CAYMAN ISLANDS Law and Practice Contributed by: Alan Bercow and Jae Shin, Appleby
been available. Subsequent acquisition of notice or receipt by an otherwise good-faith purchaser cannot “revive” a proprietary claim against them. Funds that have been mixed with other funds may be the subject of an equitable proprietary claim – although the rules used to identify traceable pro - ceeds from such mixed funds may vary from case to case (including first-in/first-out, rolling charge, and pari passu distribution bases). However, if property has non-fungible properties that allow it (by adducing appropriate evidence) to be identified with certainty from what would otherwise appear to be a “mixture”, such rules may have no application. This may be the case, for example, for certain types of crypto-assets. 1.6 Rules of Pre-Action Conduct There are no pre-action protocols applicable to fraud claims. Often fraud claims are preceded by an appli - cation for a freezing injunction sought without notice to the other party in circumstances where giving such notice would have given that party the opportunity to dissipate assets that would render any order nugatory. However, in the absence of such an application, the overriding object requires parties to help the court to deal with cases in a just, expeditious and economic way and thus pre-action correspondence would be expected. The court has the power to penalise a party for failing to do so in costs. 1.7 Prevention of Defendants Dissipating or Secreting Assets A victim of fraud can, in appropriate circumstances, obtain a freezing injunction from the Cayman Islands courts to restrain a defendant from disposing of or dealing with assets. This remedy – one of the “nucle - ar weapons” of civil litigation – provides an effective mechanism for the preservation of assets through - out the duration of the order until judgment can be obtained or enforced. It is necessary to show a good arguable case that: • the defendant has assets within or (in the case of a worldwide freezing order) outside the Cayman Islands (although the court will generally exer - cise greater caution in granting relief in respect of
assets overseas unless there is a clear connection with the Cayman Islands); • a real risk of dissipation of assets that would oth - erwise be available to meet any judgment that the claimant might obtain; and • it is just and convenient for the court to make the order. Where the claimant asserts a proprietary claim to the assets sought to be frozen, there is no requirement to show a risk of dissipation. A freezing injunction can be sought in support of foreign proceedings where there are no substantive proceedings in the Cayman Islands (Section 11A of the Grand Court Act, the equivalent power to that provided for in England and Wales by Section 25 of the Civil Jurisdiction and Judgments Act). The Cay - man Islands court can also grant a worldwide freez - ing order. A freezing order operates in personam, but binds third parties, such as banks, who are given notice of the order. Court fees are on a sliding scale where a claim for a debt or a liquidated sum is made, up to a maximum of KYD15,000 (USD18,000), but where the freezing injunction is sought in respect of foreign proceed - ings and no substantive claim is made in the Cayman Islands, the fee would be KYD5,000 (USD6,000). Sanctions for non-compliance include contempt pro - ceedings leading to a possible fine, sequestration of assets, or imprisonment, as well as the appointment of a receiver to police the freezing injunction. The claimant is also required to give a cross-under - taking in damages. As applications for freezing injunc - tions are almost always made without notice, the claimant is under a duty of full and frank disclosure or fair presentation, whereby the claimant must disclose all matters that are material to the court in deciding whether to grant the injunction and, if so, on what terms. An order (a Chabra order) can be made against third parties where they hold assets that are beneficially owned by the main defendant.
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