unable to post security by way of cash deposit since the liquidation estate had obligations in the form of unpaid accrued professional fees, aside from which tying up the amount in question would have left insufficient cash to run the liquidation. Since further funding would be needed in any event if the litigation were to go ahead, the JOLs also approached investors for assistance, but were unable to obtain the necessary financial backing. The date for compliance with the security order came and went. 
On an application by the defendant, the Court proceeded to make an 'unless order', the terms of which stated that, unless the plaintiff complied within a further 90 days, its claim would be struck out and the action dismissed. The JOLs used the additional time to seek litigation funding and 'after the event' (ATE) insurance in the London market to enable them to proceed with the claim and, with only a day to spare before the deadline in the unless order, approached the defendant with a proposal of security in the form of a deed of indemnity from a respected London insurer, QBE Insurance (Europe) Limited. The proposal was rejected by the defendant, but only after the time for compliance with the unless order had expired. The defendant immediately issued a summons for dismissal of the action with costs. 
In the event, the indemnity was in place two days after the deadline for compliance with the unless order, with the result that the JOLs made a retrospective application for a two-day extension of time so as to bring the plaintiff in line with the order. That application was rejected. The Court was dismissive of the proposed form of security, which it said was unsatisfactory because it would not allow the defendant to enforce against assets in the jurisdiction and because the wording of the proposed indemnity suggested that proper account had not been taken of costs orders already in the defendant's favour when taking out the insurance. The Honourable Chief Justice was critical of the JOLs, finding that they ought to have sought directions from the Court as to their proposed course of action, since this involved a decision not to pay in the security when they had means to do so and continuing to act in breach of the orders.
Under Cayman Islands law, an official liquidator may seek the sanction or direction of the Court in relation to the exercise of any of his powers or obligations and, provided he is acting reasonably in doing so, his costs of such an application will generally be paid out of the assets of the liquidation estate. Whether to incur the costs of such an application will be a matter for the liquidator to weigh up, taking into account the significance of the issue under consideration. Assuming that the enforceability of the proposed security had been identified as a potential issue, that issue was sufficiently important, in light of the consequences of not complying with the unless order, to merit an application for directions. Nonetheless, it must be said that the Chief Justice's ruling is surprisingly critical of the JOLs given the attempts that were made to preserve a claim thought to be of real value to the estate.
One reason for this appears to be the JOLs' practice of failing to make a reserve for costs orders made in the defendant's favour, while at the same time being said to provision for their own fees. The implication is not that the JOLs paid themselves prematurely out of the assets (it seems clear that they had not paid their own fees for some time) but that they had persevered with trying to fund litigation from third party sources when there was a risk that they would be unable to cover the costs of embarking on that litigation. The ruling is a reminder to official liquidators that there is no obligation to commence litigation if there are insufficient assets in the estate and that, on any view, funding should be put in place before issuing the claim and not at a stage when orders have already been made in favour of the defendant, which the assets in the estate may be insufficient to satisfy. In practice, of course, the JOLs had (in the end) proceeded on the basis of ATE insurance, which they presumably thought would be sufficient to cover any outstanding liabilities to the defendant, perhaps without anticipating the doubts that would be expressed by the defendant (and shared by the Court) over the validity and enforceability of such insurance.
The case highlights the difficulties encountered by liquidators seeking to maximize the value of a liquidation estate with limited resources, and balancing competing obligations to the Court, creditors and opponents to litigation. The judgment emphasizes the importance of identifying potential issues at an early stage and assessing whether such issues merit an application for Court sanction, particularly when there is otherwise a risk of non-compliance with an order of the Court.   
In Re ICP Strategic Credit Income Fund Ltd. and In Re ICP Strategic Credit Income Master Fund Ltd.

Much has been written in recent months about the circumstances in which it is appropriate for court-appointed liquidators of a Cayman Islands company to seek Court sanction to issue proceedings in the name of the company, and whether and in what form they should seek funding in order to do so [1]. In this judgment of 4 April 2014, which reflects a decision made in October 2013, Jones J sets out to clarify the circumstances in which the Court will sanction proposed litigation overseas funded by alternative funding agreements. 


The joint official liquidators of the ICP funds sought the Cayman Court's leave to bring proceedings in the US against a well-known bank and an equally well-known international law firm. It was proposed that the proceedings be funded pursuant to the terms of a contingency fee agreement to be entered into with US attorneys, Reid Collins & Tsai LLP.

The issues raised by the application may not have been novel, but they were sufficiently topical and unclear as a matter of Cayman Islands law [2] that the parties requested the Court to provide its reasons in writing so as to help practitioners to understand the current attitude of the Court in circumstances where different approaches to funding options mean more options for liquidators in terms of where to litigate.

