In What Circumstances Can U.S. And Other Foreign Judgments Be Enforced Against

Parties considering bringing proceedings against Cayman Islands hedge funds in other jurisdictions should ensure that any judgment that might be obtained in a foreign jurisdiction will be recognized and enforced by the Cayman courts. On the flip side, Cayman-domiciled hedge funds facing claims in foreign jurisdictions will need to consider the safety of ignoring and not participating in those proceedings, on the assumption that any judgment obtained will not be recognized and enforced by the Cayman courts. This article surveys the landscape that informs whether Cayman courts will enforce such judgments.

These issues arise in particular in the context of enforceability of judgments obtained by default where the Cayman fund does not participate in the foreign proceedings, and in particular in the context of judgments and orders obtained in insolvency proceedings in light of the increasing trend towards universality of insolvency proceedings as demonstrated in the decision in Rubin v Eurofinance1 which is the subject of a recent appeal to the Supreme Court of England and Wales.

Enforcement of Judgments Under the Law of the Cayman Islands – A Common Law Approach

While a Cayman statutory regime exists for the enforcement of foreign judgments under the Foreign Judgments Reciprocal Enforcement Law (1996 Revision), current reciprocity extends only between the Cayman Islands and judgments from Supreme Courts in various Australian States and Territories, and the Australian Federal and High Courts. Accordingly, in practice, the statutory regime is of little significance, and recourse to the common law principles of enforcement of foreign judgments is necessary. Extension of statutory reciprocal enforcement of judgments to other jurisdictions is currently under consideration in Cayman, but this is unlikely to include extension to the U.S., and accordingly, whatever the outcome, common law enforcement is likely to remain applicable to U.S. judgments for the foreseeable future.

The ordinary procedure for enforcement of a foreign judgment is by commencing an action in the Cayman Court, with the foreign judgment being the basis for the cause of action, traditionally founding the basis for a debt claim, and then applying for summary judgment in that action. The Cayman Court will not itself inquire into the issues underlying the foreign judgment or common law as the foreign judgment creates a debt enforceable in Cayman in certain circumstances.

The enforcement process retains a discretionary element and is subject to certain specific limitations,2 relevant in the present context, namely:

International Jurisdictional Competence over the Defendant

The foreign court must be recognized as having international jurisdictional competence over the defendant. The question is whether the foreign court had international jurisdiction according to the private international law of the Cayman Islands,3 not whether the foreign court had, or did not have, jurisdiction according to its own laws.

Final and Conclusive on the Merits

The judgment must be final and conclusive on the merits of the action of the Court which pronounced it.

The foreign judgment must not be interim or provisional in nature. A judgment will be final and conclusive if the foreign court would treat the matter as having been determined so that it was res judicata and could not be re litigated by the parties in the foreign court other than by an appeal. We understand that this is the case in proceedings, such as Adversary Proceedings, issued in U.S. Bankruptcy Courts.

The fact that a judgment obtained by default may be later set aside in the court which entered it cannot in principle deprive the judgment of finality; however, if there is a specified period for applying to set aside a default judgment, and this period has not yet expired, the judgment may not yet be seen as final. Once any such period has expired, the judgment is likely to be regarded as final. A foreign judgment may be deemed to be final and conclusive even though it is subject to an appeal in the foreign court,4 although the Cayman court may grant a stay of execution pending the appeal.5 A default judgment may be regarded as final and conclusive on the merits.

Other than a default judgment, a judgment will generally be regarded as "on the merits" if it: (1) is a decision which establishes certain facts proved or not in dispute; (2) states what are the relevant principles of law applicable to such facts; and (3) expresses a conclusion with regard to the effect of applying those principles to the factual situation concerned. The requirement of personal jurisdiction is satisfied if the judgment debtor: (1) was present in the jurisdiction of the foreign court when the foreign proceedings were commenced; (2) submitted to the jurisdiction of the foreign court; and (3) agreed by contract to submit to the jurisdiction of the foreign court.

Present in the Jurisdiction of the Foreign Court When the Foreign Proceedings Were Commenced

The phrase "present" in relation to a person generally means physically present, and in relation to a corporation generally refers to carrying on business from a fixed place of business.6 In the case of corporations, the law, at least in its current state, is that a corporation must be "present" in the jurisdiction of the foreign court rather than "resident." In the case of a trading corporation, including an investment fund, the test is "(a) it has established and maintained a fixed place of business and for more than a minimal time has carried on its own business there, or (b) its representative [or employees or servants] has for more than a minimum period of time been carrying on the corporation's business in that country at or from some fixed place of business."7

It is this second category which can cause difficulty in practice; the representative must carry on the business of the corporation, as distinct from its own, but it does not matter that it does both. Of particular significance will be the power of the representative to make contracts on behalf of the corporation without the need to submit them to the corporation before approval, which is considered to be a "powerful indicator that the corporation is present." 8 Conversely, if the representative does not have this power, this fact "points powerfully in the opposite...

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