In respect of existing ordinary trusts, it is possible for the trustees of the trust (amongst others) to apply to the Grand Court of the Cayman Islands to disapply the rule against perpetuities, the effect of which will be that such trusts can last indefinitely.

Contact

For further information please contact your usual Campbells contact or reach out to any of the key contacts listed below.

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Zhong Ou International Diversified Fund SPC is a mutual fund registered with the Cayman Islands Monetary Authority and managed by Zhong Ou Asset Management International Limited (“ZOAM Intl”). ZOAM Intl is a wholly-owned overseas subsidiary to Zhong Ou Asset Management Co., Ltd., which is a prestigious asset manager in Mainland China, and acts as its global investment center to serve overseas investors. The investment coverage of ZOAM Intl includes, among others, fixed income investment (Chinese onshore bonds, Chinese issuer USD bonds, Asian bonds, ESG bonds) and equity investment in Chinese A-shares and the Hong Kong market.

Partner Robert Searle led the transaction with support from Ben Tao and Hans-Peter Alphart.

The post Campbells advised Zhong Ou International Diversified Fund SPC on its CSX listing appeared first on Campbells.

 Following our advisory issued on 11 October 2023, the Beneficial Ownership Transparency Act, 2023 (the “Act”) and the Beneficial Ownership Transparency Regulations, 2024 (the “Regulations”) were brought into force on 31 July 2024 (the “Commencement Date”).  Associated Guidance on Complying with Beneficial Ownership Obligations in the Cayman Islands (the “Guidance”) was also published by the Cayman Registry (the Competent Authority for beneficial ownership in the Cayman Islands) (the Guidance, the Act and the Regulations, together the “New BOR Legislation”).

The Ministry of Financial Services for the Cayman Islands (the “Ministry”) has advised industry members to suspend filing beneficial ownership information for existing Cayman entities under the current framework until industry is notified to commence filing under the new beneficial ownership framework.  The Ministry has also advised that enforcement relating to the new requirements in the framework will be suspended until early next year, giving clients a few months to prepare for these changes.

Background

Our advisory published on 20 April 2017 sets out in detail the beneficial ownership regime in the Cayman Islands (the “BOR”) that applied before the Commencement Date.

Key Changes to the BOR

 The following substantial changes have now been made to the Cayman Islands BOR as a result of the New BOR Legislation:

In Scope Entities

Cayman Islands companies, limited liability companies, limited liability partnerships and foundation companies continue to be in scope for the purposes of the BOR.  For the first time, the New BOR Legislation has now brought into scope exempted limited partnerships (commonly used as closed-ended funds) and limited partnerships (together “Legal Persons”).  Trusts and registered foreign companies continue to fall out of scope of the BOR.

In addition, entities such as general partners, subsidiaries of regulated entities, entities registered under the Securities Investment Business Act or the Virtual Asset Service Providers Act that were previously exempt from the BOR will now need to identify their registrable beneficial owners (“RBOs”) and provide details of their RBOs to their corporate services provider (“CSP”), save for those entities permitted to utilise the Alternative Compliance Route (as defined below).

Registrable Beneficial Owners

A RBO in relation to a Legal Person means an individual Beneficial Owner or a Reportable Legal Entity (“RLE”).

Individual RBO

The Act defines a “Beneficial Owner” as an individual who meets any of the following specified conditions:

• the individual ultimately owns or controls, whether through direct or indirect ownership or control, twenty-five per cent or more of the shares, voting rights or partnership interests in the Legal Person;
• the individual otherwise exercises ultimate effective control over the management of the Legal Person; or
• the individual is identified as exercising control of the Legal Person through other means.

Where an individual operates solely in the capacity of a “Professional Advisor” (which includes a lawyer, accountant, professional advisor or a financial advisor who provides advice or direction in a professional capacity) or a “Professional Manager” (which includes a liquidator, receiver or restructuring officer who exercises a statutory function), such individual will not be considered to meet the definition of a Beneficial Owner under the Act.

The Act also considers the following persons as individuals:

• a corporation sole;
• a government or government department of a country or territory or a part of a country or territory;
• an international organisation whose members include two or more countries or territories (or their governments); and
• a public authority.

Trustees

Where no individual meets any of the definitions of a Beneficial Owner but the trustees of a trust meets one of the definitions of a Beneficial Owner, the trustees of the trust will be the Beneficial Owners of the Legal Person if they have ultimate effective control over the activities of the trust other than solely in the capacity of a Professional Advisor or a Professional Manager.

Senior Managing Official

If no individual meets the definition of a Beneficial Owner, the Act provides that a Legal Person’s “Senior Managing Official” (“SMO”) will be identified as the contact person.  A Senior Managing Official includes (for the first time under the BOR) a director or a chief executive officer of the Legal Person and the Guidance provides further clarity on who to identify as a SMO in this respect.

