Alternative Dispute Resolution in the Cayman Islands in the Time of COVID-19

As COVID-19 wreaks havoc throughout the global economy – disrupting supply chains, creating liquidity crises and roiling business relationships – the prevalence of commercial disputes is expected to increase dramatically. Almost invariably, parties will wish to resolve their disputes as amicably, cost-effectively and promptly as possible. Indeed, it is often critical that differences are resolved so that parties can continue their mutually-beneficial relationship with minimal disruption. It follows that, despite the unprecedented constraints on business and movement currently in place in the Cayman Islands and elsewhere around the world, the dispute resolution show must go on.

Thankfully, parties finding themselves in disputes subject to the laws of the Cayman Islands have a wealth of methods at their disposal to resolve them. While the Cayman Courts are highly regarded for their efficiency and the quality of their judgments, alternative dispute resolution (“ADR”) methods can potentially facilitate the faster, lower cost, more flexible and private resolution of disputes of all sizes. It is timely to consider ADR when the caseload of the Cayman Courts is anticipated to rise sharply over the coming months and years, likely slowing the wheels of public justice.

This article outlines the main ADR processes available to parties to Cayman disputes and highlights some of their potential advantages. It is important for parties to consider ADR at the outset of a dispute, even where a contractual dispute resolution procedure exists, before embarking on a dispute resolution process that may be ill-suited to the dispute or where preferable alternatives may exist.

What is ADR?

There are myriad ways in which disputes can be resolved, however the four broad categories of ADR addressed in this article are negotiation, conciliation, mediation and arbitration. As these four methods are often confused and misunderstood, it is helpful to define each of them and to distinguish them from one another:

1. Negotiation is a non-binding process by which parties attempt to resolve disputes by discussion between them, typically without the involvement of any third party.
2. Mediation is a non-binding process by which parties meet with a mutually selected, impartial third party (typically an accredited mediator, attorney or subject-matter expert) who assists them to resolve their dispute. A mediator’s focus is on resolving the dispute amicably by listening to the parties’ public and private concerns with a view to identifying mutually acceptable terms on which the parties would be willing to settle their dispute. In practice this is typically achieved by a plenary session at the outset of the mediation at which each party has an opportunity to make their case to all parties and the mediator, followed by a process of ‘shuttle-diplomacy’ in which the mediator liaises separately with each of the parties to discuss confidentially their position with a view to brokering a settlement on agreed terms.
3. Conciliation, often considered to be a variant of mediation, is a non-binding process by which parties engage an impartial third party to facilitate the resolution of their dispute. Unlike mediation, in which the mediator assists the parties to find a solution to the dispute themselves, the conciliator takes on a more active role in the resolution of the dispute, proactively offering recommendations and formulating settlement proposals. Conciliation may be more appropriate than mediation if the relationship between the parties has become acrimonious or otherwise broken down.
4. Arbitration is a binding process by which parties agree to refer a dispute between them to a tribunal comprising one or more arbitrators who privately and confidentially determine the dispute and issue a written ‘award’ recording their decision, which (subject to very few exceptions) is recognised and enforced internationally among 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards contracting States (which include the Cayman Islands) as if it were a judgment of the local court in which the award is sought to enforced.[1] Arbitrations seated in the Cayman Islands are subject to the Arbitration Law (2012 Revision) (“Arbitration Law”), which is based on the UNCITRAL Model Law on International Commercial Arbitration 1985.[2]

The four ADR processes above are to be contrasted with litigation, which is the resolution of disputes by the courts.

If the parties to an ADR process reach a settlement, it is typically recorded in a formal Settlement Agreement which creates enforceable contractual rights holding each party to their bargain.

Which disputes are amenable to ADR?

Almost all commercial disputes in Cayman are amenable to resolution by ADR, and public policy encourages parties to resolve disputes without resorting to litigation before the courts. For example, the Arbitration Law provides that parties may agree to resolve any dispute by arbitration unless the arbitration agreement is contrary to public policy or, pursuant to another Cayman law, the dispute is not capable of determination by arbitration.[3]

In practice, exclusions from the general rule allowing the resolution of disputes by ADR are rare. However, an important exception concerns insolvency proceedings, which must be conducted under the supervision of the Court.[4] However, even in this area, the Cayman Courts have shown an increasing willingness to give effect to arbitration agreements. In three recent cases,[5] the Cayman Courts have held parties to their arbitration agreements even in the context of insolvency proceedings. While only the Court can grant the remedy of a winding up order, the Court has been willing to stay such proceedings in favour of the parties first resolving the issues underpinning the winding up petition by arbitration. Accordingly, even where the ultimate relief sought is statutory in nature, and reserved to the Courts, it will often be possible first to undertake an ADR process.

