4 New Square Chambers and IWIRC Cayman Islands Network invite you to join us for an afternoon of talks covering topical issues in offshore attribution & liability, injunctions and insolvency followed by a drinks reception on Monday 23rd May 2022 at The Kimpton Seafire Resort, Cayman Islands.
Senior members of 4 New Square Chambers will pair up with Cayman Islands practitioners to discuss topical issues in offshore litigation including attribution and liability, injunctions and insolvency.
Injunctions following Broad Idea v Convoy
Alecia Johns, Conyers
Sir Geoffrey Vos described the exposition of the law of injunctions by the majority of the seven-judge board of the Privy Council in Broad Idea as ‘ground-breaking’. There are others who think it hardly develops the law at all. Further, whilst it may have provided some clarity in the BVI and other common law jurisdictions, how much of an impact will it have in the Cayman Islands, where the ability of the Grand Court to grant freezing injunctions in support of foreign proceedings has been established in statute for some time?
Indeed, Lord Leggatt (for the majority) held that the Court of Appeal of the Cayman Islands in VTB Capital plc v Universal Telecom Management  2 CILR 94 had ‘anticipated’ the Board’s decision in Broad Idea, but the Cayman Islands legislature had still sought (by way of section 11A of the Grand Court Law) to add an express statutory power to grant interim relief in relation to proceedings commenced in a foreign court which are capable of giving rise to a judgment which may be enforced in the Cayman Islands.
Sir Geoffrey Vos (for the minority) expressed concern about the Board’s decision, particularly in circumstances where different common law jurisdictions have legislated in different ways to cater for their own commercial requirements and expressed his fear that it may take more litigation to sort out the ramifications of the majority’s decision.
Against that backdrop, Matthew Bradley QC, Mark Cullen and Alecia Johns will consider the implications of the Board’s analysis of the purpose of asset freezing injunctions and when, where and against whom interim injunctions may be granted in the future.
Whose knowledge is it anyway? Attribution and vicarious liability
The circumstances in which the fraud and/or knowledge of wrongdoing of a director is to be attributed to the relevant company is one that has vexed courts over the years. This has resulted in a number of recent decisions by the UK Supreme Court and to the issue being considered by the Cayman Islands Court of Appeal in the recent case of AHAB v SICL & Others CICA Civil Appeal No: 15 of 2018. The difficulty arises from the tension between the well-established principle that a properly incorporated company has an identity and legal personality separate from that of its directors and shareholders, and the fact that companies have to act through individuals. In general, the approach to attribution has reflected the need to do justice and balance the competing interests of a victim company
and third parties. As a result, where attribution is necessary to protect the interests of third parties, knowledge is likely to be attributed to the company; however, where attribution would defeat the very purpose of the protection of a particular duty (such as a director’s duties to the company) the courts will be reluctant to attribute the director’s knowledge or fraud to the company to defeat the company’s claim. In Singularis  UKSC 50, the Supreme Court held that, “the answer to any question whether to attribute the knowledge of the fraudulent director to the company is always to be found in consideration of the context and the purpose for which the attribution is relevant”. Graham, Gráinne and Kendrah will consider the circumstances in which the “context and purpose” are likely to justify attribution and where its application remains unclear. This will include consideration of:
- The circumstances in which third parties (such as banks and auditors) may or may not be able to avoid liability to a company as a result of attribution of the fraud of a director;
- The approach to attribution of fraudulent conduct and knowledge where attribution is asserted on the basis the director is the directing mind and will of the company (rather than on the basis of agency). In the recent decision of CPS v Aquila UKSC 49 (in the context of a claim by the company against the directors), the Supreme Court held that there was to be no attribution of the directors’ fraud to the company despite finding that the directors were the directing mind and will of the company (following Bilta (UK) Ltd v Nazir  UKSC 23); albeit a position that is arguably at odds with the concept of “directing mind and will” (as noted in AHAB)).
- Principles applicable in claims brought by victim companies against fraudulent directors and claims by third parties against victim companies.
Mirror, mirror….Reflective Loss: What next?
Fund structures can give rise to thorny challenges when seeking to recover damages. In Sevilleja v Marex Financial Ltd  2 WLR 355 – a case with its origins in the BVI – the UK Supreme Court considered how far the rule against the recovery of reflective loss should apply and whether there remained any point to it. The Supreme Court confined the rule within narrow limits – namely to claims for loss to shareholders resulting from a wrong done to the company where the company also has a cause of action. The rule was explained as a principle of company law rather than as a means to prevent double recovery.
Inevitably, cases testing the limits of this new approach soon followed. In the Cayman case of Primeo Fund v Bank of Bermuda  BCC 1015, arising out of the Madoff Ponzi Scheme, the Judicial Committee of the Privy Council showed a firm resolve to keep the rule in check. It held that there was “no warrant for the application of the reflective loss rule” to turn a loss that was recoverable into one that was not. It also cleared up a debate which had emerged in the English courts (in Nectrus Ltd v UCP Plc  EWCA Civ 57) about the correct time for assessing whether the rule applies and gave some guidance about whether there was a “threshold test”.
Despites these clear steers, numerous new controversies have emerged in the English courts since the Primeo judgment, including:
- How Marex applies to indirect shareholders, to claims for specific performance and what happens when the reflective loss principle clashes with other legal rules such as third party contract rights (Broadcasting Investment Group v Smith  1 WLR 1);
- Whether the ‘Giles v Rhind exception’ has survived (Breeze v Chief Constable of Norfolk  EWHC 942 (QB));
- Whether claimants can take other creative steps to get around a reflective loss problem; and
- Most recently, what happens where funds have arguably avoided or “passed on” losses because investors have redeemed shares (Allianz Global Investors v Barclays Bank  EWCA Civ 353), along with other debates about the position of former shareholders.
In their talk, Peter Hayden of Mourant Ozannes, and Helen Evans QC and Usman Roohani of 4 New Square, will bring you up to date with recent developments. They will also consider where the boundaries of the reflective loss principle are now clear, and where they remain to be tested.
For more information and to RSVP, please contact firstname.lastname@example.org.