09 March 2015
BVI Litigation and Insolvency Client Update - March 2015
Welcome to our first BVI litigation and insolvency bulletin, with updates on selected recent cases and developments.
The BVI’s first Commercial Division judge, Mr Justice Edward Bannister QC, retires this month and we wish him well. His replacement has been announced as experienced Canadian dispute resolution lawyer Mr Barry Leon, formerly of Perley-Robertson, Hill & McDougall LLP. Mr Leon has been appointed with effect from 16 March 2015.
This bulletin looks at four recent BVI cases from the Privy Council, Court of Appeal and the BVI Commercial Court:
- Nilon Limited and another v Royal Westminster Investments S.A. and others  UKPC 2. Key issues - rectification of the share register, service out of the jurisdiction, forum non conveniens.
- Wang Zhongyong and ors v Union Zone Management Limited and ors BVIHCMAP 2013/0024. Key issues - just and equitable winding up, quasi-partnership, frustration of purpose, affairs of subsidiary..
- Hornbeam Corporation v Halliwel Assets Inc and ors BVIHC (COM) 2014/105. Key issues - third party costs orders.
- Sonera Holding B.V. v Cukurova Holding A.S. BVIHC (COM) 2011/119. Key issues – anti-arbitration injunctions.
One other case which is worthy of a brief mention is the Privy Council’s decision in Singularis Holdings Limited v PricewaterhouseCoopers, on appeal from the Court of Appeal of Bermuda. This has been widely reported elsewhere so is not covered in detail here save for the following note. As part of its judgment the Privy Council summarised the state of statutory assistance available to foreign insolvency officeholders in a number of jurisdictions other than Bermuda, including the BVI. At paragraph 43 of the judgment it is stated that the UNCITRAL model law is given effect in the BVI by Part XIX of the BVI’s insolvency act. This is not correct - whilst Part XIX does give the BVI Court the power to assistant foreign officeholders from a limited number of designated jurisdictions, the model law provisions of the Insolvency Act are to be found at Part XVIII and have never been brought into force.
Nilon Limited and another v Royal Westminster Investments S.A. and others  UKPC 2
Two key questions arose on this appeal: one, whether the statutory mechanism for the rectification of the share register of a BVI company in section 43 of the BVI’s Business Companies Act is amenable to be used in proceedings involving an untried allegation of fact that a defendant (D2) has agreed to cause shares in a BVI company (D1) to be allotted to the claimants; and two, is D2 a necessary and proper party to the claim against D1 and is the BVI an appropriate forum for the claim.
The Privy Council reviewed the historic English jurisprudence relating to rectification actions including the key English Court of Appeal decision in Re Hoicrest  1WLR 414. In Hoicrest a rectification action was allowed to proceed as part of a dispute about the beneficial ownership of the shares in question.
The Privy Council has concluded that Re Hoicrest was wrongly decided. The statutory rectification provisions, including those in the BVI, are a summary remedy available when the applicant has a right to registration by virtue of a valid transfer of legal title, and not merely a prospective claim against the company dependent on the conversion of an equitable right to a legal title by an order for specific performance.
On the question of leave to serve out and forum conveniens, the Privy Council noted that it is not generally objectionable to bring a viable claim against D1 who is within the jurisdiction with the principal object of joining D2 who is out of the jurisdiction. However, because the rectification action was not a viable claim in this instance, the question of joining D2 as a necessary and proper party did not arise. The Privy Council nonetheless expressed the view that because the real issue was a factual dispute about an alleged contract for the allotment of shares, which dispute had very little to do with the BVI other than that the company in question was a BVI company, the BVI was not the forum conveniens. The alleged contract was not governed by BVI law, the commercial relationships underlying it had nothing to do with the BVI, and the witnesses were all elsewhere.
Accordingly, even if the claimants had satisfied the Court that there was a serious issue to be tried on the merits against D2 and that there was a good arguable case that the claim fell within one of the service out “gateways” in the Civil Procedure Rules, the application for leave to serve out would have failed on the third limb of the applicable test, namely whether the BVI Court was clearly or distinctly the appropriate forum.
This is not to be seen as a departure from the general conflicts of laws principle that “matters concerning the organization and administration of a company are generally treated as matters ideally suited to be determined in the location where the company has been formed”. That continues to be the case “in the context of such issues as those arising between members, or issues relating to the powers of organs of a company, the appointment of directors, the extent of members’ liability for debts of the company, or the right of shareholders to bring derivative actions”.
