Arbitration is finally taking hold in the Caribbean’s offshore territories, with investors increasingly favouring confidentiality and flexibility in their shareholder, financial services and crypto disputes.

Through a combination of low taxes and investor-friendly laws, offshore jurisdictions, foremost among them the British Overseas Territories of the Caribbean, are popular among corporations, funds and wealthy investors.

Efficient and specialised dispute resolution mechanisms are important in any major financial centre and while the courts of the Cayman Islands, British Virgin Islands (BVI) and Bermuda have strong credentials, arbitration has begun to make its presence felt, thanks to its flexibility, finality and confidentiality.

The scale of offshore investment

The Caribbean offshore jurisdictions share many of the same attractions, but each has its own distinct appeal. Bermuda is the world’s largest offshore insurance and reinsurance market, and a popular wealth management destination. The Cayman Islands is the world’s leading hedge fund jurisdiction, while the BVI is home to 375,000 companies, together valued at USD 1.4 trillion, according to consultancy Pragmatix Advisory.

Shan Greer, chief executive and registrar of the BVI International Arbitration Centre (BVI IAC) and an independent arbitrator explains that commercial disputes in these markets “most commonly stem from the use of offshore jurisdictions as holding, financing, or structuring vehicles”, entities which “frequently sit at the top of complex financing, construction, energy and investment arrangements”, giving rise to contractual, fiduciary and trusts disputes.

The uneven rise of arbitration

These jurisdictions’ well-respected commercial courts have traditionally given parties few reasons to look elsewhere, but “arbitration is generally very well suited to offshore disputes. These matters are often international in nature, involving parties, assets, and governing laws across multiple jurisdictions”, continues Greer.

Use of arbitration offshore increased during the pandemic, due to its flexibility and efficiency at a time when courts were being forced to make adjustments, prompting Greer to observe that arbitration is now “widely used for many offshore-related disputes, particularly those arising out of shareholders’ agreements, joint ventures, fund documentation and complex commercial contracts involving offshore entities”.

Trust disputes have historically been the exception, with parties preferring litigation “largely because of the supervisory role courts play in trust matters and the involvement of beneficiaries who may not be parties to the trust instrument”. However, the confidentiality of arbitration, “which is often highly valued in family and private wealth structures”, combined with its flexibility has led to its increasing use in this area, Greer adds. There has also been a surge in offshore crypto, digital asset and fintech disputes, reflecting “the fact that many fintech and blockchain based businesses are structured through offshore jurisdictions, both for regulatory and commercial reasons”.

Megan Paget-Brown, chief executive of the Cayman International Mediation and Arbitration Centre (CI-MAC), agrees: “Certainly within the financial services sector, and increasingly in the tech sector, [companies are] seeing the advantage to confidentiality and not having to worry about what court documents will immediately be published online, particularly for companies that have an existing business relationship that will continue past the dispute,” she explains. “We are fortunate in Cayman that we’ve got an excellent bench and very knowledgeable judges, but there is an advantage to being able to choose an expert or a panel of experts within your subject matter who have a lot of expertise in that particular subject matter that also can create more confidence in the process and the final result.”

Bermuda form

In Bermuda, Conyers partner Ben Adamson explains that the market is split. The island is at the heart of the international insurance industry and home to the Bermuda Form, but the preferred dispute resolution mechanism for these industry standard contracts is usually arbitration in London. “For the insurance world, arbitration work in Bermuda is typically ancillary to those to the main proceedings being taking place in London. It’s mainly about enforcement, both of awards and of the dispute resolution provision,” he says.

Outside insurance, commercial disputes often relate to winding up and insolvency, or governance or contentious trusts work, areas where “arbitration isn’t really used”, Adamson adds, a balance which is unlikely to change because “arbitration has had difficulty getting entrenched in shareholder disputes”.

Most general commercial disputes are handled by the courts, with arbitration the preserve of family, civil or property cases. “There have been repeated pushes for arbitration to be more standard in Bermuda, but we’re still some years behind the sort of prevalence which you will find in London,” he says. The imminent launch of the Bermuda International Mediation and Arbitration Center (BIMAC), led by a former Carey Olsen partner, might go some way to changing that.

