As an autonomous British Overseas Territory, the legal framework of the Cayman Islands shares much in common with England and Wales (as well as other common law jurisdictions across the Commonwealth).  While the common law in the Cayman Islands has in some respects been modified in light of the unique circumstances of the jurisdiction, the common law in general, and English common law in particular, remain highly influential in the development of jurisprudence in the Cayman Islands.  This common law underlies and informs many of the key mechanisms by which claimants may seek recovery of assets, such as proprietary tracing claims and claims in unjust enrichment.

The common law is supplemented by numerous items of statute, including the Companies Act, which sets out the framework for liquidators to recover assets on behalf of insolvent companies (including statutory rights of action for recovery) and distribute them to creditors; the Bankruptcy Act, which governs bankruptcies of individuals; the Fraudulent Dispositions Act, which allows for the avoidance of fraudulent dispositions of property; and the Proceeds of Crime Act, which regulates recovery of assets by state authorities.

In addition, rules of Court such as the Grand Court Rules and Companies Winding Up Rules (the latter applying to corporate winding up and related proceedings) regulate the procedural framework in which civil claimants are able to prosecute and enforce rights of recovery.

Furthermore, the Cayman Islands is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (via an extension by the United Kingdom), which has been incorporated into local law by the Foreign Arbitral Awards Enforcement Act.

The types of assets that may be the subject of civil recovery proceedings are diverse.  Court rules specifically provide that enforcement orders may be made in relation to real property, goods, and money.  Non-statutory actions may also be brought for the recovery of misappropriated property (such as proprietary claims), which in theory encompasses any kind of real or personal property (including choses in possession and choses in action).  Courts in the Cayman Islands have also granted relief in claims relating to crypto-assets.

In the case of corporate insolvencies, liquidators are empowered to take possession of, get in and (with leave of the Court) distribute the property of insolvent companies; no limit or restriction is provided in the relevant legislation as to the types of property that may be recovered by the liquidators.  Similarly, no such limit is imposed on the types of property that may vest in and be distributed by a trustee in bankruptcy in the case of personal bankruptcies.

The primary civil law causes of action include:

• Equitable proprietary claims: a claimant may assert an equitable proprietary claim in respect of property which they were induced to transfer by fraud. If the subject asset is of a non-fungible character, it is possible for the claimant to “follow” the property into the hands of persons to whom the property has subsequently been transferred; alternatively, if the property is of a fungible character, or if the subject asset has been converted into fungible property (such as cash), those proceeds may be “traced” into the hands of subsequent recipients.  However, a proprietary claim is not available against a party that acquires the subject property (or its traceable proceeds) as a purchaser in good faith without notice of the fraud at the time of receipt.
• Equitable personal claims: if an equitable proprietary claim is not possible (because, for example, a defendant no longer holds assets or traceable proceeds which might otherwise be the subject of such a claim, or where recovery from the original wrongdoer is impossible), an aggrieved claimant may nevertheless seek compensation for their loss by pursuing personal claims in equity arising either from the original misappropriation itself (breach of trust / fiduciary duty claims), a defendant’s receipt of the misappropriated assets (knowing receipt claims), or a defendant’s knowing assistance as a third party to the commission of the original breach of duty (dishonest assistance).
• Unjust enrichment: under this common law action, a claimant may sue a defendant who has been enriched at the claimant’s expense, in circumstances where the enrichment was unjust and no defences are applicable to that enrichment. While what will amount to “unjust” enrichment remains a concept at large; factors recognised as “unjust” include mistake, failure of consideration (i.e. a failure to fulfil a promise made in return for the enrichment), duress, and undue influence. The remedy for such a claim is restitution, and is therefore limited to the recovery of money.
• Statutory avoidance of fraudulent disposition: a creditor who has been prejudiced by the disposition of a debtor’s property may apply to have that disposition statutorily set aside under the Fraudulent Dispositions Act, provided they can establish that the disposition was made with an intent to defraud the debtor’s creditors and that the disposition was made at an undervalue.
• Statutory avoidance claims for liquidators: in the context of corporate insolvency, Court-appointed liquidators are able to pursue statutory claims to recover company assets which may have been inappropriately transferred or disposed of within prescribed timeframes. These are set out in the Companies Act, and comprise: (i) claims to set aside transfers of property made within six months prior to the commencement of the liquidation and in favour of any creditor at a time when the company was unable to pay its debts; (ii) claims to set aside dispositions made at an undervalue (which claims must be commenced within six years after the disposition); and (iii) claims seeking declarations of fraudulent trading where the business of the company has been carried on with intent to defraud the company’s creditors, in which case those persons who were parties to the fraudulent trading may be ordered to make contributions to the company’s assets.

