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A non-resident plaintiff in the Cayman Islands may be required by the Court to post security for a potential adverse costs award in favour of the defendant. But does the exercise of this judicial power impugn constitutional principles prohibiting discrimination on grounds of nationality? And if so, how should the Court interpret and apply the security for costs rules? In a 19 October 2017 judgment given in the long-running AHAB v Saad litigation, Chief Justice Smellie considered these questions in light of recent Cayman and English case law, and clarified the test defendants must meet to be awarded “full security” rather than just the additional costs of enforcement in a foreign jurisdiction.

The plaintiff, AHAB, is a Saudi Arabian partnership. The trial of its fraud, conspiracy and knowing receipt claims against a group of Cayman companies in liquidation commenced on 18 July 2016 and was originally expected to conclude in February 2017. Ultimately, the trial did not conclude until 27 July 2017. The defendants applied for additional security for costs to account for the unanticipated extension of trial. Although the previous security for costs orders made against the plaintiff proceeded on the basis that the defendants were entitled to security for the full amount of their potentially recoverable costs, on this application the plaintiff took the position that only an amount to secure the additional costs of enforcing a costs award in Saudi Arabia was warranted. The main argument focused on what evidential burden the defendants had to overcome in order for the Court to award full security.

The Court found that:

• Section 16 of the Bill of Rights prohibits the government from treating any person in a discriminatory manner on grounds of domicile or nationality with respect to the right to a fair trial guaranteed in section 7 of the Bill of Rights. Because the security for costs regime set out in the Grand Court Rules is promulgated by a government organ and the Court is a creature of the Constitution, the Court must exercise its jurisdiction to award security for costs in a manner consistent with the non-discrimination requirements.
• The non-discrimination and fair trial principles set out in the Bill of Rights require that security for costs orders cannot be made merely because a plaintiff is a non-resident.
• To justify an award of full security, a defendant must adduce evidence that there is a real risk that enforcement in the plaintiff’s home jurisdiction might fail because of difficulties or obstacles to enforcement. Those difficulties or obstacles must be shown to exist on objectively justified grounds. This does not require a defendant to show that enforcement will be impossible or that insurmountable hurdles to enforcement exist, but simply that the difficulties or burdens likely to be encountered objectively render enforcement problematic in the foreign jurisdiction.
• Where a defendant cannot show that a real risk of unenforceability exists, it may still be entitled to security for costs based on the anticipated additional costs that would be incurred to enforce a costs award in the applicable foreign jurisdiction.
• On the evidence adduced by the defendants, there existed a real risk that efforts to enforce a costs award in Saudi Arabia will fail. The Court cited, among other factors, uncertainties over Saudi Arabian recognition of a Cayman Islands judgment and AHAB’s stated intent to oppose enforcement in Saudi Arabia. Accordingly, the defendants were entitled to a security for costs order covering for the full amount of potentially recoverable costs, as determined by the Court.

The decision is a confirmation of a recent line of Cayman cases on the applicability of the non-discrimination obligations to security for costs orders, including Elliott v CI Health Service Authority, 2007 CILR 163, Gong v CDH China Management, 2011 (1) CILR 57, Dyxnet Holdings Limited v Current Ventures II Limited, 2015 (1) CILR 174 and Locke v CWM Limited (Grand Ct, 7 April 2017, Unreported). There can now be no doubt about how a Cayman Islands court should approach a security for costs application based on the non-residency of the plaintiff.

Practically, the application of these principles will mean that defendants facing claims from plaintiffs resident in jurisdictions with familiar and predictable private international law rules like the United Kingdom, the United States, Canada and Australia will generally only be entitled to security for costs awards for the additional costs of enforcement. States or jurisdictions with a different legal tradition or lacking an established practice of recognizing foreign judgments will continue to raise issues that may justify awards of full security. Defendants with concerns about enforcement in a plaintiff’s home jurisdiction should adduce evidence clearly describing the potential obstacles and difficulties in enforcement. Where the obstacles arise from foreign law or practice, expert evidence on the foreign law should ideally be produced.

It is worthwhile to note that different considerations will apply in proceedings brought by an impecunious foreign plaintiff company. The Cayman Islands Court of Appeal has found that the court has an inherent power to make security for costs orders against a foreign company in the same way it does against a local company under section 74 of the Companies Law. The jurisdiction under that provision is exercisable when it appears that the assets of the plaintiff company will be insufficient to pay the costs of a successful defendant. As these rules apply to both resident and non-resident companies – unlike the security for costs rules considered in AHAB v Saad – the same discrimination concerns do not arise and awards of full security would seem to be justified even where the ability to enforce a costs award in the foreign jurisdiction is not in doubt. It will be interesting to see whether and how the law and practice on the section 74 power will intertwine with the principles discussed in AHAB v Saad.

