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The Cayman Islands Government has issued The Confidential Information Disclosure Bill, 2016 (“Confidentiality Bill”) which, once it comes into force will bring into effect a fundamental overhaul of confidentiality laws in the Cayman Islands.
The introduction of the Confidentiality Bill is part of a series of actions being taken by the Cayman Islands Government to the assist global efforts to increase transparency.
Existing Law
Under the existing law, which is found in The Confidential Relationships (Preservation) Law (2015 Revision), it is a criminal offence to divulge or attempt, offer or threaten to divulge “confidential information” (which is defined as including information concerning any property which the recipient thereof is not, otherwise than (in the narrowly construed exception of) “in the normal course of business”, authorised by the principal to divulge) except in a limited number of specified circumstances.
Notwithstanding the criminal penalties that follow a breach of the existing law, there has not been a criminal conviction under the existing law since its original enactment over 40 years ago.
The prohibition applies with respect to business of a professional nature (e.g. the relationship between a bank, trust company, an attorney-at-law, an accountant, an estate agent, an insurer, or a broker and its client) which arises in or is brought to the Cayman Islands and to all persons coming into possession of such information at any time thereafter whether they be within the jurisdiction or not.
As mentioned above, disclosure is permitted in a number of specified circumstances (e.g. (i) in respect of any professional person acting in the normal course of business, or with the consent, express or implied, of the relevant principal; or (ii) in response to statutory requests from certain criminal or regulatory authorities (e.g. the Cayman Islands Monetary Authority), or (iii) a court order).
Proposed new Law
The Confidentiality Bill proposes the following key amendments:
It will no longer be a criminal offence to breach a duty of confidentiality.
In future it will be necessary to assess whether the information imparted was subject to a duty of confidence in the first place. This will effectively shift the burden of proof from showing that the disclosure falls within an exception to the current prohibition, to showing that the information imparted was in fact subject to a duty of confidence.
Where a person owes a duty of confidence, that person’s disclosure of such information within a widened list of specified circumstances will not constitute a breach of the duty of confidence and a person will not be able to sue the discloser.
A person who discloses confidential information in relation to a serious threat to the life, health, safety of a person or in relation to a serious threat to the environment will have a defence to legal action for breach of a duty of confidence, as long as the person acted in good faith and in the reasonable belief that the information was substantially true and disclosed evidence of a serious threat to life, health, safety of a person or of a serious threat to the environment.
This publication is not intended to be a substitute for specific legal advice or a legal opinion. It deals in broad terms only and is intended to merely provide a brief overview and general guidance only. For more specific advice on the confidentiality laws in the Cayman Islands, please contact:
Gary Smith
Partner
E: gary.smith@loebsmith.com
Loeb Smith has acted as Cayman Islands counsel to China Crystal New Material Holdings Co., Ltd., the world’s largest synthetic mica manufacturer in respect of its IPO on the Korea Stock Exchange (KRX)’s KOSDAQ market. It is the first time in four and a half years since a Chinese company has entered the KRX. The company’s shares began trading on 28th January 2016.
The Loeb Smith team was led by Corporate Partner, Gary Smith.
For more information, please contact:
Gary Smith
Partner
E: gary.smith@loebsmith.com
www.loebsmith.com
Loss of substratum (or reason for existence)
Shareholders of a Cayman Islands company may petition the Grand Court for an order that a company is wound up pursuant to section 92(e) of the Companies Law (As Revised) on the basis that it is “just and equitable” for it to do so. One ground which is often relied on by shareholders for this purpose is that the company has lost its “substratum” or, in other words, its reason for being in existence. The seminal dicta in this area is that of Lord Cairns in In re Suburban Hotel (1867) LR 2 Ch App 737, where he held that:
“It is not necessary for me to decide it; but if it were shown to the Court that the whole substratum of the partnership, the whole of the business which the company was incorporated to carry on, has become impossible, I apprehend that the Court might, either under the Act of Parliament, or on general principles, order the company to be wound up.”
