1. GENERAL

1.1 Prevalence of Arbitration

The Cayman Islands arbitration industry continues to develop following the introduction of the modern Arbitration Act, 2012 (the "Act"). To date, arbitration in the Cayman Islands has remained mainly domestic in nature, but the introduction of the Act, combined with support from the Cayman Islands' strong and highly regarded court system, the legal profession's expertise in complex financial disputes and the anticipated establishment of the Cayman International Arbitration Centre (CIAC – www.caymanarbitration. com), should facilitate the development of the Cayman Islands as a centre for international arbitration.

1.2 Impact of COVID-19

The Cayman Islands took robust steps to minimise the impact of the global COVID-19 pandemic. The administration of justice, including the court system, adapted swiftly and continued to function largely undisturbed. That said, until recently, worldwide air travel restrictions inevitably affected the ability and willingness of parties to travel to the Cayman Islands. As a result, COVID-19 had an impact on the timing of initiatives such as the establishment of CIAC. However, it is understood that the CIAC project is still expected to go ahead.

1.3 Key Industries

Cayman Islands arbitration clauses tend to be more common in service agreements involving financial institutions, professional service providers and funds, and in shareholder agreements. The COVID-19 pandemic does not appear to have affected these trends.

1.4 Arbitral Institutions

For the time being, domestic arbitrations tend to be ad hoc. A variety of major arbitral institutions tend to be named in arbitration agreements with an overseas seat. The anticipated establishment of CIAC suggests that the Cayman Islands may have their own arbitral institution in the near future. The Cayman Islands Association of Mediators and Arbitrators (CIAMA – ciama.ky) continues to be named in arbitration agreements as the appointing body. The Cayman Islands chapter of the Chartered Institute of Arbitrators has established a regular programme of seminars for local practitioners.

1.5 National Courts

Disputes related to international and domestic arbitrations are heard in the specialist Financial Services Division of the Grand Court.

2. GOVERNING LEGISLATION

2.1 Governing Law

Arbitration proceedings commenced after 2 July 2012 that have their seat in the Cayman Islands (and the enforcement of awards made therein) are governed by the Act, which is based on the UNCITRAL Model Law on International Commercial Arbitration and the English Arbitration Act 1996.

The enforcement of arbitral awards made by arbitral tribunals seated in other jurisdictions is governed by the Foreign Arbitral Awards Enforcement Act (1997 Revision) (FAAEA), in which the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) is given domestic effect.

2.2 Changes to National Law

There have been no changes to the Act or the FAAEA in the past year, and there is no relevant pending legislation.

3. THE ARBITRATION AGREEMENT

3.1 Enforceability

Subject to certain limited exceptions, an arbitration agreement must be in writing and must be contained in a document signed by the parties or in an exchange of communications (s. 4 of the Act). The arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. Incorporation by reference to another document containing an arbitration clause is also possible.

It should also be borne in mind that if a party asserts the existence of an arbitration agreement in a pleading in any arbitral or legal proceedings in circumstances where such assertion calls for a reply, and the assertion is not denied, then there is deemed to be an arbitration agreement between the parties.

A model arbitration clause is offered in the Schedule to the Act, but its use is not mandatory.

3.2 Arbitrability

The Act itself does not impose any express restrictions on the type of dispute that may be referred to arbitration, except to provide that a dispute may not be so referred if the agreement to arbitrate is contrary to public policy or if, under any other law of the Cayman Islands, the dispute is not capable of being resolved by arbitration (s. 26(1) of the Act). At the same time, s. 26(2) of the Act states that the mere fact that another law confers jurisdiction in respect of a matter on the court but does not refer to determination by arbitration does not mean that the dispute about the matter is incapable of determination by arbitration.

As such, the question of which matters may and may not be referred to arbitration is largely a matter of case law. In the area of insolvency law, the courts have, until very recently, appeared to be increasingly willing to give force to arbitration agreements, where appropriate. For example, in In Re Sphinx Group (CICA No 6 of 2015, 2 February 2016), an issue arose in the context of liquidation as to whether a reserve created during the liquidation to meet claims for contingency fees by a US law firm should be released. The firm's engagement letter contained a New York arbitration clause. The court held that, because the need for a liquidation reserve depended on the strength of the claim, which was within the scope of the arbitration clause, the application to release the reserve itself had to be stayed in favour of arbitration, pursuant to s. 4 of the FAAEA.