HSM Chambers represents the joint official liquidators of six of the defendant companies in AHAB v Saad.

Contacts:

Ian Lambert

Mark Russell

Majdi Beji, an articled clerk with HSM Chambers, was called to the Cayman Islands Bar on Wednesday, September 27th, 2017.

Mr. Beji’s admission was moved by HSM Partner Ian Lambert, who summarized his qualifications for Justice Robin McMillan. Madji moved to the Cayman Islands in 2006 and has a wide-range of experience in project management, hotel and property management, and real estate. He is fluent in Arabic, English, French and Wolof. Majdi earned a commendation in his Professional Practice Course and also has a Bachelor of Technical Science in Mechanical Engineering.

Mr. Beji is joining HSM as a Litigation Associate and will focus on a wide range of civil litigation, acting for banks, strata corporations and leading businesses based both in the Cayman Islands and overseas.

Managing Partner Huw Moses notes: “We are very pleased to add another lawyer to our team. Providing opportunities for personal and professional growth is at the very core of HSM’s human resources strategy. We are delighted to welcome Madji and expand on the services available to our clients.”

The HSM Vipers reclaimed their title of Champions of the Cayman Islands Flag Football Association women’s league on Saturday, September 23, 2017 at the Ed Bush Stadium in West Bay. HSM sponsored the HSM Vipers in the league which took place from June to September 2017. The HSM Vipers were awarded the overall trophy for their participation and performance during the tournament.

Managing Partner Huw Moses notes: “I am pleased with the outcome of the league. Having the HSM Vipers come out victorious for the second year in a row is quite an accomplishment. The team had a great season and we are very proud to share this moment with the entire league and our own HSM Vipers!”

Photo Caption: HSM Vipers Women’s Flag Football Team

HSM participated in the Cayman Islands Further Education Centre (CIFEC) Career Fair which was held on 21 and 22 of September 2017. HSM set up a booth at the CIFEC Library to introduce themselves and seek to recruit 14 new students to join their 2017/18 internship programme. Managing Partner, Huw Moses and IP Head Paralegal, Natasha Whitelocke were on hand to speak with students about a career in the legal profession especially in the fields of Intellectual Property, Debt Collection, Immigration and Corporate Services.

Ms. Shantel Ritch and Ms. Victoria Whittaker, two full time HSM IP staff members and ex CIFEC students were also on hand to speak with the potential student recruits. They shared their current experience of working within the firm and also spoke to students who may be interested in pursuing a career in law.

HSM has worked with the CIFEC progamme since 2012.The firm’s continued involvement in the CIFEC programme forms part of HSM’s commitment to the local community, as we continue to provide opportunities for young Caymanians to work within the legal industry.

Managing Partner Huw Moses notes: “We enjoy participating in this programme as CIFEC students play an integral role in our team. We aim to train them with the skills to achieve their full potential. We appreciate the opportunity to share our expertise with the students who may be interested in pursuing a career in law.”

Photo Caption – L- R: Ms. Victoria Whittaker and Shantel Ritch from HSM speaking with students at the CIFEC Fair.

The HSM Group is opening its doors over the summer to four talented students from the Cayman Islands Further Education Centre (CIFEC). Keanuanna Melwood, Gabriel Morla, Tianna Ramgeet and Tagh-Jay Wilson, who have joined HSM’s summer internship programme for a unique learning experience.

Each of the interns will be gaining experience in areas such as Intellectual Property, Debt Collection and Immigration. Attorneys Sophie Davies, Sarah Alison and Alastair David will oversee the students while at the firm.

HSM has worked with the CIFEC progamme since 2012 and six CIFEC graduates currently form part of our staff of fifty plus. The firm’s continued involvement in the CIFEC programme forms part of our commitment to the local community, as we continue to provide opportunities for young Caymanians to access the legal industry.

Managing Partner Huw Moses notes: “We are very pleased to have the opportunity to train the CIFEC Students, especially the students who may be interested in pursuing a career in law. We appreciate sharing our expertise with the students who work with us over the summer.”

Students gain legal experience over summer with HSM

Photo Caption – L- R: Gabriel Morla, Keanuanna Melwood, Huw St. J Moses OBE, Tianna Ramgeet and Tagh-Jay Wilson.

The Cayman Islands has long had opportunities for persons to gain residency in these Islands based primarily on investment in real estate. The options have included a Residential Certificate for Persons of Independent Means (a permission ideal for retirees and constituting a 25 year renewable certificate) and a Certificate of Permanent Residence for Persons of Independent Means.

