The European Lawyer

Cayman Islands Corporate/Commercial

31 Jul 2010

International Fraud and Asset Tracing - Cayman Islands

Editors: Charles Adams, Ritchie and Duckworth - Graham F Ritchie QC and David W Collier

1. Managing the Internal Investigation
1.1 Introduction
Information is of key importance to any fraud and asset tracing investigation and it should be gathered from the outset of (and continually throughout) any internal investigation. It is critical that the information which is gathered is secured and managed carefully. It is also very important to observe statutory and regulatory requirements which apply to the collection of such evidence so as to ensure that the investigating body itself is not exposed to liability for breach of those requirements. By way of example, when conducting an internal investigation in the Cayman Islands, one needs to have regard to legislation such as the Confidential Relationship (Preservation) Law (1995 Revision) (see below) which has application to all confidential information with respect to business of a professional nature which arises in or is brought into the Islands.
It may be the case that information is obtained through court orders which may include restrictions as to the use to which documents can be put to. It is important to manage such information in a way so as to avoid a breach of such court orders. Similarly, if information is obtained through international legal co-operation (perhaps via a foreign court) there may also be restrictions as to the use to which that information can be put. By way of example, information garnered from a foreign police force or other prosecuting authority may come with a restriction that the information can only be used for the purposes of criminal investigation or prosecution. Clearly, such information should not be used in civil claims without consent of the relevant authority. One must also be aware that information gathered or produced in the course of the investigation needs to be managed in such a way so as to avoid potentially legally privileged information losing protection from disclosure. 

1.2 The Confidential Relationships (Preservation) Law (1995 Revision) (‘The CRPL’)
The disclosure of confidential information in the Cayman Islands arising in a professional relationship is governed by the CRPL. The CRPL was introduced in the Cayman Islands to protect business activities by defining the nature of ‘confidential’ information and explaining the circumstances in which such information may or may not be disclosed.
The CRPL concerns the use of ‘confidential’ information which belongs to an identifiable ‘principal’. Examples of ‘principals’ are attorneys’ clients or banks’ customers. Confidential information must be imparted in the context of a ‘professional relationship’ for the CRPL to apply. For a relationship to be a ‘professional’ relationship there must be duties of a professional nature owed to the principal. Examples of ‘professionals’ are bankers, attorneys, and accountants. Under the CRPL if any such professional person intends or is required to give evidence in any proceeding that person must have the consent of the relevant principal or, failing that, a direction from the Grand Court (the ‘court’) under section 4 of the statute allowing the confidential information to be given in evidence.
It should be noted that there are a number of exceptions to the prohibition against the disclosure of confidential information under the CRPL, (for example, it does not apply to the divulging of confidential information to a police officer of the rank of inspector or above who is investigating an offence committed within the jurisdiction).
It should also be noted that a professional person, entrusted with confidential information, who commits an offence under the CRPL is liable to a fine of $10,000 and to imprisonment for four years.
The impact of the CRPL in the Cayman Islands will be seen throughout this chapter particularly in relation to the evidence gathering process (see, for example, its impact in relation to applications for Norwich Pharmacal and Mareva relief as to which see below).

1.3 Evidence
When an investigation leads to a suspicion that an employee or employees are engaged in fraud, the first priority is to gather and secure ‘hard copy’ and ‘electronic’ documents which contain the information which may form key evidence to be relied upon in any subsequent prosecution or proceedings. If witnesses or employees are interviewed by the investigating body, then an accurate written record of those interviews should be kept. It is also important to preserve all relevant evidence uncovered during an investigation including both physical documents and the various types of electronic material which can be held in a multitude of formats (such as hard drives, CDs, servers, desktops, laptops, memory sticks and back-up tapes, palm pilots, printers and even photocopiers). In many circumstances, it will be appropriate to engage the services of an information technology/computer expert to work in conjunction with the investigating body to ensure that all relevant information is uncovered and preserved appropriately.

1.3.1 Computer Misuse Law 2000
When conducting an investigation into a suspected employee’s activities in the Cayman Islands, the investigating body ought to have regard to the Computer Misuse Law 2000 which provides for criminal sanction against those who seek unauthorised access to computer material.

1.3.2 Internal policies
Companies often have their own internal policies in place which govern the way in which employees can be monitored during the course of an investigation. Often employees are required to sign documents consenting to such monitoring and investigation in appropriate circumstances and authorising access to relevant computer material. In companies where such policies are in place it is important to follow those procedures strictly. When carrying out an investigation regard should also be had to employees’ contracts of employment which may also have provisions devoted to the proper use of company information and electronic equipment owned by the company as well as provisions governing any internal investigation by the employer.