In the recent case of In Re Harbinger Class PE Holdings (Cayman) Ltd (unreported, 10 November 2015) Justice Clifford, noted that subsequent English authorities have followed the approach adopted by Lord Cairns. He quoted the decision of Lord Justice Baggallay in the English case In re German Date Coffee Company (1882) 20 Ch D 169 that:
“It appears to me that the principle involved in the decision of In re Suburban Hotel Company by Lord Cairns amounts to this, that if you have proof of the impossibility of carrying on the business contemplated by the company at the time of its formation, that is sufficient ground for winding up the company. Therefore the question arises in the present case, is there an impossibility of carrying out the objects of the company.”
However, Justice Clifford also noted the confines of the principle of the loss of substratum as set out in Re Kitson & Co Ltd [1946] 1 All ER 435 in which the English Court of Appeal held that there had been no failure of substratum where a company had sold its business, but at the same time was carrying on a similar type of business through a subsidiary. Provided that the company could carry on that type of business, then prima facie at least, it would be impossible to hold that the substratum had gone.
Divergence between the approach taken in the Cayman Islands and the British Virgin Islands in respect of open-ended corporate mutual funds
In In Re Belmont Asset Based Lending Limited [2010] 1 CILR 83, Jones, J sitting in the Financial Services Division of the Grand Court held:
“To translate these statements into a modern context, it can be said that it just and equitable to make a winding-up order in respect of an open-ended corporate mutual fund if the circumstances are such that it has become impractical, if not actually impossible, to carry on its investment business in accordance with the reasonable expectations of its participating shareholders, based upon representations contained in its offering document. If such a company, organised as an open-ended mutual fund, has ceased to be viable for whatever reason, the court will draw the inference that it is just and equitable for a winding-up order to be made.”
In Harbinger, Clifford, J., noted that whilst this test had been applied in other Cayman Islands cases, the approach had not been followed in other jurisdictions, most notably, the British Virgin Islands, where Bannister, J., in Aris Multi-Strategy Lending Fund Ltd V Quantek Opportunity Fund Ltd (15 December 2010) held that:
“It seems to me that the underlying principle to be extracted from these cases, with the exception of In re Bristol Joint Stock [where Kekewich, J referred to the impossibility of a business being carried on with any hope of success] is that a minority seeking a winding up on the grounds that the business life of a company has come to an end will only be permitted to overcome the will of the majority if they can show that further conduct of the company’s business is impossible.”
Bannister, J., held that the reasoning of Jones, J in Belmont was confined to open-ended investment funds. Indeed, in that case, Jones, J., had referred to “sound policy reasons for making a winding-up order in respect of non-viable mutual funds.” As a consequence, Bannister, J., interpreted the ratio of the English case law authorities to the effect that there will only be a failure of substratum if it is impossible, as opposed to no longer viable, for the business of the company to be carried on.
The approach followed in Harbinger
In Harbinger, Clifford, J., was faced with the task of determining which of the two divergent approaches should be followed. That case concerned the question of the substratum of a subsidiary which had been incorporated as part of a restructuring of a closed-end fund which had suffered significant difficulties as a result of the financial crisis in 2008. The company was intended amongst other matters to hold a special class of shares in the parent fund company which related to largely illiquid assets held by the parent and “ear marked” for disposal so that the special shares would receive the benefit of the allocated assets after the discharge of all prior ranking liabilities of the fund. Clifford J., held that because company in question was not, and never had been, an open-ended corporate mutual fund the test to be applied was:
“founded upon the established underlying principle of the line of authorities referred to which requires the Court to determine whether it has become impossible for the company to achieve the purpose for which it was formed.”
Harbinger would therefore appear to confine the ruling of Jones, J., in Belmont to closed ended mutual funds, or at least to companies within structures where similar policy arguments may apply.
Interpretation of the objects of a company
In Harbinger significant argument was also lead about the interpretation of the objects of the subsidiary company which contained a modern form unrestricted objects clause. Clifford J., held that on the basis of previous authorities, including the BVI authority of Aris cited above, that the Court is required to look beyond a wholly general objects clause to ascertain on the particular evidence in a case the principal or main object of a company in line with the reasonable expectation of its participating shareholders. This is a useful reconfirmation of these principles as they apply to Cayman Islands companies.