These actions can be distinguished from the procedures available in the case of criminal forfeiture and the recovery of proceeds of crime, which is governed by the Proceeds of Crime Act.  Under that statutory regime, the Cayman Islands Director of Public Prosecutions is given primary responsibility for initiating proceedings (in tandem with conventional criminal prosecutions) for the freezing and recovery of assets identifiable as proceeds of crime.

The type of claim pursued will determine who may have standing to bring the claim.

In civil proceedings outside corporate insolvencies or personal bankruptcies, civil actions for recovery of misappropriated assets may be made by any legal person claiming a previous interest in those assets, including private individuals, corporations, and state agencies. Furthermore, in the case of claims by or against trusts and exempted limited partnerships (which have no separate legal personality), claims may be commenced by or against the trustee on behalf of a trust or the general partner on behalf of a partnership.

Restrictions as to standing apply in certain circumstances. For instance, the shareholders of a company are generally not entitled to bring a claim in their own right on the instance of a wrong committed against the company itself or on the misappropriation of assets belonging to the company; in such cases, it is the company (as the party wronged) that may bring such a claim, and shareholders (in exceptional circumstances) may only prosecute such claims on the company’s behalf (and not in their own personal right). Similar considerations apply in respect of trusts (the trustee being entitled to bring any claim on misappropriated trust property) and Cayman Islands limited partnerships and exempted limited partnerships (where standing vests with the general partners).

In the case of personal bankruptcies, the Trustee in Bankruptcy has standing to commence legal actions relating to the property of the bankrupt. For corporate insolvencies, Court-appointed liquidators have standing to bring the statutory claims set out in the Companies Act.

A statutory state immunity regime applies in the Cayman Islands, being via an extension of the United Kingdom’s State Immunity Act 1978. Under that regime, where a foreign state or government entity commences civil recovery proceedings itself in the Cayman Islands, it will have been deemed to submit to the jurisdiction of the courts of the Cayman Islands in relation to those proceedings, with the result being that state immunity will not apply in those circumstances, resulting in the foreign state or government authority being treated on an equal footing to other claimants in the Cayman Islands.

The Cayman Islands courts may nevertheless decline to exercise their jurisdiction under the doctrine of forum non conveniens, that is, where a defendant to proceedings is able to demonstrate that there exists another forum of competent jurisdiction outside the Cayman Islands which is a more appropriate place for the proceedings to be heard.

The Cayman Islands courts will generally respect and uphold the separate legal personhood of companies, even where companies are wholly owned by another. Veil-piercing (that is, ignoring the separate legal personality of a company) is available only in very limited circumstances, namely where separate corporate entities have been interposed to evade or frustrate the enforcement of an existing legal obligation, liability or restriction.

Where assets are held through intermediaries, civil asset recovery may be complicated by the application of the so-called “no look through” principle, which (for example) may prevent beneficial holders of securities or bonds that are legally held through intermediaries from making claims against the issuing companies.

Issues as to jurisdiction and conflicts of laws are resolved within a common law framework which largely draws on English common law principles as supplemented by local statute. However, the precise jurisdictional issues that may arise in any given case will in large part depend on the type of action that is being pursued.

Generally, jurisdiction may be exercised by the Cayman Islands courts in civil asset recovery proceedings where: (i) the defendant (whether a natural person or a company) is present and served with process in the Cayman Islands; (ii) the parties have contractually agreed to submit to the jurisdiction of the Cayman Islands courts; (iii) if the defendant has otherwise voluntarily submitted to the jurisdiction; or (iv) the courts have granted leave for service out of the jurisdiction. The latter case is a statutory (not common law) basis for the exercise of jurisdiction, and leave may only be granted on a discretionary basis if one of the relevant jurisdictional gateways is established (which, in summary, generally require a connection to the Cayman Islands of the defendant and/or the subject matter of dispute).

In the case of winding up proceedings against companies, jurisdiction is exercised on a statutory basis. The relevant statute (the Companies Act) authorises the making of winding up orders in respect of companies incorporated in the Cayman Islands as well as foreign companies which are either registered in the Cayman Islands, hold property located in the Cayman Islands, carry on business in the Cayman Islands, or are general partners of limited partnerships registered in the Cayman Islands.