1.3.3 Human rights
The Cayman Islands is one of the few jurisdictions in the world that does not yet enshrine at least some human rights in its constitution. Having said that, the Cayman Islands does have a Human Rights Committee which is actively seeking to alter this position. The lack of specific human rights legislation does not, however, mean that human rights are an alien concept in the Cayman Islands; quite the contrary. Citizens and residents of the Cayman Islands can freely expect the right to freedom of association, expression, liberty, privacy, to religious freedom and to a fair trial and the rules of natural justice are well recognised in our jurisdiction. Any investigating body should have regard to these principles when carrying out an investigation. By way of example, if an employee is, as part of an on-going investigation, requested to answer questions as to his activities in a recorded interview, then it may be sensible to allow him the opportunity to attend the interview with a person or colleague of his choice and perhaps even with his counsel depending upon the seriousness of the investigation. Indeed, many companies provide for such eventualities in their internal policy documentation or contracts of employment and these must be adhered to. By way of further example, an investigation involving surveillance of an employee should have regard to that employee’s general right to privacy.

1.3.4 International co-operation
The Cayman Islands recognises that appropriate regulatory and international co-operation is a key driver of its on-going commercial success. The Islands have, therefore, developed strong international co-operation arrangements which may be relevant to international fraud and asset tracing investigations with a Cayman Islands interest. It is not possible to describe each and every statute which exists in the Cayman Islands which may be relevant to fraud and asset tracing investigation but the following are of key importance:

(i) Mutual Legal Assistance Treaty
The Mutual Legal Assistance (United States of America) Law (1999 Revision) (‘MLAT’) gives effect in the Cayman Islands to the Treaty between the United States of America and the United Kingdom relating to mutual legal assistance in criminal matters as set out in the schedule to that law. The main areas of activity under the Treaty are narcotics trafficking, murder, rape, burglary, theft, highjacking, racketeering, securities exchange fraud, insider trading and offences under the US Foreign Corrupt Practices Act. The Treaty applies only to criminal conduct, common to the jurisdiction of both parties and specifically excludes purely tax related matters. Under article 16(2), the parties to the Treaty must also assist each other to the extent permitted by their respective laws in proceedings relating to, inter alia, the forfeiture of the proceeds of criminal offences and the restitution to the victims of criminal offences.
It should be noted that the CRPL is deemed not to apply to confidential information disclosed pursuant to the terms of the Treaty.

(ii) The Proceeds of Criminal Conduct Law (2007 Revision) (‘The PCCL’)
The PCCL criminalises the laundering of proceeds of crime (except for the proceeds of drug trafficking which is dealt with under the Misuse of Drugs Law). The PCCL also enables the restraint and freezing of the proceeds of crime, the disclosure of information about them and the confiscation or forfeiture of assets. Under the PCCL, on the application of the Attorney General, on behalf of the government of a designated country (in a foreign jurisdiction), the court may register an external confiscation order made in the foreign jurisdiction if:
• the amount under the external confiscation order is at least $30,000 (it can be less if the Attorney General certifies that it is in the public interest to register the order); and
• it is satisfied that, at the time of registration, the order is in force and not subject to appeal; and
• it is satisfied, where the person against whom the order is so made did not appear in the proceedings, that he received notice of the proceedings in sufficient time to enable him to defend them; and
• it is of the opinion that enforcing the order in the Cayman Islands would not be contrary to the interests of justice.
The Financial Reporting Authority (CAYFIN) was established under the PCCL. When in receipt of information pointing to the laundering of the proceeds of crime or when requested on reasonable grounds to do so by an overseas counter-part agency, CAYFIN is authorised by the PCCL to apply to the court for an order restraining the proceeds pending the investigation within the Islands or pending the institution of proceedings in the designated foreign country, which may lead to the confiscation of the forfeiture of those proceeds. Pursuant to section 28(1) of the PCCL where a person discloses to CAYFIN information concerning the proceeds of criminal conduct, suspected proceeds of criminal conduct, money laundering, suspected money laundering, terrorism, or the financing of terrorism, the disclosure shall not be treated as a breach of any restriction upon the disclosure of information by any other law in the Cayman Islands (such as under the provisions of the CRPL). Furthermore, under the PCCL, persons disclosing information concerning the proceeds of criminal conduct are given immunity from civil suit.

(iii) The Evidence (Proceedings in Other Jurisdictions) (Cayman Islands) Order 1978
This Order (which extended to the Cayman Islands the provisions of the Evidence (Proceedings in Other Jurisdictions) Act 1975 of the United Kingdom) allows the court of the Cayman Islands to provide assistance to foreign courts and tribunals in order to obtain evidence for use in criminal and civil proceedings, once such foreign proceedings have been commenced, or in the case of civil proceedings, if institution is contemplated. The Cayman Islands Grand Court Rules (Order 70) enables the court to assist foreign courts by ordering the examination of witnesses by any fit and proper person nominated by the person applying for the order or by such qualified person as the court thinks fit and/or by ordering the production of documents. The evidence of witnesses is generally given by way of deposition to the appointed examiner. When granting an order for the examination of a witness by the appointed examiner, the court may also give directions in relation to possible applications under the CRPL if it is anticipated that the witness will be required to give evidence of a confidential nature which is subject to the CRPL.

(iv) Regulatory co-operation
The Cayman Islands Monetary Authority (‘CIMA’) has responsibility for the regulation and supervision of financial services in the Cayman Islands. It also has responsibility for the monitoring of compliance with money laundering regulations. CIMA has a statutory obligation to co-operate with its foreign counterparts and to provide assistance to other regulators upon request on a worldwide basis.

