Introduction

The Cayman Islands (colloquially known as "Cayman") enviably lie in the warm waters of the north-western Caribbean. Drawn by its exceptional beaches and clement weather, the territory attracts tourists from the world over. Being only an hour's flight from Miami, it is also a natural offshore hub for many North American clients. It is a British Overseas Territory which enjoys political stability and has a well-founded reputation for a strong and impartial judiciary.

The legal system descends from the English common law, so its decisions draw wisdom from influential precedents created in the courts of many Commonwealth states. Any ultimate appeal lies to the Judicial Committee of the Privy Council of the United Kingdom.

Cayman is the world's fifth-largest financial centre and home to more than 80% of the world's hedge funds. Cayman's more than 11,000 funds have combined assets in excess of US$6 trillion. The Cayman courts are therefore experienced in resolving disputes of the highest magnitude and regularly produce judgments which are relied upon in many jurisdictions. Its laws and legal system are well developed and extremely well versed in the financial and corporate arenas.

Arbitration in the Cayman Islands, as a viable form of alternative dispute resolution, was traditionally not suited to international cases. The old Arbitration Act of 2001 was based on the UK's Arbitration Act 1950. It contained what would now be considered to be weaknesses relating to the wider powers of the court to control arbitration proceedings. A prime example was the court's power to continue court proceedings that had been commenced despite there being a valid arbitration clause. These anachronisms were remedied by the Arbitration Act, 2012 (the "Act"). This was modelled on the UK's Arbitration Act 1996 and the provisions of the UNCITRAL Model Law ("Model Law").1,2 It was a complete and effective overhaul of the former arbitration position in the Cayman Islands, and a response to the growing importance of arbitration as a dispute resolution alternative.

In common with many jurisdictions, the Cayman Islands has seen arbitration growing in popularity.3 Arbitration clauses are increasingly being included in commercial contracts and there is anecdotal evidence of greater recognition among practitioners and clients alike of the potential benefits of arbitration in the jurisdiction. As a result, there are now many reported cases from the Grand Court which relate to arbitrations in the Cayman Islands. No doubt the pro-arbitration legal framework and policies, the geographical location of the Cayman Islands, and business-friendly immigration rules, help to make arbitration a sensible alternative for many potential litigants. Arbitration is firmly on the menu of choices available to clients operating in the Cayman Islands. Consistent with this shift toward the greater use of arbitration, the Cayman International Arbitration Centre is expected to open its doors in the near future, providing world-class specialist hearing facilities, its own arbitration rules and case administration services. Likewise, in 2020 the Chartered Institute of Arbitrators established a Cayman Islands Chapter.

The guiding principles

The provisions of the Act are expressly stated to be founded on the following principles:4

  1. the object of arbitration is to obtain the fair resolution of disputes by an impartial arbitral tribunal without undue delay or undue expense;
  2. the parties should be free to agree how their disputes are resolved, subject only to such safeguards as are necessary in the public interest; and
  3. in matters governed by the Act, the court should not intervene except as provided in the Act

These provide the bedrock for the construction and operation of arbitration clauses in the Cayman Islands.

The arbitration agreement

Formalities

The formalities required by the Act for any arbitration agreement follow those set out in Article 7 of the Model Law. Thus, agreements must be in writing, and may be contained in arbitration clauses in wider agreements or in separate agreements. Being "in writing" includes electronic communications such as email or anything which provides a record of the agreement.5 A suggested model clause is included in a Schedule to the Act for the parties to include if they are unable to agree the formulation of the arbitration clause.6

The Act includes an opt-out where one of the parties is a consumer in an arbitration agreement entered into in the Cayman Islands. In such a case, after a dispute has arisen, the consumer must certify in writing that he has read and understood the arbitration agreement and agrees to be bound by its terms before it may be enforced.7 Although the term "consumer" is broadly defined in the Act, the Grand Court has confirmed that the provision applies only to individuals acting for purposes that are wholly or mainly outside their trade, business, craft or profession.8

Arbitrability

There is nothing within the Act that limits the scope of any arbitration save where it is contrary to public policy, or the dispute is not capable of resolution by arbitration.9

The issue is determined on a case-by-case basis, with the vast majority of commercial  disagreements being arbitrable. However, this is not always the case. In Cybernaut  Growth Fund,10 it was held that a petition to wind up a company and appoint an arbitrator  was not arbitrable. While this decision was doubted, it was not overruled in the appellate  court in Re SPhinX Group, where it was held that an argument over the distribution of a  reserve in a court-supervised liquidation could be determined by arbitration. In April 2020,  the Cayman Islands Court of Appeal in Re China CVS (Cayman Islands) Holding Corp  allowed an appeal against a 2019 decision of the Grand Court to stay a "just and equitable"  winding-up petition on the grounds that the subject matter of the dispute must be referred  to arbitration, holding that since the threshold question of whether to wind up a company is  to be determined by the Court alone, the subject matter of such a petition is not capable of  being determined by arbitration. Accordingly, in the absence of a non-petition clause, this is  now an established exception to the arbitrability of a dispute. On the other hand, the recent  Grand Court decision in Re Grand State Investments Limited11 confirms obiter that where  the subject matter of the dispute falls squarely within the scope of an arbitration agreement and that dispute concerns the validity and existence of a debt claimed in a winding-up  petition, the petition will be stayed (on the facts of that case, it was struck out). Likewise,  in Re Asean Infrastructure Fund II, LP,12 the Court of Appeal upheld the Chief Justice's  refusal to stay a winding-up petition where the issues which arose in a winding-up petition  were different from those which were the subject of an agreement to arbitrate. 

Footnotes

1 United Nations Commission on International Trade Law Model Law on International Commercial Arbitration (1985), with amendments as adopted in 2006.

2 Section 4 of the Act gives the UNCITRAL Model Law force of law save as amended.

3 https://www.campbellslegal.com/client-advisory/rise-arbitration-cayman-islands-3319/.

4 Section 3(3). See also Appalachian Reinsurance (Bermuda) Ltd v Greenlight Reinsurance Ltd  [2014] 1 CILR 152.

5 Section 4(3) of the Act.

6 Section 4(2) of the Act.

7 Section 8(1) of the Act.

8 BDO Cayman Ltd v Argyle Funds SPC Inc (in Official Liquidation)  [2018 (1) CILR 114]. A note produced by Campbells is at: https://www.campbellslegal.com/ client-advisory/anti-suit-injunction-granted-grand-court-restrain-cayman-liquidatorscontinuing-new-york-litigation-3676/.

9 Section 26(1) of the Act.

10 [2014] (2) CILR 4133.

11 Unreported judgment of Justice Parker dated 28 April 2021.

12 Unreported ruling of the Cayman Islands Court of Appeal dated 13 November 2020.

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Originally Published by Global Legal Insights – International Arbitration 2022

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.