The Enforcement of Foreign Judgments in the Cayman Islands

Background

English courts following common law principles, applicable in the Cayman Islands, have recognized and enforced judgments of foreign courts since the 17^th century. Enforcement of foreign judgments by the English courts was originally based on the doctrine of comity, which obliged the courts of one country to assist those of another. In the 19^th century this theory was superseded by the doctrine of obligation, which recognized that a judgment of a competent foreign court imposed a duty or obligation on the defendant to pay the sum due under the judgment, which obligation the English courts were bound to enforce.

In the 20^th century common law practice was increasingly supplemented by statute law providing for the reciprocal registration and enforcement of judgments of the superior courts of one country by the superior courts of another. The UK Administration of Justice Act 1920 provided for the reciprocal recognition and enforcement by way of registration as between the UK and its colonial and Commonwealth territories of judgments of their respective superior courts.

While the 1920 Act was extended to the Cayman Islands by Orders in Council in the UK, no legislation was enacted in the Cayman Islands to give effect to the provisions of the 1920 Act or its successor. The anomalous result is that judgments of the Cayman Islands Grand Court (“the Grand Court”) are subject to registration and enforcement in the UK, whereas judgments of the UK superior courts are not susceptible to reciprocal treatment in the Cayman Islands.

The recognition and enforcement of judgments as between the European states subsequently became largely codified by international convention, i.e. the Brussels Convention 1968, the Lugano Convention 1988 (applies to EU and EFTA countries) and the Brussels Regulation 2001 (applies to EU countries). The United States has, in many cases, separately entered into bilateral treaties with individual nations. The Cayman Islands, however, is not subject to any international conventions or treaties on the recognition and enforcement of foreign judgments.[1]

The options available to the judgment creditor

Accordingly, the options available to a judgment creditor seeking to enforce a foreign judgment in the Cayman Islands are as follows:

• an application under the Foreign Judgments Reciprocal Enforcement Law (1996 Revision) to register the foreign judgment in the Grand Court, enabling it to be enforced as if it were a domestic judgment of the Grand Court.
• an action in the Grand Court on the obligation, i.e. as a debt, owing under the foreign judgment based on common law principles applicable to the recognition and enforcement of foreign judgments.
• a statutory demand and winding-up petition in the case of a corporate debtor, under the provisions of the Companies Law and the Companies Winding Up Rules based on the foreign judgment as a liquidated debt.

We consider each of these options below.

The Foreign Judgments Reciprocal Enforcement Law (“the Law”)

The Law establishes an expeditious regime for the registration in the Grand Court of foreign monetary judgments and their subsequent enforcement by the Grand Court as if they were judgments originally given by the Grand Court itself. The mechanism is only available in respect of monetary judgments of designated “superior” courts of designated foreign countries to which reciprocity has been extended by the Governor of the Cayman Islands under the Law, based on assurance of mutual reciprocity of enforcement of judgments of the Grand Court by the courts of those foreign countries.

While the Law has been the subject of considered review by the Cayman Islands Law Reform Commission in 2013 with the recommendation for a number of substantial amendments to the Law, (including that reciprocity be extended to a limited range of British Commonwealth countries and Ireland), to date the only foreign courts and foreign countries designated by the Governor under the Law, are the superior courts of Australia and the Australian external territories to which reciprocity under the Law was progressively extended concluding in the early 1990’s.

Accordingly, until other courts and foreign countries are designated by the Governor under the Law, only those judgment creditors holding monetary judgments of the superior courts of Australia and its territories may take advantage of the registration process under the Law. Those seeking to enforce judgments issued by courts of other foreign countries, (or judgments of inferior courts of Australia), must follow the common law principles applicable to the recognition and enforcement of foreign judgments under Cayman law, which are addressed in further detail below.

The procedure for registration under the Law before the Grand Court is prescribed by the Grand Court (Foreign Judgments) (Reciprocal Enforcement) Rules and the Grand Court Rules 1995, Order 71. Given its presently limited application (to monetary judgments of the Australian superior courts) this discussion does not detail the requirements for registration of such judgments under the Law.

Enforcement of foreign judgments at common law

A judgment creditor in possession of a foreign judgment, which does not fall within the scope of the Law as set out above (i.e. not a monetary judgment of an Australian superior court), must if they seek recognition and enforcement of it in the Cayman Islands, bring an action on it in the Grand Court, suing on the foreign judgment as a debt under common law principles.

The process may be relatively expeditious if no dispute is raised as to the jurisdiction of the foreign court or the enforceability of the foreign judgment. The judgment creditor may commence proceedings in the Grand Court by way of writ of summons and then move for summary judgment on the basis that the defendant has no defence to the claim, i.e. it is res judicata by virtue of the foreign judgment. Alternatively, if there is unlikely to be any substantial dispute as to fact, or where the principal question is one of interpretation of law, a document or contract or some other question of law, then the creditor may commence proceedings by way of originating summons, exhibiting the foreign judgment to the supporting affidavit. In either case, the proceedings will substantively allege that there is no defence to the debt evidenced by the judgment, the matter having been previously finally and conclusively determined between the parties by a competent foreign court, i.e. one having jurisdiction over the defendant.

