With the biggest ever trial to come before the Cayman Islands and some major cases clarifying important issues of law regarding investment funds, it has been perhaps the most impressive year yet for the Financial Services Division (FSD) of the Grand Court of the Cayman Islands.
Established in 2009 to provide the special procedures and skills required for issues typically thrown up by the more complex civil cases coming out of the financial services industry, the introduction of the Financial Services Division was a landmark for the judiciary and is a significant differentiating factor for the Cayman Islands legal system.
The FSD's procedures reflect that urgent actions need to be taken from time to time. For example, often there is a requirement for justice to be administered in public, but without the risk of sensitive information being publicly available too early in a case, which could render considerable harm to the businesses involved. Furthermore, the occasions do arise when judicial resources need to be adjusted to match the varying patterns of workload. Video conferencing is used considerably, which reflects the global nature of Cayman financial services in modern markets.
Finance is a highly specialised area and by having dedicated FSD judges with a high level of practical experience, along with judicial expertise, Cayman both demonstrates its value and has cemented its position as the destination of choice for high value, high stakes litigation.
To ensure that the FSD continues to adapt and meet the changing needs of financial and commercial business, a 'Users Committee' has been established to provide open channels of communication and a steady flow of constructive suggestions and dialogue between the FSD, representatives of potential litigants, professional advisors and practitioners. This includes all of the main industry associations and local regulators.
LANDMARK CASES
There is perhaps no better example of complex, multi-faceted, international litigation at present right now than the SAAD litigation, which began in July, turning the world's attention to the Grand Court in Cayman. The case, Ahmad Hamad Algosaibi & Brothers (AHAB) v Al-Sanea and Others, involves worldwide matters and issues arising from the credit crisis involving a large family conglomerate in the Middle East and financial institutions in Saudi Arabia, Bahrain, London, New York, Switzerland and the Cayman Islands. Borrowings from some 118 banks worldwide were central to the matter.
The scale of this case – the largest to be held in Cayman – is evident with the courts blocking out seven months for the trial to be followed by two to three months for deliberations and writing on the judgement. The great and the good of the Cayman legal profession have been advising parties on this mammoth case, with the first complaint was filed back in 2009. Mourant Ozannes, Harneys, Walkers and HSM Chambers are the main Cayman firms involved.
Participants in the litigation have said the trial showcases the Cayman legal profession and the financial industry as a whole, highlighting both the responsiveness of the FSD and the skill of the judges who have received special training for the complex financial matters. It is also seen as demonstrative of Cayman's status as a world class jurisdiction to do business, as much as a leader in the off shore disputes arena.
Another premier case to test the Cayman courts during 2016 was the long running Herald/Primeo Fund litigation which came out of the Maddoff scandal. Primeo was a fund which had invested substantially all of its assets into Bernard L Madoff Investment Securities (BLMIS). In December 2008 when Madoff confessed his fraud, the fund lost around US$750 million and was placed into liquidation. Since then the liquidators Zolfo Cooper have been trying to recover the losses, resulting in various pieces of litigation, including clawback claims by the Maddoff Trustee in both New York and Cayman. Matters were complicated further because although Primeo's investment was originally directly into BLMIS, in 2007 it invested into another fund called Herald which in turn invested into BLMIS. Herald had to be placed into liquidation because the Madoff Trustee was wary of dealing with Herald's management. It ended up in a three way deal with the Madoff Trustee in November 2014, while Primeo brought proceedings against its investment manager in 2014, which were settled and against HSBC its administrator and custodian which were due to go to trial in November 2016.
A recent decision by the Cayman Islands Court of Appeal related to creditor claims. Justice Jones held at first instance that Primeo and other investors who redeedmed on December 1 2008 had valid creditor claims and this decision was recently upheld by the Cayman Islands Court of Appeal, which means that Primeo and the other investors are entitled to be paid out around US$200 million from Herald in priority to other investor claims. Peter Hayden, Managing Partner of Mourant Ozannes in Cayman, said: "It is an important decision because there has long been debate about the interpretation of section 37(7) of the Companies Law, which addresses the circumstances in which investors have creditor claims against a company. The Court of Appeal decision is based on and is consistent with English authority and other Cayman authority, and provides certainty, which is important for investors."
"The case is providing important clarification of the relevant provisions of the Cayman Companies Law," Hayden added. "This will provide greater certainty for investors and should enhance the attractiveness of the Cayman Islands as a domicile for investment funds."
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