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Industry Updates

Cayman Islands' New Arbitration Law

17 Dec 2012

The existing legislation governing arbitration in the Cayman Islands was recently repealed and replaced with the Arbitration Law, 2012 (the "Law").  This article provides a brief overview of the changes and their impact on arbitration as a method for resolving commercial disputes in the Cayman Islands.

The previous arbitration regime

Before 2 July 2012, arbitration proceedings in the Cayman Islands were governed by theArbitration Law (2001 Revision).  That legislation was based on the English Arbitration Act 1950.  The Law replaces that legislation, other than in respect of arbitration proceedings that were in progress on 2 July 2012, which remain governed by the Arbitration Law (2001 Revision).

There were a number of perceived weaknesses in the Arbitration Law (2001 Revision).  These included: (i) the fact that, where court proceedings had been commenced in breach of an arbitration clause, the court was not required to stay the proceedings in favour of arbitration, but merely had a discretionary power to do so; (ii) the scope for judicial interference during arbitration proceedings and the wide powers of the court to review and strike down arbitral awards; and (iii) the lack of any detailed provisions in the legislation providing a framework for how arbitration proceedings were to be conducted in the absence of agreement between the parties. 

The enforcement in the Cayman Islands of: (i) agreements to arbitrate in countries which are parties to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("the New York Convention"); and (ii) arbitral awards made in such countries, remain largely governed by the Foreign Arbitral Awards Enforcement Law (1997 Revision).  That legislation, which was originally enacted in 1975 and was last revised in 1997, incorporates the provisions of the New York Convention relating to the foregoing matters into Cayman Islands law.

Key features of the new Arbitration Law, 2012

To date, in the Cayman Islands, arbitration has mainly been used as a mechanism for resolving disputes between parties located in the jurisdiction.  The intention behind the Law is to ensure that arbitration remains available to such parties, whilst at the same time attracting more international arbitration proceedings.  Modernising Cayman Islands arbitration law and bringing it into line with international standards is seen as a way of making the jurisdiction more attractive for onshore clients who wish to have their disputes resolved by confidential arbitration in a neutral offshore venue, where there are experienced legal advisors and other professional service providers readily available to assist with the proceedings.

Section 3 sets out the principles upon which the Law is founded: (i) the fair resolution of disputes by an impartial tribunal without undue delay or expense; (ii) the freedom of the parties to agree how their disputes are resolved, subject only to such safeguards as are necessary in the public interest; and (iii) limits on the scope for court intervention in arbitration proceedings.

The Law is largely based upon the UNCITRAL Model Law as updated in 2006 and the English Arbitration Act 1996, although it differs from both in some respects.

The Law applies to all arbitrations where the seat of the arbitration is the Cayman Islands, regardless of where the parties are based.  The Law governs the conduct of arbitrations, as they relate to challenges before the Grand Court of the Cayman Islands (the "Court") against Cayman Islands arbitral awards.  The Law also contains some provisions relating to the enforcement in the Cayman Islands of interim measures and awards made in foreign arbitral proceedings.

An arbitral tribunal appointed under the Law has wide powers and is essentially able to award any interim or final remedy that a court could have granted if the dispute in question had been the subject of court proceedings.  The Law gives the parties the freedom to tailor the arbitral proceedings according to their needs but also provides a set of default provisions which apply in the absence of agreement.  There are certain mandatory provisions of the Law designed to protect the integrity of the arbitration process, for example, by ensuring that the tribunal maintains its impartiality throughout the arbitration and does not have any conflicts of interest.  The Law expressly recognises that arbitration proceedings are to be confidential and the limited grounds set out in the Law upon which an arbitral award may be challenged in the Courts reflect the grounds in the New York Convention.

Reactions from clients and practitioners and the expected impact of the Law

The Law has received a positive response from both clients and practitioners since it came into force.  Before its implementation, the Law was the subject of extensive consultations with relevant stakeholders and it has been drafted to reflect international best practice in relation to arbitration proceedings.  Financial services institutions and professional advisors are now increasingly incorporating Cayman Islands arbitration clauses into their agreements.

It is hoped that the enactment of the Law will lead to more Cayman Islands arbitration clauses being inserted within commercial agreements, which will in turn lead to more international arbitrations taking place in the Cayman Islands.  This in turn will provide momentum for the further development of the infrastructure needed to support arbitrations in the Islands and create a pool of practitioners and others who are able to act as arbitrators and represent parties in arbitration proceedings.

Transition to the new arbitration regime

The transition to the new arbitration regime in the Cayman Islands has proceeded smoothly, given that the Law is largely based upon the UNCITRAL Model Law and the English Arbitration Act 1996.  Accordingly, there is an existing body of case law which will be of assistance to the Courts in interpreting the Law and which will provide guidance as to how the Law is likely to be applied in the Cayman Islands.  Decisions of the English and other Commonwealth courts are persuasive rather than binding in the Cayman Islands, but where a legislative provision being considered by a Court is the same, or substantially the same, as a provision which has previously been interpreted by an English or Commonwealth court, the Court is likely to follow that interpretation unless there are good reasons not to do so.

Some consequential matters have arisen following the implementation of the Law, such as the form in which applications to the Courts are made, the extent to which Judges can decide those applications without the need for a hearing, and whether leave of the Court will be required before such matters can be served on other parties outside of the Cayman Islands.  Amendments to the Financial Services Division Guide and the relevant Grand Court Rules may be expected in due course.