Show Me the Money: Identification and Preservation of Assets in the Cayman Islands

IDENTIFYING ASSETS

There are a number of viable routes that the holder of an arbitration award, as a judgment creditor, may use to identify assets in the Cayman Islands, including, the examination of a judgment debtor, a Norwich Pharmacal order, a Bankers Trust order and an Anton Piller order.

Examination of judgment debtor

In order to assist post-judgment enforcement, the Cayman Courts allow for the examination of a judgment debtor by a judgment creditor. A judgment creditor may obtain ex parte an order that a judgment debtor located in the Cayman Islands be orally examined on (i) whether they have any property or other means of satisfying the judgment; and (ii) whether any debts are owing to the judgment debtor. The Court may also order the judgment debtor to produce any books or documents relevant to these questions.

However, in many cases the judgment debtor, whilst they have assets in the jurisdiction, may not be present themselves or they may not be considered to be a reliable source of information. In these cases, it may be necessary to obtain information on a judgment debtor’s assets from a third party that either holds those assets or holds information relating to those assets. This may be done by seeking a Norwich Pharmacal order.

Norwich Pharmacal orders

The Norwich Pharmacal jurisdiction1 gives the Court the power to compel a third party that has become ‘‘mixed up’’ (albeit innocently) in alleged wrongdoing beyond being a ‘‘mere witness’’ to disclose information and documents. The Norwich Pharmacal jurisdiction was first recognised in the UK, but has also been recognized in other jurisdictions whose legal systems were developed from English law. The Norwich Pharmacal jurisdiction initially arose to deal with the situation where a party, that has suffered a wrong, does not know the identity of the wrongdoer, but can identify a third party who does. However, the jurisdiction has been extended to deal with a variety of scenarios where information held by a third party is necessary to bring a claim against a wrongdoer. Norwich Pharmacal orders can be obtained on an ex parte basis without notice to the alleged wrongdoer, and with a gagging order preventing the third party from informing the wrongdoer.

The Cayman Courts have long recognised the availability of the Norwich Pharmacal jurisdiction and in some key respects the jurisdiction is more broadly available in the Cayman Islands than other jurisdictions. For example, in the Cayman Islands, Norwich Pharmacal orders are often obtained against a Cayman company’s local ‘‘registered office’’ which maintains its company books and records. The English Courts would likely consider such an entity to be a mere witness to any wrongdoing. However, this disclosure is available in the Cayman Islands and is often very valuable as it may include bank account details which can then be used for a further Norwich Pharmacal application against the relevant bank.

For a Norwich Pharmacal order to be obtained in the Cayman Islands an applicant must satisfy three key requirements: (1) a good arguable case that there has been ‘‘wrongdoing’’ against them; (2) the respondent is ‘‘mixed up’’ in that wrongdoing in some way that distinguishes it from being a mere witness; and (3) the disclosure sought is ‘‘necessary’’ for the applicant to seek legitimate redress for the wrongdoing. Norwich Pharmacal orders are generally used to obtain information to enable a party to bring a claim. However, the Cayman Court recently confirmed that Norwich Pharmacal orders can be obtained post-judgment where a party seeks to evade enforcement.

In the case of ArcelorMittal USA LLC v Essar Global Fund Limited & Anor,2 ArcelorMittal sought a Norwich Pharmacal order (amongst other relief including a worldwide freezing order) in aid of enforcement by the English Courts of an ICC arbitral award against two Essar entities made by a Tribunal seated in Minnesota. ArcelorMittal alleged that the judgment creditors had dissipated assets (including by the transfer of valuable shareholdings from the judgment creditors to other entities in the Essar group) and would further dissipate assets. The two respondents sat at the top of the Essar group structure and ArcelorMittal’s position was that, without disclosure from the respondents, it would not be able to identify what had taken place or what form of relief was appropriate in order for it to be able to enforce the ICC award. ArcelorMittal also believed that without disclosure there was a risk of key documents being destroyed at the direction of the two defendant companies.

Justice Kawaley held that the steps which ArcelorMittal alleged that the judgment debtors had taken to avoid complying with the ICC award satisfied the requirement for a good arguable case of ‘‘wrongdoing’’. The requirement that the respondent be ‘‘mixed up’’ in the alleged wrongdoing was not in issue in the case due to the connection between the respondents and the judgment debtors. However, Justice Kawaley did refer to a passage in a BVI case, UVWv XYZ,3 which stated that, if a judgment debtor uses a registered agent’s services in using a corporate vehicle for evading enforcement efforts, that agent could be said to be ‘‘mixed up’’ in the wrongdoing and it is likely that the Cayman Courts will follow this approach where relevant. Justice Kawaley found that the final requirement that the disclosure sought is ‘‘necessary’’ was satisfied as the information sought was necessary to determine the steps that needed to be taken in order to be able to successfully enforce the ICC award. It is clear from the judgment that the risk that documents would be destroyed if the order was not granted was a factor.

The ArcelorMittal case highlights the Cayman Courts’ willingness to grant Norwich Pharmacal relief in novel and flexible ways and should form an important tool in the post-judgment enforcement of international arbitration awards. It should be noted that ArcelorMittal was not seeking to enforce the ICC award in the Cayman Islands – enforcement of the international award was sought before the English Court. Nevertheless, the Cayman Court was prepared to order disclosure in aid of that enforcement. This flexibility will often be important as attempts to identify and preserve assets in the Cayman Islands are often part of a wider enforcement exercise spanning multiple jurisdictions.

