Civil asset recovery

Parallel proceedings

Is there any restriction on civil proceedings progressing in parallel with, or in advance of, criminal proceedings concerning the same subject matter?

Parallel proceedings in civil and criminal matters that are based on the same set of facts are permissible.

However, a court may stay a civil proceeding if a defendant would be unjustly prejudiced by providing information in said proceeding that may incriminate him or her in future or current criminal proceedings.

Of persuasive authority is the case of Panton v Financial Institutions Services Limited [2003] UKPC 8, in which the Privy Council concluded that to obtain a stay of parallel civil proceedings, the defendant would have to show that he or she would suffer unjust prejudice in the ongoing criminal proceedings if they were to continue, taking into account competing considerations between the parties.

In particular, the burden of proof (should there be a stay in proceedings) will lie with the defendant, who must point to a real and non-notional risk of injustice: ‘A stay would not be granted if it was deemed to be simply to obtain a tactical advantage by a defendant in criminal proceedings.’

Forum

In which court should proceedings be brought?

The structure of the court system is hierarchical, with appeals lying to the court above at each stage. The Summary Court is the first in the hierarchy, dealing with matters up to CI$20,000, followed by the Grand Court, the Court of Appeal and, finally, Her Majesty’s Judicial Committee of the Privy Council.

The Grand Court tries most types of civil disputes. In particular, the Financial Services Division hears complex commercial and trust disputes, which often arise in respect of corporate or trust entities, including the following:

  • Cayman Islands-registered investment funds and exempted insurers;
  • proceedings under the Companies Law;
  • local and foreign bankruptcy proceedings; and
  • proceedings for enforcing foreign judgments and arbitral awards.
Limitation

What are the time limits for starting civil court proceedings?

Limitation periods are imposed by the Limitation Law (1996 Revision). There are different limitation periods for different types of claims as follows:

  • torts: six years from the date of the damage (three years for personal injury or if a motor vehicle caused the damage);
  • contracts: six years from the date of the breach;
  • claims by a beneficiary against a trustee for fraudulent breach of trust: no limitation period; and
  • claims for the recovery of land: 12 years from the date when the right accrued (30 years if the claim is against the Crown).

Part III of the Law contains exclusions and extensions to ordinary time limits (eg, in cases of fraud, concealment or mistake as to when the wrongdoing becomes known).

As in other common law countries, it may be possible for a claimant and a defendant to mutually agree to a ‘standstill’, which would extend the statute of limitations. This may provide the defendant advance notice that the claimant will file a claim and therefore allow both parties an opportunity to resolve their differences without the limitations period becoming an issue.

Jurisdiction

In what circumstances does the civil court have jurisdiction? How can a defendant challenge jurisdiction?

Under section 11 of the Grand Court Law (2015 Revision), the Grand Court is a superior court of record of first instance, having unlimited jurisdiction in both criminal and civil matters; it exercises similar jurisdiction as is vested in and capable of being exercised in England and Wales by the High Court and its divisional courts.

The courts of the Cayman Islands have jurisdiction in the following circumstances:

  • where a person resides in the Cayman Islands;
  • where a company is incorporated in the Cayman Islands;
  • where the dispute is about land in the Cayman Islands;
  • where a trust is governed by laws of the Cayman Islands; and
  • where a breach of contract or a tort has occurred in the Cayman Islands.

Personal service of a claim is required, or delivery to a registered office for corporate entities.

In addition, the court can permit service outside the jurisdiction if the defendant is not present in the Cayman Islands, subject to certain procedural practice. The court will not grant leave to such service unless the claimant provides a supporting affidavit setting out the cause of action demonstrating the following:

  • it has a good chance of success;
  • there is a real issue that the court should try;
  • where the defendant is or is likely to be; and
  • the method of service.

The method of service need not be in person, so long as it is in accordance with the law of the country in which service is to be effected.

A defendant can challenge jurisdiction, or argue that the court is the improper forum.

Time frame

What is the usual time frame for a claim to reach trial?

The time frame depends on the urgency of the application, the complexity of the matter and the availability of counsel, but the Grand Court has a good reputation for expediting matters when possible. Trials can occur within six months of the claim being filed, although a year is more likely.

Admissibility of evidence

What rules apply to the admissibility of evidence in civil proceedings?

Part IV of the Evidence Law (2019 Revision) provides statutory guidance on what is admissible. However, the rules may also be influenced by English pre-1999 case law as the approach taken to admissibility is generally very similar. If required, the courts may also seek guidance from the Supreme Court Practice (1999 edition) (White Book).

Witnesses

What powers are available to compel witnesses to give evidence?