Reportable Legal Entity

A reportable legal entity or “RLE” in relation to a Legal Person means another Legal Person (other than a foreign company, foreign entity or a foreign limited partnership) that if it were an individual would be a beneficial owner of the first mentioned legal person.

It is not necessary for a Legal Person to report individual beneficial owners of a RLE since that entity will itself have its own reporting obligations under the New BOR Legislation.

Alternative Compliance Route

Any Legal Person:

• licensed under a regulatory law[1];
• listed on the Cayman Islands Stock Exchange or an approved stock exchange[2]; or
• that is a subsidiary of an entity listed on the CSX or an approved stock exchange,

may provide their CSP with details of their regulatory license or listed status rather than provide details of their RBO.  The Legal Person’s CSP will in turn provide this information to the Competent Authority and this process is the “Alternative Compliance Route”.

Investment Funds

Legal Persons which are registered as mutual or private funds (“Registered Funds”) with the Cayman Islands Monetary Authority (“CIMA”) may provide their CSP with details of a “contact person” rather than their RBOs.  The contact person will not be required to maintain a beneficial ownership register, but must provide the Competent Authority with the requested beneficial ownership information within twenty-four hours of a request being made, or at any other time as the Competent Authority may reasonably stipulate.  Campbells Corporate Services Limited proposes to act as the contact person for its Registered Fund clients and further particulars will be provided by us in due course on implementing this arrangement.

Alternatively, Legal Persons who may otherwise avail themselves of the Alternative Compliance Route may decide to opt in to the BOR and provide details of their RBOs to their CSP.

Obligations on Legal Persons that do not benefit from the Alternative Compliance Route

Such Legal Persons must:

• identify every RBO;
• give written notice to those individuals or entities which have been identified as RBO’s and to any individuals or entities whom the entity reasonably believes may be a RBO. That notice requires each addressee to respond within 30 days of receipt, confirming whether the individual or entity is a RBO and, if so, to confirm or correct any of the information required to be inserted in the BOR;
• establish and maintain an up to date beneficial ownership register which includes the RBOs of such Legal Person. The register must be kept at the Legal Person’s registered office and is typically maintained by the Legal Person’s CSP;
• where it becomes aware that there has been a ‘relevant change’[3] to the information contained in the BOR, give notice as soon as reasonably practicable (and no later than 30 days after it becomes aware of the relevant change) to the RBO requesting confirmation of the change;
• provide the required particulars of its RBOs which includes:
  • in respect of individuals:
    • name;
    • address;
    • date of birth;
    • nationality(ies);
    • information from their unexpired and valid passport, driver’s license or other government issued identification document;
    • the nature in which the individual owns or exercises control of the Legal Person;
    • the date on which the individual became (or ceased to be) a RBO;
  • in respect of RLEs:
    • name;
    • address of registered or principal office;
    • legal form and law by which it is governed;
    • the date on which the RLE became (or ceased to be) a RBO.

Statutory Offences and Penalties

The Act includes various offences and penalties and directors, managers, officers and partners of the Legal Person may also be liable to the same penalty as the Legal Person. The Competent Authority also has the power to impose administrative fines on any person who breaches the relevant provisions of the New BOR Legislation. The Competent Authority may strike an in-scope entity off the Register if an administrative fine remains unpaid for 90 days.

Public Accessibility

The Act provides that beneficial ownership information can only be made available to the public if and when regulations have been proposed by Cabinet and affirmed by a future resolution of Parliament. It is expected that there will be some limited access for persons with “legitimate interests” in due course and we will provide further information on this as and when available.

At present the major Cayman Islands authorities can access the centralised electronic platform established by the Competent Authority on which the registers of beneficial ownership are maintained.

The United Kingdom has entered into an agreement with the Government of the Cayman Islands for the sharing of beneficial ownership information.

Next Steps

Campbells can assist with all of these aspects.  Please do not hesitate to contact your usual Campbells contact if you have any questions or require any additional assistance.  As mentioned above, Campbells Corporate Services Limited will contact clients if the New BOR Legislation requires additional information or confirmations.

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In the recent judgment of Mark Eric Williams and Ors v Kuwait Ports Authority & Ors[1], the Cayman Islands Court of Appeal (“CICA”) confirmed that the Grand Court had jurisdiction to order the joinder of two plaintiff limited partners of The Port Fund L.P. (the “Fund”) as defendants to a crossclaim which had been filed against the general partner (the “GP”) of the Fund.

In reaching this decision, the CICA determined that the joinder did not contravene the statutory restrictions placed on limited partners pursuant to sections 14 and 33(1) of the Exempted Limited Partnership Act (2021 Revision) (the “ELP Act”), which respectively prohibit a limited partner from (i) taking part in the conduct of the business of the exempted limited partnership (“ELP”) and (ii) being a party to or named in legal proceedings against the ELP.[2]

This decision clarifies the rights and roles of limited partners in an ELP, particularly where limited partners have filed direct and derivative claims. This decision will therefore be of interest to private equity and other professionals and investors familiar with the widely-used Cayman ELP structure.