1.4 Privilege in conducting an internal investigation
It is important to maintain privilege over documents (such as internal notes) brought into being for the purpose of the internal investigation and in contemplation of subsequent court proceedings. English cases are of strong persuasive authority to the court and certainly in the area of professional privilege it has generally followed English authority. So, for example, it is likely that the court will apply the principles flowing from the House of Lords decision in Three Rivers District Council v The Governor and Company of the Bank of England [2004] UKHL 48.

1.4.1 Legal professional privilege
This category of privilege is divided into legal advice privilege and litigation privilege.

Legal advice privilege
Communications between a party and his attorney are privileged and protected from disclosure provided that they are confidential and written to, or by, the attorney in a professional capacity and provided the dominant purpose of the communication is to provide legal advice or assistance concerning the client’s rights. Legal advice is not confined to telling the client the law, but includes advice about prudent and practical steps in a relevant ‘legal context’. However, such communications will not be protected by privilege if the provision of advice is not given in a ‘legal context’. Legal advice privilege will therefore attach to all communications between a lawyer and his client provided they are directly related to the performance by the attorney of his professional duty as legal advisor.

Litigation privilege
This protects confidential communications made after litigation is commenced or where litigation is contemplated between (a) a lawyer and his client, (b) a lawyer and his non-professional agent, or (c) a lawyer and a third party, for the sole or dominant purpose of such litigation whether that be for seeking or giving advice in relation to it, or for the purpose of obtaining evidence to be used in it. As with legal advice privilege, it is necessary that the communication in question be confidential.
Examples of documents that would be protected by litigation privilege are, inter alia, communications with the client or his foreign lawyers concerning the proceedings, communications with counsel, draft pleadings, witness statements and expert reports.
Where proceedings are not yet commenced, it is important to note that litigation must reasonably be in prospect rather than just being a possibility for the protection against disclosure to apply.
Particular care must be taken with respect to documents generated by an internal investigation. If a document is brought into existence for more than one purpose, it will only be privileged under this head if the dominant purpose for which it came into existence was that of submitting it to a lawyer for advice and use in litigation, actual or anticipated.
Finally, it should be noted that a party is not entitled to assert legal professional privilege over communications which came into existence as a step in the furtherance of fraud (see, for example, Argentine Holdings (Cayman) Limited v Buenos Aires Hotel Corp.SA 1997 CILR 90 at page 106).

2. Pre-Action Disclosure from Third Parties
2.1 General
The general rule in the Cayman Islands, is that an application for pre-action discovery will not be allowed against a person in the absence of there being a cause of action against him. There are, however, exceptions to this rule:

2.2 Norwich Pharmacal Relief
2.2.1 Nature of relief
In the English case of Norwich Pharmacal Co. v Customs Excise Commissioners [1974] AC 133, the House of Lords reaffirmed the long established rule that no independent action for discovery may be brought against a person where no separate cause of action for some wrongdoing can be alleged against him. One exception to this general rule is in circumstances where the court places an obligation on a third party to assist a plaintiff, where that third party became inadvertently caught up in the wrongdoing of others, to enable him to pursue an action against the wrongdoers. Such relief which is available to litigants in Cayman is commonly known as ‘Norwich Pharmacal’ relief.

2.2.2 Availability of the relief
On an application the court must be satisfied that:
• the third party against whom the order is made is a person who is somehow involved or ‘mixed up’ in the wrongdoing; and is not someone who is a ‘mere’ potential witness in the action; and
• the interests of justice favour the making of the order.

2.2.3 Scope of the relief and the impact of the CRPL
If the court is satisfied that it is appropriate to grant Norwich Pharmacal relief, the third party will be required to give ‘full’ information to assist the plaintiff in the prosecution of any action, including disclosing the identity of any wrongdoers and disclosing information to enable the plaintiff to trace and recover misappropriated assets or their proceeds. The third party’s reasonable expenses for complying with the order will be provided for.
Where the third party is a bank, trust company or some other financial institution, invariably, the order for disclosure will result in the third party being required to disclose confidential information within the meaning of the CRPL. In that event, the order for Norwich Pharmacal relief will usually require the third party to make an application under section 4 of the CRPL within a specified period of time.
In exercising its jurisdiction under the CRPL, the court will consider matters of public policy and the interests of innocent third parties and will, if it considers it appropriate, impose conditions and restrictions on the disclosure of information under the Norwich Pharmacal order (Deutsche Sudamerikanische Bank v Codelco 1996 CILR 1).
It is, however, critically important to understand that the CRPL is not a ‘blocking statute’. It will not stifle the prosecution of a ‘just claim’ and where, for example, a plaintiff has established a prima facie case of breach of trust or fraud, the court, subject to protecting the confidentiality of any innocent third party and addressing any issues of public policy which may arise, will normally authorise the disclosure of confidential information relevant to the pursuit of that just claim.

