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Fishing expedition in the Cayman Islands

In a recent decision of Andre Visser v FFC Fund Ltd the Hon. Justice Parker considered a novel point under Cayman Islands law, namely, the relevant test for discovery of documents held by third parties. Andre Visser (the Petitioner) sought an order for discovery against FFC Fund Ltd (the Company).

He submitted that the discovery was necessary for a fair resolution of his winding up petition issued in 2017.

Background

The Petitioner is a shareholder in the Company. The Company is a Cayman Islands exempted company and is a special purpose vehicle for an indirect equity investment into Citco Group Limited. Citco Group Limited is a wholly owned subsidiary of Citco III Limited (Citco III). The Company is a limited partner of FFC Holdings LP (the Partnership).

Scope of the application

The Petitioner sought discovery from the Company of documents in the possession, custody or power of third parties as follows:

  1. FFC Management Ltd in its capacity as a general partner of the Partnership; and
  2. The directors of Citco III Limited (nominated by the Partnership).

The Company strongly objected to this discovery and argued that allowing for such discovery would be to disregard the separate legal entities that form part of the overall corporate structure and the contractual arrangements between them. Lifting the corporate veil in this way would have serious consequences for the funds industry in the Cayman Islands.

The Petitioner raised four grounds for winding up the Company. Firstly, that he had legitimate expectation that his shares be distributed as was contemplated in 2005 when he invested in the Company. Secondly, that he had lost confidence in the management of FFC Management Ltd. Thirdly, that the Company is incapable of achieving its principal commercial objective. Lastly, that the Company’s affairs require investigation by official liquidators.

Justice Parker accepted the test of relevance for discovery under Cayman law is very broad. Order 3, rule 12 (1) of the Companies Winding Up Rules allows the Court to give such directions as it thinks appropriate in respect of discovery and inspection of documents. Grand Court Rules Order 24, rule 2 (1) provides the Court can order discovery by way of list of documents which are or have been in a party’s possession, custody or power relating to any matter in question between them in the action. Justice Parker echoed the words of Chief Justice Smellie in AHAB v SAAD 2013 (1) CILR 202, where he confirmed the court’s long-standing refusal to allow the process of discovery to be used as a “fishing expedition”.

Decision

The Grand Court refused the orders sought by the Petitioner against the Company in relation to the third parties. The Grand Court held the Company had no direct interest in or rights against Citco III. It only had an indirect financial interest in Citco III through the Partnership. The directors of Citco III primary legal obligations were to Citco III. The Company has no legal right to compel these directors to produce the discovery requested by the Petitioner. In relation to FFC Management Ltd the Grand Court held it was not acting for the Company and it has no obligation to provide it with the discovery requested by the Petitioner.

 

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