Note also that even if the local courts are able to exercise jurisdiction, they may nevertheless decline to do so in favour of a more appropriate forum at the instance of an objecting defendant (under the doctrine of forum non conveniens).

Foreign judgments are enforced by way of common law enforcement (save in the case of Australian judgments, recognition of which is granted by statute), which involves issuing fresh proceedings in the Cayman Islands based on the foreign judgment. The foreign judgment must be final and conclusive (a foreign judgment which is subject to appeal in the foreign country may still be treated as final and conclusive).

Service of the claim must be effected on the defendant, following which the defendant will be required to file an acknowledgment of service and a defence within prescribed time limits. In the absence of such an acknowledgment of service or defence, the claimant may apply for default judgment. If the defendant does file a defence, the claimant may nevertheless apply for summary judgment on the grounds that the defence raised is spurious and that there is no real triable defence to the action. It would be unusual for the matter to go to full trial in the absence of exceptional circumstances, as the merits of the underlying case as determined by the foreign court will generally not be re-examined by the enforcing court in the Cayman Islands.

A defendant may seek to challenge the recognition of a foreign judgment on limited grounds, including that: (i) the foreign judgment was obtained by fraud; (ii) the foreign court lacked jurisdiction to make the judgment against the defendant; (iii) the foreign judgment was obtained in proceedings contrary to natural justice (e.g. where the defendant was denied an opportunity to defend the claim), or where the defendant’s rights were otherwise grossly violated; (iv) the foreign judgment is a type incapable of enforcement in the Cayman Islands (such as tax liability or a fine or other penalty); or (iv) recognition or enforcement of the foreign judgment would be contrary to public policy (such as where the foreign law is repugnant to Cayman Islands law).

In the context of corporate insolvency, the Cayman Islands has not implemented the UNCITRAL Model Law on Cross-Border Insolvency (meaning automatic rights to assistance are not accorded based on a debtor’s centre of main interests being the Cayman Islands). However, the Companies Act provides that foreign-appointed representatives may seek recognition of their right to act on behalf of (or in the name of) a debtor company. Other relief that may be applied for include enjoinment of commencement or staying of legal proceedings against the debtor, as well as the turning over of property belonging to the debtor.

In granting assistance or recognition in the context of cross-border corporate insolvency, the Cayman Islands courts will generally follow and apply the doctrine of modified universalism, which usually accords primacy to the jurisdiction of the debtor company’s incorporation and provides for limits as to the assistance that may be provided (namely that a foreign representative will not be given greater powers or relief than that which could have been enjoyed in their home jurisdiction).

In the context of personal bankruptcies, the Cayman Islands courts are statutorily required to act in aid of other “British courts” (understood to be limited to bankruptcy courts in the United Kingdom and other British territories). Even where a foreign bankruptcy did not arise in such a jurisdiction, recognition may be granted at common law if it is established that the bankrupt was subject to the jurisdiction of the foreign court, and that the foreign court would be prepared to grant recognition reciprocally to bankruptcy orders issued by the Cayman Islands courts.

As to evidence, the Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters applies in the Cayman Islands (by way of extension by the United Kingdom). Under the enabling rules of court, Cayman Islands courts may grant letters of request for information and testimony from witnesses outside of the Cayman Islands; conversely, the Cayman Islands courts also receive letters of request in respect of witnesses located within the Cayman Islands and make orders compelling the examination of those witnesses in relation to proceedings in another convention state. In addition, the Companies Act (in corporate insolvencies) allows foreign representatives to apply for orders requiring persons in possession of information relating to the business or affairs of a debtor company to submit themselves to examination or the production of documents.

In appropriate cases, claimants may apply for freezing orders from Cayman Islands courts, which restrain a defendant from disposing with or otherwise dealing with their assets pending the outcome of proceedings against them. Freezing orders operate in personam, but will also bind third parties who have been put on notice of the orders.