For more information on shareholder disputes in Cayman Islands’ companies please contact:
David Harby
Head of Commercial Disputes and Litigation
E: david.harby@loebsmith.com
www.loebsmith.com
What is CRS and how will it impact Cayman Islands domiciled investment funds?
The Common Reporting Standard (CRS) will impact Cayman Islands domiciled investment funds with effect from 1 January 2016. The CRS framework represents a globally coordinated approach to the disclosure of income earned by individuals and organizations in order to combat tax evasion.
The CRS represents a significant step towards the global automatic exchange of information (“AEOI”) for tax purposes. Among other things, the application of CRS in the Cayman Islands and other “early adopter” jurisdictions (including the BVI, Jersey, Guernsey, Ireland, and the United Kingdom) will require investment funds (and other financial institutions) to collect tax identification and tax residency information from all new subscribers and transferees (including debt-holders and equity-holders) who become investors on or after 1 January 2016. There are currently more than 90 jurisdictions that have committed to the implementation of CRS. The Cayman Islands are one of the first countries or early adopter jurisdictions that have agreed to implement AEOI exchanges under CRS by September 2017. On 16th October 2015, the Cayman Islands brought into force regulations which implemented the CRS regime into Cayman Islands law.
With effect from 1 January 2016, CRS will impose new investor due diligence and reporting obligations on investment funds and other financial institutions based in the Cayman Islands. Financial institutions should now be preparing for the commencement of CRS by ensuring that marketing and subscription documentation are updated and that appropriate due diligence and reporting procedures are in place, especially for new funds.
How is CRS different from US FATCA?
Unlike US FATCA which requires Financial Institutions to register with the United States Internal Revenue Service to obtain a Global Intermediary Identification Number (GIIN), under CRS there are no additional registration requirements for Cayman Islands domiciled financial institutions with overseas tax authorities. Information provided to the Cayman Islands Department for International Tax Cooperation (“DITC”) will be exchanged automatically between the DITC and overseas taxing authorities. In order to facilitate the collection of this information, the DITC published self-certification forms on 8 December 2015. These self-certification forms can be used to collect the information required under CRS from in- dividual and entity investors in Cayman Islands investment funds. Along with the publication of these forms, DITC announced that, while investment funds should strive to collect self-certifications from new investors upon subscription, investment funds have 90 days from the subscription date to collect the necessary self-certifications.
The United States (US) has not yet agreed to adopt the CRS. The US will continue to rely on US FATCA and its related network of intergovernmental agreements to achieve the AEOI on tax matters.
Key Timetable Dates
The Cayman Islands Ministry of Financial Services has outlined the following key dates with respect to CRS in the Cayman Islands:
1 January 2016 – All financial accounts opened with Reporting Financial Institutions from this date and on- wards are required to be subject to “new account”i due diligence procedures.
1 January 2016 – All financial accounts existing as at 31 December 2015 with Reporting Financial Institutions are required to be subject to “pre-existing account”ii due diligence procedures.
31 December 2016 – Due diligence procedures for identifying high-value pre-existing individual accounts shall be completed by 31 December 2016.
30 April 2017 – Deadline by which a Reporting Financial Institution is required to make certain notifications as to its CRS reporting status to the Cayman Islands Tax Information Authority. The CRS requires notification of: (i) the name of the Reporting Financial Institution; (ii) categorization of the Reporting Financial Institutions (i.e. reporting status); and (iii) certain details of its principal point of contact.
31 May 2017 – The first reporting date to the Cayman Islands Tax Information Authority in respect of relevant Reportable Accounts under CRS.
31 December 2017 – Due diligence procedures for identifying lower-value pre-existing individual accounts and for entity accounts shall be completed by 31 December 2017.
What steps should CI Financial Institutions take?
Financial Institutions (e.g. investment funds and banks) will need to have updated on-boarding procedures to determine CRS status of new account holders from 1 January 2016. Offering documents and subscription agreements for investment funds should be updated to incorporate appropriate references to CRS. Investment funds should be consulting with their administrators with regard to implementing updated on-boarding procedures.