In reaching this conclusion, the court cast doubt on the reasoning in the earlier case of Cybernaut Growth Fund, LP [2014 (2) CILR 413], in which the court refused to strike out or stay a winding-up petition brought on just and equitable grounds, despite the fund arguing that the dispute giving rise to the petition was subject to arbitration in New York. While Sphinx did not overrule Cybernaut, it may be seen as being indicative of a greater willingness by the courts to give effect to arbitration clauses even against the background of insolvency proceedings. In a similar vein, in Re Times Property Holdings Ltd [2011 (1) CILR 223], the court stayed a creditor's winding-up petition pending arbitration of the alleged indebtedness in Hong Kong, which further demonstrates the Cayman Islands' proarbitration stance. It should be noted, however, that the court must be satisfied that the debt is being disputed bona fide on substantial grounds before it will stay the winding-up proceedings in favour of arbitration (Re Grand State Investments Limited (FSD 11 of 2021, RPJ, 28 April 2021, Unreported)).

This trend of the courts holding the parties to their arbitration agreements even in the context of winding-up proceedings was continued by the decision in In re China CVS (Cayman Islands) Holding Corp [2019 (1) CILR 266], in which the Grand Court stayed a petition for the just and equitable winding-up under s. 4 of the FAAEA in favour of arbitration of the underlying issues, pursuant to the arbitration clause in the relevant shareholders' agreement. While the decision acknowledged that the actual remedy of just and equitable winding-up could only be granted by the court, it also demonstrated that the court was prepared to leave distinct arbitrable issues underpinning the application for such relief to the arbitral tribunal (particularly when alternative non-winding-up relief is also sought), in accordance with the relevant arbitration clause. However, in a subsequent judgment, the Cayman Islands Court of Appeal reversed the Grand Court's decision in China CVS (CICA Appeal Nos: 7 & 8 of 2019, 23 April 2020, unreported). The Court of Appeal held that the disputes underlying a petition for just and equitable winding-up cannot be hived off to arbitration, because they form an indivisible part of the threshold question that is within the sole jurisdiction of the court – namely, whether it is just and equitable to wind up the company. The decision seems to represent a retrenchment of the recent trend favouring the enforcement of arbitration agreements in the insolvency context. Nevertheless, the Court of Appeal decision notes that the parties could give full effect to the arbitration agreement in this sort of case by expressly agreeing to exclude recourse to just and equitable winding-up, which is possible under s. 95(2) of the Companies Act (2021 Revision). Therefore, if the parties wish to protect their arbitration agreement against the consequences of the Court of Appeal decision in China CVS, they can do so by expressly agreeing to forgo the right to present a just and equitable winding-up petition. Clearly, the nexus between arbitration and insolvency continues to be an actively evolving area.

Separately, while there is no prohibition against referring disputes that involve allegations of fraud to arbitration, s. 74(2) of the Act gives the courts the discretion to revoke the authority of the arbitrator and to order that the agreement shall cease to have effect, so far as may be necessary to enable that question of fraud to be determined by the court.

3.3 National Courts' Approach

In their approach to construing the scope of arbitration clauses, the national courts have followed English case law, particularly the judgment of the House of Lords in Fiona Trust v Privalov [2007] Bus LR 686 (McAlpine Limited v Butterfield Bank (Cayman) Limited (CICA 30 of 2019, 21 November 2019, unreported).

The national courts' approach to the enforcement of arbitral awards is dealt with in more detail below, as is the enforcement of arbitration agreements by way of ancillary relief. As for the support given by the courts to the arbitral process in general, the Act is founded on the following key principles:

  • the object of arbitration is to obtain the fair resolution of disputes by an impartial arbitral tribunal without undue delay or undue expense;
  • the parties should be free to agree how their disputes are resolved, subject only to such safeguards as are necessary in the public interest; and
  • the court should not intervene in matters governed by the Act, except as provided by the Act (s. 3(3) of the Act).

3.4 Validity

The invalidity of the contract containing the arbitration clause does not entail the invalidity of the arbitration clause itself (s. 4(6) of the Act). Indeed, a dispute about the validity of the substantive agreement may be arbitrated in accordance with the arbitration agreement (s. 4(7) of the Act), and an arbitration clause that forms part of a contract is treated as an agreement independent of the other terms of the contract (s. 27(2) of the Act). A decision by the arbitral tribunal that the contract is null and void does not entail the invalidity of the arbitration clause (s. 27(3) of the Act).

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Originally Published by Chambers Global Practice Guide 2022

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.