While such orders provide an effective mechanism for the preservation of assets pending the outcome of litigation, the grant of such orders is considered something of a nuclear option. Such orders will therefore only be granted if the claimant can establish that: (i) they have a good arguable case against the defendant; (ii) the defendant has assets within (or, in the case of worldwide freezing orders, outside) the Cayman Islands; (iii) there exists a real risk of the assets being dissipated where those assets would otherwise be available to meet any judgment which might be obtained against the defendant; and (iv) it is just and convenient for the freezing order to be made. (However, a risk of dissipation need not be shown if the claimant asserts a proprietary claim to the assets to be subject to the freezing order, such as in an equitable proprietary claim.) Furthermore, a claimant will be required to provide a cross-undertaking as to damages, and will be under a duty of full and frank disclosure in making any application for a freezing order.

The Cayman Islands courts may alternatively grant what have been referred to as “notification injunctions”, which require a defendant wishing to dispose of their assets to notify the claimant in advance so as to afford the claimant an opportunity to seek an order preventing the proposed disposition. Such an order may be granted where a freezing order will be too intrusive, but where the grounds for a freezing order have otherwise been made out.

Furthermore, claimants may apply for ancillary freezing injunction against a third party under the so-called “Chabra jurisdiction”, that is, where a claimant establishes a good arguable case that the third party holds assets which are in fact beneficially owned by, or under the control of, the ultimate defendant. The claimant will also be required to establish a risk of dissipation, as well as to show that the grant of Chabra relief is just and convenient.

Investigative tools that may be available to civil litigants in the Cayman Islands in asset recovery proceedings include:

• Anton Piller orders: these search orders are extremely intrusive injunctions which require respondents to allow the claimant’s solicitors to enter their premises, search for, and remove all items covered by the order. Owing to their extremely intrusive nature, applicants seeking such search orders will be required to establish: (i) an extremely strong prima facie case; (ii) very serious harm (actual or potential) to the claimant; (iii) clear evidence of the respondent being in possession of potentially-incriminating evidence; and (iv) a real prospect of the destruction of that evidence.
• Norwich Pharmacal orders: these orders require disclosure of documents or evidence by third-party respondents necessary to identify the proper defendant to civil proceedings or to obtain information to plead a claim. Applicants seeking such relief must establish that: (i) a wrong has been committed (or it is arguable that a wrong has been committed) by an ultimate wrongdoer; (ii) Norwich Pharmacal relief is necessary for the applicant to commence proceedings against the wrongdoer; and (iii) the third-party respondent has become “mixed up” in the wrongdoing.
• Bankers Trust orders: these orders require third-party respondents to provide information or evidence of financial activities which can aid in the identification, recovery, or preservation of misappropriated assets. An applicant seeking such relief must establish: (i) good grounds to argue that relevant assets in respect of which information is sought belonged to the applicant; and (ii) real prospects of the information sought leading to the recovery or preservation of those assets.
• Liquidators’ statutory investigative powers: under the Companies Act, Court-appointed liquidators of insolvent companies are empowered to exercise a number of potential investigative tools to aid in the recovery of the companies’ assets, including: (i) requiring specific individuals to submit formal statements as to a company’s affairs and assets under pain of criminal penalties; (ii) taking possession and control of the company’s books and records (which liquidators are indeed duty-bound to do); and (iii) applying for court orders directing compulsory examination of relevant persons (including for letters of request in respect of potential witness situated abroad).

In addition, for the purposes of identifying the identify of defendants in as well as the potential quantum of equitable claims (whether proprietary or personal), claimants are able to utilise evidentiary rules of following or tracing, with special rules applying in respect of fungible assets that have been “mixed” with other assets of the same type (although the basis of application – which could potentially be first-in/first-out, rolling charge, or pari passu distribution – will vary from case to case).

As noted in relation to question 5 above, claims available for the recovery of misappropriated assets (or for compensation in respect of losses suffered) under Cayman Islands law include unjust enrichment (a common law restitutionary cause of action), equitable proprietary claims (equitable claims in rem), equitable personal claims (essentially vindicatory claims), and statutory avoidance claims.

Generally, the limitation period for civil asset recovery claims is six years from the date on which the relevant cause of action accrues. However, if a defendant has acted fraudulently and/or deliberately concealed any fact based on which a claimant would otherwise have been entitled to bring an action, the limitation period will generally not begin to run until the claimant has discovered the fraud and/or concealment (or could with reasonable diligence have discovered it).

Where a claim is made to recover real property, a limitation period of twelve years will generally apply.

In the case of a claim by a beneficiary under a trust in respect of fraud committed by the trustee or the conversion of trust property by the trustee, no limitation period applies.