For more information on the application of CRS in the Cayman Islands please contact:
Gary Smith
Partner
E: gary.smith@loebsmith.com
www.loebsmith.com
On 28 August 2015, Jones, J., gave the first Judgment in the Grand Court of the Cayman Islands on the meaning of “fair value” in merger transactions pursuant to s. 238(1) of the Companies Law (2013 Revision) (the “Law”).
Statutory Mergers under Cayman law
Section 233 (1) of the Law provides that two or more companies limited by shares and incorporated under the Law may (subject to any express provisions to the contrary in any of their memoranda or articles of association) merge or consolidate in accordance with the statutory procedures set out in the Law. As is typical, in Integra the transaction which gave rise to the proceedings is perhaps better described commercially as a management buy-out (“MBO”) but was structured as a statutory merger under Part XVI of the Law between two companies incorporated in the Cayman Islands namely; Integra Group (the “Company”) and a newly incorporated special purpose vehicle owned and controlled by the MBO participants. A plan of merger complying with the statutory requirements was approved by a special resolution of the Company’s shareholders passed at an extraordinary general meeting (“EGM”). The merger was duly completed and the Company’s shares delisted from the London Stock Exchange.
Dissenting shareholders are not required to accept a merger or consolidation agreement which has been approved by the requisite majority. Instead, they are entitled to dissent and to demand payment for the fair value of their shares. Section 238(1) of the Law provides that:
“A member of a constituent company incorporated under this Law shall be entitled to payment of the fair value of his shares upon dissenting from a merger or consolidation.”
Section 238(2) provides that a shareholder of a constituent company who intends to dissent from a merger or consolidation must give written notice of objection to the company before the vote is taken, stating his intention to demand payment for his or her shares if the merger is authorised. Where the merger or consolidation is authorised in the EGM the dissenting shareholder’s company must notify the shareholder of this fact within the next 20 days. By section 238(5), a dissenting shareholder is then required, within 20 days of receiving that notice, to give the company a written notice of his or her decision to dissent and a demand for payment of the fair value of his shares. Section 238(8) then provides that either the shareholder’s company or the merged or consolidated company must make a written offer to the shareholder to purchase his or her shares for a specified price which it has determined to be the fair value (which could be more or less than the merger consideration). The legislation contemplates that the parties will then negotiate and attempt to agree upon the price to be paid. If no agreement is reached within a 30 day period, section 238(9) requires that the company must (and the dissenting shareholder may) present a petition to the Court for a judicial determination of the fair value of the shares. Section 238(11) provides that:
“At the hearing of a petition, the Court shall determine the fair value of the shares of such dissenting members as it finds are involved, together with a fair rate of interest, if any, to be paid by the company upon the amount determined to be fair value”
Principles to follow in Statutory merger cases
Until Integra all such arguments arising under section 238(1) about fair value have been compromised, with the parties’ respective counsel arguing about the legal principles involved and in particular, whether such a valuation should be based on English law principles or the laws of the State of Delaware in the US and Canada from which the legislation appears to have gained its inspiration. In Integra Jones, J., held that the correct approach was one which followed the practice in Canada and Delaware. Citing the dicta of Lambert J.A., in Cyprus Anvil Mining Corp v Dickson (1986) 8 B.C.L.R. 145, Jones J. noted that “every appraisal case turns on its own facts and that there is a need to consider all the evidence that might be helpful to the Court.” The Judge accepted the propositions set out in The M & A Lawyer (2014) entitled “Dissenting Shareholders’ Appraisal Rights in Cayman Islands Mergers and Consolidations.” This argued that the drafting of what is now Part XVI of the Law was heavily influence by Delaware and Canadian law and suggested that, having regard to the principles established in those jurisdictions, the Grand Court should have little difficulty in accepting the following propositions:
“1. Fair Value is the value to the shareholder of his proportionate share of the business as a going concern, save where it is worth less on a net assets (i.e. liquidated) basis as at the merger date: ex hypothesis the shareholder has bought into the company as a going concern, not in anticipation of participating in a liquidation, and it follows that, when he elects to dissent from a merger or a consolidation brought about at the behest of the majority, he is thereafter deprived of his proportionate share of an active enterprise and is entitled to be compensated for it. In determining the measure of such compensation, the Court should be guided by the following considerations:
