Offshore disputes: Centre of the cyclone

The inferno of disputes arising from the financial crisis is finally being reduced to embers. Although this may have caused the volume of commercial litigation in London to plateau, disputes in the main Caribbean offshore centres continue to be very buoyant: several firms report significant double-digit revenue growth in their dispute resolution teams over the past 12 months.

Driven by different dynamics, the Cayman Islands, the British Virgin Islands (BVI) and Bermuda have each developed in their own right as sophisticated jurisdictions in which to litigate – supplemented by the expansion of specialist commercial courts, a raft of high-quality judges and a regular flow of top-drawer London silks to argue significant cases.

Key to the process are the leading offshore firms. ‘Fifteen years ago, offshore firms were not always seen as equal to onshore firms but as providing an ancillary service,’ says Neil Lupton, Cayman partner in Walkers’ global insolvency and dispute resolution group. ‘That has changed enormously: not only do we partner up increasingly with onshore law firms, we are seen far more as equals. The way in which our clients are buying legal services offshore is mirrored by how they are buying them onshore – private equity funds, for example, are very clear on which offshore firms they want to act on contentious and restructuring mandates.’

‘Fifteen years ago, offshore firms were not always seen as equal to onshore firms. That has changed enormously.’
Neil Lupton, Walkers

Phillip Kite, global head of litigation and insolvency at Harneys, adds: ‘The sheer number of big cases that have gone through the BVI and Cayman commercial courts shows offshore to be a real alternative to onshore courts for trial work. Worldwide, litigation and insolvency is now over 50% of our turnover, so we have seen a massive increase in numbers. If you are able to attract the big trials, then you also have discovery and interlocutory hearings, and you need big teams of lawyers to run them.’

Former Freshfields Bruckhaus Deringer partner Nick Segal has been a judge in the Financial Services Division of the Cayman Grand Court since 2015. ‘While I appreciate that I am hardly independent, in my view the Cayman Court deals with a very substantial volume and range of commercial litigation and the judiciary has demonstrated that it has both the expertise and capacity to deal with the largest and most complex cases. Comparatively, Cayman punches considerably above its weight and the local legal community is first class.’

According to Christian Luthi, global head of litigation and restructuring at Conyers Dill & Pearman, the volume of litigation seen in the BVI is ‘partly due to the huge number of companies incorporated in the jurisdiction – around 400,000. The nature of BVI structures, which are primarily small private holding companies, also tends to engender more litigation. Similarly, in Cayman, the amount of litigation is partly due to the large pool of companies incorporated there’.

He acknowledges that ‘a very strong judicial bench and a large and sophisticated Bar’ are factors that give clients comfort to litigate there. ‘Our fastest-growing team has been in the BVI, which has expanded from seven to nine litigators with two new associate hires,’ he adds.

‘We were the first to deliberately move litigators to Hong Kong and place them in the midst of the banks and our traditional clients: it’s paid off very well.’
Andrew Thorp, Harneys

By the numbers

Globally, there are several offshore firms competing for the top spot in disputes. Judged purely by the number of litigators (see table), it is a very tight race. Harneys has 77, including 17 partners; Mourant has 75 (18 partners); followed by Walkers with 71 (23 partners); and Appleby 70 (20 partners). The differences are minimal, but the geographic focus can vary enormously. Appleby, for example, has nine litigators in Mauritius and 15 in the Isle of Man – the only one of the large offshore firms based in either of those markets.

Cayman hosts the largest litigation team (19 lawyers) of any Appleby office. David Lee joined as a local partner in April, having previously been a partner at Norton Rose Fulbright. Alongside Hong Kong, Cayman is also the fastest-growing office, according to Michael O’Connell, the firm’s group managing partner. ‘Dispute resolution is a core focus for Appleby and is in growth mode – overall, our revenues have grown by 16% over the last four years. The Cayman team has been busy with the rise of commercial disputes largely related to the increase in Chinese companies going private.’ Litigation that Appleby itself brought earlier this year against The Guardian and the BBC for breach of confidence over the Paradise Papers investigation was settled in May.