In common with other common law jurisdiction, a claimant in civil asset recovery proceedings is required to establish their case on the balance of probabilities.  This contrasts with the standard of proof applicable to criminal proceedings, which requires the prosecution to establish its case against an accused beyond reasonable doubt.

In general, the burden of proof lies with the claimant, who is required to positively establish their case against any defendant. Where a defence is raised in response to a claim (such as in response to a claim for unjust enrichment), the burden of proof will lie on the person raising the defence.

In limited circumstances, the burden of proof may be partly or completely displaced by statute. For example, where an action is commenced in respect of shares in a Cayman Islands company, the Companies Act establishes a rebuttable presumption that the company’s register of shareholders is an accurate record, meaning that a party who claims an ownership of shares but who is not listed on the register as the holder of those shares will be put to the burden of establishing their entitlement. Furthermore, in statutory claims by liquidators to set aside dispositions of company property made in preference of certain creditors, the Companies Act mandatorily deems a disposition to have been made preferentially if it was made to a creditor that was a related party of the company (although the liquidators would nevertheless be required to prove that the payment was made at a time when the subject company was insolvent).

Potentially available defences include:

• Limitation: where a limitation period applies to a claim and proceedings have been commenced past the expiration of the period, a defendant may apply to have the proceedings against it struck out or dismissed on that basis.
• Bona fide purchaser for value: where an equitable proprietary or personal claim is brought against a defendant who has acquired misappropriated assets (or their traceable proceeds) for value and without notice of the misappropriation at the time of receipt, this can be pleaded as a defence to such claims. This defence, if made out, will extinguish any equitable proprietary or proprietary claim as against both the defendant and any other person who subsequently derives title from the defendant (unless the property is subsequently re-acquired by a person, not being a bona fide purchaser for value, against whom equitable claims would otherwise have been available).  Lack of notice at the time of receipt of the property suffices in this regard; even if the defendant subsequently learns that the assets were initially misappropriated, this does not “revive” the equitable claims.

Furthermore, in the context of statutory avoidance of dispositions fraudulently made at an undervalue, if the transferee establishes that they did not act in bad faith, they will be entitled to a charge over the transferred property for all of their reasonable costs incurred in defending the avoidance proceedings.

• Laches: the defence of laches may apply in respect of equitable claims where there has been an unreasonable delay by a claimant in asserting their right, resulting in circumstances in which it would be unjust to grant the claim. Generally, this will require evidence either of acquiescence on the part of the claimant or a change in position on the part of the defendant.
• Change of position: where a defendant is sued for unjust enrichment, they may raise by way of defence that their reliance on the receipt of the benefit has resulted in a change in their circumstances which would render it inequitable to require restitution on their part (whether wholly or in part). A defendant raising this defence must establish a causal link between the enrichment and the change in position, and that they acted in good faith without knowledge of the mistake or wrongdoing; dishonesty or notice of the “unjust” circumstances at the time of receipt may defeat any such defence.
• Covenant not to sue: in certain limited circumstances, a contractual covenant not to sue may be available as a defence of sorts. For example, where a shareholder of a company seeks to wind up the company as part of an asset recovery strategy, it will be barred from doing so if the shareholder’s agreement with the company (whether in the company’s articles or otherwise) contains a covenant not to commence winding up proceedings.

Where an innocent third party is in receipt of misappropriated property, the degree to which their interests may be protected in the context of an asset recovery claim will depend in large part upon the type of action commenced. However, for any interests to be eligible for protected, it will generally be necessary for those third parties to have acquired their interest in the assets as bona fide purchasers without notice of the misappropriation (that is, they must have provided good value for the assets acquired, and they must not have had any notice of the impropriety of the dealing of the assets at the time of acquisition), or at least not have acted in bad faith.

Equitable claims cannot be pursued against such bona fide purchasers (and they are not infrequently called “equity’s darlings” in equitable contexts).

Furthermore, where “tracing” procedures are employed in the context of equitable claims, the court will be careful so as to adopt an approach that does not favour the plaintiff’s claim to the detriment of the interests of both other potential plaintiffs and innocent third parties.

Where a third party who has not acted in bad faith is subject to a statutory avoidance claim, if the relevant transaction is avoided then allowance may be made for any legal costs reasonably incurred by that party in defending the action, and the setting aside of the transaction will be subject to that party’s proper fees, costs, pre-existing rights, claims and interests.

