Exploring Offshore Litigation Harneys

In the recent decision of AA v JTC (Cayman) Limited, the Grand Court of the Cayman Islands sets out for the first time the principles applicable to an application by an enforcer of a STAR trust for the Court's approval of a 'momentous' decision in relation to the proposed exercise of the enforcer's fiduciary powers.
The 'momentous' decision for which the approval of the Court was sought was the enforcer's decision to instruct the trustee to exercise certain rights attached to shares held by the trustee for the benefit of the trust. The exercise of these share rights was central to the purpose of the trust.
The Court was satisfied that an enforcer has standing to apply for the Court's blessing of a 'momentous' decision on the same legal basis as a trustee, having had regard to sections 48 and 102 of the Trusts Act and the inclusion of "enforcer" in the relevant Grand Court Rule (Order 85, rule 7(1)) relating to applications under section 48 of the Trusts Act. Accordingly, the Court would apply the principles established in Public Trustee v Cooper [2001] WTLR 901 in relation to 'Category 2' cases where a trustee seeks the Court's blessing for a momentous decision.
In such cases, the Court will consider the following questions:
Does the trustee or enforcer have the power to enter into the proposed transaction?
Is the Court satisfied that the trustee or enforcer has genuinely concluded that the proposed transaction is in the interests of the trust and the beneficiaries and/or in furtherance of its purposes?
Is the Court satisfied that a reasonable trustee or enforcer would arrive at the relevant conclusion?
Does the trustee or enforcer have any conflict of interests which prevents the Court form granting the approval sought?
In this case, the Court approved the enforcer's decision, it being satisfied that:
the enforcer clearly had the power to give the relevant instruction;
the enforcer had genuinely decided that the proposed instruction to the trustee was in the best interests of the trust and in furtherance of the purposes for which it was established;
a reasonable enforcer could have reached the same decision, which had not been entered into precipitously, but following careful deliberation and the receipt of appropriate legal advice; and
the enforcer was not impeded by conflicts of interest. Importantly, the Court noted that what might be considered as potential conflicts of interest were properly identified in discharge of the duty to give full and frank disclosure of such matters when making such an application.
This case provides much welcomed confirmation of an enforcer's standing to invoke the Court's advisory jurisdiction and sets out clearly the questions the Court will consider in determining an application for the Court's approval of a 'momentous' decision under the STAR trust regime.

In the recent Hong Kong case of In the Matter of Sino Oil and Gas Holdings Ltd, Madam Justice Chan of the Hong Kong High Court handed down a judgment, refusing to sanction a scheme of arrangement that was approved at a scheme meeting held in December 2023.
In this case, the Judge noted that the scheme document had very dense description that was "hard to grapple even for lawyers and the court" and the company made no attempt to describe in a succinct or intelligible manner the key commercial terms and the effect of the restructuring. The Judge highlighted a number of unusual and questionable features of the restructuring that were not drawn to the attention of the court sufficiently or at all in the skeleton arguments for the hearing. The Judge concluded that the creditors were not given sufficient information about the scheme to enable them to make an informed decision at the scheme meeting and therefore refused to sanction the scheme.
In the course of giving the Judgment, the Judge reminded practitioners of their duty to make full and frank disclosure to the Court at the convening hearing which is almost invariably heard on a ex parte basis. To properly discharge their duty, legal representatives are expected to:
provide in the skeleton arguments lodged for the convening hearing, a fair and full summary of the key terms of the restructuring and the scheme and their effect on the creditors. The summary should illustrate the changes on the financial position and the corporate and shareholding structure of the company before and after the restructuring in a way which can be readily understood by the creditors; and
draw to the attention of the Court, at the convening hearing, whether there are terms which are novel, unusual or potentially objectionable, and whether there are issues which have been or may be raised by the creditors.
Where a restructuring is conditional upon a scheme becoming effective or where the terms of the restructuring would have an impact on the return to the creditors under the scheme, the company itself should likewise, provide a full and fair summary on the key commercial terms and effect of the restructuring in the scheme document.
This case provides helpful guidance to companies and their legal representatives who are dealing with restructuring and schemes of arrangement which require sanction of the Court. As a matter of good practice, companies and practitioners in jurisdictions other than Hong Kong should also note and follow these guidelines.