Why should ADR be considered?

Parties and their advisors should always consider at any early stage of a dispute which method is best suited to resolving the dispute. This will be influenced by factors such as the identity of the parties, and the nature and value of the dispute, as well as considerations such as the importance of confidentiality, speed, cost and procedural flexibility to the parties.  Although there is a tendency in Cayman for litigation to be the default method of dispute resolution, an early assessment of potential dispute resolution processes will frequently conclude that ADR offers distinct advantages over going to Court.

A unifying feature of the above ADR processes is that are all consensual. Save for court-mandated ADR (which, with the exception of compulsory mediation in the Family Division of the Grand Court, is uncommon in Cayman) and some rare exceptions beyond the scope of this article, parties cannot be compelled to negotiate, mediate, conciliate or arbitrate against their will. Accordingly, it falls to one or other of the parties proactively to propose ADR as a means by which to resolve a dispute. In principle, such a proposal can be made at any stage of a dispute.

Sophisticated parties will commonly include in their standard contracts, or seek to agree in the event of a dispute, a tiered dispute resolution procedure providing for two or more dispute resolution processes. For example, parties may agree to conduct a mediation and, should that fail, to resolve the dispute by arbitration or litigation. Such agreements are prone to drafting errors and legal advice should be sought.

All of the above processes are conducted privately, which is in contrast to litigation before the Cayman Courts. Indeed, in the case of arbitration, the Arbitration Law expressly provides that arbitral proceedings are to be conducted privately and confidentially, and that any breach of confidence shall be actionable.[6] By way of comparison, Cayman Court proceedings are generally conducted in public and members of the public are entitled to attend proceedings in open court and to obtain copies of certain documents in the proceedings (originating processes, orders and judgments are publicly available, and other documents may also be liable to disclosure to third parties). Avoiding “airing your laundry” and the attendant risks of adverse publicity, reputational damage and the establishment of precedents are often prized by disputants.

Whereas court proceedings adhere to relatively rigid rules of procedure, and the Court unilaterally assigns a judge to a particular case, ADR offers the parties almost boundless flexibility to tailor the procedure to their dispute and to select the most appropriate third parties to facilitate a resolution. Many ADR institutions offer mediation, conciliation and arbitration administration services, including procedural rules which the parties are largely free to adapt by agreement if they wish.

The flexibility afforded by ADR also extends to the selection of mediators, conciliators and arbitrators. This can prove invaluable as a means by which to ensure the right person is assisting the parties to resolve their dispute. For example, parties involved in a dispute concerning a highly technical issue – such as occurs in cryptocurrency and other FinTech disputes – can select a mediator or arbitrator who has expertise in the specific subject matter of the dispute. This can achieve significant time and cost savings.

Another potential advantage of ADR during the current period of widespread social distancing protocols is that ADR can more readily be conducted remotely via the use of telephone and video conferencing facilities than can litigation, where constitutional, procedural and public accessibility considerations may complicate matters. Many mediation service providers are now offering virtual mediations and arbitral institutions are establishing e-hearing platforms to address the increased demand for remote dispute resolution. While the number of Cayman judges is limited, there are a plethora of ADR practitioners both in Cayman and around the world who are available at short notice to assist parties with the prompt resolution of their disputes.

What if ADR fails to resolve the dispute?

Parties employing non-binding ADR processes such as negotiation, mediation and conciliation typically use these methods as a precursor to a binding dispute resolution process such as arbitration or litigation if the parties are unable to reach a settlement. Indeed, the threat of a subsequent binding process is often a powerful motivator encouraging settlement. If the parties are able to resolve their dispute at any early stage, without recourse to a binding process, they will almost invariably have saved considerable time and money.

Non-binding ADR processes are almost always conducted on the basis that they are not only private and confidential, but also without prejudice, which means that parties cannot refer to or rely upon anything said by a party during the ADR process in subsequent legal proceedings.

Conclusion

At a time when economic conditions are ripe for disputes, it is prudent for parties to consider their existing dispute resolution procedures and the options available to them to resolve disputes should they arise. ADR may offer real advantages over the traditional approach of litigating.

In the event of a dispute, or where there is potential for a dispute, we encourage you to speak with an attorney at an early stage to discuss your options for its resolution. It may be that ADR can facilitate the mutually beneficial resolution of your dispute, save you significant time and money, and help to get your commercial relationship back on track with minimal disruption.

This article provides general guidance only and specific advice should be sought by reference to your individual circumstances. Please do not hesitate to get in touch with the author should you have any questions or if Campbells may be able to assist you in relation to matters of Cayman Islands or British Virgin Islands law.  

Andrew Pullinger

Partner

+1 345 914 5865

apullinger@campbellslegal.com

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