2.2.4 ‘Gag’ order
When seeking to obtain information from a third party by way of Norwich Pharmacal relief, it may well be appropriate to also secure what is commonly referred to as a ‘gag’ order at the same time thus preventing the respondent from disclosing the existence of the proceedings or the order made to any third party (other than his own counsel). This will ensure that the wrongdoers who will be identified are not ‘tipped off’ that the net is closing in.

2.3 Bankers Trust Relief
2.3.1 Nature and availability of relief
Where a party has shown a strong prima facie case of fraud or breach of trust, the court will apply the principles annunciated in Bankers Trust Co v Shapira [1980] 1 WLR 1274 in ordering discovery against banks (or other professional institutions) in the Cayman Islands and will consider itself duty bound to assist the victim to trace, recover and preserve assets to which the party might make a proprietary claim (Kilderkin Investments v Player 1980-1983 CILR 403, per Summerfield CJ at 406 and C Corp v P 1994-95 CILR 189 per Smellie J (as he then was) at 203).

2.3.2 Scope of relief
Provided a proper case can be made out for the granting of such relief, it matters not that the party holding the information does so as a fiduciary of the fraudster or whether he does so as an entirely neutral and innocent person. The duty to provide full information arises irrespective of any duty of confidentiality that the bank might owe to the wrongdoers (Corp v P 1994-95 CILR 189 at 203 per Smellie J (as he then was)).
In practice an application against a third party for pre-action discovery will seek an order from the court both under its Norwich Pharmacal and Bankers Trust jurisdiction; the latter being generally viewed as potentially wider in scope allowing for production of, for example, banking documents such as bank statements, cheques, correspondence etc.
Such relief may also be granted in substantive proceedings by way of an ancillary order to a Mareva injunction against a bank who has been joined in the action.

2.3.3 Notice
Whether the application is by way of pre-action discovery or within the confines of an existing substantive proceeding it is invariably made without notice to the wrongdoer.

2.3.4 Implications of the CRPL
Given that information disclosed pursuant to a Bankers Trust order is almost inevitably confidential information within the CRPL, the bank or professional person will be obliged to make an application to the court for directions relating to the disclosure under CRPL section 4.

3.   Preservation of Assets  
3.1 Operation of freezing injunctions
Those charged with the responsibility of investigating potential fraudulent conduct will need to give consideration to taking steps in the relevant jurisdictions to preserve assets allegedly misappropriated by the wrongdoer and/or the wrongdoer’s own assets. The court has the discretionary power to grant injunctive relief where it is ‘just and convenient’ to do so. In this context we are concerned with two types of injunctions. The first (and most common) is known widely as a Mareva injunction so named after the English case named Mareva Compania Naviera SA v International Bulk Carriers SA [1980] 1 All ER 213 which recognised the court’s jurisdiction to grant such relief. Such injunctions have the effect of restraining a wrongdoer from removing, disposing of or otherwise dealing with his assets whether within or without the jurisdiction of the court. Mareva injunctions will be granted in respect of assets sufficient to satisfy an anticipated or existing judgment.
The second type of injunction is commonly referred to as a proprietary freezing injunction. This type of injunction seeks to restrain the disposal of assets where the plaintiff claims to be the true owner of those assets and wishes to preserve those assets intact until the court has determined the question of ownership. It is invariably necessary for those advising a defrauded company to consider both types of injunctive relief.

3.2 Grounds for granting a Mareva injunction
The following factors must be present for a Mareva injunction to be granted:
(i) the applicant must show a good arguable case on the merits of the claim, meaning that the court must conclude on the affidavit evidence filed that the applicant’s case is not merely one that could just succeed but that in fact has reasonable prospects of succeeding; and
(ii) the applicant must show that there is a real risk based on solid evidence of dissipation or removal of assets from the jurisdiction so that any judgment obtained may not be satisfied. Mere unsupported statements or expressions of fear of such a risk is unlikely to have much impact with the court, however, if a strong arguable case of fraud can be established, that may be sufficient for the court to infer that there exists a real risk of such dissipation; and
(iii) the applicant must show that there is reason to believe that the defendant has assets within the jurisdiction to meet any judgment wholly or in part; and
(iv) that it is otherwise just and convenient to grant the injunctive relief sought. In practice, if an applicant can establish those matters referred to in sub-paragraphs (i)–(iii) above, then it is likely that the court will conclude that it is just and convenient to grant such relief.

3.2.1 Other requirements
An applicant is normally required, as a condition of obtaining a Mareva injunction, to give a cross-undertaking in damages. That is an undertaking that the applicant will pay damages to the defendant for any loss sustained by reason of the injunction if it subsequently transpires that it ought not to have been granted. Sometimes the court requires (in the case of foreign plaintiffs) for such an undertaking to be fortified.
The court has no power to grant an interlocutory injunction except in protection or assertion of a legal or equitable right which it has jurisdiction to enforce by way of final judgment (The Siskina (1979) A.C. 210).