At Maples and Calder, ‘revenue from all our BVI law and Cayman law litigators (including those based in Asia) has grown by over 25% compared to the previous year’, says Aristos Galatopoulos, head of its litigation and insolvency practice. As a consequence, Maples will be adding three more lawyers in BVI and two more in Cayman by next January. This will take the firm’s litigation footprint across its BVI and Cayman offices to 32 lawyers (eight partners). Meanwhile, across its Caribbean offices, Conyers has 23 lawyers (ten partners) while its Bermuda-based counterpart Appleby has 30 (six partners), and Cayman-based Walkers is ahead of both with 36 lawyers, 12 of which are partners.

In terms of litigation capacity, BVI-based Harneys has nine partners and 28 other fee-earners across its three Caribbean offices, giving it the largest combined team (37) in the region with the lateral hire of Paul Smith as a Cayman partner from DLA Piper in London. To reinforce its local position, the firm has a further four partners and 23 lawyers in its Hong Kong litigation team, most of whom are qualified in BVI, Cayman, or both. Hong Kong is central to Harneys’ strategy. ‘We were the first firm to deliberately move litigators to Hong Kong and place them right in the midst of the banks and our traditional clients: it’s paid off very well,’ says Andrew Thorp, head of its BVI litigation and insolvency group.

‘The number of big cases that have gone through the BVI and Cayman commercial courts shows offshore to be a real alternative to onshore courts. Litigation and insolvency is now over 50% of our turnover.’
Phillip Kite, Harneys

Although the longstanding Bermuda duopoly of Conyers and Appleby is beginning to feel some real competition from the new entrants – Walkers, Harneys and most recently, Carey Olsen – local litigation is less of a battleground. ‘There hasn’t been the same high level of fund disputes, restructurings, or large pieces of litigation that we have seen elsewhere, but the market remains buoyant,’ says Lupton. ‘Our practice is necessarily smaller in Bermuda. That is not a function of being a start-up, it’s more a function of the Bermuda market: there are fewer offshore litigation and insolvency lawyers than there are in other jurisdictions.’

Luthi develops the point: ‘The nature of the Bermuda market, with a smaller number of more mature, sophisticated entities, means that although there are fewer actions filed each year than in the BVI or Cayman, disputes tend to be long-running and involve very large sums. Overall, the volume of litigation seems to have been somewhat lower in the Bermuda courts over the past year compared to recent years but the amount of restructuring and insolvency work, which tends to involve local litigation teams, remains healthy.’

Adding to the competition elsewhere for the big five in the Caribbean, several Channel Islands firms continue to make inroads: Ogier and Carey Olsen have developed strong litigation offerings in both the BVI and Cayman while Mourant has 18 lawyers in Cayman. Together with a four-man team in BVI, this takes Mourant’s combined litigator total to 22 in the region. Prominent among the cases in which it has acted are the Madoff fraud-related Pearson v Primeo Fund and Primeo v HSBC, in which the Cayman courts rejected $2bn claims.

To date, the Channel Islands firms have arguably had a more significant impact in the Caribbean markets rather than the other way round. Collas Crill has two partners in Cayman and another in the BVI. ‘We are recruiting at partner level into our Cayman and BVI teams,’ says global litigation head Christian Hay, who is currently forecasting revenue growth across the firm-wide disputes practice of just under 20% for this year.

‘Our Cayman team has doubled in size in the last 12 months – the new arrivals include Marc Kish, a lateral senior partner hire [from Harneys], and six Cayman-qualified lawyers,’ says Simon Davies, Ogier’s global disputes head. Across the firm, he adds: ‘We have seen 42% growth in dispute resolution revenue in the last year, it is our fastest-growing service line, and in our most recent figures accounted for 25% of group revenue. The US remains the main source of instructions from our Caribbean teams, although we see Asian instructions flowing through our Hong Kong, Shanghai and Tokyo offices to our Hong Kong-based and Cayman-based disputes teams in particular.’ Ogier now has a six-strong team in the BVI with another 12 in Cayman.