Background

The Fund is the subject of ongoing litigation in the Cayman Islands[3], and is the first Cayman Islands ELP in which limited partners have brought derivative claims pursuant to section 33(3) of the ELP Act. The relevant limited partners are two Kuwaiti state entities, the Kuwait Ports Authority and the Public Institution for Social Security (“KPA” and “PIFSS” respectively).

In February 2023, the independent directors of the GP resigned, leaving the GP without directors or officeholders, and with only illiquid assets. The GP is a party to various direct and derivative claims by and against limited partners in the Fund, and is also a defendant to crossclaims by codefendants, one of whom is the ultimate beneficial owner of the GP.

Following the resignation of the directors, KPA and PIFSS were purportedly concerned that the crossclaims against the GP may not be defended and that the success of such claims would impact upon their limited partnership interest in the Fund by diminishing the partnership assets. They accordingly sought to be joined as defendants to the crossclaim against the GP pursuant to O.15, r.6 of the Grand Court Rules, and also applied to have interim receivers appointed to the GP under section 11 of the Grand Court Act (2015 Revision).

The joinder application was opposed by the defendants who had brought the crossclaim against the GP on the basis that sections 14 and, in particular, 33(1) of the ELP Act prohibit a limited partner from (i) taking part in the conduct of the business of the ELP in its capacity as a limited partner, and (ii) being a party to or named in legal proceedings (save for the narrow exception provided in section 33(3) of the ELP Act allowing limited partners to bring a derivative claim where a general partner has, without cause, failed or refused to do so).

Section 33(1) states:

“Subject to subsection 33(3), legal proceedings by or against an exempted limited partnership may be instituted by or against any one or more of the general partners only, and a limited partner shall not be a party to or named in the proceedings.”

Section 14(1) provides:

“A limited partner shall not take part in the conduct of the business of an exempted limited partnership in its capacity as a limited partner”

The defendants contended that they were entitled to pursue their crossclaim against the GP alone, which was the sole proper defendant to the claim pursuant to both the ELP Act and the limited partnership agreement governing the Fund.

Grand Court decision

In a judgment delivered on 25 May 2023, the Grand Court of the Cayman Islands ordered the joinder of KPA and PIFSS, limited partners of the Fund, as defendants to the crossclaim, and appointed interim receivers over the GP to manage litigation related to the GP and the Fund.[4]

Justice Parker permitted KPA and PIFSS to be joined as defendants to the crossclaim in circumstances where they had earlier been permitted to bring derivative claims against the GP and the other defendants, and as limited partners had an indirect economic interest in the crossclaim. Specifically, Justice Parker concluded that section 33(1) did not prevent joinder of KPA and PIFSS as defendants to the crossclaim for the following reasons:[5]

• The proceedings, whether based on direct claims or derivative claims authorised under section 33(3), must also include any counterclaims or crossclaims within those proceedings, such that the crossclaim could not be regarded as a separate lis standing alone.
• The direct claims do not fall within section 33 of the ELP Act.
• It would be illogical and unfair if a limited partner permitted to pursue a derivative claim under section 33(3) were not also permitted to defend a counterclaim or a crossclaim in order that the derivative claim could proceed properly.

Justice Parker separately concluded that section 14(1) did not prevent the joinder because KPA and PIFSS sought to defend the crossclaim not as limited partners, but in their “individual capacities” as plaintiffs, and were not representing or replacing the GP. In this regard, Justice Parker held that “=[d]efending the crossclaim to protect their individual interest does not involve the Plaintiffs conducting the business of TPF”.

Justice Parker also held that the Court had a wide and flexible jurisdiction pursuant to GCR O.15, r.6 to permit joinder in the interests of justice when it was appropriate to do so. Justice Parker then exercised his discretion in favour of joinder, finding that, irrespective of the appointment of an officeholder, in circumstances where KPA and PIFSS were the parties most affected by the crossclaim and would bear the actual financial loss if it succeeded, it was just to permit those parties to participate in defending the crossclaim in addition to the GP acting by independent officeholders.

CICA decision

The appellants (being the defendants who brought the crossclaim against the GP) appealed the joinder order on two grounds:

1. The judge erred in law in finding that the Court had jurisdiction to make the said order notwithstanding section 33(1) and section 14 of the ELP Act.
2. The judge acted outside the margin of discretion afforded to him in ordering that KPA and PIFSS be joined as defendants to the said crossclaim notwithstanding his decision to appoint independent receivers with specific authority to conduct the litigation on behalf of the GP.

Section 33(1) and 14 of the ELP Act

The CICA agreed with Justice Parker’s conclusion that sections 14 or 33(1) of the ELP Act were not bars, in this case, to the respondents being joined as defendants to the crossclaim. However, the CICA disagreed with the judge’s reasoning and arrived at this conclusion for different reasons to the judge.