BVI becomes crypto haven

Modern legislation and support from the courts are critical factors for arbitral seats, and the BVI’s Arbitration Act and the support from its courts are points in its favour.

The territory is frequently home to shareholder, trust, beneficial ownership, fraud, conspiracy and breach of contract disputes, and Greer is quick to point out that BVI IAC’s rules feature up-to-date mechanisms including emergency arbitrators and expedited proceedings. The country is popular among crypto investors and the centre “has positioned itself as a natural forum for resolving disputes arising from digital asset and fintech transactions”, resulting in it being named in “a significant number” of simple agreements for future tokens (SAFT) – crypto-investment contracts.

Around half the jurisdiction’s shareholder disputes currently go to arbitration, although mostly via non-BVI clauses. Trusts, beneficial, fraud and conspiracy, and contractual disputes do not usually follow this route, explains Dr Jane Fedotova, counsel with Conyers in the BVI: “To this point, most of these disputes have tended to go to major international centres in onshore countries.”

This could change soon, explains Greer. The government is consulting on whether to adapt its legislation “to facilitate the resolution of trust disputes by arbitration, while ensuring appropriate safeguards are maintained”, in order to capitalise on the growing interest in arbitrating trust matters.

Similar to the situation in Bermuda, “in the BVI we often deal with interim relief in support of arbitration and enforcement of arbitral awards, or liquidation proceedings in relation to debt which arises out of a contract that has an arbitration clause”, says Fedotova.

Cayman Islands

Another jurisdiction with favourable local legislation and court support is the Cayman Islands. Yet in the past, big Cayman-related financial or investment arbitrations tended to go to major centres, chief among them Hong Kong and Singapore, while domestic arbitration was either ad hoc, or under American Arbitration Association (AAA) rules.

That has changed somewhat since the 2023 launch of CI-MAC, which has an increasing number of enquiries and filings, the majority of which are in the fintech and crypto-assets markets, reflecting the fact that Cayman “is a very attractive jurisdiction for those types of vehicles”, says Paget-Brown.

She continues: “We’re very fortunate to have judges who are very familiar with the process and very supportive of both arbitration and mediation. We’ve certainly had several decisions that have underlined that stance. It’s been historically a very enforcement-friendly jurisdiction for arbitral awards.”

Increasing use of arbitration clauses, which positively specify the Caymans and CI-MAC, are helping. “As there has been more experience with arbitration in these jurisdictions, there has been more emphasis on how the clauses should be drafted. That is a very positive step in the right direction, for making arbitration more efficient,” Paget-Brown notes.

Building for the future

Smaller jurisdictions face a problem finding a place at arbitration’s top table; disputes from all three Caribbean locations have historically gravitated towards London, Hong Kong, Singapore or even the US, “often out of familiarity rather than because of any limitation in offshore jurisdictions themselves”, says Greer. “That position is gradually changing as confidence in offshore arbitral institutions continues to grow.”

Paget-Brown agrees, adding: “We’re definitely seeing a really positive shift in the mindset towards arbitration, and there’s been a lot more enthusiasm for it and interest in it.”

Although arbitration is an international discipline, expertise in offshore matters should still be at a premium, as Fedotova warns: “On some occasions there can be a failure to seek BVI legal advice early in the process in relation to major shareholder disputes governed by English law but concerning BVI companies or involving specific performance which may trigger application of the BVI law”.

Looking to the future, Greer believes that if offshore institutions continue to invest in outreach, efficiency and case management, there is plenty to be optimistic about: “Offshore arbitration is at a significant stage in its development. The legal frameworks in many offshore jurisdictions are mature, the talent pool of arbitrators and practitioners is deep, and the disputes themselves are increasingly complex and high value.”

“As offshore structures continue to play a central role in global commerce, arbitration in offshore jurisdictions is likely to become an increasingly important part of the international dispute resolution landscape,” she concludes.

[This article originally appeared on the CDR website.]