Abstract
In this article, Nick Dunne and Colette Wilkins QC, Partners, and Andrew Gibson, Senior Counsel, at the law firm Walkers, based in the Cayman Islands, set out recent developments in Cayman Islands law with particular relevance to the conduct of major cross border litigation and asset recovery.
Introduction
As the sight of cruise ships bobbing in Hog Sty Bay, and the steady stream of aircraft full of holidaymakers touching down at Owen Roberts Airport, rapidly recede into distant memory, it would be tempting to think that life in the Cayman Islands has been on pause for much of the past two years. However, as much as that might be true in some respects, the financial services and legal sectors have each continued apace and uninterrupted. That activity has included a number of significant developments relevant to the world of asset recovery.
The Private Funding of Legal Services Act 2020
Funding asset recovery claims is frequently a complicated issue for lawyers, and historically the Cayman Islands has done little to make that process any easier. In contrast to much of the rest of the common law world, the crimes of champerty and maintenance remained in existence, and the few cases in which the Grand Court had been willing to sanction non-traditional fee arrangements involved terms which were so commercially unattractive as to be unworkable in the context of heavy litigation.
That state of affairs, however, rapidly became unworkable against a background of liberalised funding elsewhere. It offered protection to the fraudster who had succeeded in leaving the cupboard bare and left liquidators of impecunious companies in severe difficulties, no matter how legally sound and valuable the claims vested in those companies. Those problems had led to a discernible softening in judicial attitudes in recent years, but that could only take matters so far in the face of an unhelpful legal landscape.
However, that landscape was fundamentally altered by the enactment of the Private Funding of Legal Services Act, which came into force on 1 May 2021. In addition to sweeping away champerty and maintenance as crimes and torts, the Act now provides a clear statutory framework for the utilisation of both alternative fee arrangements and commercial litigation funding.
First, attorneys are now permitted to accept cases on the basis of contingency fees, an umbrella term which embraces both conditional (or 'no win, no fee') arrangements whereby a premium on normal fees is payable in the case of success, and contingency fees where the attorney takes an agreed percentage of the property recovered. The Act caps the maximum success fee at 100% of normal fees in respect of the former, and a third of recoveries in the latter. The Court retains a discretion to approve an arrangement exceeding these caps in appropriate cases, although the standard provisions appear sufficient to cover the vast majority of situations.
Second, funding from third party sources is now permitted in all cases. Whilst the Act contemplates that the content of funding arrangements may, in part, be prescribed in the regulations, they are currently silent in that regard. As such, although the funding must be on terms whereby the cost of the funding must either be calculated on the basis of the costs payable to the client in the proceedings plus an amount calculated with reference to the funder's anticipated expenditure, or a percentage of total recoveries in the action, there is significant flexibility to tailor commercial terms to the circumstances of individual cases.
The new regime remains in its infancy, but appears likely to radically change the position in respect of access to justice for Plaintiffs with limited resources.
Norwich Pharmacal Relief in support of foreign proceedings
Historically, the Cayman Islands courts have always dealt with a large number of cases with a significant cross-border element, perhaps unsurprisingly given the Islands' position as a critical node within the global financial system. From the point of view of the asset recovery lawyer, that translates into a need for effective and timely interim remedies in order to suppo rt overseas proceedings, including pursuant to the Norwich Pharmacal jurisdiction.
For many years, it was tacitly accepted in the Islands that Norwich Pharmacal relief was available in support of overseas proceedings, but the situation was thrown into some doubt by the decision of Flaux J in the English case of Ramilos Trading v Buyanovsky, which took the view that the jurisdiction was ousted as a mechanism to provide evidence for foreign proceedings by the existence of the Evidence (Proceedings in Other Jurisdictions) Act 1975, which sets out a mechanism for the obtaining of evidence by way of judicial request.
Ramilos was not appealed, and although a tension existed with some earlier English decisions on the issue, its effect was to throw the law in Cayman into a state of some uncertainty, the 1975 Act having been extended to the Islands by way of Order in Council. The process for obtaining evidence under the 1975 Order could, even charitably, be described as extremely cumbersome, and is a far cry from the agility and flexibility that has characterised the development of Norwich Pharmacal over almost 50 years. As such, its usefulness in obtaining information for the time-critical and dynamic claims that characterise the world of fraud and asset recovery litigation is limited in the extreme.
Faced with that challenge, the reaction of the courts of the Cayman Islands has been swift, reassuring, and cognisant of the clear public interest in ensuring that the jurisdiction is not utilised as a safe repository for incriminating information but instead facilitates efforts to recover the proceeds of fraud.
In ArcelorMittal USA LLC v Essar Steel, Kawaley J analysed Ramilos, but came to the conclusion that the statutory regime under the Evidence Order was not intended to act as a barrier to justice by automatically ousting the equitable Norwich Pharmacal jurisdiction "without regard to whether or not the statutory regime is accessible in practical terms". Although stopping short of a finding that Norwich Pharmacal will always be available, he pragmatically held that the issue could not be reduced to a simple or formulaic question, and could not be answered so inflexibly as to say that the equitable jurisdiction could not be invoked simply because the material was only likely to be used overseas.
The case then went before the Cayman Islands Court of Appeal where the impact of Ramilos was further analysed. A strong bench (Goldring P, Rix JA, Martin JA) rejected the broad contention that the existence of the Evidence Order represented an absolute bar to the use of Norwich Pharmacal for the purposes of foreign proceedings. Instead, they arrived at the same conclusion as Kawaley J. They drew an important distinction between the fact that the Evidence Order relates to the obtaining of evidence for use in a foreign proceeding, whereas Norwich Pharmacal is concerned only with discovery.