Importantly, while the CICA agreed that a limited partner does not need permission to defend a counterclaim arising within a proceeding which they have commenced themselves (either directly or derivatively having obtained permission pursuant to section 33(3)), this does not necessarily mean that limited partners have authority to defend a crossclaim.[6]

The CICA held that, contrary to Justice Parker’s view, crossclaims may constitute a separate lis such that the crossclaim may fall within the terms of section 33(1). Whether a crossclaim constitutes a separate lis depends on whether the crossclaim may properly be regarded as merely a facet of the existing litigation (in which case it will not fall within the terms of section 33(1)) or the promotion of a separate cause of action (in which case it will fall within the terms of section 33(1)).[7]

Having clarified the above, the CICA then addressed the statutory bar that section 33(1) imposes on limited partners should a crossclaim (or any other proceeding) fall within its terms. The CICA found that:[8]

• Section 33(1) is not an absolute prohibition on a limited partner playing any part in proceedings by or against an ELP. Those words need to be read in the context of the overall scheme of the ELP Act.
• Taken overall, the ELP Act is designed to provide a framework through which sleeping partners may invest with the protection of limited liability, all dealings with the outside world being conducted by the general partner.
• Viewed in that light, section 33(1) is to be regarded as merely a feature of the separation of functions between limited partners and general partners; it is designed to prevent a limited partner from being sued in respect of liabilities for which, under the scheme of the ELP Act, only the general partner is liable, and to reinforce the principle set out in section 14 that a limited partner should not take part in the conduct of the ELP’s business and its dealings with the outside world.

On this basis, the CICA found that the Court had jurisdiction to join the respondents to the crossclaim and dismissed this ground of appeal. The CICA further noted that such joinder was permitted because:[9]

• Once proceedings have been commenced in compliance with the provisions of section 33(1), they come under the control of the Court in the normal way and nothing in the terms of section (1) is intended to limit the ordinary powers of the Court, including the power to join parties under GCR O.15, r.6.
• The appellants had pleaded a defence of set-off specifically as a defence to the respondents’ claims, the effect of which was to place the merits of the crossclaim in issue between the appellants and respondents, as well as between the appellants and the GP. This means that, although standing alone the crossclaim may properly be regarded as a separate lis, the defence of set-off makes it a facet of the existing proceedings which is not be regarded as falling within section 33(1).

Exercise of discretion

The CICA found that the Judge acted within his discretion in ordering the joinder of KPA and PIFSS notwithstanding that receivers had been appointed.

The CICA noted that the Judge was aware that the appointment of receivers meant that there would be officeholders in place capable of dealing with some aspects of the litigation, having taken the view that no officeholder would be in as good a position as the respondents to defend the crossclaim, that the defence of the crossclaim by officeholders would have to be funded by the respondents or (which in the circumstances is unlikely) the appellants, and that it was the respondents who had the knowledge necessary to defend the crossclaim and the economic interest in doing so.[10]

Accordingly, it could not be said that the Judge took into account any irrelevant consideration, or failed to have regard to any relevant one, or that his decision was perverse. This ground was therefore dismissed.

Comment

The CICA’s judgment is of considerable importance to the Cayman Islands’ investment regime, in which ELPs are common structures, particularly for private equity funds. This is the first time that the CICA has considered the joinder of a limited partner as a defendant to a claim against a general partner. In doing so, the CICA has provided guidance on the role of limited partners within an ELP and the scheme of the ELP Act more generally.

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Exemptions

A BVI-registered company is exempt from filing an annual return if it meets any of the criteria listed below:

• It is listed on a stock exchange.
• It is regulated under a BVI financial services legislation and provides financial statements to the BVI Financial Services Commission per the requirements of that financial services legislation (i.e. BVI funds and licensees).
• It submits its financial statements and annual tax return to the BVI Inland Revenue Department.
• It is undergoing liquidation, with the provision that this exemption is not applicable if the annual return is due before the liquidation process commences.

Format and filing of the Annual Return

The annual return consists of a simple income statement and balance sheet and a copy of the prescribed form of the Annual Return is available here.  The BVI Financial Services Commission has confirmed that the form of annual return should not be adjusted or amended, save for non-material amendments.

There is no need for the annual return to be audited and there are no prescribed set of accounting policies or principles that must be adhered to.

The Annual Return is not publicly accessible and a BVI company’s registered agent is not required to submit the returns to any BVI regulatory body unless explicitly requested.

Filing Deadline

 BVI companies must file the Annual Return within 9 months of either the company’s calendar year or, if the company’s financial year is not a calendar year, the company’s financial year.

As an example, a company with a financial year end of 31 December will be required to file its first annual financial return no later than 30 September 2024 with respect to the financial period 1 January 2023 to 31 December 2023. 