1.1 Fair value does not include any premium for forcible taking (i.e. expropriation of the shares).
1.2 It is neither appropriate nor permissible to apply a minority discount when making the determination.”
These propositions were accepted by the Judge. In addition Jones J. cited the dicta of Anderson J., in Brant Investment Ltd et al v KeepRite Inc et al (1987) 60 OR (2d) 737 at p. 772 (Ontario High Court of Justice) that shareholders “should have no enhancement in the value of their investment attributable to the transaction which gave rise to their dissent.” Jones, J., stated that he agreed “with this proposition and its converse, namely that the dissenting shareholders should not bear any dilution or diminution in the value of their investment resulting from the merger.”
Date at which the determination of fair value is to be made
The Law does not specify the date at which the determination of fair value is to be made. However, having regard to both Canadian and Delaware statute, Jones, J., found that the appropriate date was the point immediately before the merger was approved at the EGM.
There was also some argument as to the appropriate interest to be awarded to dissenting shareholders, who had not yet received any payment in respect of their (now former) shareholding in the Company. Again, the Grand Court held that it should have regard to authority relating to a similar Delaware provision and made reference to Cede & Co., Inc v Medpoint Healthcare, Inc 2004 Del. Ch, Lexis 124 at page 21. Jones J., found that the Delaware Courts have interpreted their legislation “in a way which involves balancing the rate which the surviving corporation would have had to pay to borrow funds and the rate which a prudent investor could have earned on cash or cash equivalents during the relevant period. In Integra, the Grand Court held that the mid-rate between the Company’s assumed return on cash and the Company’s assumed US$ borrowing rate was the “fair rate of interest.”
For more information, please contact:-
David Harby
Head of Commercial Disputes and Litigation
This Briefing Note provides a brief overview of arbitration in the Cayman Islands and the circumstances in which clients may consider it useful to consider agreeing to this form of alternative dispute resolution (“ADR”) in their contractual arrangements.
Benefits of Arbitration
Arbitration is a form of ADR in which the parties agree to have their disputes resolved outside of court by an independent third party, whose decision is binding upon them and from whom there are limited rights of appeal. In the Cayman Islands arbitration is governed by the Arbitration Law 2012 (the “Arbitration Law”), which is largely based on the UNICITRAL Model Law on International Commercial Arbitration. The benefits of arbitration are chiefly the freedom which it allows the parties to decide how they would like to have their disputes resolved. Subject to the Arbitration Law, this includes the liberty to decide who should arbitrate, the number of arbitrators and the procedure which should be followed.
The main driver for choosing to arbitrate, however, is that pursuant to section 81 of the Arbitration Law, proceedings are confidential. This often helps to lessen the impact of any dispute on the parties’ wider business dealings.
Agreement to Arbitrate
Normally parties agree in advance to refer any dispute arising out of contractual relationships to arbitration. Pursuant to section 4 of the Arbitration Law an arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. Generally such agreements are to be in writing and any dispute as to the validity of an arbitration agreement is to be determined by the arbitral tribunal (section 7, Arbitration Law). The effect of such an agreement is that the parties are bound to refer any disputes covered by the agreement to arbitration and the Grand Court in the Cayman Islands (the “Grand Court”) will stay any legal proceedings arising out of the same unless it is satisfied that the agreement is null and void, inoperative or incapable of being performed (section 9(2), Arbitration Law).
The parties to an arbitration agreement may choose any number of arbitrators to determine their dispute (section 15(1), Arbitration Law), or failing agreement, a single arbitrator will be appointed (section 15(2), Arbitration Law). The parties are also free to determine a procedure for the appointment of an arbitrator or to adopt the rules of an appointing authority which is normally a professional organisation or body.
What Disputes can be Resolved by Arbitration?
Pursuant to section 26(1) of the Arbitration Law, any dispute may be determined by arbitration unless the arbitration agreement is contrary to public policy, or pursuant to any other law of the Cayman Islands, such a dispute is not capable of determination by arbitration. Further, the arbitral tribunal may rule on its own jurisdiction, including any objections to the existence or validity of the arbitration agreement.
