Enforcement Of Judgments 2024

Trends and Developments

The Cayman Islands has developed a framework for the enforcement of foreign judgments, including arbitral awards, which has long been recognised as friendly to those wishing to enforce judgments or awards against assets, or entities, located within the jurisdiction. This is often attributed to the desire to advance the Cayman Islands' reputation as a creditor-friendly financial services centre. However, as much as the available procedural mechanisms can facilitate easy enforcement in the Cayman Islands, the process is not always straightforward, particularly when the judgment debtor is unwilling (or unable) to satisfy its obligations as prescribed by the judgment or award.

After summarising the existing procedural framework for the enforcement of foreign judgments and arbitral awards, this article, with reference to recent judgments from the Cayman Islands Grand Court (Grand Court), highlights challenges that might be faced by an applicant in enforcement proceedings. We also consider practical strategies that might need to be deployed by the successful applicant in enforcement proceedings to ensure that some value is recovered after an enforcement order is obtained.

Framework for Enforcement

The procedural framework for the enforcement of foreign judgments is different from the statutory mechanism available for the enforcement of foreign arbitral awards. These are therefore described separately below.

Foreign judgments

The Foreign Judgments Reciprocal Enforcement Act (1996 Revision), provides a statutory regime for the enforcement of foreign judgments. However, as at the date of this article, this legislation only applies to judgments from Australia and its external territories.

For all other jurisdictions, enforcement proceedings in relation to foreign judgments are commenced by filing a writ of summons in the Financial Services Division of the Grand Court. The writ would seek that the Grand Court make an order in terms identical to the relevant foreign judgment. The Grand Court will usually enforce a foreign judgment, thereby creating a debt or liability under Cayman Islands law, if the judgment:

is final and conclusive on the merits;
was made by a court of competent jurisdiction;
is for a definite sum of money (though non-money judgments can be enforced if the principles of comity require); and
is not contrary to public policy (for example, where the judgment relates to taxes, fines, or other penalties).

Importantly, there is a six-year statutory limitation period for the commencement of actions seeking the enforcement of foreign judgments in the Cayman Islands, starting from the date on which the judgment became enforceable.

If the enforcement action is brought against a foreign defendant, the applicant will need to seek the leave of the Grand Court to serve the writ of summons out of the jurisdiction. This is a separate ex parte application. Assuming that an order granting leave is made by the Grand Court, the defendant will have the opportunity to seek that leave to serve out of the jurisdiction be set aside.

Foreign arbitral awards

The Cayman Islands is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) by virtue of its status as a British Overseas Territory. Accordingly, if an award is made in connection with arbitration proceedings seated in a jurisdiction which is a signatory to the New York Convention (Convention Award), that award is enforceable pursuant to the terms of the Foreign Arbitral Awards Enforcement Act (1997 Revision) (Enforcement Act).

Section 7 of the Enforcement Act provides that the Grand Court may refuse the enforcement of a Convention Award in the following limited circumstances:

A party to the arbitration agreement was (under the law applicable to him/her) under some incapacity.
The arbitration agreement was not valid under the law to which the parties subjected it or, failing any indication thereon, under the law of the country where the Convention Award was made.
The defendant was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his/her case.
The Convention Award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration or contains decisions on matters beyond the scope of the submission to arbitration.
The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties or, failing such agreement, with the law of the country where the arbitration took place.
The Convention Award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, it was made.
The Convention Award is in respect of a matter which is not capable of settlement by arbitration.
It would be contrary to public policy to enforce the Convention Award.

The Arbitration Act 2012 (Arbitration Act) extends the relevant provisions of the Enforcement Act in relation to enforcement of foreign arbitration awards to all arbitrations, regardless of where such award is made.

An application for leave to enforce an arbitral award may be made by ex parte originating summons. If the application is successful, the resultant order usually provides for judgment to be issued in the Cayman Islands in the same terms as the foreign award (provided that a prescribed period has elapsed without the ex parte order being challenged).

Contested Applications

In line with the well-established "pro-enforcement" policy embedded in the New York Convention and adopted by the Cayman Islands, the Grand Court has developed a practice of granting applications for leave to enforce foreign arbitral awards on the papers, without the need for an oral hearing (see, for example, the recent case of In the Matter of Section 5 of the Foreign Arbitral Awards Enforcement Act (1997 Revision) (Unreported, 8 March 2024)). Where there is no opposition to the enforcement action, this can result in significant time and cost savings for the applicant.