Most parties to litigation are from outside the jurisdiction, so the court has limited power or authority to compel witnesses to give evidence. The court can make an order upon individuals, entities and third parties for the following:

  • examination of witnesses either orally or in writing;
  • production of documents; and
  • inspection, photographing, preservation, custody or detention of any property.

However, the court uses its authority to compel witnesses with caution, and will only do so when it is necessary and justified.

Publicly available information

What sources of information about assets are publicly available?

Generally, there is limited information about assets that is publicly available. Cayman Islands-exempt entities are not required to file audited accounts.

Entities licensed or registered with the Cayman Islands Monetary Authority (CIMA) are required to file audited accounts, but that information is not public.

Vehicle registration is not available to the public.

The following information can be made available for a fee or by physical attendance:

  • status of standing;
  • registered agent and office details;
  • annual registration fee payment history;
  • real estate property ownership; and
  • legal records (those held in other archives, eg, court records).

The following information about an entity may be obtained through a court order:

  • company registrar filings;
  • articles of incorporation and memorandum of association;
  • directors’ and officers’ register;
  • members’ register;
  • details of the beneficial owner; and
  • registered encumbrances.
Cooperation with law enforcement agencies

Can information and evidence be obtained from law enforcement and regulatory agencies for use in civil proceedings?

The court can order the Financial Reporting Authority to provide information, documents or evidence to third parties pursuant to the Proceeds of Crime Law (2019 Revision).

Further, the Freedom of Information Law (2018 Revision) provides a right of access to information held by public bodies, except when disclosure of those records is exempt under Part III of the Law (ie, for reasons of national security, legal privilege and personal information).

Third-party disclosure

How can information be obtained from third parties not suspected of wrongdoing?

Two types of discovery actions available to a claimant are Norwich Pharmacal and Bankers Trust orders.

Norwich Pharmacal orders

A Norwich Pharmacal order is typically pre-action and is granted against a third party that has been innocently mixed up in wrongdoing, to force the disclosure of documents or information, which may identify another person (for example a wrongdoer or a potential beneficiary), or to identify the nature of the wrongdoing, both of which may be the subject of subsequent legal proceedings.

To the extent the disclosure identifies additional wrongdoing by the third party, it may be possible to use those documents but that cannot be the purpose for which they were sought. Moreover, one can, where appropriate, apply for a ‘gag order’ when seeking disclosure, which directs the party not to disclose that they have been ordered to provide information to a third party. This is particularly helpful where the respondent is a bank or a professional who may have duties to give notice to their clients of such matters.

To obtain a Norwich Pharmacal order, applicants will need to show the following:

  • that there is a ‘good arguable case’ that a wrongdoing has occurred;
  • that the person against whom the disclosure request is sought is involved, albeit possibly innocently, in the wrongdoing as more than a mere witness;
  • that the respondent is likely to have the information sought (ie, it is not a fishing expedition); and
  • that the order must be necessary and proportionate, and in the overall interests of justice.
Bankers Trust orders

As the name implies, Bankers Trust orders are used to obtain information from banks. Following Bankers Trust v Shapira (1980) 1 WLR 1274, the court can order discovery as follows:

  • when there is good reason to believe (eg, as a result of tracing) that property held by the bank is, in fact, the property of the claimant;
  • when documents produced by the bank will be used solely for the purpose of tracing money and not for any other purpose;
  • when the claimant gives an undertaking in damages; and
  • when the claimant undertakes to pay any and all expenses resulting from the bank giving discovery.

However, the following types of documents may be prevented from being disclosed:

  • documents protected by legal professional privilege;
  • documents tending to incriminate, or expose to forfeiture, the party who would disclose them;
  • documents privileged on the grounds of public policy; and
  • documents whose disclosure would breach the law (eg, confidentiality laws).
Interim relief

What interim relief is available pre-judgment to prevent the dissipation of assets by, and to obtain information from, those suspected of involvement in the fraud?

Interim relief is available in the following forms:

  • Mareva injunctions (freezing orders) to prevent dissipation of assets;
  • Anton Piller orders requiring access to a defendant’s property to search for and remove, or take copies of, documents or property, or both; and
  • in the case of insolvency proceedings, an order appointing a provisional liquidator in company winding-up proceedings to prevent dissipation of the company’s assets, or misconduct by the company’s directors.

Mareva injunctions freeze the assets of a party pending further order or a final resolution of the court. To the extent the respondent is in a common law jurisdiction and he or she seeks to move or transfer assets without approval of the court, he or she can be found in contempt and, in some extreme cases, be denied the ability to provide a defence until he or she complies.

