Anti-Suit Injunction Granted By Grand Court To Restrain Cayman Liquidators From Continuing New York Litigation

In a judgment delivered in February 2018, the Grand Court of the Cayman Islands granted an anti-suit injunction to restrain the joint official liquidators of Argyle Funds SPC (in Official Liquidation) ("Argyle") from continuing litigation commenced in the Supreme Court of the State of New York against Argyle's former statutory auditor (BDO Cayman) and three related parties.

The Hon. Justice Parker held that the audit engagement letters between Argyle and BDO Cayman required disputes to be resolved via arbitration in the Cayman Islands. The Court also enforced "sole recourse" provisions in the engagement letters, restraining the liquidators from continuing their claims in New York against the three related parties.

The Court applied well-established principles as to the primacy of arbitration agreements, and rejected novel arguments raised by Argyle concerning the interpretation of the Cayman Islands' Arbitration Law, 2012. The judgment confirms that the Grand Court will restrain parties from continuing proceedings commenced in breach of their contractual dispute resolution obligations, and reinforces confidence in the Cayman Islands as a pro-arbitration jurisdiction.

The judgment, which will be of particular interest to insolvency practitioners, auditors and other Cayman professional service providers delegating work internationally, provides a salutary lesson to litigants about the risks of commencing legal proceedings in breach of arbitration, exclusive jurisdiction and other dispute resolution clauses.

Background

Argyle was a Cayman Islands mutual fund with significant exposure to debt factoring via investments made through two separate credit advisors which each perpetrated multi-million dollar frauds at Argyle's expense, leading to Argyle's liquidation in April 2016.

Argyle's liquidators obtained judgments in the United States against the creditor advisor companies, their principal Donald Barrick and Mr Barrick's wife. However, by the time the liquidators obtained these judgments, there were no assets against which the judgments could be enforced. This led the liquidators to consider pursuing claims against Argyle's auditors.

In June 2017, after having obtained the sanction of the Grand Court on an ex parte application, Argyle's liquidators commenced proceedings in the Supreme Court of the State of New York (the "New York Proceedings") against four entities: BDO Cayman, BDO Trinidad and Tobago, BDO USA and Schwartz & Co, seeking damages in excess of US$280 million. The allegations advanced by Argyle in the New York Proceedings concerned the audit years 2010 - 2013, and went beyond the 'usual' allegations of professional negligence to include fraud and wilful misconduct.

In August 2017, BDO Cayman applied to the Grand Court for an anti-suit injunction to restrain the...