If a company has a fiscal or financial year that does not correspond to a calendar year, its annual return becomes due in 2024, depending on the month in which the commencement of its financial year falls. Below are two examples:

• If a BVI-registered company has a financial year from 1 May 2023 to 30 April 2024, it must file its first annual return for the period ending 30 April 2024 between 1 May 2024 and 31 January 2025. The company must file every subsequent year before 31 January.
• If a BVI-registered company has a financial year from 1 July 2023 to 30 June 2024, it must file its first annual return for the period ending 30 June 2024 between 1 July 2024 and 31 March 2025. The company must file every subsequent year before 31 March.

Consequences for failure to file

If a BVI company misses its filing deadline, the registered agent must report this defect to the BVI Registry of Corporate Affairs (BVI Registry), or it will be liable to a fine of US$3,000. Once the defective notice is issued, the BVI company will be liable to fines (ranging from US$300 – US$5,000) and it may be struck-off and dissolved. Until the defect is remedied, the BVI Registry will not issue a certificate of good standing for the Company or allow it to make any filings.

Please note that the BVI Annual Financial Return is a requirement of the BVI Business Companies Act (as revised) and is separate to the BVI economic substance regime.

If you have any questions about the Annual Return, please email BVI-Financials@campbellslegal.com.

The post Deadline approaching to file the BVI Annual Financial Return appeared first on Campbells.

First, in Minsheng Vocational Education Company v Leed Education Holding Limited & Others[1], the Cayman Islands Court of Appeal (“CICA”) upheld the first instance decision by Segal J to grant an injunction pursuant to section 54 of the Arbitration Act 2012 (the “Act”) in support of foreign arbitral proceedings.

The factual background involved disputes over complex corporate lending and security interests, including a contested put option for the sale and purchase of shares in Leed International Education Group Inc. (a Cayman Islands company) and related share charges in favour of the Appellant.

These disputes gave rise to separate arbitral proceedings in Hong Kong and, later, in Beijing.  Whereas the Hong Kong arbitration concerned matters including the put option, the Beijing arbitration concerned rights and obligations under the loan agreements. The Beijing arbitration was conducted under the rules of the China International Economic and Trade Commission (“CIETAC”), as stipulated by the relevant loan agreements, whereas the share charges contained a non-exclusive jurisdiction clause in favour of the courts of the Cayman Islands.

At first instance, Segal J granted an injunction to restrain the Appellant from enforcing the share charges pending the outcome of the Beijing arbitration. The jurisdictional basis for the injunction was Section 54 of the Act, which provides that:

“(1)        A court shall have the same power of issuing an interim measure in relation to arbitration proceedings, irrespective of whether their seat of arbitration is in the Islands, as it has in relation to the proceedings in court.

(2)          The court shall exercise those powers in accordance with its own procedures and in consideration of the specific principles of international arbitration.”

In the exercise of his discretion, Segal J had applied the well-established American Cyanamid principles. The order was made by Segal J before the tribunal in the Beijing arbitration was fully constituted, and evidence had been adduced by the Respondents to the effect that no such protective measures could, in any case, be granted by the tribunal in the Beijing arbitration. Segal J took account of those factors in his order, by requiring the Respondents to apply to the tribunal in the Beijing arbitration within five business days of its constitution for permission to continue to rely upon the interim injunctive remedies. The Respondents duly applied to the Beijing tribunal for such permission, however a decision upon that application remained pending.

On appeal to the CICA, the Appellant advanced four grounds of appeal against the first instance decision. For the reasons given in the leading judgment delivered by the Hon. Sir Anthony Smellie KC, the CICA unanimously dismissed the appeal and upheld the judgment of Segal J.

The first ground of appeal was that the Respondents were required to seek relief in either the Hong Kong or Beijing arbitrations, or from the supervisory courts at the seat of the arbitrations. In rejecting this argument, Smellie J.A. summarised the legal position as follows:[2]

• The jurisdiction of the Court to grant interim relief in aid of foreign arbitral proceedings is open textured and uncategorised in nature. The jurisdiction allows the issuance of interim measures in support of arbitrations taking place in other jurisdictions, as necessary to meet the needs of modern international arbitration practice.
• The Court has ancillary powers which must be exercised with caution – parties ought not be allowed to bypass the arbitral tribunal to seek interim measures from the Court merely because curial assistance is conceivably available. Accordingly, the powers are to be used only as needed for the purpose of assisting the foreign arbitral proceedings, without usurping the powers of the tribunal.
• There is no hard and fast requirement that a party must first apply to the arbitral tribunal itself or to a court in the seat of the arbitration for an interim measure, before applying under Section 54.
• If the option of applying to the arbitral tribunal or a court in the seat of the arbitration is available, the burden will be on the party applying to explain why it was not pursued, however the Section 54 powers may nonetheless be exercised in appropriate circumstances, such as in cases of urgency or where it is shown that the arbitral tribunal or foreign court (as the case might be) would not have the power to grant the interim measure or measures particularly needed;
• There must be a sufficient connection between the interim measures sought and the foreign arbitration they purport to assist.
• While an order under Section 54 could also be obtained as against a third party to arbitral proceedings, such an order is likely to be refused where the arbitral tribunal is already duly constituted and the application has either not been brought before it or has been refused by it or by a court in the seat of arbitration. Otherwise, an order against a third party is also a matter for the exercise of discretion by the Cayman Court as a foreign court pursuant to Section 54.
• As regards any presumptive obligation to first seek relief from an emergency arbitrator, it will be open to the claimant to decide whether to apply to the court (either in the seat or abroad as the circumstances might require) instead of “passing the baton” to an emergency arbitrator, if interim measures are required prior to the constitution of the arbitral tribunal, unless applicable binding rules provide to the contrary.