In addition, a Mareva injunction will normally compel an accounting from the respondent of his or her assets. However, the court can require that the party applying for the order provide security or a bond, also known as a cross-undertaking. The rationale for this is that because it is such a draconian remedy, if the claim is not successful then the respondent may be entitled to damages for financial or reputational loss caused by having the injunction placed upon him or her.

An Anton Piller order can be obtained providing the right to search premises and seize evidence that is the subject matter of the dispute without warning the defendant. Applications for Anton Piller orders are made ex parte.

To obtain an Anton Piller order, the following must be demonstrated:

  • that there is prima facie evidence of the wrongdoing;
  • that the potential or actual damage is be very serious;
  • that there is clear evidence that the respondent has incriminating evidence in his or her possession; and
  • that there is a real possibility the respondent may destroy this material if he or she were to become aware of the application.

An Anton Piller order can prevent destruction of relevant evidence, and is particularly useful in ensuring electronic evidence on computers or mobile devices is preserved.

Insolvency mechanisms can also be used when a claimant seeks an order to appoint a provisional liquidator to secure the remaining assets for the benefit of creditors, particularly in cases where fraud or misconduct is alleged. Often, an application for a provisional liquidation can be made ex parte to avoid any ‘tip-off’ and dissipation or misuse of the company’s assets.

Non-compliance with court orders

How do courts punish failure to comply with court orders?

An individual or entity can also be found in contempt of court, which could result in a fine or imprisonment for up to two years, or both.

Ultimately, a court may rule in favour of the claimant if the defendant does not comply with disclosure orders or another order of the court.

Obtaining evidence from other jurisdictions

How can information be obtained through courts in other jurisdictions to assist in the civil proceedings?

Information can be obtained through courts in other jurisdictions under the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters 1965 and the Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters 1970 subject to their being a contracting state party.

It is important to consider with local counsel what additional tools are available to foreign litigants seeking evidence in other jurisdictions and therefore available to claimants from the Cayman Islands. For example, a ‘section 1782 discovery’ is a tool available to a foreign litigant in legal proceedings being held outside the United States, seeking sanctions from an American court to obtain evidence for use in the non-US proceeding.

Assisting courts in other jurisdictions

What assistance will the civil court give in connection with civil asset recovery proceedings in other jurisdictions?

The Grand Court Rules permit service of foreign proceedings under the Hague Conventions noted in question 13.

If seeking evidence from a witness who is present in the Cayman Islands, the foreign court must usually issue a letter of request seeking the assistance of the Grand Court, after which the witness may be examined before a judge of the Court and a transcript of the evidence is provided to the requesting court.

As set out in questions 10 and 11, the Grand Court can order the disclosure of documents for use in proceedings in another jurisdiction using Norwich Pharmacal and Bankers Trust orders, Mareva injunctions and Anton Piller orders to assist with asset preservation and evidence gathering.

However, a person cannot be compelled to give any evidence under an order that they would not have been compelled to give in civil proceedings in the Cayman Islands or in the country where the requesting court exercises its jurisdiction.

In addition, the Cayman Islands adopted the Judicial Insolvency Network Guidelines for Communication and Cooperation between Courts in Cross-Border Insolvency Matters, which provide a framework for strengthening court-to-court cooperation in cross-border insolvency cases. For example, a court may receive communications from a foreign court for the purpose of taking a matter under submission and rendering decisions, and may respond directly to them.

The Grand Court may make orders to do the following:

  • recognise the right of a foreign representative to act in the Cayman Islands on behalf of a debtor;
  • stay proceedings against a debtor;
  • examine witnesses;
  • have documents produced to it; and
  • transfer property of a debtor to the representative.
Causes of action

What are the main causes of action in civil asset recovery cases, and do they include proprietary claims?

As a common law jurisdiction, the main causes of action include the following:

  • breach of contract;
  • fraud;
  • tort; and
  • suit in equity (eg, unjust enrichment).

Within insolvency mechanisms a cause of action available to a liquidator, under statute and with the authority of the court, is the ability to challenge transactions that have not benefited the company, such as unfair preference claims (eg, gifts or transactions to related parties), wrongful or fraudulent trading and transactions at undervalue. These remedies are only available within the context of a liquidation.

Proprietary claims (tracing at law and in equity) are available; however, in the case of Ahmad Hamad Algosaibi & Brothers (AHAB) v Saad Investment Finance Corporation Ltd and Others, 2018, the Grand Court held that although the law may infer necessary transactional links to give rise to a tracing claim where there is a scheme ‘specifically designed’ to subvert the ability of creditors to recover misappropriated funds, the general rule remains that it is necessary to establish a chain of transactions to trace funds.

