Cayman Islands: International Comparative Legal Guide To International Arbitration 2015 Edition

Note

All arbitrations where the seat of the arbitration is in the Cayman Islands, irrespective of where the parties are based, are governed by the Arbitration Law, 2012 (the 2012 Law). The 2012 Law is based largely on the UNCITRAL Model Law and the English Arbitration Act of 1996 (the Arbitration Act). Prior to 2 July 2012, arbitration proceedings in the Cayman Islands were governed by the Arbitration Law (2001 Revision) (the 2001 Law). The 2001 Law continues to govern arbitrations that were in progress before the implementation of the 2012 Law.

The enforcement of agreements to arbitrate in countries that are parties to the 1958 New York Convention on the Enforcement of Arbitral Awards (the New York Convention) and the enforcement of foreign arbitral awards are governed by the Foreign Arbitral Awards Enforcement Law (1997 Revision) (the Foreign Awards Law), which incorporates elements of the New York Convention into Cayman legislation.

The 2012 Law governs the conduct of the arbitration proceedings, challenges to arbitration agreements in the Cayman Courts and the enforcement of Cayman arbitral awards within the jurisdiction. The 2012 Law bestows wide powers on the arbitral tribunal, tantamount to those of the Cayman Courts. As a result, an arbitral tribunal is capable of awarding any interim or final remedy that the Court may award if the dispute being arbitrated had been the subject matter of Cayman court proceedings.

1 Arbitration Agreements

1.1 What, if any, are the legal requirements of an arbitration agreement under the laws of the Cayman Islands?

The definition of "arbitration agreement" in Section 2 of the 2012 Law is modelled on the UNCITRAL Model Law, and provides that the parties may agree to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.

Pursuant to the 2012 Law, an arbitration agreement may be in the form of an arbitration clause in a contract or a separate agreement (Section 4(1)). An arbitration agreement must be in writing and contained in a document signed by the parties, or alternatively in an exchange of letters, facsimile, telegrams, electronic communications or other communications which provide a record of the agreement (Section 4(3)). An arbitration agreement will also be deemed to exist where a party asserts the existence of an arbitration agreement in a pleading, statement of case or any other document in circumstances calling for a reply and the assertion is not denied (Section 4(4)). Section 4(8) further states that where parties agree other than in writing, by reference to terms which are in writing, they may make an agreement in writing. Section 4(9) provides that a reference in (a) a bill of lading to a charter party or other document, or (b) an agreement to any other document containing an arbitration clause shall constitute an arbitration agreement if the reference is such to make that clause a part of the bill of lading or the original agreement.

1.2 What other elements ought to be incorporated in an arbitration agreement?

The 2012 Law gives the parties the freedom to tailor arbitration agreements to their specific requirements and provides default provisions that apply in the absence of agreement. The rules which the parties may agree upon include the number of arbitrators, the language of the arbitration, whether the arbitration is to be conducted under institutional rules, and whether to nominate an appointing authority to choose the members of the arbitral tribunal or to retain the power to choose the tribunal themselves. The parties may agree additional rules to be incorporated in the agreement based on the nature of the main contract they are entering into.

There are, however, certain mandatory provisions that are designed to uphold the fundamental principles of the 2012 Law, which are: to protect the integrity of the arbitration process; to bring about the fair resolution of disputes by an impartial tribunal without undue delay and expense; to safeguard the public interest; and to limit the scope for court intervention in arbitral proceedings. Such provisions cannot be varied by agreement between the parties and include: the requirement that the tribunal maintains fairness and impartiality throughout the arbitration and that it does not have any conflicts of interests; requirements that set out the general duties of the arbitral tribunal; the requirements with regard to stay of legal proceedings; and the application of the Limitation Law (1996 Revision).

The 2012 Law expressly recognises that arbitration proceedings are to be conducted confidentially (Section 81: Arbitral proceedings shall be private and confidential) and it reflects the New York Convention in the limited grounds upon which arbitral awards may be challenged in the Cayman Courts.

1.3 What has been the approach of the national courts to the enforcement of arbitration agreements?

The Law does not impose any restrictions on the types of disputes that may be referred to arbitration and the Cayman Court will generally adopt a robust approach in enforcing valid and binding arbitration agreements.

The Cayman Court's approach is mandated by the 2012 Law and there is a conspicuous use of the word "shall" throughout the legislation. Section 26(1) provides that any dispute that the parties have agreed to arbitrate may be arbitrated unless the arbitration agreement is contrary to public policy or the dispute is not capable of being determined by arbitration under any other law of the Cayman Islands. Section 3(3), which sets out one of the 2012 Law's founding principles, provides that, in matters governed by the 2012 Law, the Court should not intervene except as provided in the 2012 Law.

Pursuant to Section 9 of the 2012 Law, where a party to an arbitration agreement institutes court proceedings in breach of that agreement in the Cayman Court, the Court "shall grant a stay unless it is satisfied that the arbitration agreement is null and void, inoperative, or incapable of being performed". That provision echoes Section 4 of the Arbitral Awards Law, which applies to foreign arbitration proceedings: "the court, unless satisfied that the arbitration agreement is null and void, inoperative, or incapable of being performed or that there is not in fact any dispute between the parties with regard to the matter agreed to be referred, shall make an order staying the proceedings". In both cases, the Court is compelled by the "shall" to make an order staying the court proceedings in favour of arbitration.