The Appellant’s second ground of appeal was that an injunction was unavailable because of the competing jurisdiction clause in the share charge documents. This ground of appeal failed because the jurisdiction clause in the share charges was non-exclusive and thus did not preclude another forum, including an arbitral forum, from having jurisdiction in respect of disputes arising in relation to the share charges. Furthermore, the parties had contractually agreed to resolve all disputes “relating to” the loan agreements by arbitration, thereby giving the tribunal jurisdiction to resolve them.

The Appellant’s third and fourth grounds of appeal concerned arguments that no preservation order could properly be made in the case, and that there could be no injunction to restrain enforcement of security. These grounds of appeal were also dismissed.

Consequently, the decision of the CICA in Minsheng represents a robust confirmation of the jurisdiction of the Cayman Islands courts to grant interim protective measures in support of foreign arbitral proceedings in appropriate cases.

The Grand Court of the Cayman Islands has also delivered three recent judgments concerning the enforcement of foreign arbitral awards pursuant to section 5 of the Foreign Arbitral Awards Enforcement Act (1997 Revision) (the “FAAEA”), as briefly summarised below.

In White Crystals Ltd v IGCF General Partner Limited[3] the Court dismissed an application by the general partner of a Cayman Islands exempted limited partnership to set aside an ex parte order that granted leave to enforce a foreign arbitral award pursuant to section 5 of the FAAEA.

The award concerned the rights of a limited partner to information and documentation from the general partner pursuant to statutory rights conferred on the limited partner by sections 22, 29, 30 and 31 of the Exempted Limited Partnership Act. The general partner had sought to impose conditions upon the provision of such information and documentation, ostensibly with the aim of preventing an anticipated breach of confidentiality obligations by the limited partner. However, the Court found that this line of argument was not supported by sufficient evidence and amounted to an attempt to re-litigate points raised before, and dismissed by, the arbitral tribunal. It thus provided no proper basis for the Court to overturn its ex parte decision to permit enforcement of the award.

Ramsay-Hale CJ concluded that “… public policy favoured the enforcement of an award which was made in defence of a statutory entitlement which had been dishonoured and to enforce a clear contractual obligation”[4] and that in any case “… this Court does not have jurisdiction to add a rider or addendum to an award … the Court’s jurisdiction is limited to enforcing an award or refusing to enforce it where any of the grounds in section 7 of FAAEA is established.”[5]

 In Mr Nasser Sulaiman H M Al-Haidar v Mr Jetty Venkata Uma Maheshwara Rao[6] the Court dismissed an application to set aside an ex parte order that granted leave to enforce a provisional foreign arbitral award pursuant to section 5 of the FAAEA, on the grounds that the arbitral tribunal lacked jurisdiction to make the provisional award. On the facts, the defendant had failed to raise a jurisdictional challenge before the arbitral tribunal before it issued the provisional award. Therefore, applying the doctrine of Henderson v Henderson (viz. a party to litigation cannot later raise an argument that was available to it at an earlier stage of proceedings), it was not open to the defendant to challenge enforcement of the provisional award.

Finally, in Carrefour Nederland B.V. v Uning International Group Co. Limited & another[7] the Court likewise dismissed an application to set aside an ex parte order that granted leave to enforce a foreign arbitral award pursuant to section 5 of the FAAEA on various technical grounds, including procedural points concerning service. The Court also refused a stay of enforcement, noting that any subsequent attempts to execute the order would come before the Court in the usual way. Kawaley J concluded that “…[w]hatever residual inherent jurisdiction the Court may have to adjourn enforcement proceedings on case management grounds, such jurisdiction does not extend so far as granting relief which is a thinly-veiled form of refusing to enforce an unimpeached foreign award on grounds which contravene the express terms of an Act of Parliament.”[8]

These decisions confirm that the Cayman Islands courts take a firm pro-arbitration stance in ensuring that foreign arbitral awards are enforceable in the Cayman Islands subject only to narrow statutory exceptions.