Bankers Trust orders

A Bankers Trust4 order is a variation of the Norwich Pharmacal order and may be used to identify the location of assets where those assets are claimed to be owned by the applicant. They are typically obtained against a bank and require a third party to make full disclosure of facts which would enable funds, which the applicant claims as their own, to be traced and protected from dissipation before the action. As the applicant claims the funds as their own, there is no requirement to show that the third party is mixed up in any wrongdoing. Again, it is possible to make such orders on a without notice basis and subject to gagging orders.

PRESERVATION OF ASSETS

Once assets have been identified, a judgment creditor will likely want to take steps to preserve those assets pending enforcement. In line with other common law jurisdictions, the Cayman Courts have the power to grant freezing orders restraining a defendant’s ability to deal with their assets up to the value of the claim against them. Freezing injunctions are generally obtained on an ex parte basis – as giving a defendant notice might lead the defendant to move assets thereby undermining the purpose of the order. Third parties, such as banks, who receive notice of a freezing order, are bound not to act on instructions which would breach the freezing order.

Generally, for a freezing injunction to be obtained, an applicant must satisfy three key requirements: (1) that he has a claim against the defendant and that he has a ‘‘good arguable case’’ that that claim will be successful. This does not mean that the applicant must show that his claim is bound to succeed, but it does mean that he must show that his claim is more than arguable; (2) that there is a ‘‘real risk’’ that the defendant will dissipate their assets such that a judgment will not be satisfied. The Court here is not concerned with the use of assets in the ordinary course of business, but with an unjustifiable step to dissipate assets; and (3) a freezing order is a discretionary remedy and will only be granted by the Court where it is ‘‘just and convenient’’ to do so. In considering whether it is just and convenient, the Court will weigh the risk of prejudice to the applicant against the likely significant impact on the defendant of being unable to deal with their assets.

Freezing injunctions may be obtained post-judgment in the Cayman Islands. In Banco International De Costa Rica SA v Banana International Corporation and others,5 Justice Kawaley set out the specific considerations which apply to post-judgment freezing orders. Justice Kawaley stated that, in a post-judgement context, the requirement for a good arguable case clearly did not arise (the case having been definitively established by the judgment).He also noted that the evidence required to satisfy the risk of dissipation requirement will generally be lower post-judgment.

In cases where a judgment creditor has concerns regarding dissipation, but does not have sufficient evidence to meet the ‘‘real risk’’ requirement, a notification order may be considered. In broad terms, such an order (which is seen as a modification on an application for a freezing injunction) provides that the respondent cannot deal with/dispose of his assets without first providing notice of the proposed dealings to the applicant. This provides the applicant an opportunity to assess the proposed dealing and raise objections to the Court if needs be. The applicable test essentially mirrors that of a freezing injunction; although the English Court of Appeal in Holyoake v Candy6 noted that the test may differ where the applicant is seeking a simple order requiring notice to be given of a proposed disposition of a specific property. Such an order was recently sought (in support of a garnishee summons) in the ArcelorMittal case. In that case the Court found (a) no serious question to be tried on the merits of the application for a garnishee order; and (b) it was not just and convenient to grant the injunctive relief sought and therefore the order sought was not granted (although with liberty to apply).

Conclusion

The broad and flexible scope of the available judicial tools should give holders of arbitration awards confidence that, where a judgment creditor has assets in the Cayman Islands, it will be possible to identify and preserve those assets.

Tips for judgment creditors seeking to identify and preserve assets:

• Do your fact gathering – the Court will assess whether to grant Norwich Pharmacal relief against the evidence before it of the alleged wrongdoing. The remedy cannot to be used as a fishing expedition. As a result, it is important that you are able to set out the alleged wrongdoing cogently – even if there are unavoidable gaps in your knowledge.
• Do be prepared to put your hands in your pockets – Norwich Pharmacal applications are not ordinarily regarded as adversarial proceedings. As a result, the usual Cayman principle that the loser of an application must pay the other party’s costs does not apply. For Norwich Pharmacal applications, the starting position is that the applicant seeking the ordermust pay the respondent’s reasonable costs. There are two aspects to these costs: the costs of responding to the application; and those of providing the discovery pursuant to the order granted. As a result, applicants should take care to effectively target the discovery sought so that they do not have to pay for the discovery of unnecessary documents and information.
• Do maintain secrecy – Norwich Pharmacal applications carry a risk of tipping off judgment creditors that specific assets are likely to be enforced against. Where disclosure is sought from third party service providers such as banks or registered offices, sealing Court files and obtaining gagging orders are usually an essential step. In cases where the entity from whom disclosure is sought is extremely close to the judgment creditor (such as being a related company), sealing and gagging orders may have less practical value. In these circumstances, a more effective execution strategy may be to obtain a freezing order against the judgment creditor first.
• Do maximise your reach – when obtaining freezing orders, you should look beyond assets that are legally and beneficially owned by the judgment creditor to cover all assets that you can ultimately enforce against because they are somehow at the judgment creditors disposition. Where the judgment creditor has a beneficial interest in shares of a company, it may be possible to freeze not just the shares but also the assets of the underlying company.
• Do spend time planning – the range of tools available both to identify and preserve assets can be used creatively, meaning that time spent planning an enforcement strategy at an early stage is essential to maximise the prospects of success. This is all the more so where a judgment debtor’s assets are spread across multiple jurisdictions and an enforcement exercise needs to span those jurisdictions. In these cases, it is important to look at the enforcement exercise in the round so as ensure that steps taken in each jurisdiction properly dovetail with each other.