Wang Zhongyong and ors v Union Zone Management Limited and ors BVIHCMAP 2013/0024
This decision from the Court of Appeal is an essentially orthodox ruling on a just and equitable winding up petition which, on the facts, was dismissed. Whilst the decision is not surprising, it provides a useful (re)statement of a number of general principles, including the following:
- A court must be cautious to apply equitable principles of fairness to commercial transactions or relations, and it is not the role of the court to impose its particular concept of fairness on the parties and their transactions. The concept must be applied judicially and in accordance with the principles developed in the common law.
- The fact that a company is small or private is not of itself enough to engage equitable considerations.
- An allegation that the business affairs of a company are in disarray does not of itself warrant a winding up order on the just and equitable ground.
- The principle that the affairs of a company can include the affairs of its subsidiary and that the court can make orders regulating the affairs of the holding company based on unfairly prejudicial conduct of the affairs of the subsidiary, applies only to a holding company and its subsidiary.
Hornbeam Corporation v Halliwel Assets Inc and ors BVIHC (COM) 2014/105
In this first instance decision from the BVI Commercial Court, Mr Justice Bannister QC was faced with a request from the victorious defendants that the ultimate beneficial owner of the plaintiff be joined to the proceedings so that a costs order could be made against him pursuant to Civil Procedure Rule 64.10 (costs orders against persons who are not a party). The plaintiff was a Panamanian company, and its ultimate beneficial owner was an individual not resident in the BVI.
Justice Bannister summarised the state of the law as being that “such orders will be made where the justice of the case demands it”.
The procedural question arose whether the plaintiff’s ultimate beneficial owner would need to be served out of the jurisdiction with the application for third party costs, and if so whether there was any basis for an order giving permission to serve out.
Without deciding the point, Justice Bannister suggested that if the reason for the application was that the third party is the “real” party, it might be that the third party could be said to have submitted to the jurisdiction by conduct and there would be no need for an application for leave to serve out. If, however, leave to serve out needed to be obtained then it would not be possible to do so, for the following reasons:
- There is no gateway in the Civil Procedure Rules (CPR) that covers such an application. Rule 7.3(10) allows for service out in relation to claims made under an enactment which confers jurisdiction on the Court, but a third party costs claim does not fall into this category. The Judge was fortified in this view by a reading of the English CPR which have a specific, separate gateway for third party costs orders. The ECSC CPR have no such separate gateway.
- Applications for third party costs orders are not “claims” for the purposes of the leave to serve out rules, in the sense of causes of action requiring acknowledgments of service and defenses to be filed and served to meet them.
This decision has potentially important tactical consequences for those engaging in litigation with corporate vehicles, whether incorporated in the BVI or elsewhere, and who may want to seek costs against those in ultimate control of those vehicles. As matters stand on the basis of this authority it is not possible to obtain a third party costs order against a non-party who is not subject to the BVI court’s jurisdiction, because such an application cannot be served outside the jurisdiction. Notwithstanding the Judge’s obiter comments about submission to the jurisdiction, we consider that establishing that (for example) the beneficial owner of a corporate vehicle is the “real” party and has submitted to the jurisdiction by conduct is likely to be a difficult challenge given the doctrine of separate legal personality.
Sonera Holding B.V. v Cukurova Holding A.S. BVIHC (COM) 2011/119
This is another decision in the long-running battle involving Sonera and Cukurova in the BVI and elsewhere, described by Mr Justice Bannister in this judgment as having a "geological timescale".
In this round, Sonera sought an anti-suit injunction against Cukurova. The aim was to prevent Cukurova from (in essence) trying to reopen a Swiss arbitral award which had been enforced as a judgment in the BVI, by means a further set of Swiss arbitral proceedings designed to have the practical effect of overturning or reversing the original award. Sonera complained that this was intended, amongst other matters, to subvert the BVI judgment by which the first award had been recognised. A detailed explanation of the facts is unnecessary because the application was decided on a short but important point of law.
Section 3(2) of the recently enacted Arbitration Act 2013 (the "Act"), provides that "[t]he Court shall not interfere in the arbitration of a dispute, save as expressly provided in this Act". Contrary to Sonera's submission, the Judge held that this applied equally to domestic and foreign arbitrations. Given that there is nothing in the Act expressly providing that the Court may enjoin a party to arbitral proceedings from continuing with them, the Judge found that he had no jurisdiction to grant the injunction sought by Sonera.
Nevertheless, the Judge went on to note (obiter) that Cukurova might have difficulty relying on any second award in the BVI given that the BVI judgment enforcing the first award was obtained after lengthy argument over the jurisdiction of the first tribunal. It had not been what the Judge described as "a run-of-the-mill box-ticking exercise" of enforcement under the New York Convention.
The decision emphasises the BVI's pro-arbitration stance, particularly following 2014's modernisation of the arbitration regime in the BVI with the passing of the Act and the extension to the BVI of the New York Convention.