16 December 2020
'Chabra' relief in the BVI – freezing the assets of a person who is not a substantive defendant
A Chabra injunction is a powerful weapon which can substantially enhance the scope of assets which a claimant can ring-fence. Here, Carey Olsen's Jeremy Lightfoot, Richard Brown and Catie Wang examine how recent cases have seen the requirements of Chabra relief evolve.
A Chabra injunction is a freezing injunction over the assets of a person against whom the claimant has no direct cause of action.  It is a powerful weapon which can substantially enhance the scope of assets which a claimant can ring-fence.
The requirements for Chabra relief have continued to evolve over the years and can be the subject of debate. They have however recently been the subject of clarification and development in the British Virgin Islands (BVI).
The current position is that to obtain Chabra relief in the BVI, the following elements must be established:
- There must be substantive proceedings against the primary defendant (cause of action defendant or CAD) in the BVI;
- The Court must have granted or be in the process of granting a freezing order against the CAD;
- There must be a good reason to suppose that assets held by a third party would be amenable to some process of execution to satisfy an eventual judgment, or that a third party is holding assets as a bare trustee, agent or nominee of the CAD;
- There must be evidence that the assets of the third party are at risk of dissipation;
- The Court is able to join or has joined the third party to the substantive proceedings as a non-cause of action defendant (NCAD); and
- It is just and convenient for the Court to grant such an injunction.
Two of these requirements merit further consideration given recent developments.
The requirement for substantive proceedings against the CAD in the BVI
Until the Court of Appeal's recent decision in Broad Idea International Limited v Convoy Collateral Limited, free-standing freezing injunctions from the BVI Courts against third parties (often BVI companies) in support of foreign court proceedings, known as 'Black Swan' injunctions, had been available to claimants for at least 10 years following the decision in Black Swan Investment I.S.A. v Harvest View Limited et al. In Broad Idea, however, the Court of Appeal overturned the Black Swan decision, concluding that such relief could only be granted in support of substantive proceedings in the BVI.
This has created difficulties for claimants seeking relief in the BVI in support of foreign proceedings. This difficulty was illustrated in Commercial Bank of Dubai v 18 Elvaston Place Ltd and another. In that case, substantive proceedings were being pursued against the CAD in Dubai. The CAD was not a BVI resident, but it was claimed that two BVI companies held assets for the CAD which would be amenable to satisfy an eventual judgment against the CAD. The Claimant initially obtained a Black Swan injunction against the NCADs in the BVI, without issuing a separate claim in the BVI against the CAD. The injunction was granted days before the Court of Appeal handed down its decision in Broad Idea. At the return date of the Black Swan injunction, the NCADs (one of which was represented by Carey Olsen) successfully argued that the injunction should be set aside.
The Court observed that, notwithstanding the decision in Broad Idea, injunctive relief may have been available as against the NCAD BVI companies if it was possible to bring substantive proceedings in the BVI against the CAD, based on the same underlying claim that was being pursued in Dubai. However, there was no jurisdictional basis on which such a claim could be served on the CAD. As a result, the injunction was set aside.
Realising the assets: the 'moneybox'
The courts have tended to take a somewhat confusing approach to the necessary criteria to obtain relief against an NCAD, even where the jurisdictional issues referred to above are not in play. The classic test is whether the assets held by the third party are amenable to some process of execution to satisfy an eventual judgment against the CAD. The courts have also referred to the 'money box' test in relation to companies, which involves an assessment of whether the NCAD company holds assets on behalf of the CAD as a nominee, such that they would be amenable to enforcement.
In Broad Idea, the Court of Appeal adopted a restrictive interpretation of the money box test, placing emphasis on the important principle that a company's assets are not legally or beneficially owned by its shareholders, suggesting a strong presumption against the enforcement test being satisfied in many cases except where the corporate veil can be pierced.
However, in a more recent decision the BVI's Commercial Court has suggested a somewhat more claimant-friendly approach. In that case, the BVI Court considered whether companies into which a defendant had transferred assets fell within the scope of the money box test. The judge made the following findings:
"At the pre-judgment stage, the question is whether an asset put in the company against which Chabra relief is sought falls within the broad category of assets which are subject to a freezing order in the standard English commercial form…" and that as a result the correct approach was "pre-emptively to freeze assets in the debtor’s power and control and then litigate about their availability for execution later." He went on to hold that: "Any company into which a putative [judgment] debtor puts assets is, at the pre-judgment stage, potentially the subject of being named as a Chabra defendant."
This decision demonstrates that, despite the stricter approach endorsed by the Court of Appeal to Chabra Relief in Broad Idea, the BVI Court is still willing to grant relief where a defendant appears to have used offshore structures to put his assets beyond reach.
The recent cases have demonstrated that Chabra relief continues to be available in the BVI, despite the apparent restrictions imposed by the decision in Broad Idea. Claimants will, however, need to think more carefully about jurisdictional arguments and the 'moneybox' test.
 TSB Private Bank International SA v Chabra  1 WLR 231.
 Broad Idea International Limited v Convoy Collateral Limited, BVICMAP 2019/0026, 29 May 2020, at para 55.
 Black Swan Investment I.S.A. v Harvest View Limited et al, BVIHCV 2009/399, 23 March 2010.
 BVIHC (COM) 2020/0070, 16 June 2020.
 Great Panorama International Ltd v Qin Hui et al BVIHC (COM) 2019/0180 (Jack J, 13 August 2020)
 At paras 43 & 44
An original version of this article was published by Asia Business Law Journal, December 2020.
© Carey Olsen 2020.