Cayman Islands: Exclusive Jurisdiction Clauses - Are They Really Exclusive?

Last Updated: 21 June 2019
Article by Ally Speirs


Argyle Fund SPC Inc. ("Argyle") is a Cayman Island Mutual Fund which went into insolvent liquidation on 26 April 2016, purportedly due to significant exposure to debt factoring via investments made through two credit advisors which each perpetrated major frauds at Argyle's expense.

Argyle's auditor, BDO Cayman Ltd. ("BDO Cayman"), was its statutory auditor for the audit years ending 31 December 2006 – 2014, as a result of which audits of the investments held by certain of Argyle's classes would necessarily have had to have been properly scrutinised.

Between 2010 – 2013, Argyle and BDO Cayman entered into four separate audit engagement letters, none of which BDO Cayman's affiliates were a party to.

In 2016, it was discovered that large sums had been misappropriated through fraudulent actions under the control of one of the credit advisors in which it had invested (and which had purportedly been audited).

First Instance – The Anti-Suit Injunction

On 21 June 2017, Argyle commenced the New York proceedings against BDO Cayman as well as BDO Trinity Limited, BDO USA LLP and Schwartz & Co LLP (the "Affiliates") for their alleged failure, over the period of four audits during the years of 2010 to 2013, to bring to Argyle's attention that they were, or may have been a victim to what should have been unmistakable frauds which ultimately brought about its demise. In the New York proceedings, Argyle sought compensatory damages of over US$86 million and punitive damages of not less than US$260 million.

In August of 2017, BDO Cayman filed an ex parte application in the Grand Court of the Cayman Islands for an anti-suit injunction to prevent Argyle from being permitted to continue its New York proceedings against BDO Cayman and its Affiliates. Their basis for this application relied on the engagement letters entered into by Argyle, which contained five key clauses under which Argyle was obligated to have any and all disputes arising out of an audit governed by the engagement letters determined by arbitration in the Cayman Islands and, also, solely against BDO Cayman. These clauses where namely (i) The Applicable Law Clause; (ii) Exclusive Jurisdiction Clause (iii) Dispute Resolution Clause (iv) Assignment Clause; and (v) Sole Recourse Clause.

In the first instance, Justice Parker granted the anti-suit injunction, ruling that the New York proceedings were in breach of a number of the clauses in the engagement letters, and the proper forum for Argyle to pursue any claims arising under or in relation to the Engagement Letters was by arbitration solely against BDO Cayman, notwithstanding whether a third party assisted with the audits. Justice Parker also held that BDO Cayman was solely liable for the performance of all of its Affiliates, and Argyle had agreed not to bring claims or proceedings against any Affiliates.

The Cayman Islands Court of Appeal

The Court of Appeal also looked at the same clauses relied on in the first instance and determined that the Judge had erred in his decision.

The Justices of the Court of Appeal agreed that the Sole Recourse clause was a clear covenant not to sue; however, the covenant not to sue the Affiliates was subject to a carve-out, or exception as it were, which stated that Argyle would not bring any claim against any of BDO Cayman's Affiliates or any members of the international BDO network who assisted as supplemental service providers unless there was "any liability, claim, or proceeding founded on an allegation of fraud or wilful misconduct or other liability that cannot be excluded under the applicable laws" .

It follows that whether Argyle was free to sue the Affiliates in the New York proceedings it would have to overcome two hurdles. Firstly, whether the New York proceedings against the Affiliates were a "claim or proceeding founded on an allegation of fraud or wilful misconduct or other liability that cannot be excluded under the applicable laws?" such that they fall within the exception in the Sole Recourse Clause; and secondly, if the claims were founded on such an allegation, were the New York proceedings brought in breach of the Exclusive Jurisdiction clause?

The Court of Appeal was of the opinion that the allegations of fraud and wilful misconduct did indeed fall within the exception, thereby advancing past the first hurdle, and to answer part two of the question, they considered the observations of Mr Rabinowitz QC sitting as a Deputy Judge in Team Y & R Holdings Hong Kong Ltd v Ghossoub1 in which he laid out a seven step process in determining when it is appropriate for an exclusive jurisdiction clause to be enforced in relation to proceedings against persons or entities who were not a party to the contract.

In that case, Mr Rabinowitz QC set out that:

  1. Whether an exclusive jurisdiction clause should be understood to oblige a contractual party to bring claims in the chosen forum even against a non-contracting party, the clause must be considered as part of the whole contract; language included in other clauses may shed light on what the parties truly intended.
  2. The principle that the parties are likely to have intended that all disputes arising out of the relationship they have entered would be decided by the same court cannot apply with the same force when considering claims brought against non-contracting third parties. The starting position should be that "absent plain language to the contrary, the contracting parties are likely to have intended neither to benefit nor prejudice non-contracting third parties".
  3. Reference to third parties' position in other clauses, demonstrating that the parties have consciously turned their minds to them, means that the absence of any express mention of third parties in an exclusive jurisdiction clause may be an indication that the clause was not intended to affect third parties.
  4. If the above mentioned silence occurs, the fact that any other clause dealing with third parties shows an intention that third parties should not acquire rights as against a contracting party may be a further indication that the clause was not intended to affect third parties.
  5. If a particular interpretation of the clause creates a material contractual imbalance, this may lead to indicate that it was not intended to apply as such, as it is unlikely that rational contracting parties would have intended this.
  6. If the contract fails to identify any third parties whatsoever, this may be an indication that the clause was only intended to affect the contracting parties.
  7. Where contracting parties wish for a claim to be subject to the exclusive jurisdiction clause even where it is brought by or against a non-contracting party, it should be expressed, setting out said intention, and who is to be affected in unambiguous terms in the clause.

After setting out these steps in the judgment, the Court of Appeal held that the exclusive jurisdiction clause did not extend to the claims brought by Argyle against the Affiliates. If BDO Cayman intended for the clause to cover the Affiliates, express wording would have been required.

The Court of Appeal also held that, despite the Dispute Resolution clause calling for arbitration to be the appropriate method for resolution, the carve-out in the Sole Recourse Clause had the effect, intended or not, of allowing Argyle to bring any claim that fell within the carve-out in judicial rather than arbitration proceedings, as the Dispute Resolution Clause could only apply to claims brought by or against parties to the engagement letters.

What does this mean for Service Providers and Contracting Parties?

This is a very significant decision with far-reaching implications on service providers and contracting parties alike. On one hand, this decision sets the stage for companies and funds that have relied on service providers to directly take action against the entity that has actually carried out the work delegated to them by the contracting service provider, thereby widening their pool of potential defendants tenfold.

On the other hand, many have viewed this as an uncommercial decision as it is arguably an established principle in contract law that by agreeing to an exclusive jurisdiction clause, both parties to the contract are to be taken to have agreed and intended for any and all disputes arising out of the relationship entered to be decided in a single jurisdiction, and this decision goes against this principle entirely.

One thing has been made abundantly clear from this decision. As a service provider, the only certain way to ensure that all affiliates outside of the jurisdiction to whom work is delegated are protected from claims arising under a contract is to expressly limit liability in unambiguous terms to non-contracting parties in all relevant clauses – else they may find themselves in proceedings in New York regardless of an exclusive jurisdiction clause.


[1] [2017] EWHC 2401 (Comm).

* Previously published in TerraLex Connections newsletter – January 2019

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
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please 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