However, irrespective of the relatively straightforward procedures available in the Cayman Islands for the enforcement of foreign judgments and arbitral awards, when contested, enforcement proceedings have the potential to be protracted and expensive. A prime example of this is the relatively recent case of Gol Linhas Aereas SA v MatlinPatterson Global Opportunities Partners (2022) UKPC 21, which ran for over three years from commencement in the Grand Court to final determination by the Judicial Committee of the Privy Council.

In early 2024, the Grand Court published two decisions in relation to applications to set aside ex parte orders granting leave to enforce foreign arbitral awards. These decisions illustrate the types of challenges that might be faced by an applicant wishing to enforce a foreign award in this jurisdiction. Both of these challenges to enforcement were ultimately dismissed by the Grand Court. However, the time and costs associated with contested in-person hearings (including, in Al-Haidar v Rao, the costs of instructing foreign law experts) were incurred as a result of the defendants contesting the enforcement of the award, notwithstanding that the Grand Court had determined the initial applications for leave to enforce in favour of the applicants.

In the Matter of Al-Haidar v Rao et al (Unreported, 8 March 2024)

On 23 December 2022, the plaintiff applied by ex parte originating summons for leave to enforce a provisional award granted by an arbitral tribunal seated in the Dubai International Arbitration Centre (DIAC). Leave was granted by the Grand Court in January 2023, and the defendant filed a summons to set aside the order granting leave in July 2023.

The application for setting aside the order was made on the grounds that (i) the arbitration procedure was not in accordance with the parties' agreement and (ii) the order was liable to be set aside on the grounds of material non-disclosure about the parties' agreement as to the arbitration procedure. In essence, the defendant contended that the parties agreed for any arbitration to be held pursuant to the rules of the Dubai International Financial Centre-London Court of International Arbitration, and the plaintiff (without the defendant's consent) commenced the arbitration under the DIAC arbitration rules. This point was not raised by the defendant during the course of the arbitration in Dubai.

Accordingly, the key questions before the Grand Court in determining the application to set aside the original order were as follows:

Where a provisional arbitral award is made on an inter partes basis without the respondent challenging the tribunal's jurisdiction, should enforcement of that award be refused on the basis of a subsequent challenge to the tribunal's jurisdiction (the "Jurisdiction Point")?
Should the ex parte order be set aside on the alternative material non-disclosure ground because the plaintiff did not identify the difference between the arbitral tribunal contracted for and the tribunal which made the provisional award (the "Material Non-Disclosure Point")?

On the Jurisdiction Point, the Grand Court found that, in circumstances where no objection to the DIAC's jurisdiction was made during the course of the arbitration, the defendant was clearly estopped from challenging the jurisdiction of the DIAC to make the provisional award in the Cayman Islands enforcement proceedings. The judge went on to comment that "[t]he legislative policy of swift enforcement on narrowly circumscribed grounds could all too easily be undermined if respondents had the unfettered right to raise new points before foreign enforcement courts which were never in issue before the tribunal but which could and should have been raised".

The Material Non-Disclosure Point was then summarily dismissed on the basis that the Jurisdiction Point was irrelevant to the plaintiff's ex parte application.

In the Matter of Carrefour Nederland B.V. v Suning International Group Co., Limited et al (Unreported, 15 April 2024)

In this case, the ex parte order granting leave to enforce a final arbitral award made by the Hong Kong International Arbitral Tribunal was granted on 2 November 2023, and contested by summons dated 24 November 2023.

The defendants did not seek to have the ex parte order set aside for any of the substantive reasons provided for by the Enforcement Act, but employed a strategy based on more technical complaints by applying for:

a declaration that the ex parte order, as well as the originating summons and supporting affidavit were not validly served (the "Service Point");
an order setting aside purported service of the ex parte order and ancillary documents on the grounds that the plaintiff had failed to make full and frank disclosure or make a fair presentation of the case at the ex parte stage (the "Full and Frank Disclosure Point") and/or on the grounds that certain paragraphs of the ex parte order were not in compliance with the relevant rules (the "Irregularities in Ex Parte Order"); and
an order staying the ex parte order under, among other things, the Grand Court's inherent jurisdiction and/or pursuant to the Grand Court's case management powers (the "Stay Application").

Though it accepted that there were some irregularities in how service was dealt with, the Grand Court was largely dismissive of the Service Point, concluding that the service complaints were "merely designed to impede the Plaintiff's enforcement efforts".