Arbitration Proceedings
Arbitral proceedings are governed by Part VII of the Arbitration Law. Section 28 provides that the arbitral tribunal is to:
- act fairly and impartially;
- allow each party a reasonable opportunity to present its case;
- conduct the arbitration without unnecessary delay; and
- conduct the arbitration without unnecessary expense.
However, subject to the provisions of the Arbitration Law, the parties are otherwise free to agree on the rules to be followed by the tribunal in conducting the proceedings (section 29(1), Arbitration Law) and this includes the seat of arbitration, or the law to be followed in resolving the dispute (section 30(1), Arbitration Law), where the proceedings should take place (section 30(3), Arbitration Law) and the language or languages to be used in the proceedings (section 31, Arbitration Law). The arbitral tribunal also has broad powers to grant interim measures and make preliminary orders pending the determination of the dispute (Part VIII of the Arbitration Law). Unless otherwise agreed, the costs of the arbitration are at the discretion of the arbitral tribunal.
Court involvement in Arbitration Proceedings
As set out above the involvement of the Grand Court in the arbitration process is limited. The Court may make orders in certain circumstances in support of the arbitration proceedings (section 43, Arbitration Law). In addition, pursuant to section 71 of the Arbitration Law, unless otherwise agreed by the parties, the Grand Court may, on the application of a party to the arbitration proceedings and who has given notice to the other parties, determine any question of law arising in the course of the proceedings which the Grand Court is satisfied substantially affects the rights of one or more of the parties. However, pursuant to section 73 of the Arbitration Law, the Grand Court does not have jurisdiction to review, confirm, vary, set aside or remit an award based on the arbitration agreement. The limited circumstances in which it may do so are set out in section 75 of the Arbitration Law and include grounds such as a breach of natural justice, fraud and procedural impropriety. Appeals to the Grand Court from an arbitral tribunal are similarly limited to questions of law and leave to appeal will only be given where:
- the determination of the question will substantially affect the rights of one or more of the parties;
- the question is one which the arbitral tribunal was asked to determine;
- the decision on the basis of the findings of fact was obviously wrong; or
- the question is one of general public importance; and
- it is just and proper in all of the circumstances for the Grand Court to determine the question.
In limited circumstances an appeal from the decision of the Grand Court may then lie to the Cayman Islands Court of Appeal. Importantly an award made by the arbitral tribunal pursuant to the arbitration agreement may, with leave of the Grand Court, be enforced in the same manner as a judgment or order of the Court.
The Commercial Disputes Resolution and Litigation Team at Loeb Smith has a wealth of experience of international arbitration and the enforcement of international arbitral awards. We are also able to provide secretarial services to Arbitrators. For more information, please contact:
David Harby
Head of Commercial and Disputes and Litigation
A mareva or freezing injunction is an interim court order, restraining a party from dealing with, or removing, assets from the jurisdiction. Such an order is normally applied for on an basis (or without notice to the respondent) in order to avoid the risk of the dissipation of the assets which the injunction is intended to cover.
In order to be able to obtain a freezing injunction the applicant must show:
-
- a good arguable case against the respondent;
- that the refusal of an injunction would involve a real risk that a judgment or award in favour of the
applicant would remain unsatisfied; and - that it is just and convenient for the injunction to be granted.
A good arguable case was described by Mustill, J., in The Niedersachsen [1983] 2 LLR 600 as ‘one which is more than barely capable of serious argument, but not necessarily one which the judge considers to have a better than 50% chance of success’. The element of a real risk requires “solid evidence” of the alleged risk of dissipation as opposed to a mere expression of opinion or assertion of likelihood. Finally, the court must consider whether it is just and convenient to grant the injunction. In determining this, the court will consider factors such as the conduct of the applicant, the rights of any third parties who may be affected and the potential hardship to the respondent.