In the recent decision of Justice Webster in Oscar Trustee Limited v MBS Software Solutions Limited, a non-party costs order and the permission for service of such application out of jurisdiction have been set aside on the ground that rule 7.14 of the BVI Civil Procedure Rules 2000 (now rule 7.17 of Civil Procedure Rules (Revised Edition) 2023) cannot be a free-standing gateway for service of an application out of jurisdiction.
The claimant (OTL) is a New Zealand company, who commenced the proceedings against the defendant (MBS) claiming for its return on its investment in a mining project in Turkey under a Hong Kong-law governed contract. MBS successfully sought a stay of the proceedings in favour of parallel proceedings in Hong Kong on the ground of forum non conveniens. OTL sought leave to appeal against that stay but the application was dismissed by the Court of Appeal.
Costs orders were made in favour of MBS against OTL for, inter alia, both the stay application and the leave application.
As the costs orders were not paid, MBS sought a non-party costs order against the two respondents in this application, namely a solicitor in New Zealand and an accountant in Australia, and the application, together with permission for service out thereof, was granted on an ex parte basis in November 2022. Shortly thereafter the respondents filed this application to set aside the order.
The first issue which the Court had to decide on was whether the Civil Procedure Rules 2000 (the Old Rules) or Civil Procedure Rules (Revised Edition) 2023 (the New Rules) apply to the setting aside application as the hearing date had been fixed prior to the commencement date of the New Rules (i.e. 31 July 2023) but the hearing date itself was after the New Rules took effect.
With reference to the transitional provisions of the New Rules, the Court took the view that the Old Rules should be applied.
The Court went on to consider rule 7.14 of the Old Rules, which provides that "…An application… order or notice issued, made or given in any proceedings may be served out of the jurisdiction without the court's permission if it is served in proceedings in which court process has been served out of jurisdiction pursuant to rule 7.2…".
MBS relied on the Court of Appeal's decision in Halliwel Assets Inc v Hornbeam Corporation, and contended that as long as the main claim itself qualifies for service out under CPR Part 7, an application in such proceedings can be served out of jurisdiction without leave pursuant to rule 7.14.
Justice Webster refused to follow the interpretation of rule 7.14 in the Halliwel case, noting that its interpretation was not necessary to the decision in that case and, thus being dicta, had no binding authority on another court.
Based on a plain reading of rule 7.14, he concluded the rule can only be relied upon in proceedings where prior permission to serve the claim form out of jurisdiction has been given (instead of just being qualified for), and it cannot form a free-standing gateway for service out of the non-party costs order application.
In this case, the proceedings had already been stayed before the respondents were joined as parties solely for costs purposes, and no prior permission of service out had been sought or granted for the claim form, and accordingly the service out had to be set aside.
This decision serves as guidance as to whether a claim for a non-party costs order can be served out of jurisdiction

After years of having the luxury of endless choices of takeouts, and the abundance of high-end and budget shopping, dining and bars at my doorstep, I finally decided to say goodbye to Hong Kong and moved to Harneys' Cayman Islands office in 2022. Looking back now, I cannot believe how much my life has changed.
Without all the late-night temptations, I became an early riser. The best thing about living in the Cayman Islands, other than not having to file any tax return, is to walk my dog around the North Sound Golf Club early in the morning and watch the most breathtaking sunrise.
Though not as connected as Hong Kong, Grand Cayman is just a short flight away from Miami, and there are direct flights to many major cities in the US including New York, Chicago, Houston, Dallas, Denver and Los Angeles. From there, one can easily travel to Central and South America and the rest of the world.
Since I moved to the Cayman Islands, I have ticked off many of my bucket list experiences, camping in the Grand Canyon, diving in Galapagos, surviving on the survivor island in Panama and cave diving in Bahamas. There will be more to come.
There are many community events in the Cayman Islands. Even the introverted me gets to be a part. From puppy rodeo organised by the local animal shelter to theatre performance organised by local dance studios. There is never a dull weekend.
Last but not the least, Cayman Islands is warm all year long. It is a dream for all the outdoor lovers. If you cannot find me in the office, you can spot me flying through the monkey bars at the calisthenics park or dangling on gymnastics rings in one of the cabanas at public beach.
While occasionally missing the convenience that Hong Kong offers, now I cannot see myself living anywhere else. I would highly recommend anyone considering a move to the Cayman Islands to come and experience the amazing island life.

