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.

Similar Articles
Relevancy Powered by MondaqAI
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 Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions