Agreement to arbitrate: requirements
Agreement to arbitrate: key points
Effects on third parties
Appointment of arbitrators
Arbitration is a mechanism of binding dispute resolution, which entails resolving disputes outside of the court process in accordance with procedures and standards as determined by the parties in dispute. Arbitration is, therefore, an alternative to traditional litigation and is distinct from non-binding forms of dispute resolution such as mediation.
The Cayman Islands has a modern arbitral framework as a result of bringing into force:
- the Arbitration Act (2012) (the Arbitration Act); and
- procedural rules regulating the Grand Court's practice and procedures in relation to arbitrations in July 2013 (the Rules).(1)
The foundation of the Arbitration Act is largely the United Nations Commission on International Trade Law, Model Law on International Commercial Arbitration (the Model Law), while also utilising successful aspects of arbitral legislative models found in other common law jurisdictions (such as Singapore and Hong Kong). The Arbitration Act has also sought to augment the Model Law where appropriate to suit the nature of the offshore financial business conducted in the Cayman Islands.
There are three fundamental principles to the Arbitration Act that are carried through into the Rules:
- disputes are to be resolved fairly by an impartial tribunal without undue delay or expense;
- the parties are autonomous to determine how their disputes should be resolved (subject to limited public interest exceptions); and
- judicial intervention in the arbitral process is extremely limited (the fundamental principles).(2)
In the first reasoned judgment of the Grand Court decided under the Arbitration Act, Appalachian Reinsurance (Bermuda) Ltd v Greenlight Reinsurance Ltd,(3) the Grand Court explicitly recognised the fundamental principles as underpinning the arbitral framework of the Cayman Islands. The Cayman Islands, therefore, possesses a modern and responsive arbitral framework governing both domestic and international arbitrations, thereby allowing for the existence of a separate mechanism of binding dispute resolution to traditional litigation and, as a consequence, offering another flexible option to parties involved in Cayman Islands' disputes.
The anticipated establishment of the Cayman International Arbitration Centre (CIAC) will provide the Cayman Islands with a dedicated and purpose-built arbitration centre, with state-of-the-art facilities and an emphasis placed on confidentiality, privacy and innovative technology. It is also anticipated that CIAC will offer specialised CIAC Rules for financial disputes. Parties may opt for a CIAC administered arbitration with CIAC Rules, or they may choose an ad hoc arbitration or an arbitration under a different institute but make use of CIAC's facilities for hearings. Among CIAC's list of panel members are retired Grand Court judges, local and international bankers, regulators, and representatives of other market participants.
In 2020, the Chartered Institute of Arbitrators (CIArb) established a new Cayman Chapter, which now sits within the Caribbean Region of CIArb. The Cayman Chapter offers membership and training opportunities to practitioners within the Cayman Islands, in conjunction with CIAC.
The Cayman Islands has long been recognised as a major global centre with expertise in financial services disputes, a well-established legal infrastructure and experienced lawyers and judiciary. These features, together with its pro-arbitration framework, and its geographical position as a neutral location, conveniently midway between North America and South America, makes it a strong choice as a seat for international arbitrations. The anticipated creation of CIAC, and the new Cayman Chapter, will further assist the Cayman Islands to establish itself as a leading international arbitration hub in the region.
This article is part one of a three-part series on arbitration in the Cayman Islands, covering the main features and benefits of the arbitration framework.
Agreement to arbitrate: requirements
There are no legal impediments to arbitrating any type of dispute in the Cayman Islands, except for disputes where the relief sought is only available by order of the Grand Court.(4) A recent decision of the Court of Appeal has confirmed that the underlying dispute in a Cayman Islands just and equitable winding up petition is not capable of being determined by an arbitrator, as a result of the Cayman Court's exclusive statutory jurisdiction to determine whether it is just and equitable to make a winding up order.(5)
The parties to arbitration can decide on the substantive law applicable to the dispute. In the absence of an agreement, the tribunal determines the proper law of the contract in accordance with accepted principles of private international law – that is, identifying the system of law with which the transaction under contract has its closest and most real connection.
The arbitral tribunal is competent to rule on its own jurisdiction, including over any objections to the existence of or validity of the arbitration agreement.(6) No particular time limits exist for jurisdictional challenges, although a party is required to act promptly in applying to the Court, and the application seeking the stay of the proceedings should be made before the applicant delivers any pleadings or takes any other steps in the proceedings, otherwise relief may not be granted.
Agreement to arbitrate: key points
An arbitration agreement is usually considered binding where there is any agreement in writing to submit to arbitration a dispute that has arisen, or may arise in the future, between the parties to the agreement. It is not necessary to name the arbitrator in the agreement. There are no other form or content requirements. A separate arbitration agreement is not required, and it is sufficient to include an arbitration clause as part of a wider agreement and such a clause may be included in the general terms and conditions.