‘Litigation usually accounts for one third to 50% of our business. I like it when it’s a third; I get worried when it is 50%. The commercial and financial services lawyers should be the engine room.’
David Cadin, Bedell Cristin

Adding to its existing BVI and Cayman presence, Carey Olsen opened a Bermuda office in February, taking its disputes lawyer headcount to 21: ten in Cayman, including three partners; BVI six, including one partner; and five in Bermuda. The latter includes the hire of two partners from Appleby: office managing partner, Michael Hanson and Keith Robinson. ‘Keith is doing a lot of trust litigation and Michael does a lot of employment disputes,’ says Jan Golaszewski, head of Carey’s Cayman disputes practice.

Across the three offices, he notes: ‘We have been growing exponentially, but there is generally an increase in litigation – from China and quite a bit from the Middle East. With new offices in Cayman and other offshore centres, often the first push for growth is led by the litigation department. Because we are new, Cayman, BVI and Bermuda are the fastest growing. Our Cayman work in litigation divides neatly between general commercial litigation and insolvency-related litigation. In general commercial litigation, it’s the normal diet of local litigators: joint venture disputes, shareholder disputes, claims against directors for breach of fiduciary duty, fraud claims, trust litigation.’

At Maples, Galatopoulos says: ‘There continues to be a rise in shareholder activism in Asia [in the PRC in particular] and a much greater willingness to use litigation as a means to achieve commercial objectives – with no sign of this abating. There is also an increasing blurring of the lines between traditional commercial litigation and contentious insolvency-type work, especially where the litigation morphs into formal insolvency-type appointments.’ Section 238 ‘fair value’ disputes have also been prominent: Cayman regulations permit shareholders dissenting from a merger to apply to the court seeking a determination of the fair value of their shares. Mourant, Harneys and Ogier have been particularly active in these disputes, while Maples has acted either for the dissenter or company in every fair-value trial to date.

‘The nature of the Bermuda market means that although there are fewer actions filed each year than in the BVI or Cayman, disputes tend to be long-running and involve very large sums.’
Christian Luthi, Conyers Dill & Pearman

‘We are involved in a number of large fair-value proceedings in the Cayman courts,’ says Jeremy Wessels, head of disputes at Mourant. ‘The Cayman companies are generally listed on a US stock exchange and have large business enterprises in the PRC and the work generally originates from where our clients are based – New York and Hong Kong.’ Mourant is acting for a group of dissenters in section 238 proceedings against Nord Anglia and for another group of dissenters on their objection to iKang’s proposed merger as well as section 238 proceedings against iKang.

The most recent Channel Islands firm to enter the fray is Bedell Cristin. ‘We have agreed to hook up with Solomon Harris in Cayman: it’s a 30-person, full-service law firm,’ says managing partner David Cadin. ‘Cayman was obviously something that was missing from our offering – we think it’s significant and it will give us an edge in Singapore (for referred work). We are then getting towards a global litigation team. We also think that the time is right to start looking again at BVI in terms of local litigation.’

But he adds a note of caution: ‘Litigation as a whole, from the firm perspective, is usually one third to 50%. I like it when it’s a third; I get a bit worried when it is 50%. In any offshore firm, you should be looking for the commercial and financial services lawyers to be the engine room.’

So with all that available talent, who is being instructed for the headline Caribbean cases?

In Cayman, two in particular stand out: Saad and Ocean Rig UDW. After a mammoth hearing, the biggest-trial ever held in Cayman concluded in May: the Saad judgment, delivered by Chief Justice Anthony Smellie, was deemed a landmark ruling that dismissed rival claims and found that the two companies involved had systematically defrauded banks out of around $126bn. ‘The Chief Justice is widely recognised as an outstanding and immensely experienced lawyer and a great asset for the jurisdiction,’ says Segal. Walkers was instructed by Grant Thornton for nine of the 16 defendants while Harneys acted for another defendant, SIFCO5.

