Dec 2024
With the rising popularity of alternative dispute resolution globally (including in insolvency related cases), it is important to take stock of where the Cayman Islands currently stands (as a leading jurisdiction in cross-border insolvency and restructuring) on the use of mediation in this context. While there has not been significant use of mediation in this sphere in the Cayman Islands to date, this article explores the strong legal framework which exists to support the use of mediation in such cases as well as the potential benefits to be derived from utilising mediation as part of the jurisdiction’s restructuring and insolvency toolkit.
The Availability of Mediation in the Cayman Islands
In the Cayman Islands, parties may generally opt for (i) private mediation (conducted privately by agreement of the parties) or (ii) judicial mediation (upon referral by the Court and conducted by a sitting judge acting as mediator).
Judicial Mediation
In August 2022, the Grand Court of the Cayman Islands issued a Practice Direction1 encouraging the use of judicial mediation in appropriate cases, noting expressly that several members of the Cayman judiciary have been trained and certified as mediators.
The Practice Direction provides that the Court may refer a matter to judicial mediation at any stage in the proceedings. If so referred, mediation is mandatory and does not require the agreement of the parties for such a referral. Most cases may be referred to mediation, with only a limited category of cases identified as inappropriate for mediation as a matter of policy. These include cases involving (i) a matter of public interest which ought to be heard in open court, (ii) a review of the exercise of a statutory power or discretion, (iii) the commission of a crime or other serious misconduct, or (iv) a litigant in person who is unrepresented by counsel.
The Practice Direction further provides important safeguards as to the confidentiality of judicial mediations and notes that if the matter fails to settle at mediation, it will thereafter be assigned to a different judge.
Private Mediation
Even outside the context of judicial mediation, parties are at liberty to engage in private mediation by mutual agreement at any stage of proceedings or prior to the commencement of proceedings. In such cases, parties are at liberty to choose their preferred mediator and mediation centre. One such centre, based in the Cayman Islands, is the Cayman Islands Mediation and Arbitration Centre (CI-MAC), which opened its doors in 2022. Its roster of mediators includes an impressive list of experienced senior lawyers, and former and present judges from both England and the Cayman Islands.
There are no restrictions on the types of cases which may be referred to private mediation.
Potential Efficacy of Mediation in the Restructuring and Insolvency Context
In the restructuring context, mediation may be used in aiming to secure consensus among various stakeholders via the use of a neutral third party who possesses the appropriate skillset and who may therefore aid in the development of a restructuring plan or a scheme of arrangement with broad creditor support.2
Mediation may also play a crucial role for claims brought by liquidators of an insolvent company against those formerly in control such as claims for breach of directors’ duties, undervalue transactions, or unfair preference transactions. Given the limited funding which may be available in the liquidation estate, and given the unpredictably high costs of litigation, such claims may be ripe for the use of mediation. Equally, some former directors and managers may be keen to have such allegations dealt with swiftly and quietly, without the publicity of a full blown trial.
Mediation has also been used in achieving effective outcomes in a number of high profile cross-border insolvency proceedings such as MF Global Holdings, Lehman Brothers Holdings, and China Fishery Group.3
Projections for the Future Use of Mediation in the Cayman Islands
The Cayman Islands is well poised for the increased use of mediation in the restructuring and insolvency context bearing in mind:
(a) the introduction of the Judicial Mediation Guidelines, which provides a strong framework for court led mediation by judges trained and certified as mediators;
(b) the existence of the CI-MAC mediation centre, which boasts a roster of highly experienced mediators; and
(c) the robust tradition of court-to-court communication and co-operation in cross-border insolvency cases, which may lead to the increased use of mediation where promoted by courts of another jurisdiction where there exists a more established mediation culture.
There are also promising common law developments on the role and power of the Court to mandate mediation (even outside the context of judicial mediation). In the recent English Court of Appeal decision of Churchill v Methyr,4 it was held that the Court does have the power to stay proceedings and to order alternative dispute resolution and that the exercise of such a power in appropriate cases did not constitute an infringement of a party’s right to a fair trial or access to justice under Article 6 of the European Convention on Human Rights. This is an important decision in the Cayman Islands context given that it is likely to be highly persuasive before Cayman Islands courts (even though not strictly binding).
Further, the power of the Court to strongly encourage (or mandate) mediation will be an important tool in fostering a culture of mediation in the Cayman Islands given that there are not many rules-based incentives to mediate as may exist in other jurisdictions, such as costs consequences for unreasonably failing to mediate or detailed pre-action protocols.
Conclusion
It remains to be seen how the use of mediation will develop in the Cayman Islands in the years to come. The existence of a strong legal and judicial framework in support of mediation and a robust tradition of court-to-court communication in cross border cases augurs well for the future of mediation in this sphere.
This article originally appeared in Issue 15 of INSOL I-Read magazine in December 2024.
1Practice Direction No 3 of 2022 – Judicial Mediation Guidelines.
2This was recognised by Justice Ramesh of the Singapore High Court in the matter of Re IM Skaugen SE [2018] SGHC 259.
3See “Mediation as a bankruptcy and insolvency game changer” Scott Atkins and Kai Luck (14 November 2023) https://www.nortonrosefulbright.com/en/knowledge/publications/50ba6f9d/mediation-as-a-bankruptcy-and-insolvency-game-changer
4[2024] Costs LR 249.