The Court of Appeal emphasised that Norwich Pharmacal was based upon a duty to provide information about wrongdoing. It also emphasised that there was no obvious reason why that should be confined only to domestic wrongdoing, or indeed why the existence of legislation dealing with the giving of evidence in foreign proceedings should be treated as excluding a remedy designed to enable proceedings to be brought at all. The enactment of section 11A of the Grand Court Law in 2015, which was intended to place on a statutory basis the jurisdiction of the Court to grant interim relief in relation to foreign proceedings, was relied upon not only as a foundation for the exercise of the Norwich Pharmacal jurisdiction to assist proceedings overseas but also a clear indication that the legislature had no intention to exclude the availability of such remedies.
As such, it was held that if the Evidence Order excluded Norwich Pharmacal at all, it was only in the limited circumstances where proceedings were already on foot, or the applicant had available in the relevant jurisdiction procedures for obtaining preaction disclosure or the provision of non-documentary evidence. In the significant majority of cases, Norwich Pharmacal relief would, in principle, remain available.
The decisions of the Grand Court and the Court of Appeal in ArcelorMittal are clear examples of not only the independence of the Cayman Islands courts, but also a sensitivity to the importance of disclosure remedies in offshore jurisdictions as a tool to combat abuse. The resolution of the uncertainties temporarily created by Ramilos should afford comfort to practitioners that Norwich Pharmacal, as a key element of the anti-fraud toolkit, remains un-dulled.
Discovering a fraud – a race against the clock
Limitation periods exist for good reason. Memories fade, witnesses disappear, and parties need certainty. In most cases it is straightforward to calculate the relevant period with reference to established statutory provisions, and the Cayman Islands is no different in that respect. Yet, these rules can pose problems in fraud cases where typically wrongdoing will be deliberately concealed for as long as possible. The issue that arises is establishing the point in time at which enough has been discovered aboutthe fraud so as to start the clock running.
This was one of the key issues considered by the Grand Court of the Cayman Islands in the recent case of Ritchie Capital Management LLC et al v. (1) Lancelot Investors Fund Ltd and (2) General Electric Company (Parker J), which was delivered on 15 December 2020.
Ritchie is a group of funds and investment managers which claims to have lost in excess of US$200 million as a consequence of the infamous Petters Group Ponzi scheme. Claims were brought in Cayman alleging deceit and unlawful means conspiracy against the feeder fund and lender to the Petters Group. Proceedings were served in mid-2019, and an application was subsequently brought seeking to set aside permission to serve out of the jurisdiction, the principal argument being that the claims were statute barred as it was said that Ritchie knew all it needed to know to bring the claims as long ago as 2009.
In line with many other common law jurisdictions, the Limitation Act provides that where an action is based on the fraud of the defendant, the period of limitation does not begin to run until the plaintiff has discovered, or could with reasonable diligence have discovered, the fraud. The justification for this extension is clear from a public policy perspective, but whilst it is usually possible to say with reasonable certainty when a fraud was in fact discovered, it is an altogether greater challenge to identify whether there was an earlier point in time where it might possibly have been uncovered.
Parker J adopted the view that the test should be applied in a broad and common sense way, and determined that discovery of facts which would complete the plaintiff's ability to plead the case was the most important factor, with reference to whether there are any facts without which the claim could not be pleaded. However, "common sense" tests tend to import a significant degree of uncertainty, and the situation is more complex in cases of alleged fraud given the ethical considerations in pleading such a claim. A barely arguable case can fall into a grey area, with significant ramifications where the Court takes a different view from counsel as to on which side of the line it falls.
In the case of undiscovered fraud, the court held that what was relevant was not in fact whether the plaintiff 'ought to have' or 'should have' discovered the fraud or concealment, but rather whether with reasonable diligence the plaintiff could have done so. This meant that there must first be something which objectively put the plaintiff on notice. If on notice, then comes the question of reasonable diligence, particularly if the plaintiff does not have access to the necessary resources to further investigate the fraud. Parker J accepted that diligence is not an absolute standard and depends on the circumstances, but there must be an assumption that the plaintiff desires to discover whether or not it has been a victim of fraud, and accordingly will take steps to investigate it.
In the instant case, the Petters fraud was widely publicised in 2008, and Ritchie had in fact commenced proceedings against Mr Petters that year. As such, it was apparent that by that stage that Ritchie not only knew that something had gone seriously wrong, but had already starting investigating and bringing actions based on the fraud. Furthermore, Ritchie had also been aware of SEC proceedings against the feeder fund, and had submitted a proof of debt in its bankruptcy in 2013 containing similar allegations to those now made in Cayman, based upon documents obtained in 2009.
In those circumstances, it was considered that Ritchie not only had enough information to be on notice to investigate, but actually had enough information to have discovered at least certain core elements of the fraud from 2009. Although they were not aware of every facet or detail, and further facts might be required to bolster the case, they nevertheless had sufficient information to plead a claim that would survive a strike out application. As such, time began to run in 2009 and the claim was now statute barred.
Conclusion
The decision provides some helpful detail on the process of reasoning applied by the Court in determining questions of this nature, although the answer in any given case remains fiercely fact sensitive. It however acts as a reminder that, when it comes to limitation periods, time waits for no man, even the victims of fraud.
Originally published by ICC FraudNet.
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.