3.2.2 Third parties
The Mareva injunction will always be implemented in a manner that takes account of the interests of banks and innocent third parties and a third party can apply to the court to vary or discharge the injunction. Where the Mareva injunction would lead to interference with the performance of a contract between the third party and the defendant that relates specifically to the assets the subject of the Mareva injunction, the right of the third party to his contract prevails over the plaintiff’s desire to secure the defendant’s assets for himself against the day of judgment. If a third party claims ownership of the assets that are the subject of the Mareva injunction, the court can, if appropriate, direct a further inquiry into the claim, and could order it to be tried as a preliminary issue of the main action or await the result of the trial. However, a third party who has notice or knowledge of a domestic Mareva injunction may be guilty of contempt of court if he acts in a way which diminishes the effectiveness of the injunction by, for example, aiding and abetting the enjoined party in his efforts to dispose of or remove assets, the subject of the Mareva injunction.
Worldwide Mareva injunctions differ from domestic injunctions in that third parties who are abroad will not be affected by the order until the order is recognised by the foreign court by way of separate proceedings commenced in that foreign jurisdiction.

3.2.3 The grant of worldwide Mareva injunctions
A plaintiff may know (or a disclosure order may reveal) that some or perhaps all of the defendant’s assets are situate abroad. In such circumstances, a plaintiff may seek an injunction prohibiting the defendant from disposing of his assets worldwide. A worldwide freezing injunction is an exceptional order and a plaintiff will at the very least have to show a strong case that the defendant’s domestic assets are insufficient to satisfy any future judgments, and that there is a real risk that the defendant’s assets which are situated abroad, will otherwise be unavailable to satisfy the plaintiff’s claim (Hampshire Cosmetic v Mutschmann 1999 CILR 21 and J.P. Morgan v Macro Fund 2002 CILR 569).
As a condition of granting a worldwide freezing injunction, the court will require a number of undertakings from the plaintiff. The most important of the undertakings are:
(i) not without the leave of the court to begin proceedings against the defendant in any other jurisdiction or use information obtained as a result of an order of the court in this jurisdiction for the purpose of civil or criminal proceedings in any other jurisdiction; and
(ii) not without the leave of the court to seek to enforce the freezing injunction in any country outside the Cayman Islands or seek an order of a similar nature including orders confirming a charge or other security against the defendant or the defendant’s assets.
The undertaking at (i) above is required to prevent a multiplicity of proceedings between the same parties and on the same subject matter and, so far as the use of information is concerned, it seeks to protect the defendant’s right to privacy. The undertaking at (ii) above is sought to ensure that the plaintiff cannot act oppressively by seeking multiple foreign orders freezing the defendant’s assets.
The position of third parties in relation to worldwide freezing injunctions has been considered by the court and the court has generally followed English authority such as Babanaft International Co SA v Bassatne (1990) CH 13. A worldwide freezing injunction is not intended to affect third parties resident outside the jurisdiction unless and until there is an order of a foreign court with jurisdiction over them. This is to counter what would otherwise be seen as an improper assertion of exorbitant extra-territorial jurisdiction.
In relation to third parties outside the jurisdiction, the standard form worldwide freezing injunction now embodies the following provisions:
‘(2) Effect of this Order outside the Cayman Islands – The terms of this Order do not affect or concern anyone outside the jurisdiction of this Court until it is declared enforceable or is enforced by a court in the relevant country and then they are to affect him only to the extent they have been declared enforceable or have been enforced UNLESS such person is:
 (a) a person to whom this Order is addressed or an officer or an agent appointed by power of    attorney of such a person; or
 (b) a person who is subject to the jurisdiction of this Court and (i) has been given written notice   of this Order at his residence or place of business within the jurisdiction of this Court and    (ii) is able to prevent acts or omissions outside the jurisdiction of this Court which constitute   or assist in a breach of the terms of this Order.’
In order for a plaintiff to succeed in persuading a court to grant an injunction over assets outside of the jurisdiction, he must show:
• that there are foreign assets to freeze; and
• that there are insufficient assets within the jurisdiction to satisfy the likely judgment; and
• that there is a high risk of disposal of the foreign assets; and
• that there exists exceptional circumstances warranting such an order; and
• that there is evidence that such an order, if made, will likely be effective to preserve the assets; and
• that the making of such an order will not conflict with principles of international law.
The cases in which it will be appropriate to grant a Mareva injunction, pending trial, over assets worldwide will be rare. Factors which, in combination, have been held sufficient to justify such an injunction are:
• the plain and admitted intention of defendants to move their assets out of the reach of courts of law;
• the skill they have otherwise shown in moving their assets about by the use of sophisticated financial structures;
• the magnitude of the sums involved.
Whilst dishonesty is not essential to sustaining a Mareva injunction, if there is a good arguable case in support of an allegation that the defendant has acted fraudulently or dishonestly (eg, by being implicated in an ingenious scheme for the misappropriation of funds belonging to the plaintiff) the court may view this as sufficient risk of dissipation to justify granting Mareva relief without requiring further specific evidence of such a risk (see for example Grupo Torras SA v Sheikh Fahad Al Sabah Court of Appeal (Civil Division) Transcript No. 462 of 1997 (21st March 1997)).
In cases where the defendant has few, if any, assets located within the jurisdiction, it will usually be the disclosure provisions of a worldwide freezing injunction that will be of greatest practical value (see below). The freezing of assets, whilst effective against a defendant (because of the unlimited in personam jurisdiction against anyone properly made a party to the proceedings) will be ineffective as against third parties outside the jurisdiction holding assets. But disclosure by a defendant of assets held abroad will enable the plaintiff to apply to relevant foreign courts for local attachment orders.