The liquidators needed Court sanction to proceed at all with the litigation. For its part, the Court therefore needed to be satisfied that pursuing the claim was in the best interests of those with a financial interest in the liquidation. For this to be the case, not only would the Court insist on there being a "real prospect of success" but it must also be satisfied that no other circumstances existed which could amount to an unreasonable risk of prejudice to the creditors or contributories of the company. As Jones J remarks in his ruling:

"There may be circumstances in which the downside risks of litigation would fall upon the creditors, whereas the upside benefit would go, in part, to shareholders who bear no corresponding risk. It follows that the Court's decision to sanction the commencement of litigation can never be entirely divorced from questions about how and by whom it will be financed".

Public policy

Historically, Cayman Islands law, like English law, has regarded certain litigation funding agreements as unlawful on grounds of maintenance (the interference in litigation of a disinterested party) or champerty (maintenance in return for a share in the proceeds). This public policy position is rooted in the unwillingness to promote the inherent conflict of interest that arises where an attorney is remunerated as a percentage of the proceeds of litigation rather than on a time spent basis. 

Attitudes to maintenance and champerty have developed over the years in light of the competing focus on access to justice and freedom to decide for oneself whether to engage lawyers on a 'no win no fee' basis. Appropriately, however, the policy considerations that apply in the context of official liquidations continue to incorporate safeguards to ensure that investors and creditors are protected as far as possible from the potential risks associated with litigation funding agreements while still allowing liquidators the option of using outside funding. 

The position in the Cayman Islands can be summarised as follows, as explained by the learned Judge in his ruling:

1.       An assignment of a cause of action belonging to the company in return for a percentage of the proceeds of the action is a valid exercise by the official liquidator of his statutory power to sell the company's property.
2.       An assignment of a percentage of the proceeds of such a cause of action pursuant to a litigation funding agreement is also a valid exercise of the official liquidator's statutory power to sell the company's property, provided that the funder is given no right to control or interfere with the conduct of the litigation.
3.       A purported assignment of a right of action or of the proceeds of a right of action vested in the official liquidator personally, such as a preference claim, is not authorized under the statutory power to sell the company's property as this would amount to an unlawful surrender by the liquidator of his fiduciary power.

In determining whether, for the purposes of category 2 above, a litigation funding agreement falls foul of the requirements imposed by the law, the Court will always consider carefully the terms of the relevant agreement when it is asked to sanction the liquidator's decision to proceed to issue proceedings. 

Litigation funding agreements

To this end, the Cayman Islands has maintains a distinction between the following types of agreement:

a.      "Limited recourse loan agreements", whereby the funder (who may or may not be a stakeholder in the liquidation) provides purely financial assistance and agrees to receive a share of any proceeds recovered from the litigation.
b.      "Contingency fee agreements", whereby the funder is a foreign law firm, and the law firm assumes the conduct of the litigation in return for a share (usually expressed as a percentage) of the proceeds of the claim if, and only if, the litigation is successful.
c.       "Conditional fee agreements", whereby the funder is any law firm, and the law firm is paid on the basis of discounted hourly rates in any event, with an entitlement to an increase in fees in the event that the litigation is successful.

Limited recourse loan agreements and conditional fee agreements are considered valid in the Cayman Islands [3]

Contingency fee agreements of the kind described at 'b' above are void insofar as they relate to litigation that is to be carried out in the Cayman Islands. However, notwithstanding a requirement under the Companies Winding Up Rules that Cayman Islands law must govern the engagement of foreign attorneys by a Cayman Islands liquidator, Jones J held that the same restriction would not apply to litigation that was intended to be conducted in a jurisdiction (such as the US) where such agreements were permitted as a matter of law. In sanctioning the decision to bring proceedings in the US on a contingency fee basis, he did however insist that the agreement make it clear that the attorneys in question had no control over the outcome of the litigation. 


The reasoning adopted by Jones J for his decision is that Cayman Islands law does not consider the relevant public policy to be a universal policy, rather one that applies only to litigation in domestic courts. In this and the remainder of his ruling, there appears to be some indication that this is an area of law that deserves to be amended by statute when it falls to be considered by the Cayman Islands Law Reform Commission.

The fact that the Court's approach to sanction of liquidators' powers has become stricter in recent years does seem to suggest that there may be room to develop the law in this area to allow more of a case-by-case approach in which each agreement and its possible prejudice to stakeholders can be assessed individually. In the meantime, Cayman Islands insolvency practitioners will continue to consider litigating overseas if they believe a contingency fee agreement to be in the best interests of their stakeholders.


1 See also our note (above) on Caribbean Islands Development v First Caribbean International Bank.

2 Indeed the law on maintenance and champerty is a topic that has been submitted for consideration by the Cayman Islands Law Reform Commission.

3 See the unreported case of DD Growth Premium II x Fund and, before that, Quayum v Hexagon Trust Company (Cayman Islands) Limited [2002] CILR 161

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.