The Cayman Grand Court Rules do not expressly deal with the grant of leave to issue derivative proceedings in other jurisdictions, nor has that question been addressed in any reported decision of the Cayman courts. This recent decision of the New York Appellate Division therefore raises a key question: is it possible to obtain approval from the Grand Court of the Cayman Islands to bring derivative proceedings in New York or any other jurisdiction?
Facts of the case
The Plaintiff, Paul Davis, was a significant minority shareholder of a Cayman-incorporated company, Scottish Re Group Limited (the Company) who brought proceedings in New York against the Company, its US subsidiary, majority shareholders and directors (the Investors). He alleged, amongst other things, that the Investors influenced the Company’s Board of Directors causing the Company to enter into an undervalued cash-out merger and to implement a dividend strategy which unfairly prejudiced the minority shareholders.
The Plaintiff’s claims were initially dismissed for lack of standing and lack of jurisdiction. He appealed and the Appellate Division affirmed that the dispute was governed by the law of the Cayman Islands pursuant to the internal affairs doctrine (which provides that claims concerning the relationship between a company, its directors and a shareholder are governed by the law of the state or country of the company’s incorporation). The Appellate court further affirmed that Order 15 rule 12A of the Cayman Islands Grand Court Rules is a substantive law under the conflict of laws principles and that non-compliance with the rule will result in dismissal of the derivative action for lack of standing.