On 26 May the Immigration (Amendment) (No. 4) Regulations, 2017 were published. These have changed the requirements for qualification and further, have added “back office” type businesses in Cayman Brac to the list of enterprises which meet the criteria for a Residency (Substantial Business Presence) Certificate.

For those interested, the No. 3 Regulations (published the same day) provided for a wide range of exemptions for persons involved in the music industry from any requirement to have a work permit, subject to them working in the Islands for no more than 6 months in any year. It is assumed that major recording activity is to be taking place here, a development sure to be welcomed, and typical of the type of industry that Cayman is so poised to entice to our shores. It bodes well for further economic diversification and those responsible should be congratulated.

A copy of the Immigration (Amendment) (No. 4) Regulations, 2017 is attached for your information. Some of the changes are (in our view) very positive. For example, rather than having to demonstrate an income of no less than CI$120,000 without having to engage in gainful occupation in the Islands, a deposit in a local account of at least CI$400,000 will be deemed to constitute confirmation that an applicant has available to them sufficient funds to maintain themselves in these Islands to an appropriate level. This development is particularly welcome as we have seen situations where persons with several million dollars in cash have been unable to become a resident in the Cayman Islands because (as they had not and did not wish to invest those funds, and interest rates being so low) they could not demonstrate an ability to generate CI$120,000 without having to work. Nevertheless, demonstrating that income as an alternative to holding significant funds on deposit in the Cayman Islands, remains an option.

That is however not the extent of the changes. The minimum required investment in the Cayman Islands for a retiree seeking residence in Grand Cayman through a Residential Certificate for Persons of Independent Means has increased from CI$500,000 to CI$1 million. For residence in Cayman Brac or Little Cayman the required investment has doubled from CI$250,000, to CI$500,000. In either event, up to half the required investment can be in something other than developed real estate. Raw land and shares in local businesses would appear to be appropriate options or, of course, CI$1,000,000 could simply be invested in a home. Unlike with the Permanent Residence points system, monies paid by way of stamp duty do not appear to count towards the threshold. The grant fee remains CI$20,000, with an additional CI$1,000 payable in relation to each dependant.

For persons seeking a Certificate of Permanent Residence for Persons of Independent Means, the required minimum investment in developed Cayman Islands Real Estate has increased from CI$1.6 million, to CI$2.0 million. There is no requirement that the investment be in residential real estate. The grant fee remains CI$100,000 with (again) a further CI$1,000 payable in relation to each dependant.

In other material respects the position required to qualify remains the same with applicants needing to demonstrate that (for example) they are of good character and conduct, and possess local health insurance.

The Regulations have further changed so that persons seeking and holding a Residential Certificate for Persons of Independent Means (but not a Certificate of Permanent Residence for Persons of Independent Means) are now required to not only pay CI$1,000 upon grant in relation to any dependants, but are also now required to pay CI$1,000 per dependant each and every year. There is most regrettably no clear transitional period and no confirmation (although it has been requested) as to whether or not the authorities will expect payment from existing holders of these certificates in respect to their dependants; even though when they applied for and obtained the certificates, no such payments were necessary. Should there be any attempt to charge annual fees to the dependants of persons who already have permissions to reside for a particular period, the lawfulness will be questionable and (we would propose) suitable challenge raised. We wait to see what the formal position is, and are hopeful that any concerns we hold as to the treatment of existing holders of such permissions, are ill-founded.

This annual CI$1,000 Dependant’s Fee has also been introduced in relation to the dependants of the holders of Certificates of Direct Investment and those who hold a Residency Certificate (Substantial Business Presence). Again, there is no confirmation as to the treatment of existing holders of such permissions.

Most lamentable is the fact that there has been no formal notification of intended changes, or transitional provision in relation to the introduction of this new regime. As can be imagined, it takes several months to prepare for applications of this nature. We have at least three clients who embarked on these applications prior to the change in the regulations, and made investments accordingly. In one instance, the main reason they did not apply for the actual certificate before the change in the regulations was due to delays issuing the required Land Registers.

The good news however is that the Cayman Islands are and remain a wonderful place for persons to invest and bring their families, and that mechanisms continue to exist whereby qualified individuals and their families can join the community we are so privileged to call home.

In order to assist you and any existing clients we have prepared the attached brochures which reflect the current changes and which we hope might be of assistance to you and those with whom you work in relation to that seeking and obtaining of appropriate permissions to live (and work) in the Cayman Islands.

If you would like more information please contact us.