3.2.4 Proprietary freezing injunctions
As indicated earlier, these are injunctions granted in aid of proprietary tracing claims where the plaintiff contends that the defendant has assets in his possession which belong to the plaintiff. Provided the plaintiff has a good arguable claim, it is generally easier for a plaintiff to obtain such an injunction – even one extending to assets outside of the jurisdiction (Hampshire Cosmetic v Mutschmann 1999 CILR 21 per Smellie CJ at 34). If the plaintiff’s claim to ownership is sufficiently strong, then justice more obviously requires that the assets be preserved pending resolution of the ownership question. Moreover, whilst under an ordinary Mareva injunction the defendant will be allowed to use the funds frozen in his ordinary business and to pay legal fees; in a proprietary injunction this generally will not be permitted whilst he has available unclaimed assets of his own that can be utilised for these purposes.

4. Preservation of Documents
The court has jurisdiction to order on an ex parte application that a representative of the plaintiff be allowed to enter the premises of the defendant for the purpose of inspecting or removing documents or other articles. This search and seizure order is referred to as an Anton Piller Order so named after the English case of Anton Piller KG v Manufacturing Process Ltd [1976] Ch. 55. The primary purpose of an Anton Piller Order is to preserve evidence that might otherwise be removed, destroyed or concealed by or on behalf of the wrongdoer.
It is very extreme relief because, if it is complied with, it will result in the representatives of the plaintiff entering premises (eg, a private home) and searching them and, what is more, doing so before the defendant has put his side of the case to the court. It has been described by Donaldson LJ in Bank Mellat v Nikpour [1985] FSR 87 at page 92 as being one of the laws’ two nuclear weapons (the other being Mareva relief).

4.1 Requirements for the grant of Anton Piller relief
There are four essential pre-conditions for the making of an Anton Piller Order, they are:
• there must be an extremely strong prima facie case;
• the damage potential or actual, must be very serious for the applicant;
• there must be ‘clear evidence’ that the defendants have in their possession ‘incriminating documents or things’ and that there is a real possibility that the defendants may destroy such material before any application inter partes can be heard; and
• the harm likely to be caused by the execution of the Anton Piller Order to the defendant and his business affairs must not be excessive or out of proportion to the legitimate object of the order.

5. Other Preservatory Steps
The court also has the power to make orders in respect of property which may become the subject matter of proceedings or as to which any question may arise therein. The court may make orders providing for the inspection, photographing, preservation, custody and detention of such property. Where the right of any party to a specific fund is in dispute in a cause or matter, the court may, on application, order the fund to be paid into court or otherwise secured.

6. Privilege against self-incrimination
In civil proceedings a person cannot be compelled to answer any question or produce any document or thing if to do so would tend to expose that person to proceedings for an offence or for the recovery of a penalty under the laws of the Cayman Islands (section 55 of the Evidence Law (2007 Revision)). This privilege applies in the context of both injunctions and Anton Piller orders in that the court will not make an order if it would be contrary to the privilege against self-incrimination. Equally, in the context of searches, a wrongdoer is entitled to refuse to deliver up documents which may incriminate him.
However, such privilege shall not apply in relation to proceedings for the recovery or administration of any property, the execution of any trust or for an account of any property or dealings with property in circumstances where the disclosure or production of documents would only expose the wrongdoer to prosecution under Part IX of the Penal Code (2007 Revision).
In any event for privilege to apply, the risk of incrimination must be real and not remote or insubstantial, and it must be established objectively. Moreover, a defendant is not entitled to invoke the privilege simply on the grounds that compliance with an order may tend to show that he has already perjured himself in evidence given in the same proceedings.

7. Procedure
7.1 When steps should be taken
Mareva injunctions and Anton Piller orders may be applied for at any stage of the proceedings, including before an action is commenced in cases of ‘urgency’, where, for example, there is a risk that the wrongdoer will dissipate his assets on learning of the proceedings. However, any application should be made without undue delay. In the event of a significant delay, the application may be refused.

7.2 Without notice applications
Mareva injunctions can and Anton Piller orders invariably will be applied for ex parte that is to say without notice to the respondent. Such ex parte applications are made in cases where there is an element of urgency or where there is a real risk that the purpose of the order would be frustrated by notice being given to the respondent. Where this is the case, applicants are under a strict duty to give full and frank disclosure of all material facts to the court including identification of the strengths and weaknesses of their case. Failure to discharge this obligation could lead to the discharge of the injunction on that ground alone.