The post Arbitration rising: Four recent judgments of the Cayman Courts appeared first on Campbells.

Background

The Company’s liquidation commenced in June 2021. Shortly thereafter, a dispute arose with the defendant parties (the “Defendants”) regarding the ownership of the Funds, which are held and controlled by the Defendants. Amongst other things, the Company asserts a proprietary claim to the Funds, and claims that the Defendants are holding all of the Funds on trust for it. Although the Defendants were aware of the Company’s position from early on in the Company’s liquidation, they continued to use the Funds to pay legal fees, directors’ fees and various other contested expenses allegedly paid “in the ordinary course of business”. As a result of the same, and in light of the rate at which the Funds were being expended, the Company issued an application for a proprietary injunction, seeking an order that the Funds (or what was left of them) be paid into Court or escrow, pending the resolution of the dispute between the parties.

The Judgment

In his Judgment, Mr Justice Parker considered: (i) whether the Court had jurisdiction to make an order pursuant to O.29, r.2(1) and/or r. 2(3) of the Grand Court Rules (2023 Revision) (the “GCR”); and, if so, (ii) whether such an order should be made.

Jurisdiction

The Court’s jurisdiction to make an order in relation to the detention, custody or preservation of any property is set out in GCR O.29, r2(1) and/or r.2(3), as follows:

GCR, O.29, r.2(1): “On the application of any party to a cause or matter the Court may make an order for the detention, custody or preservation of any property which is the subject matter of the cause or matter, or as to which any question may arise therein, or for the inspection of any such property in the possession of a party to the cause or matter.” (Emphasis added.)

GCR, Order 29, r.2(3): “Where the right of any party to a specific fund is in dispute in a cause or matter, the Court may, on the application of a party to the cause or matter, order the fund to be paid into Court or otherwise secured.” (Emphasis added.)

The Defendants argued that, in any event, there was no jurisdiction to grant the relief sought on the Company’s application because there was “no property” or “no specified fund” over which any proprietary injunction could be granted. It was argued that monies in a bank account are a choses in action, which do not fall within the definition of “property”, and that to be a “specified fund”, the monies would have to be ring-fenced in an account, in order to be identifiable. The Defendants also argued that there had been intermingling of funds in the relevant bank accounts.

Mr Justice Parker found that, although each case turns on its specific facts, the Court does in principle have jurisdiction to make orders for the preservation of monies held in bank accounts, and that where monies derived from a fiduciary relationship remain in a bank account and can be identified, they fall within GCR O.29, r.2(1). In relation to the definition of “a specific fund” (GCR O.29, r.2(3)), the Judge drew a distinction between money which is the subject of a claim in debt or damages, and money in respect of which there is a claim to beneficial ownership. The Court found that, in the present case, the claim was for property in the form of identifiable and distinct funds in respect of which the Company claims beneficial interest, under GCR o.29, r.2(3).

The Court found insufficient evidence for intermingling, and found that (even if there had been intermingling) the Defendants would, on the Company’s hypothesis/basis for its claim, have been under an obligation to keep the Funds separated for the benefit of the Company. Any intermingling, it found, would have been in breach of that obligation.

In the circumstances, the Court found that it had jurisdiction to grant the relief sought.

Relief

Mr Justice Parker identified the test for granting a proprietary injunction, requiring the Company to show that there is a serious issue to be tried (a “real, as opposed to a fanciful, prospect of success on the claim”). Upon consideration of the pleaded case, and the evidence in support filed by the Company, he found that the Company has a real prospect of success at trial, and that the Company had tendered a plausible factual and legal basis for its claims. The threshold test was therefore met.

In relation to the balance of convenience test, the Court weighed the prejudice to the Company in light of the Defendants’ clear intention to continue to use the Funds (if not restrained), versus the prejudice to the Defendants in terms of their reliance on the Funds to properly advance their case in the proceedings and for the payment of the First Defendant’s personal expenses. Although Mr Justice Parker noted the First Defendant’s sworn statement that the Funds would only be spent on alleged ordinary business expenses, the Court formed the view on the evidence that the Funds were being disbursed at such a rate that a proprietary order was appropriate. In the circumstances, and having regard to the potential prejudice to the Company if ultimately successful at trial, the Court found it just and convenient to grant the relief sought by the Company.

Cross-Undertaking in Damages

Parker J’s decision is of particular interest for the analysis of the law relating to the requirement for a cross-undertaking in damages and for the Judge’s decision, in all the circumstances of this case, that an unlimited cross-undertaking in damages would not be required. Parker J decided – having considered, among other authorities, Lewison J’s decision in JSC Mezhdunarodniy Promyshlenniy Bank v Pugachev (CA) [2016] 1 WLR – that the justice of the case, in all the circumstances, meant that the JOLs need only offer a cross-undertaking limited to the value of the unencumbered assets of the Company’s estate which remain at the end of the proceedings.