Repudiation, frustration or rescission of a contract will not by itself prevent enforcement of an arbitration clause in the contract, which survives such an event; thus, the arbitrator can determine whether the contract has been repudiated, frustrated or rescinded. An arbitration agreement will not be enforced (by staying legal proceedings brought in breach of that agreement) if the Grand Court is satisfied that it is null and void, inoperative or incapable of being performed, or if there is not in fact any dispute between the parties with regard to the subject matter of the arbitration agreement.
The general rule is that a third party is not privy to and not bound by an arbitration agreement (and may only fall under obligations as witnesses in an arbitration). However, in the following scenarios an arbitration agreement can be extended to a third party:
- agency or trusts – the claimant is a person for whose benefit, or for whose account, the contract was made;
- succession – the claimant has succeeded by operation of law to the rights of the named party;
- novation – by virtue of a statutory or consensual novation, the claimant has replaced the person originally named as a party to the contract;
- assignment – the claimant is the assignee of the benefit of the contract; or
- insolvency – the claimant is a trustee in bankruptcy who has adopted a contract containing the arbitration agreement.
In the decision of Re an Application of BDO Cayman Ltd concerning Argyle Funds SPC Inc,(7) the Cayman Court confirmed that, if a liquidator sues on a contract which contains an arbitration clause, the liquidator is bound by the arbitration clause as well.
In addition to the circumstances listed above, third parties have been granted direct rights of enforcement in respect of contracts to which they are not a party. The Contracts (Rights of Third Parties) Act 2014 was brought into force on 21 May 2014. A third party may therefore, in his own right, enforce a term of an arbitration agreement if the agreement is executed after 21 May 2014 and expressly provides that he is entitled to do so.
There are no restrictions on who may act as an arbitrator in the Cayman Islands and the parties to an arbitration agreement can choose any number of arbitrators and their method of selection.(8) This is a key advantage of arbitration, as although the Cayman Islands has an extremely capable judiciary who are particularly experienced in dealing with financial services disputes, the arbitral parties are able to choose their tribunal or stipulate the mechanism whereby that tribunal is chosen. This enables the parties to select a tribunal with the specialist expertise suited to the matters in issue between the parties rather than being allocated a judge. In the absence of agreed rules for the appointment of the arbitral tribunal, or where there is a failure to comply with any agreed rules, then the Arbitration Act provides for a default appointment procedure.(9)
Terms as to the remuneration, expenses and liabilities of arbitrators are a matter of contract between the parties and the arbitrator to be appointed. In default of an agreement between the parties, such fees may be assessed by the Grand Court in accordance with the usual rules applicable to an assessment of costs within the court. Whatever is agreed in regard to the arbitral tribunal's remuneration and whichever party appoints an arbitrator, each arbitrator, once appointed, is expected to act impartially otherwise he or she may be removed. In addition to the arbitral tribunal's duty to act impartially the other general duties of the arbitral tribunal include:
- allowing each party a reasonable opportunity to present their case; and
- conducting the arbitration without unnecessary delay and expense.
The procedure for challenge to the appointment of an arbitrator may be agreed between the parties, and in default of agreement, the Arbitration Act requires that the party challenging the appointment of an arbitrator must send a written statement of the grounds for challenge to the arbitral tribunal within 15 days of the constitution of the tribunal or of becoming aware of the grounds for challenge.(10) The arbitral tribunal decides on the challenge, and, should the challenge prove unsuccessful, an aggrieved party may apply to the Grand Court to determine the challenge and the Court may make such order as it thinks fit. The Grand Court may, provided that all other options have been exhausted, on the application of an arbitral party also remove an arbitrator where an arbitrator:(11)
- is physically or mentally incapable of conducting the proceedings:
- has refused or failed to properly conduct the proceedings:
- has failed to use all reasonable dispatch in entering on and proceeding with the arbitration and making an award; or
- will or has already caused substantial injustice to a party.
The Grand Court has ancillary powers to appoint replacement arbitrators to enable the arbitration to proceed. Alternatively, it can (in rare cases) order that an arbitration agreement ceases to have effect.
For further information on this topic please contact Jennifer Fox, William Jones or Anna Snead at Ogier's Grand Cayman office by telephone (+1 345 949 9876) or email ([email protected], [email protected] or [email protected]). The Ogier website can be accessed at www.ogier.com.
(1) Introduced by way of amendments to the Grand Court Rules.
(2) Section 3 of the Arbitration Act.
(3) Appalachian Reinsurance (Bermuda) Ltd v Greenlight Reinsurance Ltd, unreported, 5 February 2014.
(4) Such as remedies prescribed by particular statutes (eg, the Companies Act, the Registered Land Act, or the Trusts Act) and others pursuant to regulatory laws (eg, the Banks and Trust Companies Act, the Mutual Funds Act or the Securities Investment Business Act).
(5) FamilyMart China Holdings Holding CO LTD v Ting Chuan (Cayman Islands) Holding Corporation, CICA, unreported, 24 April 2020.
(6) Section 27 of the Arbitration Act.
(8) If the parties are unable to decide on the number of arbitrators then a single arbitrator must be appointed per section 15(2) of the Arbitration Act.
(9) Section 16 of the Arbitration Act.
(10) Section 19 of the Arbitration Act.