This article is a republication of an article published in American Bankruptcy Institute International Committee August 2023 Newsletter. © 2023 AMERICAN BANKRUPTCY INSTITUTE REPRINTED WITH PERMISSION, ALL RIGHTS RESERVED. 66 CANAL CENTER PLAZA, SUITE 600 ALEXANDRIA, VA 22314
The Cayman Islands implemented the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (otherwise known as the "New York Convention") via the Foreign Arbitral Awards Enforcement Act (1997 Revision) (the "Enforcement Act"). As such, arbitral awards made in any state that is a party to the New York Convention ("Convention Awards" can be recognised and enforced in the Cayman Islands under the Enforcement Act.
Non-Convention Awards (also referred to in this article as "Foreign Awards") are enforced in the Cayman Islands under the Arbitration Act, 2012. Section 72(5) of the Arbitration Act provides that an arbitral award, irrespective of the country in which it was made, is treated as binding and can be enforced by an arbitral creditor making an application to the Grand Court of the Cayman Islands. Order 73, rule 31 of the Grand Court Rules, which deals with the enforcement of foreign arbitral awards, directs that applications should be made by way of an ex parte Originating Summons.
Leave to enforce Foreign Awards and Convention Awards against an arbitral award debtor must be sought from the Grand Court and is subject to sections 6 and 7 of the Enforcement Act. In essence, these sections require applicants to submit a duly authenticated or certified copy of the arbitral award; an original or certified copy of the arbitration agreement; and a certified translation of the same where the documents are in a foreign language. Furthermore, Convention Awards and Foreign Awards are both subject to the same limitations imposed in section 7 of the Enforcement Act, which sets out the circumstances in which enforcement of these awards may be refused.
The list in section 7 is extensive, but some examples include:
- incapacity of a party;
- invalidity of the arbitration agreement under its governing law;
- lack of notice of the arbitration proceedings to a party; and
- whether the award is binding on the parties.
The court may also refuse to enforce an award where the matter was not capable of settlement by arbitration or if it would be contrary to public policy to enforce the award.
Once an award is recognised by the Grand Court and becomes enforceable1, an arbitral award creditor can enforce the award as if it is a judgment of the Grand Court and utilise domestic enforcement procedures, including:
- charging order (i.e., charging or securing shares);
- attachment of earnings; and
- receivership by equitable execution.
Enforcement of Interim Arbitral Awards
Until recently, there were no locally published cases on whether an interim (otherwise known as a provisional) Convention Award could be enforced in the Cayman Islands. The first published decision on the issue was handed down by Justice Kawaley in January 2023 in Mr Nasser Sulaiman H M Al-Haidar v. Mr Jetty Venkata Uma Maheshwara Rao.2
By way of context, Part VIII of the Arbitration Act provides for an enforcement regime applicable to interim remedies. In particular, section 52(1) provides that an interim measure issued by an arbitral tribunal shall be (on application) recognised as binding and enforceable (unless otherwise provided by the arbitral tribunal), irrespective of the jurisdiction in which it was issued. This provision is also subject to a set of grounds that permit the court to refuse such an application.
Conversely, section 5 of the Enforcement Act (which deals expressly with the enforceability of Convention Awards) is silent as to whether this enforceability extends to interim or provisional Convention Awards. This silence has created legal uncertainty around the issue and was addressed in this case.
Kawaley J adopted a self-professed "rough and ready" approach when deciding that section 5 of the Enforcement Act had been implicitly expanded to incorporate not just the final award enforcement provisions of the Arbitration Act, but also its enforcement provisions relating to interim measures 3. Consequently, Kawaley J granted leave to enforce the provisional arbitral award in the same manner as if it were an order of the Grand Court. By virtue of this order being granted, the Grand Court has signalled that provisional or interim Convention Awards can still bite arbitral debtors in the Cayman Islands and are capable of enforcement as though they are final awards.
It is also important to note that Kawaley J further considered that the grounds for refusing to enforce an arbitral award should be construed narrowly and that the respondent to the application will bear the burden of persuading the Grand Court that the refusal grounds have been made out.4
Alternative Means of Enforcement
Alternatively, or in addition to making a court application for recognition and enforcement, it is possible to wind up an arbitral award debtor as soon as a Convention Award or Foreign Award is issued. A company that fails to satisfy a judgment debt made abroad is "unable to pay its debts" for the purposes of the Cayman Islands' Companies Law (2023 Revision). Similarly, where an arbitral award debtor does not, or cannot, satisfy the arbitral award, it is permissible for the Grand Court to wind up the company on grounds of public policy.5
From a strategic perspective, and if the applicant has the luxury of time, it may be more economic to serve a statutory demand in the first instance because (1) this places pressure on the arbitral debtor to engage in payment and/or settlement discussions, which could avoid the need (and the associated costs of preparing for) a winding-up application; and (2) an arbitral award debtor will be deemed unable to pay its debts if it fails to satisfy the statutory demand. However, it is not necessary to serve a statutory demand and wait the 21 days before petitioning to wind up an arbitral award debtor. The most appropriate strategy will vary depending on the circumstances of each case and in some instances.
Post-Judgment Freezing and Disclosure Orders
On a final note, Convention Award and Foreign Award creditors can avail themselves of other enforcement tools, such as Norwich Pharmacal third-party disclosure and injunctive relief. For example, a foreign arbitral award creditor can apply to the Grand Court for a freezing injunction to help enforce the award. In the context of a post-award freezing order, the evidential bar will be lowered for applicants seeking to persuade a court that there is a risk of dissipation of assets.6
In Essar Global Fund and Essar Capital Fund v ArcelorMittal USA LLC7, the Cayman Islands Court of Appeal (CICA) confirmed that Norwich Pharmacal relief is available in support of foreign proceedings, including foreign arbitration proceedings. The CICA found that the deliberate evasion of an arbitral award satisfies the "wrongdoing" section of the test for Norwich Pharmacal relief.
1. A foreign arbitral award becomes enforceable in the Cayman Islands upon the expiry of the 14-day period after the service of the order granting leave to enforce if the award debtor does not apply to set-aside the order granting leave within that 14-day period or if the Grand Court denies an application (made within 14-days of service) to set-aside the order granting leave.
2. FSD 238 of 2022 (IKJ) (Unreported, 25 January 2023).
3. Ibid at .
4. Ibid at , referring to Gol Linhas Aereas SA (formerly VRG Linhas Aereas SA) v MatlinPatterson Global Opportunities Partners (Cayman) II LP and Others  UKPC 21.
5. In Re China Hospitals Incorporated [2018 (2) CILR 335].
6. See Banco International De Costa Rica S.A. v Banana International Corporation, Banacol De Cost Rica S.A. and Banacol Corporation [2018 (2) CILR 125] at , which dealt with the context of a post-judgment freezing order, which would also be applicable in the arbitral award enforcement context.
7. CICA (Civil) Appeal 15 of 2019 (Unreported, 3 May 2021).
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.