7.3 Ancillary orders
The court can, under its inherent jurisdiction, make ancillary orders when granting Mareva and Anton Piller relief designed to ensure the effectiveness of such relief. Such orders include:
• disclosure by the defendant concerning the nature, whereabouts and value of his assets wherever situate;
• disclosure to enable the plaintiff to trace his assets;
• cross-examination of the defendant about his assets;
• delivery up of the defendant’s assets;
• ‘gag’ orders restricting disclosure of the existence of the proceedings to third parties; and
• in an extreme case preventing the defendant from leaving the jurisdiction.

7.4 Breach
Any person who has disobeyed a Mareva injunction (for example by dissipating his assets) or Anton Piller order (eg by destroying documents) is guilty of contempt of court, which is punishable by a fine and/or committal to prison.

7.5 Discharge
The order for an injunction will include a provision enabling the respondent to apply to the court on short notice to vary and/or discharge the injunction. There are a number of bases on which an application for a discharge can be made, for example:
• the respondent may assert that on a proper analysis of the law and facts the applicant has failed to establish that he has a good arguable claim against him;
• that there has been some material change of circumstance since the injunction was first granted which may persuade the court that an injunction may now no longer be necessary or appropriate;
• if the injunction was obtained ex parte that there has been a failure on the part of the applicant to make full and frank disclosure to the court of all material facts; or
• if the plaintiff has been guilty of inordinate delay in prosecuting his action.
An application to vary an injunction may arise, for example, where the respondent seeks an increase in his allowable business/living expenditure or because he requires access to frozen assets in order to meet his legal costs of the proceedings. If the order is in effect a proprietary injunction, the court will be concerned to ascertain whether the respondent has other assets available to him to meet this expenditure and/or legal costs which are not the subject of a proprietary claim.

8. Civil Proceedings
8.1 General
Following completion of the internal fraud investigation, some consideration will need to be given by the defrauded company as to whether to bring civil proceedings and, if so, where those proceedings should be brought and whether those proceedings should be brought in conjunction with satellite proceedings in other jurisdictions. It is not uncommon here in Cayman where a massive international fraud has been perpetrated that proceedings before the court are brought to assist and compliment proceedings in other jurisdictions against the wrongdoer and any third parties who may have assisted in the commission of the fraud or who have handled misappropriated assets. Generally, a litigant may commence an action in Cayman claiming substantive relief if the subject matter of the action and/or one or more of the parties has a sufficient connection with the Islands (Lhasa Investments Limited v International Credit and Investments Co. (Overseas) Ltd. 1994-95 CILR 293 CA). It will be necessary to secure the leave of the court to serve those parties who are resident out of the jurisdiction.

8.2 Asset following and tracing
8.2.1 General
Tracing is sometimes (incorrectly) referred to as a form of claim. It is in fact a process by which assets (or their value) misappropriated by fraudulent activity can be located and recovered by the defrauded party on the basis that he is the beneficial owner of those assets in equity. The principle of following can be applied to identify fraudulently obtained assets which have been passed from one party to another. Tracing can be used where assets have been dissipated or converted and new assets are identified as substitutes for the original assets.
A proposed plaintiff seeking to follow or trace assets and obtain their return, has largely the same causes of action and remedies in the Cayman Islands as are available in England and Wales. Depending upon the circumstances of the case, it may be appropriate to claim the following substantive relief:
• declarations relating to ownership of property (real or personal) in the Cayman Islands;
• tracing orders, orders for accounts and inquiries;
• restitution for breach of fiduciary duty;
• damages for fraud; or
• an order for delivery up of assets.

8.2.2 Following assets
Assets can be followed wherever a fiduciary relationship exists between the parties. The requirement for such a relationship is a recognition that the plaintiff must have an equitable title to the asset he is claiming. While decided case law demonstrates that the courts must ‘discover’ a fiduciary relationship, the class of fiduciaries has been described as generous and open ended and the courts have been ingenious in finding its existence in an appropriate case. For example, a plaintiff may trace in equity if money is paid in consequence of another’s fraudulent misrepresentation or if property is transferred in consequence of an act of deception. The fact that money has been paid into the wrong hands may itself give rise to the fiduciary relationship even if none existed before payment was made.
Assets can be traced even where legal title to misappropriated assets has passed to an innocent volunteer although that innocent volunteer may possibly have a change of position defence if it would be inequitable in all the circumstances to require him to make restitution. However, the right to trace trust property will be lost if it has fallen into the hands of a bona fide purchaser for valuable consideration without notice of the breach of trust. It may nevertheless be possible to trace the wronged party’s equitable interest into the proceeds of sale.

8.2.3 Tracing assets
Tracing is only possible so long as the misappropriated fund (or its value) can be followed in the legal sense that is, so long as, whether mixed or unmixed, it can be located and identified. This pre-supposes the continued existence of the misappropriated money either as a separate fund or as part of a mixed fund or as latent in property acquired by means of such a fund.
Thus, tracing involves the plaintiff being able to establish:
• what has happened to his assets; and
• that identifiable proceeds exist; and
• the identity of the wrongdoer and any third parties who have handled or received them; and
• that the proceeds can properly be regarded as representing the value in the plaintiff’s assets.
Tracing rights subsist only so long as the misappropriated fund can be followed, in the legally understood sense of that term. Dissipation may occur leaving no traceable assets where, eg, the fund was expended on expensive wine which has been consumed.