In VTB Capital Plc v Universal Telecom Management and Anor [2013] (2) CILR 94, the Cayman Islands Court of Appeal held that the Grand Court had jurisdiction to award free-standing mareva injunctions in support of foreign proceedings, including against third parties. The following requirements were set out:
-
- the entity against whom the freezing order is sought must be subject to the jurisdiction of the courts of the Cayman Islands;
- it does not matter that the Cayman Islands entity is not party to a substantive cause of action recognized by the courts of the Cayman Islands;
- the claim against the defendant, whether or not brought in the Cayman Islands, must be justiciable in the Cayman Islands; and
- provided that points I to III above are satisfied, there is no reason why the defendant against whom the action is being taken in the foreign court should not be party to the proceedings in the Cayman Islands.
However, in VTB Capital Plc v Malofeev [2011] (2) CILR the Cayman Islands Court of Appeal held that the Grand Court could not grant leave to serve a defendant out of the jurisdiction where the only relief sought was an interim mareva injunction in support of foreign proceedings. This position has now been reversed by the introduction of s.11A of the Grand Court (Amendment) Law 2014. This provides that the Grand Court may by order appoint a receiver or grant other interim relief in relation to proceedings which:
-
- have been or are to be commenced in a court outside of the Islands; and
- are capable of giving rise to a judgment which may be enforced in the Islands under any Cayman Islands law or at common law
The Commercial Disputes and Litigation Team at Loeb Smith has a wealth of experience in representing clients in applications for mareva injunctions and would be happy to assist with any queries you may have. For more specific advice on applying for mareva injunctions in the Cayman Islands, please contact:
David Harby
The EU’s General Data Protection Regulation (“GDPR”) applies to offshore investment funds with European investors. The Cayman Islands Data Protection Act, 2021 (“DPA”), regulates the processing of all personal data. Inspired by the UK’s Data Protection Act, the DPA includes provisions very similar to GDPR (together “Data Protection Laws”), with certain notable differences.
Even though the DPA applies generally to the processing of personal data and not just to investment funds, within this context and as part of the subscription process, investors are required to provide a government-issued photo ID, source of funds and wealth, contact details, payment details, and tax residence information, or even additional information about employment, dependents, income and investment objectives (the “Investor Personal Data”), which are processed and stored by or on behalf of the investment fund (the “Fund”) and/or by one or more of the service providers to the Fund. Some of the processing may be done by different parties in various jurisdictions.
Within the context of investment funds, the Administrator, Transfer Agent, Distributor, and the Investment Manager of a Fund may fall within the definition of a Data Controller or Data Processor. To ensure compliance with GDPR and/or DPA, the Fund’s Board of Directors should review the contractual arrangements with these parties and may need to appoint a Data Protection Officer. As a reminder, the Board of Directors of the Fund is required to supervise third party service providers and ensure that there are sufficient measures in place to protect Investor Personal Data. Privacy Notices in the Fund’s offering documents would need to be updated to ensure that investors are fully aware of where their Personal Data is being processed, by whom and for what purpose.
For ease of reference, a brief comparison between GDPR and the DPA is included below.
Comparison of the Main Provisions
GDPR | DPA | |
Personal Data | Any information relating to an individual who can be identified, directly or indirectly, from that data (including online identifiers such as IP addresses and cookies may qualify as personal data if they are capable of being linked back to the individual). | Same as GDPR |
Data Controller | The person who, alone or with others, determines the purposes, conditions and means of the processing of Personal Data.
|
DPA applies to any Data Controller in respect of Personal Data (a) established and processed in the Cayman Islands; or (b) processed in the Cayman Islands otherwise than for the purposes of transit . |
Privacy Notice | At the time of collection of the data, individuals must be informed of the purposes and detail behind the processing, the details of transfers of data and any security and technical safeguards in place. This information is generally provided in a separate privacy notice. | Same as GDPR |
Right to Access | Individuals have the right to obtain confirmation that their Personal Data is processed and to access it. Data Controllers must respond within a month of the access request. A copy of the information must be provided free of charge. | Same as GDPR, but the DPA permits a reasonable fee to be charged. |
Retention Period | Personal data should not be kept for longer than is necessary to fulfil the purpose for which it was originally collected. Controllers must inform data subjects of the period of time (or reasons why) data will be retained on collection. | Not a requirement under DPA. However, as with the GDPR, if there is no compelling reason for a Data Controller to retain Personal Data, a data subject can request its secure deletion.