Third parties who are made defendants to an unjust enrichment claim may seek to raise a defence to such claim, such as change of position. (Note, however, that the mere fact of having spent any funds or assets transferred to them will not suffice to make good that defence.)

If insolvency proceedings (winding up or bankruptcy) are employed as part of an asset recovery strategy, the creditors of the insolvent company or bankrupt will generally rank pari passu in the distribution of assets from the liquidation or bankrupt estate. However, secured creditors have an additional layer of protection as assets the subject of a secured interest will not fall into the ambit of any liquidation or bankrupt estate.

Although there has not yet been any explicit judicial or statutory pronouncement as to whether crypto-assets (including cryptocurrencies) amount to “property” in the legal sense, it is noteworthy that recent judgments from the English courts have indicated a willingness to accept (at least certain types of) crypto-assets as property at law (see e.g. AA v Persons Unknown [2019] EWHC 3556 (Comm); Tulip Trading v Van Der Laan [2023] EWCA Civ 83; D’Aloia v Persons Unknown [2024] EWHC 2342 (Ch)). While the question remains untested in the Cayman Islands, it is likely that the Cayman Islands courts will follow the English approach; further, the Cayman Islands courts frequently handle complex and high-value crypto fraud, insolvency and recovery cases, and it is likely that the courts will grant relief in respect of crypto-assets in asset recovery proceedings.

There has also been implemented in the Cayman Islands a statutory scheme (in the Virtual Asset (Service Providers) Act) for the regulation of crypto-asset service providers in the Cayman Islands and thecustody, control and protection of virtual assets held on behalf of clients. This regime adopts a working definition of a “virtual asset” as a “digital representation of value that can be digitally traded or transferred” (excluding digital representation of fiat currencies).

While there are no publicised cases as of yet in which a Cayman Islands court has granted interim relief in respect of crypto-assets, as noted above it is likely that the courts will grant the same interim relief as would be available in respect of conventional assets (as to which see question 10 above).

As a practical matter, ownership of crypto-assets and other digital assets follows control of private cryptographic keys (meaning it is likely that interim relief may allow for access to or control of those keys), although relief as granted may extend to hardware wallets (so-called cold wallets) and wallets controlled by crypto exchange service providers or other custodians (though the applicable contractual or trust terms may determine who holds the beneficial interest in such wallets and therefore whether relief in respect of such wallets would be justified in any given case).

The investigative tools available for identifying and following digital asset transactions will be likely to mirror the array available in respect of conventional assets, as noted in relation to question 11 above.

It is worth noting that recent developments in the English common law suggest that, at least for some types of crypto-assets (such as Bitcoin and some types of stablecoin), procedures more akin to following (as would apply to non-fungible assets) rather than tracing may be applied so long as satisfactory evidence is provided in this regard.

Potential challenges in obtaining information in relation to digital asset transactions will include: (i) the reluctance of service providers to provide assistance in the absence of court orders; (ii) the provision of inaccurate, inconsistent, or unreliable client information, especially in cases of exchanges operating in jurisdictions with different KYC regimes or in cases of fraud; (iii) distinguishing and following traceable assets across multiple transactions and through “mixers” (which may frustrate tracing efforts using standard blockchain analysis); and (iv) difficulty in compiling court-facing evidence when using blockchain tracking analyses, especially because some providers of or platforms for tracing analyses will use proprietary software.

The general rule is that “costs follow the event”, meaning that at the conclusion of recovery proceedings, costs will be awarded in favour of the successful party.

Such orders will usually grant costs on the “standard” basis, which will entitle a successful party to recover a portion of their costs reflecting the amount “reasonably incurred” in a manner proportionate to the issues raised in the claim, which in practical terms may range from between 50% to 75% depending on the particular case.

However, where a party is held to have acted particularly unreasonably (such as by failing to accept a reasonable settlement offer which would have put the party in a better position than the final outcome of the proceedings), the court may order costs (whether in respect of a fixed limited period or otherwise) on the “indemnity” basis, which is a much more generous basis of assessment which can result in recoveries ranging from 75% to 95% of costs incurred.

In any given case, the are generally at liberty to agree costs among themselves (if this can be achieved). Where proceedings are settled, it will not be unusual for parties to agree for each to bear its own costs (although other arrangements may also be agreed).