The Court then went on to make a number of other important observations for the law of tracing, in particular with regard to jurisdiction where it held that given the alleged misappropriations took place in Saudi Arabia, the proper law governing AHAB’s equitable claims was Saudi law. As Saudi law does not recognise a proprietary remedy in these circumstances, it was not possible for AHAB to establish a proprietary base on which to establish its tracing claim.

Remedies

What remedies are available in a civil recovery action?

The court may grant the following available remedies:

  • damages;
  • compensation in equity;
  • interim and permanent injunctions;
  • restitution of property where a party has been unjustly enriched;
  • declarations that property or assets are held in constructive trust;
  • account of profits improperly made from a breach of trust or fiduciary duty;
  • specific performance;
  • order rescinding a contract (for example, owing to misrepresentation, mistake, duress or undue influence);
  • rectification of a written contract;
  • declarations as to the parties’ rights relating to the matter in issue; and
  • orders allowing the claimant to follow, trace and recover from trustees or a third party property that has been applied or transferred in breach of trust.

Although damages are generally intended to be compensatory, the court has the jurisdiction in limited circumstances to award aggravated damages if the defendant is shown to have acted deliberately or out of malice towards the claimant, and exemplary or punitive damages where there are cases of oppressive, arbitrary or unconstitutional conduct by government agents, the defendant’s actions were calculated to make a profit or where permitted by statute.

Judgment without full trial

Can a victim obtain a judgment without the need for a full trial?

Both claimants and defendants can apply for a summary judgment, which is an expedited hearing of the dispute based on affidavit evidence only.

The defendant opposing the application must file an affidavit addressing the merits of the claim.

The Grand Court will grant a summary judgment after the claimant has served the defendant - who has also given notice of intention to defend - but will only do so if it is satisfied that upon the evidence placed before it the claim or the defence has no realistic prospect of success.

Where there are disputes between the parties in relation to matters of law or fact that merit investigations at trial, the court will not grant a summary judgment.

A default judgment can be obtained when the proceedings have been properly served on the defendant but the defendant fails to respond to them.

Post-judgment relief

What post-judgment relief is available to successful claimants?

The post-judgment relief available is the same as that of interim remedies, including the following:

  • restitution of property;
  • order to provide an account of profits;
  • declaration of assets held in constructive trust;
  • declaration as to the parties’ rights;
  • order allowing the claimant to follow, trace and recover from trustees or a third party property that has been applied or transferred in breach of trust;
  • freezing orders;
  • appointment of a receiver over a trust’s or company’s assets; and
  • appointment of a liquidator to enable the orderly winding up of a company and disposal of its assets.
Enforcement

What methods of enforcement are available?

The following enforcement options are available once a judgment has been obtained:

  • seizure and sale of the judgment debtor’s goods to satisfy the debt and costs of the execution;
  • garnishee proceedings (where a person indebted to the judgment debtor is required to pay moneys owed directly to the judgment creditor);
  • charging orders (providing security to the judgment creditor over the judgment debtor’s assets);
  • attachment of earnings orders; and
  • appointment of receivers to aid enforcement of a debt.

Alternatively, a judgment creditor may be able to petition to wind up a company based on a foreign judgment debt on the basis that it is ‘unable to pay its debts’ (Lhasa Ins Ltd [1996] CILR N-3).

Funding and costs

What funding arrangements are available to parties contemplating or involved in litigation and do the courts have any powers to manage the overall cost of that litigation?

Contingency fee agreements are currently not permissible except where the court has sanctioned liquidators to enter into contingency agreements with foreign lawyers (and that they are enforceable in the jurisdiction). Lawyers in the Cayman Islands are currently not permitted to enter into contingency fee arrangements.

With regard to third-party funding agreements, traditionally, the Grand Court has restricted funding for insolvent liquidation estates. Liquidators have a statutory power to sell the ‘fruits of an action’ to a third-party funder, subject to the approval of the Court. The Court will consider in particular, whether the funder has the ability to control or interfere with the litigation, in which case the agreement will be void on the basis of maintenance and champerty.

Although the doctrines of maintenance and champerty have yet to be formally abolished in the Cayman Islands, the court in A Company v A Funder (November 2017), being mindful of the law of maintenance and champerty in other common law jurisdictions, concluded that overall, a proposed funding agreement was legitimate on the basis that ‘it did not corrupt public justice, undermine the integrity of the litigation process and give rise to a risk of abuse’ (J Segal). The relevant factors in the court’s decision were based around the relationship between the funder and the claimant, and the ability of the funder to affect litigation strategy.