CAYMAN ISLANDS Trends and Developments Contributed by: Alan Bercow, Jae Shin and Ross McLeod, Appleby
such “persons unknown” and are granted broad powers to order service of legal proceedings and documents against such persons. These powers may allow for what might otherwise be considered unconventional methods of service (such as airdrops into electronic wallets) against unknown fraudsters. Norwich Pharmacal Orders Norwich Pharmacal Orders (NPOs) establishing who controls private keys – and thus the assets – often require technical expertise beyond tradi - tional asset tracing. The Cayman Islands courts have extensive experience in: • granting NPOs, which compel a third party – innocently mixed up in wrongdoing – to dis - close information in order to identify or enable legal action against the wrongdoer; and • accepting expert evidence from forensic financial specialists. Effecting recovery Even after a successful judgment, technical recovery may require either co-operation from the defendant or sophisticated technical meas - ures to access private keys or multi-signature wallets. The enforcement of judgments against digital assets can therefore be procedurally chal - lenging, but the Cayman Islands courts have a range of remedies available, including against exchanges. Smart contracts and DeFi platforms: jurisdictional questions Smart contracts likely constitute valid contracts under Cayman Islands law if they satisfy con - tract formation requirements – namely, offer, acceptance, consideration, intention to create legal relations, and certainty of terms. However, unique questions arise regarding:
• identification of contracting parties in pseu - donymous or anonymous DeFi interactions; • determination of contractual intent when interacting with autonomous code; • application of mistake and frustration doc - trines to immutable executed transactions; and • remedies for coding errors versus deliberate exploitations of protocol vulnerabilities. Jurisdictional nexus for DeFi protocols Establishing Cayman Islands jurisdiction over DeFi protocols presents challenges. Many DeFi projects utilise Cayman Islands foundation com - panies or limited companies in their governance structures while operating protocols that exist solely as code deployed on global blockchains. Such a jurisdictional analysis would be highly fact-specific and likely require an examination of: • the location of the entity that deployed the smart contract code; • where governance decisions affecting the protocol are made; • the jurisdiction in which affected users are located; and • whether any centralised components of the system exist in identifiable locations. Liability for protocol exploits One particularly interesting issue concerns liabil - ity for the exploits of DeFi protocols controlled by Cayman Islands entities. When a protocol vul - nerability leads to loss of user funds, complex legal questions emerge regarding: • whether protocol exploits constitute theft/ fraud or merely opportunistic use of permitted code functionality; • the extent to which developers, governance token holders, or foundation directors bear responsibility for security vulnerabilities;
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