A recent decision of the Grand Court of the Cayman Islands in Top Jet Enterprises Limited v Sino Jet Holding Limited and Jet Midwest, Incconfirms that the Grand Court has no jurisdiction to “continue leave” in derivative actions commenced in foreign Courts by shareholders of Cayman Islands companies.
The Grand Court decision concurs with the decision in the Court of Appeals of the State of New York in Paul Davis v Scottish Re Group Limited.
New York decision
In Paul Davis v Scottish Re Group Limited the Court of Appeals held that the requirement to seek leave to continue a derivative action in the Cayman Islands was procedural only (and matters of procedure are governed by the laws of the forum). The New York Court therefore did not require the plaintiff to seek leave of the Grand Court of the Cayman Islands to commence the derivative action in New York. The Court of Appeals concluded it would not impose a burden on the Cayman Islands Court to cause delay or otherwise impair judicial efficiency in determining the issue.
Top Jet Enterprises Limited v Sino Jet Holding Limited and Jet Midwest
This case concerned the law and procedural rules applicable to derivative actions by a shareholder of a Cayman Islands incorporated company in a foreign jurisdiction. Top Jet Enterprises Limited (the “Plaintiff”) commenced proceedings in State Court in Missouri, USA. Jet Midwest (the “Second Defendant”) challenged the Plaintiff’s standing to do so in that Court. Prior to that issue being decided by the Missouri Court, the Plaintiff made an application in the Grand Court of the Cayman Islands to seek leave to continue the foreign proceedings, if leave is required, and a declaration that under Cayman Law that it is entitled to bring a claim against the Second Defendant derivatively. The Second Defendant chose not to participate in the Cayman proceedings.
The Honourable Justice Segal of the Grand Court held that there was no jurisdiction for the Grand Court to grant leave to continue a derivative action in a foreign Court commenced by Cayman Islands shareholders. Any challenge to standing of the overseas derivative action would need to be taken in the overseas Court. Leave to continue the Missouri proceedings was therefore not required. Order 15 Rule 12A(2) of the Grand Court Rules, which requires a plaintiff to seek leave to continue a derivative action if a defendant gives notice of an intention to defend, does not apply to foreign derivative proceedings. However, it was noted that the Grand Court might exercise a “supervisory jurisdiction” with respect to derivative actions commenced in foreign Courts by Cayman Islands shareholders, for example, by granting declarations for use in the foreign Court.
The hearing was in fact ex parte, on notice, since the defendant to the Missouri action, although served, decided not to attend the Grand Court hearing. For this reason the decision may be said to have more limited utility than if it arose from a contested hearing.
US jurisdictions often appear to regard derivative actions as governed by the procedural law of the forum hearing the derivative action. In other jurisdictions, such as Hong Kong, it is the opposite. For example, in Wong Ming Bun v Wang Ming Fan  1 HKLRD 1108 the Hong Kong Court of First Instance considered which law governs the question of standing to bring a derivative action. Mr Justice Peter Ng, in striking out the claim, decided that the ability to bring a derivative action in relation to a BVI company was a substantive matter of BVI law.