The common law principles of champerty and maintenance formerly restricted third-party funding, contingency fee arrangements, and conditional fee arrangements. However, these common law restrictions were abolished in the Cayman Islands in 2021, when the Private Funding of Legal Services Act came into effect. This new statutory regime permits third-party funding agreements (which are required to be in writing but at present are otherwise left to be self-regulated between funders and stakeholders), contingency fee arrangements (also known as damages-based agreements, which must be in writing, signed by the client, subject to a 33.3% recovery cap, and contain a cooling-off period), and conditional fee agreements (also known as “no win no fee” agreements, which must be in writing, signed by the client, and contain a cooling-off period).

Rules of court allow the Cayman Islands courts to grant security for costs at the instance of a defendant to a claim, where the defendant can establish that the claimant (i) is ordinarily resident outside the Cayman Islands; (ii) is a claimant in name only and is suing for the benefit of some other person, and there is reason to believe that the claimant themselves will be unable to pay the defendant’s costs if so ordered; (iii) has not stated their address correctly or at all on the original process (excepting cases of innocent mistake); or (iv) has changed their address during the course of the proceedings with a view to evading the consequences of the litigation. This relief is discretionary and will require the Court to be satisfied (in addition to the matters noted previously) that it is just to order security for costs in the particular case.

One of the most significant effects of insolvency proceedings in the Cayman Islands is that they give rise to a statutory moratorium on proceedings against the subject company: no new legal proceedings may be commenced, and no existing proceedings may be continued, except with court leave. This does not, however, apply to secured creditors seeking enforcement of pre-existing security rights against the subject company.

All other proceedings, whether of a personal or proprietary nature, will not be capable of further prosecution in the absence of court leave. Such leave may be granted on a discretionary basis where (i) prospective claimants establish they have an arguable case to be litigated; and (ii) the court considers that it would be “fair in the context of the liquidation as a whole” for the liquidators to have to deal with the burden of the proceedings.

Claimants seeking to litigate a proprietary claim would usually be advised to notify the liquidators of the property in respect of which they claim (for the purposes of ensuring that the property is not disposed of prior to the determination of their claim), and to apply for leave of the court to commence or continue proceedings for the recovery of the assets the subject of the proprietary claim.

On claims of a personal (and not proprietary) nature, claimants would (unless granted leave to commence or continue proceedings) rank in the liquidation as unsecured creditors.

Conversely, where liquidators are appointed in respect of an insolvent company whose assets have been misappropriated, any cause of action for recovery of those assets will vest in those liquidators. As noted previously, liquidators are also able to bring statutory avoidance claims in respect of preferences or transactions at an undervalue and to seek contribution from persons where they were involved in any fraudulent running of the company’s business, however the liquidators will require sanction of the court to bring legal proceedings for those purposes.

See generally in relation to question 23 above.

The key practical challenges facing practitioners in asset tracing and recover largely mirror those in England and Wales, namely that there are limitations on the information that is available before proceedings are commenced.  Also, in common with other offshore jurisdictions, fewer details about companies are available from the Companies Registries.

These challenges can be overcome to a large extent in appropriate cases by the use of orders requiring the provision of information and documents, including Norwich Pharmacal and Bankers Trust orders (as to which, see further the responses to questions 11 above and 26 below).  In the context of corporate liquidations, liquidators may require the company’s former directors, officers, employees or professional service providers to provide written statements of the company’s assets and liabilities, and may exercise further statutory powers to require the provision of information or examination of relevant parties (supported by court orders as necessary).  Similar duties to provide evidence or testimony upon examination can be imposed upon bankrupt persons and any persons concerning the bankrupt’s property, dealings or affairs.

Plaintiffs who are entitled to multiple causes of actions or avenues of relief will wish to consider carefully each cause of action available to them in order to ascertain which will best align with their strategic objectives. A key factor that very often determines the cause of action adopted will be the precise form of remedy that will be available in the event of a successful claim: for example, equitable proprietary claims may entitle a plaintiff to recover the exact property which has been misappropriated in any case (or its traceable proceeds); statutory avoidance claims may be used to a similar effect (given the relief granted will be the effective reversal of the avoided transactions); common law claims and equitable personal claims will generally be limited to the recovery of money.