A copy of the Judgment is available here: Judgment – Ascentra Holdings, Inc v Ryunosuke Yoshida et al- FSD 300 of 2023 (RPJ).

Comment

The Judgment provides welcome guidance on the Court’s approach to proprietary injunctions and the matters that will be considered by the Court in relation to such applications. In particular, it provides helpful analysis of the law relating to the requirements for a cross-undertaking in damages, and confirmation that, depending on the claim and the factual circumstances of a case, relief pursuant to GCR O.29, r.2(1) and/or r.2(3) can be granted over funds in a bank account in order to preserve those funds pending the resolution of a proprietary dispute relating to them.

If you have any queries about the matters raised in this note, please do not hesitate to contact the authors.

Campbells LLP acts as Cayman Islands counsel for the Company and for its Joint Official Liquidators, Graham Robinson and Ivy Chua Suk Lin.

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Partner Jenny Nip led the transaction with support from Chantelle Chan and Ben Tao.

Mobvoi Inc. is the first AI-generated content (AIGC) company listed on the Hong Kong Stock Exchange, and provides AIGC solutions, AI enterprise solutions, smart devices and accessories with generative AI and voice interaction technologies at the core of its business. It is one of the market players in Asia capable of self-building its large language model, “Sequence Monkey”, which is equipped with multi-modal generative capability and has an ability to understand and generate humanized text, audios, images and videos. In 2022, Mobvoi Inc. generated the largest amount of revenue from AIGC solutions among other market players in China.

Zhong Lun Law Firm LLP and Zhong Lun Law Firm acted as Hong Kong and PRC legal counsels, respectively, to Mobvoi Inc. Clifford Chance and Haiwen & Partners acted as Hong Kong and PRC legal counsels, respectively, to the joint sponsors and the underwriters. The joint sponsors are China International Capital Corporation Hong Kong Securities Limited and CMB International Capital Limited, and the underwriters include China International Capital Corporation Hong Kong Securities Limited, CMB International Capital Limited, Shenwan Hongyuan Securities (H.K.) Limited, Haitong International Securities Company Limited, Zhongtai International Securities Limited, ICBC International Securities Limited, China Galaxy International Securities (Hong Kong) Co., Limited, CMBC Securities Company Limited, SPDB International Capital Limited, BOCOM International Securities Limited, Futu Securities International (Hong Kong) Limited, Tiger Brokers (HK) Global Limited and Livermore Holdings Limited.

The post Campbells advised Mobvoi Inc. on its initial public offering on the Main Board of the Hong Kong Stock Exchange appeared first on Campbells.

The Amendment Act is not yet in force and we will issue a further update as and when the Amendment Act (or parts of the Amendment Act) are brought into force.

Reduction of Share Capital

At present, a reduction of share capital for a solvent company (save in respect of a redemption or repurchase of shares) requires court sanction.  The Amendment Act will now permit a reduction of share capital without court approval provided that this is permitted by a company’s articles of association.  All that will be necessary is a special resolution of shareholders approving the capital reduction together with a solvency statement.

It will be necessary to provide the special resolution and solvency statement to the Registrar of Companies (the “Registrar”) within 15 days after the special resolution approving the capital reduction is passed, following which notice of the registration will be published by the Registrar in the Cayman Islands Gazette.

Conversion

The Amendment Act allows for the conversion of a limited liability company (LLC) or a foundation company to an exempted company.  The process will simply require consent of the members (or equivalent), a certificate of good standing and filing with the Registrar.

Re-Registration

The Amendment Act also allows for the re-registration of an exempted company as an ordinary resident company for companies who propose to carry on business within the Cayman Islands.

Continuation by Bodies Corporate

Previously, the Act provided that only a body corporate with a share capital could continue into the Cayman Islands as an exempted company.  The Amendment Act will permit bodies corporate with or without a share capital under the laws of any jurisdiction outside of the Cayman Islands to apply to be registered by way of continuation as an exempted company limited by shares under the Act.

Fractions of Shares

The Amendment Act confirms that, if permitted by a company’s articles of association, fractions of shares may be redeemed or repurchased under the Act.

Contact

For further information please contact your usual Campbells contact or reach out to any of the key contacts listed below.

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In addition, the Cayman Islands has been removed from the UK list of high-risk countries for AML and CFT purposes with effect from 5 December 2023.

This update is very welcome news for the Cayman Islands in respect of its EU client base. EU financial institutions will no longer be prohibited from establishing new securitisation special purpose entities in the Cayman Islands in accordance with Article 4 of the EU Securitisation Regulation.  The update also clears the way for Cayman funds to continue to be marketed into the EU under the AIFMD.

Relevant financial institutions subject to the EU AML/CFT regime or the UK AML/CFT regime will no longer need to apply enhanced customer due diligence measures to business relationships and transactions involving the Cayman Islands.

A copy of the Cayman Islands Ministry of Financial Services press release is available here.

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