The Court has taken a very robust approach in enforcing Section 4 of the Foreign Awards Law in relation to court proceedings commenced in breach of that provision: See I.N.E.C. Engineering Company Limited v Ramoil Holding Company Limited, Grand Court (Douglas, Ag. J.) 15 May 1997, in which it was held that "the court's power to stay the proceedings under the Foreign Arbitral Awards Enforcement Law, s.4, was mandatory" and, therefore, that the Court "was obliged to accede to the defendant's application [for a stay of proceedings] unless it was satisfied that the agreement to refer all contractual disputes to arbitration was null and void, or that no such dispute existed (page 233, lines 1-8)".

The 2012 Law firmly establishes the separability and autonomy of arbitration clauses and the competence of the arbitral tribunal to rule on its own jurisdiction. Pursuant to Section 4(5), an arbitration agreement which forms or was intended to form part of an agreement shall be treated as a distinct agreement and is not void, voidable or otherwise unenforceable only because the agreement of which it forms part is void, voidable or otherwise unenforceable (Section 4(5)). Pursuant to Section 27(2), such arbitration agreement shall be treated as an agreement independent of the other terms of the contract, and a decision by the arbitral tribunal that the contract is null and void shall not entail as a matter of law the invalidity of the arbitration clause (Section 27(3)), (Section 4(6)). An arbitration clause extends to a dispute about the validity of the agreement in which the clause is found, and even if the Tribunal determines that wider agreement to be invalid, the arbitration clause remains in force (Section 27(3)).

2 Governing Legislation

2.1 What legislation governs the enforcement of arbitration proceedings in the Cayman Islands?

The enforcement of all arbitration proceedings where the seat of the arbitration is in the Cayman Islands, irrespective of where the parties are based, is governed by the 2012 Law. The Law does not only govern the enforcement of arbitration proceedings but also the conduct of the arbitration proceedings, challenges to the arbitration agreements in the Cayman Courts and the enforcement of Cayman arbitral awards within the jurisdiction.

The 2012 Law applies to all arbitrations commenced after 2 July 2012 (Section 89(2)). Arbitration proceedings which were already in progress before the 2012 Law came into effect, and any court proceedings relating to such proceedings, are governed by the 2001 Law.

The enforcement of agreements to arbitrate where the seat of the arbitration is in any country that is a party to the New York Convention and the enforcement of foreign arbitral New York Convention awards are governed by the Foreign Awards Law.

2.2 Does the same arbitration law govern both domestic and international arbitration proceedings? If not, how do they differ?

According to Section 3(1), the 2012 Law applies to all arbitration proceedings with their seat in the Cayman Islands. This includes both domestic and international arbitration proceedings. However, as stated above, the enforcement of agreements to arbitrate in member countries of the New York Convention and the enforcement of Convention awards are governed by the Foreign Awards Law.

2.3 Is the law governing international arbitration based on the UNCITRAL Model Law? Are there significant differences between the two?

The 2012 Law is largely based on the UNCITRAL Model Law and the 1996 Act. The Law repeals the previous arbitration law of the Cayman Islands, the 2001 Law, which was based upon the English Arbitration Act 1950 (the 1950 Act) and earlier legislation which permitted the courts to exercise a far more extensive supervisory jurisdiction over arbitration proceedings. Where the UNCITRAL Model Law and the 1996 Act differ, the 2012 Law adopts aspects of each of them in some specific instances and departs from both in others. For example, Section 32 follows Article 23 of the UNCITRAL Model Law rather than the 1996 Act in relation to the default rules on statements of claim and defences, whereas Section 15(2) follows the 1996 Act in providing that, in the absence of agreement between the parties as to the number of arbitrators, there shall be a single arbitrator. Article 10 of the UNCITRAL Model Law provides for three arbitrators in such circumstance. The default procedure for appointing a tribunal of two or more arbitrators under Section 16(2)(b) differs from both the UNCITRAL Model Law and the 1996 Act in that it provides the parties a mechanism for appointing two or more arbitrators either by appointing one arbitrator each and agreeing to the appointment of a subsequent arbitrator or by two or more parties agreeing to the appointment of the required number of arbitrators.

2.4 To what extent are there mandatory rules governing international arbitration proceedings sited in the Cayman Islands?

The 2012 Law contains a number of mandatory provisions designed to protect the integrity of the arbitration process. These provisions cannot be altered or departed from by agreement between the parties. These include, with some variations, a number of the mandatory rules set out in Schedule 1 to the 1996 Act. For example, Section 19(1) of the 2012 Law enables the parties to agree on procedures for challenging the appointment of an arbitrator on grounds of lack of independence or lack of qualifications, whereas Section 24 of the 1996 Act sets down a mandatory procedure for applications to the Court to challenge arbitrators on such grounds. Section 30 of the 1996 Act allows the parties to contract out of the rule that the tribunal is competent to rule on its own jurisdiction but, pursuant to Section 27(1) of the 2012 Law, "the arbitral tribunal may rule on its own jurisdiction, including any objections to the existence or validity of the arbitration agreement".

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Previously published by Global Legal Group

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Ian Huskisson
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