Q: What are the main types of litigation that you have been seeing in the Cayman Islands this year?
A: In previous years we saw a few particular areas of major interest emerge, but the past year has been a year of wide variety. This has been one of our busiest years for dispute resolution and we and other Cayman lawyers have been involved in a broad range of large, complex contentious cases, including commercial litigation, restructuring and insolvency, trusts, regulatory fields, professional negligence cases (both for plaintiff and defendant), proceeds of crime cases (for institution and for customer) and other contentious disputes. We are also seeing the continuation of disputed valuation cases in connection with the squeeze-out of minority shareholders of Cayman companies – usually to facilitate a company’s subsequent public offering.
Q: What sorts of trust-related litigation are you seeing most often?
A: Notably, Ogier has been involved in more and more interesting Beddoe applications [named after the case of In re Beddoe, Downes v Cottam  1 Ch 547 (CA)] over the past year. As you may know, these are applications by trustees for directions from a court when a trust has become involved in litigation or other proceedings. Each case comes with its own varied fact pattern but in a typical case a Cayman trust has somehow become involved in over-seas proceedings and its trustee asks a Cayman court for directions about how to proceed. If the trustee subsequently acts in accordance with the court’s direction, it will be protected in respect of its legal costs because the order usually acts as a ruling to the effect that the trustee is entitled to be indemnified for such costs from the assets in the trust.
In addition to the spike in Beddoe applications we are also working on a number of significant restructurings of the substantial trust structures of ultra-high net worth clients. Because the assets that they hold in these structures (which includes trading businesses across the globe) are so complex, we have to take great to ensure that they avoid unintended adverse consequences. Some restructurings have also necessitated an application to a court to give its blessing to a ‘momentous’ decision that the trustee wants to take as part of the restructuring or perhaps to resolve any uncertainty about his/its entitlement to pursue a particular course of action.
Finally, this year we have seen a rise in demand for lawyers to give expert evidence in foreign proceedings or arbitrations on a variety on Cayman trust-law issues.
Q: What trends are you seeing in the insolvency and restructuring world?
A: Law firms’ restructuring teams have been increasingly busy giving advice in the Cayman Islands about schemes of arrangement as a means to restructure corporate groups.
They have also been helping client-firms with cross-border restructurings in the British Virgin Islands (and in the process obtaining ground-breaking relief for those clients). Ogier’s disputes team, for its part, acted for QGOG (and the office holders, once they were appointed) in its US$2 billion restructuring and thereby took part in the BVI’s first ‘soft touch’ provisional liquidation. This type of liquidation happens when provisional liquidators are appointed to help in a restructuring rather than as a prelude to the terminal liquidation of the company or corporate group in question. In this case, the restructuring involved numerous categories of creditors and bondholders, as well as litigation with a minority shareholder regarding a $400 million loan.
On the subject of Cayman-Island insolvencies, the number of petitions is stable and not increasing dramatically. This type of activity is a huge slice of our business – about 60% of what we do. The disputes team has spent a lot of effort since June last year helping the conflict director of the general partner and the investors’ council of Neoma Private Equity Fund IV LP (formerly known as Abraaj Private Equity Fund IV LP) to navigate the collapse into insolvency of the single largest Middle Eastern private equity group, namely the Abraaj Group, said at one time to have had US$12 billions’ worth of assets under management (AuM).
The litigation arising out of the collapse is still in progress. It is an extremely high-profile matter, as various individuals in the Abraaj Group now face criminal and regulatory action in the United States, having been indicted by the Department of Justice and subjected to a complaint by the Securities and Exchange Commission. Dubai’s regulator has fined two central companies in the group a record US$315 million for the wrongdoing that it spotted.
As regards the pipeline of future work, recent perturbations in the world economy have led to an increase in enquiries from funds in some form of distress or from investors in connection with such funds. Although this has not led to a downturn in fund formations (indeed, the Cayman Islands have benefited strongly from a “flight to quality” of fund firms from less established jurisdictions), I expect to see an increase in this area of work and insolvency filings will ultimately follow.
Q: What about valuation cases?
