Category Archives: Client Advisories

The Economic Substance (Companies and Limited Partnerships) Act, 2018 (the “Act”) was passed on 1 January 2019, introducing economic substance requirements in the British Virgin Islands (“BVI”) for certain BVI legal entities that are not tax “resident” in countries outside the BVI and carry on a “relevant activity” as further specified in the Act.  On 22 April 2019, the International Tax Authority (“ITA”) of the BVI issued a draft Economic Substance Code (the “Code”) to provide guidance and interpretation in respect of the Act (for further information please see our earlier client briefing).

The Data Protection Law, 2017 (the “Law”), currently scheduled to come into force on 30 September 2019, introduces, for the first time in the Cayman Islands, a legislative framework for data protection based on a set of internationally recognised privacy principles.  The Law regulates the processing of all personal data in the Cayman Islands and will impact all entities established in the Cayman Islands, including all investment funds whether or not registered with the Cayman Islands Monetary Authority.  The Law applies irrespective of where personal data is processed and applies to personal data irrespective of individual citizenship or residency.

This note focuses on the specific effect of the Law for investment funds. 

The August 2019 judgment of Kawaley J, sitting in the Grand Court of the Cayman Islands (the “Grand Court”), in Riad Tawfiq Al Sadik v Investcorp Bank B.S.C & Ors (FSD 47 of 2009) has provided litigants with judicial guidance of general application concerning interim payments on account of costs. The reasons provided are the most detailed since the introduction of the interim payments jurisdiction into the Grand Court Rules in 2016, concluding that the Rules contain “an implicit starting assumption that an interim payment should be made”. This is in stark contrast to the approach taken prior to the introduction of the rule, when the inherent jurisdiction to order interim payments was exercised only in “rare and exceptional circumstances”.

On 29 July 2019, the Judicial Committee of the Privy Council handed down its judgment in Skandinaviska Enskilda Banken AB v Conway & Shakespeare (as joint official liquidators of Weavering Macro Fixed Income Fund Ltd) (Cayman Islands) [2019] UKPC 36. The Privy Council upheld the decisions of the Cayman Islands Grand Court and Court of Appeal in finding that certain redemption payments received by Skandinaviska Enskilda Banken AB (Publ) (“SEB”) from Weavering Macro Fixed Income Fund Ltd (the “Company”) shortly prior to the Company’s liquidation constituted voidable preferences and requiring SEB to repay those amounts to the Company’s joint official liquidators (“JOLs”).

On 19 March 2019, the Caribbean Financial Action Task Force (“CFATF”) issued its latest assessment of the Cayman Islands’ AML/CTF/CFP regime (the “March Report”). The assessment evaluated technical compliance (i.e. having legislation in place) but also, for the first time for the Cayman Islands, evaluated the effectiveness of Cayman Islands legislation.

In a Judgment delivered on 2 July 2019, the Grand Court dismissed the Plaintiff’s application to amend his pleading and granted summary judgment in favour of DMS, thus dismissing the entire action in favour of the Defendants without a substantive trial. This recent judgment is concerned with the circumstances in which a management company offering directorship services can become vicariously liable for the acts or omissions of an employee, and also provides a helpful reminder about the threshold for proving “wilful neglect or default” and for obtaining summary judgment and strike out.

The SIB Amendment includes a number of amendments to the Securities Investment Business Law (2019 Revision) (SIBL) in response to the Caribbean Financial Action Task Force’s evaluation of Cayman’s anti-money laundering framework and the Cayman Islands Monetary Authority’s (CIMA) review of the Excluded Person regime under SIBL.
The amendments will affect persons who are currently registered with CIMA as Excluded Persons under SIBL and broadens the scope of the regulatory and supervisory framework for persons conducting securities investment business.

In a judgment delivered on 13 June 2019, the Cayman Islands Court of Appeal (“CICA”) dismissed the appeal by Primeo Fund (in Official Liquidation) (“Primeo”), a Madoff feeder fund, against the 2017 judgment of the Grand Court which had dismissed Primeo’s claims valued in excess of US $2 billion against its administrator and custodian, Bank of Bermuda (Cayman) Ltd (“BBCL”) and HSBC Securities Services (Luxembourg) S.A. (“HSSL”).[1] The CICA’s judgment, which runs to 184 pages, addresses numerous issues that will be of interest to funds industry participants.

In response to the OECD’s global Base Erosion and Profit Shifting (“BEPS”) initiative and EU Code of Conduct Group substance requirements modelled on BEPS Action 5, the British Virgin Islands (“BVI”) has enacted the Economic Substance (Companies and Limited Partnerships) Act, 2018 (the “ES Law”). Similar legislation has been introduced in numerous jurisdictions, including the Channel Islands and the Cayman Islands. We note that a draft Economic Substance Code to accompany the ES Law was issued on 23 April 2019 by the British Virgin Islands International Tax Authority (“ITA”)  and it is expected that following a period of public consultation a final Economic Substance Code will be published shortly. 

Convoy Collateral Limited v (1) Broad Idea International Limited (2) Cho Kwai Chee

In a decision handed down on 17 April 2019, the BVI Commercial Court has given guidance on the scope of its jurisdiction to grant freezing orders in support of foreign proceedings (the so-called Black Swan jurisdiction named after the leading case of Black Swan Investment ISA v Harvest View Limited decided in 2009). In an important decision, Adderley J has held that the BVI Court does not have power to grant a free-standing injunction in aid of foreign proceedings for service outside the jurisdiction on a person who is not resident in the jurisdiction or otherwise subject to the in personam jurisdiction of the BVI Court, notwithstanding the fact that they had considerable assets in the BVI.