|
Right to Erase | Should the individual subsequently wish to have their data removed and the Personal Data is no longer required for the reasons for which it was collected, then it must be erased. Data Controllers must notify third party processors or sub-contractors of such requests. | Same as GDPR |
Transfers | International transfers permitted to third party processors or between members of the same group. | Same as GDPR. |
Data Security | Minimum security measures are prescribed as pseudonymisation and encryption, ability to restore the availability and access to data, regularly testing, assessing and evaluating security measures. | Appropriate technical and organisational measures must be taken to prevent unauthorised or unlawful processing of Personal Data and against accidental loss or destruction of, or damage to, Personal Data . |
Data Processors | Security requirements are extended to data processors as well as Data Controllers | There is no liability for processors under the DPA. However, they may be held liable based on contract or tort law. |
Data Breach | Data Controllers must notify the regulatory authority of Personal Data breaches without undue delay and, where feasible, not later than 72 hours after having become aware of a breach. | In the event of a Personal Data breach, the Data Controller must, “without undue delay” but no longer than five (5) days after the Data Controller should have been aware of that breach, notify the Ombudsman and any affected individuals |
Breach Notice | The notification should describe the nature of the breach, its consequences, the measures proposed or taken by the Data Controller to address the breach, and the measures recommended by the Data Controller to the individual concerned to mitigate the possible adverse effects of the breach. | Same as GDPR. |
Right to be Forgotten | An individual may request the deletion or removal of Personal Data where there is no compelling reason for its continued processing. | The DPA contains a similar right, although this is expressed as a general right of “erasure”. Under the UK’s Data Protection Act, the right is limited to processing that causes unwarranted and substantial damage or distress. Under the DPA this threshold is not present. As with the GDPR, if there is no compelling reason for a data controller to retain Personal Data, a data subject can request its secure deletion. |
Right to Object | An individual has the right at any time to require a Data Controller to stop processing their Personal Data for the purposes of direct marketing. There are no exemptions or grounds to refuse. A Data Controller must deal with an objection to processing for direct marketing at any time and free of charge. | Same as GDPR. |
Direct Marketing and Consent | The Data Controller must inform individuals of their right to object “at the point of first communication” and in a privacy notice. For any consent to be valid it needs to be obvious what the data is going to be used for at the point of data collection and the Data Controller needs to be able to show clearly how consent was gained and when it was obtained. | Including an unsubscribe facility in each marketing communication is recommended best practice. If an individual continues to accept the services of the Data Controller without objection, consent can be implied. |
Data Processors | The GDPR sets out more detailed statutory requirements to apply to the controller/processor relationship, and to processors in general. Data Processors are now directly subject to regulation and are prohibited from processing Personal Data except on instructions from the Data Controller. | Best practice would always be to put in place a contract between a controller and processor. Essentially, the contract should require the Data Processor to level-up its policies and procedures for handling personal data to ensure compliance with the DPA. Use of sub-contractors by the service provider should be prohibited without the prior approval of the Data Controller. |
Data Protection Officer | Mandatory if the core activities of the Data Controller consist of processing operations which require large scale regular and systematic monitoring of individuals or large scale processing of sensitive Personal Data. | Does not require the appointment, although this is recommended best practice. |
Penalties | Two tiers of sanctions, with maximum fines of up to €20 million or 4% of annual worldwide turnover, whichever is greater. | Refusal to comply or failure to comply with an order issued by the Ombudsman is an offence. Penalties are also included for unlawful obtaining or disclosing Personal Data . Directors may be held liable under certain conditions .
The Data Controller is liable on conviction to a fine up to CI$100,000 (approx.. US$122,000) or imprisonment for a term of 5 years or both. Monetary penalty orders of an amount up to CI$250,000 (US$304,878.05) may also be issued against a Data Controller |
Further Assistance
This publication is not intended to be a substitute for specific legal advice or a legal opinion. If you require further advice relating to the matters discussed in this Briefing, please contact us. We would be delighted to assist.
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