In a recent case, a Cayman Islands court followed a strict literal interpretation of a fund’s constitutional documents – even where that interpretation ran contrary to market practice. Although the case is under appeal, the strict approach to the construction of constitutional documents by the Cayman courts is well established. This approach creates legal risk wherever there is a mismatch between a fund’s constitutional documents and its operations. In a guest article, Appleby attorneys David Lee, Paul Kennedy and Christian Victory review the relevant cases and highlight six steps that market participants can take to manage that legal risk. For more on issues pertaining to the Cayman Islands, see “How Fund Managers Can Navigate the E.U. General Data Protection Regulation and the Cayman Islands Data Protection Law” (Aug. 9, 2018); and “In Madoff-Related Litigation, Cayman Court of Appeal Holds That a Liquidator May Not Adjust a Shareholder’s NAV, Even When Based on Fictitious Profits” (May 17, 2018). For additional commentary from Appleby attorneys, see our two-part series on closing a hedge fund: “How to Close a Hedge Fund in Eight Steps” (May 8, 2014); and “When and How Can Hedge Fund Managers Close Hedge Funds in a Way That Preserves Opportunity, Reputation and Investor Relationships?” (Jun. 2, 2014).