Recent Developments In The Law Of Tracing In The Cayman Islands

• Published date: 12 July 2022
• Subject Matter: Corporate/Commercial Law, Government, Public Sector, Litigation, Mediation & Arbitration, Criminal Law, Corporate and Company Law, Money Laundering, Trials & Appeals & Compensation, White Collar Crime, Anti-Corruption & Fraud
• Law Firm: Ogier
• Author: Ms Jennifer Fox and James Clifford

A plaintiff's ability to trace money that has been misappropriated in breach of fiduciary duty has been strengthened by the recent decision of the Cayman Island's Court of Appeal (CICA) in AHAB v SAAD.¹

Basic principles

The paradigm case

Peter is a director of Puff the Magic Dragon Limited (Puff). In breach of fiduciary duty, Peter causes Puff to transfer US$100 into a bank account in the name of Paul and, the next day, Paul transfers the same US$100 into an account in the name of Mary. Puff is able (subject to any available defences) to trace the US$100 into Mary's account and enforce a proprietary claim if the money is still there. If, whilst the US$100 is in Paul's account, a further US$100 from another source is paid into Paul's account and US$100 is then transferred into Mary's account, Puff will be able to trace a proportionate part of the money into Mary's account, namely US$50.² In both these examples, "the property to be traced can be identified at every stage of its journey through life," which, "is a fundamental feature of the doctrine of tracing."³

Drawing inferences

But what happens if Puff is unable to show that the US$100 that had been transferred from Paul's account to Mary's was the same US$100 that had been transferred from Puff's account to Paul's? In other words, what happens if the trail is lost once the money is paid to Paul? In these circumstances, it might still be possible for Puff to trace its US$100 into Mary's account if it could identify something from which it could be inferred that the US$100 in Mary's account was the same US$100 that had been paid into Paul's account. This might be the closeness of the figures or the fact that Paul was not known to have any other source of money.⁴ Other factors might be the closeness in time between the payments and the fact, if it could be established, that Peter had authorised the payment to Mary.⁵

Tracing part of the law of evidence

It is important to note that tracing is not a claim or a remedy but a matter of evidence.⁶ While the initial burden will be on Puff to adduce sufficient evidence to make out a prima facie case, if it can do so the evidential burden will then shift to Mary to displace the conclusion which would otherwise naturally follow.⁷ The fewer the number of transactions, and the shorter the period of time between them, the more likely it is that the Court will be prepared to draw the necessary inferences, and this is especially so if there is no countervailing evidence...