Historically it was a common-law requirement that the foreign judgment being sued upon, be a monetary judgment for a debt or a fixed sum of money and not one requiring the defendant to do anything e.g. specific performance of a contract (which would potentially require the supervision of the foreign court). In recent years this stipulation has been relaxed and the Grand Court has indicated in several decisions that in appropriate cases the Grand Court will enforce foreign non-monetary judgments.

Where the foreign judgment being enforced is in a foreign currency, the judgment creditor may sue upon it in that currency and the Grand Court may award judgment in the currency of the foreign judgment. The Grand Court may also award interest on the foreign judgment in accordance with the interest provisions of the Judicature Law, even if the foreign judgment did not provide for the payment of interest.

English common law principles, followed and applied in the Cayman Islands, establish a number of pre-requisites for the enforcement of foreign judgments. In brief, the foreign judgment must be:

• the judgment of a foreign court with jurisdiction over the judgment debtor under English private international law principles;
• a monetary judgment for a debt or fixed sum (subject to the discretion of the Grand Court in regard to non-monetary judgments as indicated above), but not in respect of taxes, fines or a penalty imposed under the law of the other country; and
• final and conclusive of the debt as between the parties.

Jurisdiction of the foreign court over the judgment debtor must be established on one or more of the followings grounds:

• the judgment debtor must have been present within the foreign country at the time the proceedings were instituted;
• the judgment debtor was a plaintiff or counterclaimed in the foreign court proceedings;
• the judgment debtor, as defendant, voluntarily submitted to the jurisdiction of the foreign court by appearing in the proceedings; or
• the judgment debtor, as defendant, had before the commencement of proceedings agreed to submit to the jurisdiction of the foreign court or the courts of that country.

If the foregoing qualifications are met, it still remains open to the judgment debtor to challenge recognition and enforcement of the foreign judgment by the Grand Court on the following grounds:

• that the judgment was obtained by fraud on the part of the judgment creditor or on the part of the foreign court itself;
• that enforcement or recognition of the foreign judgment would be contrary to public policy; or
• that the proceedings in the foreign court offend the principles of natural justice.

In most cases, particularly where the foreign judgment is that of a common-law jurisdiction (e.g. Commonwealth countries and the U.S.), establishing these pre-requisites will not be problematic. Complexities may arise where the foreign judgment is that of a jurisdiction in which the practice and procedure differ from that of the common law, or recognized continental European, model.

Statutory demand and winding up petition under the Companies Law (2020 Revision)

Under the Companies Law, where a creditor owed at least CI$100 (US$125.00) has served a written demand on the debtor company at its registered office in the Cayman Islands, the debtor must pay it, or provide security for its payment to the satisfaction of the creditor, within three weeks following service of the demand (commonly referred to as a “statutory demand”). If not, the Companies Law deems the debtor company to be “insolvent” and the creditor may file and serve a winding-up petition on the debtor company on the basis that it is unable to pay its debts as they fall due.

There is no requirement that the debt arise under a domestic Cayman Islands judgment and the concern of the Grand Court on the return of the winding-up petition, is principally whether the debtor is insolvent. If there are issues as to the jurisdiction of the foreign court or the enforceability of the foreign judgment under common law principles, such as might permit the debtor company to raise a genuine or bona fide dispute to the debt, then the winding-up petition procedure should be avoided since it is not the function of the Grand Court on a winding-up petition to embark upon an extended enquiry or investigation into the merits of any such dispute or to deal with contested issues of fact and law.

The principal purpose of the statutory demand and winding up petition procedure is not debt collection, but rather the protection of creditors by the appointment of an official liquidator and ensuring the orderly winding up and administration of the debtor’s assets, i.e. by pro-rata distribution among the creditors The jurisdiction of the Grand Court to wind up a company which has failed to satisfy a statutory demand is, however, considerable (sometimes referred to as the “nuclear option” in the creditor’s arsenal), and service of a statutory demand (a preliminary and extra-judicial procedure) may see the debt satisfied or arrangements made for settlement of the debt, without the issuance of a winding-up petition.

Conclusion

In most cases, other than those involving judgments of the Australian superior courts, the enforcement of a foreign judgment in the Cayman Islands will require an action at common law to enforce the debt owing under the foreign judgment, either by way of writ of summons or originating summons filed in the Grand Court.

Alternatively, a creditor under a foreign judgment may in the case of a corporate debtor within the Cayman Islands, utilize the relatively simple and cost-effective statutory demand procedure under the Companies Law, and bring considerable pressure to bear on the corporate debtor to satisfy the debt, without necessarily subsequently issuing a winding-up petition, or prejudicing the creditor’s right to enforce the debt under the foreign judgment at common law by the issuance of a writ of summons or originating summons.

References

[1] The Cayman Islands is subject to the New York Convention on the Recognition and Enforcement of Foreign Arbitration Awards (1958) which was extended to the Cayman Islands by the UK on 26 November 1980 and given effect to in the Cayman Islands by the Foreign Arbitral Awards Enforcement Law (1997 Revision).