8.3 Constructive trust claims
8.3.1 Cause of action
A constructive trust arises when equity considers that the legal owner of property should be treated as a trustee of an interest in it for another. In the context of a fraud, any person sufficiently implicated in the fraud can be held liable to account in equity as a constructive trustee with respect to assets fraudulently obtained. This liability to account can arise when a defendant has knowingly received trust property or its traceable proceeds or who has knowingly assisted in a trustee’s breach of trust. While such a person is referred to as a ‘constructive trustee’ he is not in fact a trustee at all, even though he may be liable to account as if he were. The concept of a ‘constructive trust’ is really nothing more than a formula for the granting of relief to give effect to equitable proprietary rights.

8.3.2 Remedies
Where the misappropriated property has been traced into a mixed fund, the court will grant a declaration of charge over the mixed fund representing the value of the misappropriated property. If a mixed fund has been used in the acquisition of property that has increased in value, the defrauded party may stake out an entitlement to a proportionate part of the added value. Similarly if the original misappropriated property has been exchanged for some other asset, the defrauded party may, at his election, adopt the exchange and claim that new asset as his own in equity.
A wrongdoer shall not be allowed to profit from his fraudulent activity or from his use of misappropriated property. For example, any bribes or other unlawful payments which the wrongdoer received shall be held by him as constructive trustee for the defrauded party (Attorney General of Hong Kong v Reid [1994] 1 AC 324 and Codelco v Interglobal Inc 2002 CILR 298) and as constructive trustee he will be obliged to account to the defrauded party for such profits, bribes or other unlawful payments.
The foregoing highlights the remedies available to a defrauded company in equity. It is, however, worth noting that a defrauded company may also have a right of action at common law based on money had and received.

8.4 Tort of conspiracy
8.4.1 Cause of action
A conspiracy consists in the agreement of two or more to do an unlawful act, or to do a lawful act by unlawful means (ICIC v Adham 1996 CILR 89). Thus, the tort of conspiracy is two-fold; conspiracy to use unlawful means, and conspiracy to injure. The latter does, but the former does not, require a predominant purpose to injure.
In order to make out a claim in the tort of conspiracy, a plaintiff will have to establish:
• an agreement, combination, understanding, or concert to injure, involving two or more persons; and
• the unlawful acts or unlawful means by the parties to the conspiracy (ie the fraud); and
• the fact that the fraud was committed pursuant to the agreement to conspire; and
• that the defrauded company had suffered damage as a result of the conspiracy.

8.4.2 Remedies
If the claim in the tort of conspiracy is made out, the defrauded company is entitled to damages directly or indirectly resulting from the conspirators’ acts or omissions. This includes damages for the cost of any investigation required to expose and resist the fraudulent activities (International Credit & Investment Co. (Overseas) Ltd v Adham 1996 CILR 264).

8.5 Fraudulent misrepresentation
8.5.1 Cause of action
Where a defendant makes a false representation, knowing it to be untrue or being reckless as to whether it is true, and intends that the plaintiff should act in reliance on it, then insofar as the latter does so and suffers loss, the defendant is liable for that loss in the tort of deceit.
Not only is a misrepresentation fraudulent if it was known or believed by the representor to be false when made, but mere non-belief in the truth is also indicative of fraud. Accordingly, whenever a person makes a false statement which he does not actually and honestly believe to be true, for purposes of civil liability, that statement is as fraudulent as if he had stated that which he did not know to be true, or knew or believed to be false. Proof of absence of actual and honest belief is all that is necessary to satisfy the requirements of the law, whether the representation has been made recklessly or deliberately. Indifference or recklessness on the part of the representor as to the truth or falsity of the representation affords merely an instance of absence of such a belief.
If the requisite degree of knowledge or recklessness is shown, the defendant’s motives in making the misrepresentation is wholly irrelevant. Provided that there was an absence of actual and honest belief in the truth of his assertion, the misrepresentation is actionable as fraudulent, and no proof of any wicked or other intention (other than an intention to induce) on the part of the representor is required by the law.
Whenever a representation is a continuing one, and the representor subsequently discovers that his representation is false or that there has been a change in circumstances which has rendered it false, then the representor will be under a duty to disclose the changed situation to the representee. Failure to discharge that duty could result in the representor being liable for damages in the tort of deceit.

8.5.2 Remedies
Where a representor has, by his fraudulent misrepresentation, induced a representee to alter his position in reliance on the fraudulent misrepresentation, the representee will be able to bring a claim for damages at common law or for an account of profits in equity. Where the representee has been induced by the fraudulent misrepresentation to enter into a contract with the representor, he may either maintain a claim for damages under the Contracts Law (1996 Revision) or at common law, or repudiate the contract. Moreover, the representee may set up the fraudulent misrepresentation as a defence to any claim or proceeding instituted against him for the direct or indirect enforcement of any contract which he was induced to enter into by the fraudulent misrepresentation.