As for the Full and Frank Disclosure Point, the defendants asserted (which was not denied by the plaintiff) that the plaintiff failed to tell the Grand Court at the ex parte stage that:

the defendants had applied to set aside the Hong Kong Court's ex parte order granting leave to enforce the final award in Hong Kong;
there were separate arbitration proceedings between the parties which were ongoing and could give rise to a complete or partial defence, set-off or counterclaim by the defendants against the plaintiff; and
the plaintiff would be applying to be substituted as petitioner in Hong Kong winding-up proceedings brought against one of the defendants.

The Grand Court held that none of these facts needed to be disclosed because they had no relevance to the enforcement of the final award (which may only be refused in the circumstances prescribed by the Enforcement Act). The points raised in relation to Irregularities in the Ex Parte Order amounted to a misstatement of the interest claimed by the plaintiff, which the Grand Court held should be remedied by way of amendment, on the basis that it caused no prejudice to the defendants.

The Stay Application was also given short shrift by the Grand Court, which described the application as "a thinly veiled form of refusing to enforce an unimpeached foreign award on grounds which contravene the express terms of [the Enforcement Act]". The defendants' set aside application was therefore dismissed in its entirety and the ex parte order upheld.

Safeguarding Target Assets

Practically speaking, obtaining the right to enforce a foreign judgment or arbitral award is only the first step in recovering any sums due to the applicant/judgment creditor. The enforcement order has the effect of creating a debt or liability in favour of the plaintiff as a matter of Cayman Islands law, but does not guarantee that payment of the debt will actually be made.

It is often the case that judgment debtors are either unwilling or unable to satisfy the judgment debt. As a result, additional enforcement steps are often required to secure the relevant assets, which might include injunctive relief and/or commencing insolvency proceedings. The Grand Court continues to illustrate its willingness to assist judgment creditors in furthering the enforcement of foreign judgments and awards.

In the Matter of Ovaskainen v Ovaskainen (Unreported, 21 June 2023), the Grand Court granted a freezing order over assets located in the Cayman Islands, in support of a writ to enforce a Swiss judgment. The order was made in circumstances where there was evidence to suggest that the defendant was taking steps to avoid satisfying his obligations under the judgment. The order prohibited the disposal of assets up to the value of the sum specified in the Swiss judgment, as well as the disposal of property in the Cayman Islands registered in the defendant's name. Importantly, this injunctive relief was granted before the enforcement proceedings were determined.

There are a suite of insolvency regime options that are also available to judgment creditors, including official liquidation, the appointment of receivers and provisional liquidation. In the recent Grand Court decision of Kingkey Financial International (Holdings) Limited (Unreported, 19 April 2024), the Grand Court grappled with its remaining jurisdiction to appoint provisional liquidators (PLs) following the introduction of the new restructuring officer (RO) regime in late 2022.

In this decision, the Grand Court was presented with a winding-up petition and a summons for the appointment of light-touch PLs, unusually presented by Kingkey itself. Kingkey had significant short-term liquidity issues, but attempts to raise capital had been hindered by one of its directors, Mr Chen. A special committee of the independent non-executive directors concluded that Kingkey was or would soon become insolvent given the lack of secured alternate funding.

The company on its face seemed the perfect candidate for the appointment of ROs; however, it (acting by the special committee) instead sought the appointment of PLs. This was done on the basis that the RO jurisdiction inherently left some power in the hands of the board, which would risk Mr Chen once again interfering with any potential restructuring. The Grand Court agreed to appoint light-touch PLs to create and supervise a restructuring, since the debtor-in-possession model of the RO regime was unsuitable given Mr Chen's actions and the ongoing disputes between members of the board as a result.

Although this decision was focused on taking the necessary steps to enable an injection of assets into the company, rather than preventing the dissipation of assets, it reflects the Grand Court's ongoing commitment to value preservation and safeguarding the interests of creditors and, where appropriate, shareholders.

As such, in circumstances where a Cayman debtor has valuable assets that can be targeted in enforcement proceedings, the Grand Court has available the full range of insolvency tools to preserve the value of these assets. The Grand Court will not hesitate to take steps to stamp out debtor misconduct that risks the material destruction of value.

Conclusion

The Grand Court continues to promote the efficient enforcement of foreign judgments, but judgment creditors should be cognisant of the fact that enforcement proceedings can be costly and protracted if contested. Before commencing enforcement proceedings in any jurisdiction, careful consideration should be given to the specific steps necessary to secure payment for the judgment creditor, as obtaining an enforcement order may merely be the first step in a potentially complex process.

Originally published by Chambers and Partners

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.

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