A: Ogier’s Cayman and Hong Kong dispute teams represent several established funds in fair value proceedings in the Cayman courts against Cayman incorporated companies that are predominantly NYSE/Nasdaq listed companies and hold operating subsidiaries in the People’s Republic of China. These proceedings arise out of merger transactions (usually a ‘take private’ merger) in which the Cayman courts have to determine the fair value of the shares of a shareholder that dissents from the merger. These proceedings typically involve hard-fought interlocutory applications and extensive exercises in discovery, along with the need to handle complex expert valuation evidence. My firm, for example, is acting for multiple groups of shareholders in four proceedings of this type at the moment.
Q: Are you seeing any recurring ‘fact patterns’ in your work?
A: Fraud is often involved in the contentious legal work of the Cayman Islands and some monumental fraud cases have come before the Cayman courts in recent years. Most notably, the Algosaibi litigation in the Cayman Islands involved a fraud claim for US$9.2 billion and resulted in a trial lasting a little over a year (which presently holds the record for the longest trial).
Q: What types of pre-action or injunctive relief do you often see the Cayman court granting?
A: Usually against the background of a fraud-related fact pattern, law firms are being asked to seek injunctions (including urgent worldwide freezing orders) from the Cayman Islands courts in support of either intended proceedings in the Cayman Islands or proceedings that are going to take place elsewhere. As regards the latter type, the statutory position in the Cayman Islands changed almost five years ago with the introduction of section 11A Grand Court Law (2015 Revision) to enable the courts to grant interim relief (including the appointment of receivers or an injunction) in the Cayman Islands in support of foreign proceedings which have (or are about to) commence in a court outside the islands. This is available in circumstances where there are no substantive proceedings in the Cayman Islands.
Interestingly, a parallel can be seen in the British Virgin Islands, where Black Swan orders are frequently made. Black Swan orders are similar to freezing orders and may attach to property in the BVI (which includes the shares of BVI companies). They are usually sought in support of foreign proceedings even if no substantive relief is sought in the BVI, in an attempt to secure assets from dissipation pending trial.
Q: Is there often an international cross-border element to your work?
A: Given the worldwide use of Cayman-Island companies and other vehicles, there is almost always is a cross-border aspect to the work we do. This can be recently demonstrated in our restructuring of South American oil and gas drilling corporate groups that involves the laws of the Cayman Islands, the BVI, the United States and Luxembourg and the appointment of liquidators over Cayman entities in support of Guernsey liquidators’ efforts to recover lost value for investors arising out of a complex fraud involving a Guernsey fund. There are numerous other such examples.
Q: What other high-profile cases has your dispute team been involved in recently?
A: The Cayman Islands has recently seen the complex and fiercely contested cross-border Ocean Rig matter, which was one of the world’s largest ever restructurings. Ocean Rig is a leading international contractor of offshore deep-water drilling services and, as a result of the decline in oil and gas prices and other changes in the offshore drilling sector, the Ocean Rig group needed to take urgent steps to implement a restructuring of its financial indebtedness (to manage liquidity and to stabilise its business). Ogier was acting for the Joint Provisional Liquidators in that matter. Because the Cayman Islands restructuring laws have been modernised and revitalised, these companies migrated to the Cayman Islands from the Marshall Islands to allow the group to use the more developed restructuring laws of the Cayman Islands by means of schemes of arrangement. They were in debt to the tune of approximately US$3.7 billion (plus accrued interest). This is an example of the Cayman Islands ‘light touch’ restructuring procedure.
Q: As we look towards the next decade, what do you expect to see in the Cayman Islands in 2020 and beyond?
A: The global economy is volatile at the moment, so we expect to see an increase in insolvency work in the Cayman Islands. The Financial Action Task Force [the world’s antimoney- laundering standard-setter] brought out its ‘mutual evaluation’ of the Cayman Islands in March. Since then, the Cayman Islands Monetary Authority has been keen to get out there and be seen to fulfil all its functions. We therefore expect to see more regulatory work as the regulator fulfils its international obligations to inspect financial-service licensees and ensure that they are meeting their regulatory obligations. More inspections and more activity on CIMA’s part will naturally lead more such licensees to seek legal advice and representation and might even give law firms more opportunities to act for the regulator, where appropriate.
This article first appeared in WealthBriefing's OffshoreRed - October 2019 Volume 24 Number 9
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.