This first blog in a two-part series examines governing law in contractual claims.

When assessing the governing law of a particular claim, the nature of the claim itself is crucial. Broadly, claims can be classified into two categories:

1. Contractual claims
2. Non-contractual claims – such as tortious or proprietary claims

Each category involves a different approach for determining the applicable law.

In the absence of specific legislation governing contractual claims in the Cayman Islands, the courts rely on English common law principles. When a contract does not contain an express governing law clause, a two-stage analysis is followed to ascertain the applicable law:

1. Intention of the parties: The first step is to analyse whether the parties’ intentions regarding the governing law can be derived from the contract itself or other related circumstances. This could be done by looking at:
   
   • Express provisions: any clauses in the contract that directly state the choice of law.
   • Implied terms: factors such as the location of performance or the subject matter of the contract may indicate an implied choice of law.
     
     
2. Closest and most real connection test: If the express or implied intention is not sufficiently clear, the court applies the "closest and most real connection" test to determine the appropriate governing law. This test considers which jurisdiction had the most substantial connection to the contract at the time it was made. Relevant factors include:
   
   • The location where the contract was made;
   • The place of performance; and
   • The location of the parties or the subject matter of the contract.

In applying these factors, the Cayman courts aim to ensure the contract is governed by the law most relevant to its formation and execution, while ensuring fairness in the application of legal principles.

In the Cayman Islands, the leading authority on this subject is the 1995 Court of Appeal judgment in Insurco Intl Ltd v Gowan Co, which has been cited more recently by Chief Justice Smellie (as he was then) sitting in the Grand Court in Unilever v ABC International. Both Insurco and Unilever reference the Privy Council case of Bonython v Commonwealth of Australia, which remains a key authority on the issue of determining the governing law where no explicit choice is made.

The question of how to determine the governing law of a contract without an explicit written term has not come before the Cayman courts recently. This raises an interesting consideration: if such a case were to arise, would the courts take the opportunity to review the Cayman position and ensure consistency with other Commonwealth jurisdictions?

A notable difference exists between Cayman and the UK due to their respective approaches to international and cross-border contractual disputes.

UK position: The UK was a signatory to Rome Regulation (EC) No 593/2008 (Rome I) and Rome Regulation (EC) No 864/2007 (Rome II), which govern the applicable law in cross-border disputes within the European Union. Following Brexit, the UK incorporated these regulations into its domestic legislation, meaning that much of the UK case law now reflects principles derived from the Rome Regulations.

Cayman position: The UK did not extend the Rome Regulations to the Cayman Islands so they do not apply in Cayman. As a result, Cayman continues to follow the common law position, relying on English cases that pre-date the Rome Regulations or recent cases unaffected by them. Therefore, while English case law remains influential, it is crucial to distinguish between decisions based on the Rome Regulations and those based on common law principles. This distinction should be carefully considered when referencing English authorities in Cayman cases.

This divergence highlights the importance of understanding the evolving landscape of governing law in cross-border contracts and ensuring clarity on how the applicable legal principles might differ between jurisdictions such as Cayman and the UK.