On 14 April 2023, the Governor of the Cayman Islands issued a general licence (GL/2023/0002) for the payment of legal fees (the “Cayman General Licence”). This means that, under specified circumstances, Designated Persons (parties who are designated by the UK under the Russian and Belarus sanctions regimes) may lawfully make payment to their attorneys for legal fees and disbursements without having to apply for a specific licence for that purpose.
Following Russia’s invasion of Ukraine in February 2022, the UK government imposed hundreds of new designations under the Russian and Belarus sanctions regimes (which were extended to the Cayman Islands and other British Overseas Territories).1 The impact of these new designations on ongoing litigation in the Cayman Islands and elsewhere was immediately felt.2 While it was largely clear that the sanctions regime did not prohibit an attorney from continuing or beginning to act for a Designated Person3, receipt of payment for legal fees was prohibited without an express licence issued by the Governor’s office permitting such payment.
The increase in designations led to a concurrently sizeable increase in licence applications for the payment of legal fees and consequently increased processing times. In response to this, in October 2022, the UK Office of Financial Sanctions Implementation (“OFSI”) issued a general licence for the payment of legal fees (the “UK General Licence”).4 The Cayman General Licence mirrors the UK General Licence in most material respects. It is valid for six months and expires on 14 October 2023.
Distinction between Pre-Designation and Post-Designation Work
The Cayman General Licence distinguishes between work carried out pursuant to an engagement which was entered into prior to the date of the Designated Person’s designation (“Pre-Designation Work”) and work undertaken pursuant to an engagement entered into after a party was designated (“Post-Designation Work”).
In respect of both Pre-Designation Work and Post-Designation Work, there is a cap of US$600,000 in total which may be paid in attorney’s fees pursuant to the licence. This is in addition to a separate cap of US$30,000 in expenses or 5% of the attorney’s legal fees (whichever is lower).
The key distinction in respect of Post-Designation Work, is that attorneys’ hourly rates are capped in accordance with the maximum hourly rates per PQE band provided in Practice Direction 1 of 2011 for the Financial Services Division. No such cap on hourly rates applies to Pre-Designation Work.
There are a number of reporting obligations which must be complied with by parties utilising the Cayman General Licence. Within 7 days of either (a) the legal services being completed or (b) the licence coming to an end (i.e. on 14 October 2023, or such later date as may be pronounced), the Designated Person (or the attorney who has received payment) must report to the Office of the Governor.
The report should include:
- the relevant letter of engagement between the Designated Person and the attorney or law firm;
- any other document, communication or other record which sets out the obligation pursuant to which payment is made;
- the relevant invoice(s) which are being paid; and
- a completed form for Pre-Designation Work or Post-Designation Work as may be applicable (available from www.fra.gov.ky).
Court’s Interpretation of the UK General Licence
In light of the large similarities between the UK General Licence and the Cayman General Licence, the English’s High Court’s interpretation of the UK General Licence in VTB Commodities Trading DAC v JSC Antipinsky  EWHC 2795 (Comm) is likely to be instructive in the Cayman Islands.
Given the novel nature of the issues involved and the fast-developing body of guidance material, the following points from Foxton J’s decision in VTB Commodities are worth noting:
- The General Licence does not refer to payments made to meet adverse costs orders or to comply with an order for security for costs (which still require special licences).
- In respect of Pre-Designation Work, this appears to be determined by the date that the relevant engagement was entered into, rather than when the particular fee became payable.
- Pre-Designation Work appears to include ongoing services provided under a pre-designation engagement.
- It is likely not permissible to “double-up” the separate caps of US$600,000 for Pre-Designation Work and Post-Designation Work undertaken pursuant to the same engagement before and after designation.
The Cayman General Licence is likely to be received as a welcomed development in this area. In specified cases, it may no longer be necessary for attorneys to engage in the lengthy process of applying for a special licence for the payment of fees. However, it is important for both Designated Persons and attorneys to be closely acquainted with the limitations and scope of the Cayman General Licence (including keeping abreast of the common law jurisprudence and other guidance) and to comply with all relevant reporting obligations in a timely manner.
1The Russia (Sanctions) (EU Exit) Regulations 2019 and the Republic of Belarus (Sanctions) (EU Exit) Regulations 2019 were extended to the Cayman Islands pursuant to the Russian (Sanctions) (Overseas Territories) Order 2020 and the Republic of Belarus (Sanctions) (Overseas Territories) Order 2020 respectively.
2See, for example, MaplesFS Limited v BB Protector Services Limited and Others Cause No FSD 213 of 2021 (DDJ) (10 March 2022) where Doyle J of the Grand Court of the Cayman Islands considered whether an adjournment should be granted to allow additional time for attorneys of a designated party to obtain a licence for the payment of legal fees. See also the following BVI decisions of Jack J in JSC VTB Bank v Alexander Katunin Claim No BVIHC(Com) 2014/0062 (delivered on 11 March 2022, 15 March 2022, and 22 March 2022).
3See, for example, MaplesFS Limited v BB Protector Services Limited and Others.
4The UK General Licence issued on 28 October 2022 expired on 28 April 2023. A new UK General Licence was thereafter issued on 29 April 2023 and is effective until 28 October 2023.