On 17 January 2019, the Court of Appeal of the Eastern Caribbean Supreme Court (the Court of Appeal) handed down an important decision which clarifies the extent of the Court’s powers to act in aid of foreign arbitral proceedings.
The facts in Koshigi v. Donna Union Foundation BVIHCMAPP 50/2018 can be shortly stated. Donna Union Foundation (DUF) had the benefit of a substantial award of the London Court of International Arbitration (the LCIA) against Svoboda Corporation (Svoboda) and Koshigi Limited (Koshigi). Together, Svoboda and Koshigi (the KS Shareholders) were ordered to acquire DUF’s shareholding in a Maltese vehicle, Ulmart Holding Limited (UHL) for some USD 67m.
Beginning on the very day that the liability phase of the proceedings before the LCIA came to an end, the KS Shareholders began to divest themselves of their assets in what a Judge was later to describe “must have been a concerted judgment proofing exercise.” DUF therefore applied to the Court for the appointment of a receiver, but was obliged to give (short) notice of that application. Svoboda was served with the application on Friday 20 April 2018. In full knowledge of that application, by 24 April 2018, Svoboda had re-domiciled itself to Anguilla. A Judge was later to find that this re-domiciliation appears to have been designed to give Svoboda a basis upon which to argue that the BVI Court ceased to have jurisdiction over Svoboda.
Before the Judge and before the Court of Appeal, Svoboda argued that the Court had lost jurisdiction over it, by virtue of its re-domiciliation to Anguilla. The Respondents also both took the point that the power to grant injunctive relief and to appoint a receiver only engaged where it was possible to identify assets within the jurisdiction which were amenable to enforcement, and that ancillary disclosure orders were unavailable where the Court exercised its so-called Black Swan jurisdiction.
The Commercial Court and the Court of Appeal rejected those contentions. Three important principles emerge from the judgment of the Court of Appeal.
(i) The Black Swan Jurisdiction in Arbitration Cases
In its judgment, the Court of Appeal was unequivocal in its support of foreign arbitrations. The Court observed that local courts play an important role in the potential enforcement of awards, and that Section 43 of the Arbitration Act “comprehensively clothes the court with jurisdiction to grant interim measures and there is no need to resort to the Black Swan line of cases in order to give efficacy” to that.
The Court therefore accepted DUF’s submission that the jurisdiction under Section 43 of the Act (in arbitration cases) stands apart from the freestanding jurisdiction to act in aid of foreign court proceedings which is recognized by the Black Swan line of authority. The Court of Appeal also took the opportunity to expressly endorse an earlier decision of Farara J in PT Ventures v. Vidatel. In PT Ventures, the Court had found that the jurisdiction of the BVI Court to act in aid of foreign arbitral proceedings is significantly wider than its English equivalent, and that the “the BVI courts are entitled to grant relief [under section 43] even if the existence of BVI assets cannot be established.”
So far as disclosure orders were concerned, the Court of Appeal distinguished the disclosure orders available under the Black Swan jurisdiction (where the power to make ancillary disclosure orders is arguably narrower) from those available under section 43 of the Act. The Court therefore did not have to resolve DUF’s submission that a line of authority which appears to restrict the availability of disclosure orders in Black Swan cases was wrongly decided.
(ii) Jurisdiction over Svoboda
The second important issue to arise from the Court’s judgment relates to provisions within the BVI Business Companies Act 2004 which had hitherto not been considered.
The decision to re-domicile Svoboda to Anguilla was clearly ill thought through: before Adderley J DUF relied upon that maneuver as clear evidence of a propensity to dissipate assets. The choice of Anguilla as Svoboda’s new home was also unwise: Anguilla is a constituent member of the Eastern Caribbean Supreme Court, and the Court’s jurisdiction extends across its six independent Member States and three Overseas Territories. Despite that, Svoboda sought to argue that the Court had no in personam jurisdiction over Svoboda, and thus no entitlement to appoint a receiver.
The Court of Appeal firmly rejected that analysis: in personam jurisdiction was established at the point in time at which Svoboda had been served with the application. In any event, the “progressive” BVI Business Companies Act 2004 (the BC Act) contained effective anti-avoidance mechanisms: the Act provides that a former BC Act Company may continue to be served in the BVI, and that proceedings were not abated or impaired as a result of its re-domiciliation.
(iii) A failure to disclose assets
Third, it is worth noting that DUF relied heavily upon the Respondents failure to provide disclosure of their assets pursuant to ancillary disclosure orders attached to an earlier injunction as being sufficient evidence of a propensity to disobey an injunction that it would merit the appointment of a receiver. In Koshigi there was ample additional evidence of such a risk and the Court was therefore not required to decide whether, had that factor existed in isolation, it would have been sufficient. However, a few weeks after Koshigi was argued, the Court of Appeal returned to the same theme in Konoshita v. J Trust BVIHCMAPP2018/0047. In that case, the Court of Appeal held that a receiver would “invariably” be appointed where there was a “continuous failure to comply with a disclosure obligation.”
This judgment serves to underline the clear distinction between the statutory regime provided by the Arbitration Act under which arbitral awards can be enforced and the Black Swan jurisdiction developed at common law which provides for standalone injunctions in support of foreign court proceedings. It is also a further illustration of the BVI Court’s willingness to act decisively to ensure that assets are preserved to facilitate enforcement of an arbitral award, and that the Court is unwilling to abide or reward poor conduct in seeking to evade liability under those awards.
Andrew Willins and Fraser Mitchell of Appleby appeared on behalf of the successful parties both at first instance and in the Court of Appeal, instructed by Roman Khodykin of Bryan Cave Leighton Paisner LLP.