The recent decision of the Cayman Islands Court of Appeal (CICA) in Minsheng Vocational Education Company Limited (Minsheng) v Leed Education Holding Limited (the Education Group) serves as a pertinent reminder of the Cayman Islands' commitment to upholding arbitration agreements and facilitating the arbitral process.
The judgments of both the Grand Court and CICA highlight the jurisdiction's supportive stance towards arbitration and reinforces the enforceability of interim arbitration measures in Cayman Islands law, consistent with the principles of the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration (the Model Law).
Background
Minsheng is a Cayman Islands company, listed on the Hong Kong Stock Exchange. The Education Group consists of three investment holding companies incorporated in the British Virgin Islands, which hold various investments in education-related projects in the Peoples Republic of China (PRC).
Minsheng, as purchaser, and the Education Group as seller, entered into a sale and purchase agreement for shares (the SPA) in Leed International Education Group Inc, (LIEG) a Cayman company. The SPA was governed by Hong Kong law and contained a Hong Kong International Arbitration Centre (HKIAC) arbitration clause.
In order to facilitate the sale of shares, Minsheng and the Education Group, along with other affiliates, entered into various loan agreements which were governed by PRC law and subject to a China International Economic and Trade Arbitration Commission (CIETAC) arbitration clause.
After the transfer of the first tranche of shares (51 per cent of the LIEG shares), a dispute arose between the parties in respect of the remaining shares, triggering the initiation of arbitrations in both the HKIAC (in respect of the SPA) and CIETAC (in respect of the loan agreements).
Minsheng had enforcement rights under a series of share charges granted by the Education Group over the remaining 49 per cent of the shares in LIEG (the Share Charges), which if the Education Group was successful in the arbitrations would be discharged.
The Education Group was concerned that before the outcome of the arbitration would be determined, Minsheng would seek to enforce the Share Charges and sell the LIEG shares to a third party, putting the shares beyond the Education Groupâs reach should it be successful in the arbitration. To prevent this, the Education Group sought an interim injunction from the Grand Court.
The Grand Court decision
The Grand Court granted the interim injunction restraining Minsheng from exercising the Share Charges until the CIETAC arbitration had concluded (the Injunction). The Injunction was granted subject to two conditions: first, that it was confirmed that CIETAC was unable to grant the injunction sought; and second, that permission was obtained from CIETAC to continue to rely on the Injunction in accordance with the applicable arbitration rules.
The Injunction in this case was regarded as ânot an ordinary injunctionâ but one needed as a matter of urgency to preserve assets and protect the integrity of the pending arbitration. Justice Segal in the Grand Court considered, on the balance, âthe risk of grave and irreparable harmâ would result if the injunction was not granted (and the shares were sold), which outweighed the risk of any prejudice to the restrained party.
The appeal
Minsheng appealed and sought to have the Injunction discharged on the following four grounds:
the Education Group was obliged to first seek relief in either of the foreign arbitrations from the supervisory courts at the seat of the arbitrations;
the Injunction was unavailable because of the competing jurisdiction cause in the share charge calling for judicial resolution;
no preservation of property order could (properly) be made in the case; and
there can be no injunction to restrain enforcement of security.
All four grounds of appeal were dismissed. Taking a closer

Justice Parkerâs decision of in North Sound Pharmaceuticals Inc concerns an appeal against the rejection of a proof of debt in a liquidation. The judgment highlights a number of procedural and practical considerations for would-be appellants and their advisors alike.
The Appellant was the former and sole director and a substantial shareholder of North Sound Pharmaceuticals Inc (the Company). Following a failure by the Company to satisfy a statutory demand, the Appellant entered into an employment agreement with the Company that conferred him with a substantial salary in addition to a severance payment of US$6 million.
On the same day that the winding up petition was filed, the Appellant signed the employment agreement in his capacity as director on behalf of the Company and countersigned in his personal capacity as employee.
The Liquidators rejected the vast majority of sums contained in the Appellantâs proof of debt for a variety of stated reasons, including that the employment agreement was invalid, was entered into in breach of fiduciary duty and constituted a voidable preference. The Liquidators also argued that the employment agreement was void pursuant to s 99 of the Companies Act (2023 Revision) as it was entered into after the commencement of the winding up and was not sanctioned by the Court.
On appeal, the Court determined that the employment agreement was valid, noting it was supported by consideration and that the Appellant was acting as an employee at all material times. The Court recorded at paragraph 98 that: "The fact that the appellant was a director with a significant, but not majority or sole shareholding, does not prevent a claim succeeding against an insolvent company on the basis that he was an employee of that company."
The Liquidators also argued that the Appellant acted in breach of his fiduciary duties in that he entered into the employment agreement at a time when he knew the Company would not be able to settle the statutory demand.
Further, the Liquidators asserted that it was not in the Companyâs best interests to enter into the employment agreement. However, a properly particularised claim for breach of fiduciary duty was not brought against the Appellant.
The Court noted that had a properly formulated claim been brought, the proof of debt appeal was not the appropriate forum to do so, given that it is ââ a summary process which examines the affidavit evidence and the documents, without cross examination and disclosure, and is not the proper forum to determine any claims that involve contested factual questions.â The Court similarly held that the Liquidatorsâ claim that the employment agreement constituted a voidable preference had not been
properly particularised and that, again, the appeal was not the appropriate forum to adjudicate such a fact-dependant claim.
Justice Parker also rejected the Liquidatorsâ argument that the employment agreement was entered into after the filing of the winding up petition. His Lordship observed that the petition was uploaded to the Courtâs online filing system after close of business. Accordingly, the petition was deemed to have been filed the following day under the relevant Practice Direction, rather than on the same day the employment agreement was entered into.
The Court ultimately allowed the appeal and held that the debt was preferential for the purposes of s141 of the Companies Act, as it was a debt owed to an employee. The judgment serves to highlight that the summary nature of the proof of debt appeals process is not appropriate for strongly contested disputes as to fact. It also provides a useful reminder of the importance of timing when filing documents with the Court.