The Latest Interpretation Of The Illegality Defence In The Cayman Islands

In the long-awaited decision of Ahmad Hamad Algosaibi and Brothers Company ('AHAB') v SAAD Investments Company Limited (In Official Liquidation) (SICL) and Others,1 the Cayman Court ('the Court') dismissed AHAB's claims of fraud alleged against Mr Al Sanea's Cayman companies. In doing so, numerous complex areas of the law concerning commercial fraud and the ability to trace assets through corporate groups and into sophisticated financial products were considered. In this note we unpick what was said about the illegality defence and what lessons can be derived for future Cayman cases where this defence might be engaged.

In AHAB, the Court found that AHAB and Al Sanea had acted in concert, in order to fraudulently obtain billions of dollars in borrowings. The loans would not have been made had the banks known the true financial position of the Money Exchange, an unincorporated division of the AHAB Partnership of which Mr Al-Sanea was Managing Director. The Court found that the fraud perpetrated by AHAB and Al Sanea was an enormous, long standing scheme (and was effectively a Ponzi Scheme) which had defrauded more than a hundred banks and that the Money Exchange was, from its very inception, a criminal enterprise and remained so throughout its existence. This decision has recently been appealed on very wide ranging grounds.

As the Court found that the fraudulent actions of Al Sanea were either explicitly or implicitly authorised by AHAB, thus there was no factual basis on which AHAB could show it had been defrauded, there was no need for the Court to find that the defendant Cayman Companies (represented by a number of different official liquidators) could invoke an illegality defence. However, the Court, no doubt in anticipation of the appeal to be heard in 2019, said that if its factual finding of complicity was overturned then the illegality defence would have been engaged. Consequently, the Court gave useful guidance on how to approach the 'notoriously knotty' 2 defence of illegality.

The illegality defence is underpinned by the principle that a person should not be able to use the justice system to benefit from their wrongdoing. A claim or counterclaim which falls foul of the principle will not be enforced. Whilst the aim of the doctrine is simple to state, the law of illegality has been in a state of flux for many years primarily due to the inconsistent judicial approaches adopted by the English Supreme Court Justices grappling with its application in practice. It has long been difficult to discern a principled approach to the application of the doctrine...