The Arbitration Review Of The Americas 2018: Cayman Islands

The Arbitration Law 2012 (the Law) provides a modern statutory regime based largely on the UNCITRAL Model Law and the English Arbitration Act (1996 Act).

The enforcement in the Cayman Islands of agreements to arbitrate in countries that are parties to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention), and arbitral awards made in such countries, remain largely governed by the Foreign Arbitral Awards Enforcement Law (the Foreign Awards Law). That legislation incorporates the provisions of the New York Convention relating to such matters into Cayman Islands law.

Key features of the Law

The Law is founded upon three main principles:

the fair resolution of disputes by an impartial tribunal without undue delay or expense; party freedom to agree how their disputes are resolved, subject only to safeguards deemed necessary in the public interest; and limits on the scope for court intervention in arbitration proceedings. The Law applies to all arbitrations where the seat of the arbitration is the Cayman Islands (regardless of where the parties are based) and governs the conduct of the arbitration, challenges in the Cayman Islands courts and the enforcement of Cayman Islands arbitral awards within the jurisdiction.

An arbitral tribunal appointed under the Law has wide powers and is essentially able to award any interim or final remedy that a court could have granted if the dispute in question had been the subject of court proceedings. The Law gives the parties the freedom to tailor the arbitral proceedings according to their needs, but also provides default provisions that apply in the absence of agreement. There are certain mandatory provisions of the Law designed to protect the integrity of the arbitration process; for example, by ensuring that the tribunal maintains its impartiality throughout the arbitration and does not have any conflicts of interest. The Law expressly recognises that arbitration proceedings are to be confidential and the limited grounds set out in the Law, upon which an arbitral award may be challenged in the Cayman Islands courts reflect the grounds in the New York Convention.

An arbitration agreement may be in the form of an arbitration clause in a contract or a separate agreement (section 4(1)). An arbitration agreement must be in writing and contained in a document signed by the parties or an exchange of letters, facsimile, telegrams, electronic communications or other communications that provide a record of the agreement (section 4(3)). An arbitration agreement will also be deemed to exist where a party asserts the existence of an arbitration agreement in a pleading, statement of case or any other document in circumstances calling for a reply and the assertion is not denied (section 4(4)).

Jurisdiction

The Law does not impose any restrictions on the types of dispute that may be referred to arbitration. Section 26(1) provides that any dispute that the parties have agreed to submit to arbitration may be determined by arbitration unless the arbitration agreement is contrary to public policy or the dispute is not capable of determination by arbitration under any other law of the Cayman Islands.

One issue relevant to the Cayman Islands financial services industry, particularly in relation to investment funds, which has been the subject of several recent decisions is the winding-up of companies and partnerships. In Cybernaut Growth Fund, LP [2014] (2) CILR 413 a petition to wind up and liquidate an investment fund (on just and equitable grounds) had been filed. The fund attempted to strike out or stay the petition on the basis that arbitration proceedings had been commenced in New York pursuant to an arbitration clause in the fund's partnership agreement. The Grand Court concluded that a petition to wind up a company and appoint a qualified insolvency practitioner as liquidator was a dispute that was non-arbitrable. The making of a winding-up order was held to be beyond the scope of an arbitrator's contractual powers.

In Re Sphinx Group (Court of Appeal, 2 February 2016) the Court considered the Cybernaut decision and several other recent English decisions concerning the interplay between the courts' winding-up jurisdiction and arbitration. The case concerned an application to release a reserve created during the liquidation of a group of Cayman Islands companies to meet claims by a US law firm that had been engaged to act for the companies on a contingency fee basis. The engagement agreement with the firm contained a New York arbitration clause. The issue before the Court was whether it could decide the issues raised by the application itself, or whether, given the existence of the arbitration clause, some or all of those issues had to be determined by arbitration. The Court held that the question of whether the reserve should be released was dependent upon the validity of the law firm's claims and that issue fell within the scope of the arbitration clause. Accordingly, the Court stayed the application to release the reserve pursuant to the Foreign Awards Law. The Court stated that the reasoning in the Cybernaut decision was debateable, but declined to overrule the decision as it was not necessary to do so to determine the appeal and the Court had not heard full argument on that matter. In the Sphinx decision the Court demonstrated a willingness to give effect to arbitration agreements in the context of winding-up proceedings and to limit the types of disputes that are non-arbitrable. This issue remains topical and practitioners in the Cayman Islands will continue to monitor developments in this area with interest.

Where the respondent wishes to raise objections regarding the tribunal's jurisdiction, he must first do so with the tribunal. Under section 27(1), the arbitral tribunal may rule on its own jurisdiction, including any objections to the existence or validity of the arbitration agreement. A party may also resist enforcement in the Cayman Islands of an award made here on the ground that the tribunal lacked jurisdiction (section 72(3)).

Under section 9, where a party to an arbitration agreement institutes court proceedings in respect of any matter falling within the arbitration agreement, the other party to the arbitration agreement may apply to the court for an order staying the proceedings. The court must then grant a stay unless it finds that the arbitration agreement is null and void, inoperative or incapable of being performed. A party that takes a step in the court proceedings to answer the substantive claim loses its right to apply for a stay...