One of the world’s largest-ever restructurings, the Ocean Rig case involved a successful application for the sanction of four schemes of arrangement by the Cayman court, and recognition and enforcement of the schemes under Chapter 15 in the US. Ogier advised the joint provisional liquidators; Appleby advised the ad hoc group of creditors; Collas Crill acted for Highland Capital Management; and Maples advised the successful scheme companies. ‘It was the standout restructuring case of the year – for us and for the Cayman Islands generally – a great example of the court’s willingness to embrace a rescue culture,’ says Galatopoulos. In August, the case was lodged with the US Court of Appeals.

‘Our Cayman team has doubled in size in the last 12 months. We have seen 42% growth in dispute resolution revenue in the last year, it is our fastest-growing service line.’
Simon Davies, Ogier

The $2bn Platinum Partners insolvency has also been keeping Cayman lawyers busy. ‘There has been a lot of satellite litigation around it,’ says Hay at Collas Crill, which has been acting for the joint liquidators. In the BVI, the $1.6bn restructuring and insolvency dispute of the Pacific Andes Group and its subsidiary, China Fishery Group, stands out. The dispute sees Mourant acting for China Fishery, Carey Olsen acting for Bank of America NA, and Harneys acting for the liquidator. The complex case has involved parallel proceedings issued in Cayman, Bermuda and elsewhere.

Also in the BVI, Harneys and Appleby are squaring up against each other on opposite sides of EuroChem v Livingston Properties. Harneys is acting for the claimant EuroChem, the largest fertiliser company in Russia, which alleges a bribery fraud to have been perpetrated against it over a ten-year period. Appleby acts on behalf of a former employee. According to Harneys: ‘If the defendants’ jurisdictional challenges that are currently under appeal fail, a very large and extremely long trial likely to run for up to 12-18 months will take place in the BVI.’

In Bermuda, Conyers has been advising Seadrill, one of the world’s largest offshore drilling companies, on the successful completion of its comprehensive group restructuring. The plan equitised around $2.4bn in unsecured bond obligations, over $1bn in contingent new-build obligations, substantial unliquidated guarantee obligations, and around $250m in unsecured interest rate and currency swap claims.

‘There has been a huge growth in the offshore litigation industry. You will see that stabilise until the next downturn comes – which it will.’
Neil Lupton, Walkers

A potentially big case on the horizon involves the recent collapse of Abraaj Holdings, the largest private equity investment group in the Middle East with estimated assets of $1.1bn. Investors, including the Bill & Melinda Gates Foundation, raised concerns which ultimately led to Abraaj being forced to file for provisional liquidation in Cayman. In June, Carey Olsen successfully managed to have PwC appointed as joint provisional liquidators alongside Deloitte. Ogier is advising investors on the Abraaj collapse.

Despite the significant increase in revenue from litigation, particularly in Cayman, offshore lawyers are nevertheless cautious about the near term. ‘There has been a huge growth in the offshore litigation industry over the past number of years,’ says Lupton. ‘You will see that stabilise now for a period of time until the next downturn comes – which it will.’ LB

TOP TEN OFFSHORE LITIGATION HEADCOUNT BY FIRM/OFFICE – Partners/other fee-earners

	Appleby	Bedell Cristin	Carey Olsen	Conyers Dill & Pearman	Collas Crill	Harneys	Maples and Calder	Mourant	Ogier	Walkers
Bermuda	1/5		2/3	4/3		2/1				2/2
BVI	1/4		1/5	3/4	1/2	4/13	2/6	1/3	2/4	3/7
Cayman	4/15		3/7	3/3	2/5	3/14	6/13	5/13	3/9	7/15
Cyprus						/3
Dubai										/2
Dublin										1/3
Guernsey	2/2	2/3	5/11		4/8			6/17	2/8	2/2
Hong Kong	1/2		1/2	2/1		4/23	2/7	1/4	2/3	3/9
Isle of Man	4/11
Jersey	4/5	4/4	6/16		5/7			5/20	4/6	3/4
London						3/3				1/2
Mauritius	3/6
Singapore						1/3	/1			1/2
TOTAL	20/50	6/9	18/44	12/11	12/22	17/60	10/27	18/57	13/30	23/48