Another factor that is prominent in many cases – particularly where injunctive relief is under consideration – will be the degree and scope of the information available to a plaintiff about any prospective defendant(s), especially any information that may found genuine concerns as to the dissipation of assets or the destruction of evidence. Where there is insufficient evidence, for example, as to the identity of the defendant(s) but the plaintiff is aware of related third parties who may have been involved (whether innocently or otherwise) with any misappropriation of assets, a Norwich Pharmacal order or Bankers Trust order may be considered.

While it is possible for Cayman Islands civil proceedings to be stayed in favour of other related proceedings (including criminal or regulatory actions), such stays are not granted as a matter of course. Any party (including any public authority) wishing to have a proceeding stayed will generally be required to make an application to the court, and will be required to put forward evidence or otherwise establish that it is in the interests of justice for a stay to be granted.

In 2025, the Cayman Islands continued to enhance its regulatory, enforcement and asset-recovery framework, reinforcing its alignment with UK and international standards and demonstrating an increasingly outcomes-focused approach to compliance. These developments are particularly visible across sanctions enforcement, beneficial ownership transparency, AML supervision, cross-border judicial cooperation and digital asset recovery.

A significant development was the extension to the Cayman Islands of the United Kingdom’s Sanctions (Miscellaneous Amendments) (Overseas Territories) Order 2025. The Order materially expanded the scope of entities subject to sanctions compliance by broadening the definition of “relevant firm” to include, among others, crypto-asset exchange and wallet providers, art market participants, high-value dealers and insolvency practitioners. These entities are now subject to mandatory sanctions screening and reporting obligations, including duties to report suspected designated persons or frozen assets, as well as annual frozen-asset reporting requirements introduced in 2025. The inclusion of insolvency practitioners, who represent a key pillar of the Cayman Islands’ financial services sector, is particularly notable, ensuring that sanctions compliance is embedded into insolvency and asset-recovery processes. The Order also clarified the scope of permitted “required payments” under asset-freeze regimes, confirming that statutory, regulatory and court-ordered payments may continue subject to notification, thereby balancing enforcement objectives with commercial practicality.

The Cayman Islands has also advanced its corporate transparency agenda through reforms to the beneficial ownership regime. Amendments in 2025 refined the legal definition of “beneficial owner”, including clarification of trustee reporting obligations, and expanded direct access to beneficial ownership data for enforcement bodies such as Customs and Border Control. These reforms facilitate more efficient asset tracing and enforcement in both criminal and civil contexts, particularly in fraud and corruption cases, while increasing compliance expectations for corporate service providers, fund administrators and trustees. Regulators have begun enforcing these obligations through financial penalties, signalling a more robust supervisory stance.

In parallel, the Cayman Islands is preparing for the FATF’s Fifth Round Mutual Evaluation, which has driven a renewed emphasis on demonstrating effective outcomes rather than mere technical compliance. Throughout 2025, regulators and financial institutions have focused on strengthening risk-based supervision, improving the quality and follow-up of suspicious activity reporting, and ensuring that freezing, confiscation and forfeiture powers are used promptly and effectively. This has been accompanied by more assertive AML enforcement by the Cayman Islands Monetary Authority, including significant administrative fines for deficiencies in customer due diligence, transaction monitoring and enhanced scrutiny of high-risk activity.

Judicial developments further underscore the jurisdiction’s pro-enforcement stance. The courts have demonstrated a willingness to cooperate with and support foreign proceedings through pragmatic use of domestic tools, including the restoration and liquidation of dissolved companies to facilitate overseas regulatory and fraud actions. Recent decisions have also clarified that the threshold for obtaining freezing relief is the orthodox “serious issue to be tried” standard, lowering practical barriers for claimants seeking to secure assets at an early stage. The courts of the Cayman Islands have shown readiness to grant freezing orders over Cayman-situated assets in support of common law enforcement of foreign judgments, while balancing comity through appropriate third-party protections.

Finally, digital asset recovery has emerged as a key growth area. The phased implementation of the Virtual Asset (Service Providers) Act has introduced licensing and enhanced supervision of crypto exchanges and custodians, improving accountability and enforceability. The Cayman Islands has also adopted the OECD’s Crypto-Asset Reporting Framework, extending transparency expectations into the digital asset space. Early judicial engagement with crypto-related insolvencies and fraud reflects a willingness to adapt traditional remedies to novel asset classes. Collectively, these developments reinforce the Cayman Islands’ position as a cooperative, enforcement-ready jurisdiction, committed to preventing the misuse of its financial system while supporting effective cross-border asset recovery.