Black Swan jurisdiction in the British Virgin Islands – Flown the Nest?

BVIHCMAP2019/0026 Broad Idea International Limited v Convoy Collateral Limited

On 29 May 2020 the Eastern Caribbean Supreme Court, Court of Appeal (the “Court of Appeal”) handed down a judgment which found that the BVI Court has no jurisdiction to grant free-standing freezing injunctions against a BVI company where no cause of action exists against that entity and an injunction is only sought against it for the purpose of preserving assets beneficially owned by a party to the proceedings.

This is a marked departure from relief often sought and frequently (until now) granted in cases coming before the Commercial Division where a party to substantive proceedings, either in the BVI or elsewhere, would apply to the BVI Court for a freezing injunction to safeguard assets of a defendant, which are in the possession and control of a third party (whether before the BVI court or elsewhere), pending the outcome of the case. The inability to obtain this relief puts claimants in BVI at a disadvantage until the same is remedied either upon a successful appeal or through amended legislation.

A more complete summary follows.  Any member of Campbells’ BVI litigation team is available to answer any questions you may have regarding this decision.

The Decision

On 29 May 2020 judgment was handed down by the Court of Appeal in the matter of Broad Idea International Limited v Convoy Collateral Limited. By allowing the appeal, the Court of Appeal overturned over twenty years of BVI law originating with the seminal decision of the Commercial Division of the Eastern Caribbean Supreme Court, Black Swan Investment I.S.A. v Harvest View Limited et al[1] (“Black Swan”).

Background

Convoy Collateral Limited (“Convoy Collateral”), a company incorporated in Hong Kong, commenced proceedings in Hong Kong against a shareholder of Broad Idea International Limited (“Broad Idea”), Dr Cho Kwai Chee (“Dr Cho”), claiming, amongst other things, breach of fiduciary duty. Broad Idea is a company incorporated in the BVI. Convoy Collateral also applied to the Eastern Caribbean Supreme Court, Commercial Division in the BVI for a freezing injunction against Broad Idea and Dr Cho to freeze Dr Cho’s assets and, importantly for the purposes of the later Court of Appeal decision, to restrain Broad Idea from transferring Dr Cho’s shares in Broad Idea. Convoy Collateral succeeded in obtaining the injunction at first instance. Convoy Collateral sought to continue this injunction, however Dr Cho applied to set it aside. Subsequently, Convoy Collateral made an additional application seeking a freezing injunction against Broad Idea in support of the proceedings against Dr Cho in Hong Kong. Dr Cho’s application to set aside the first instance judgment in relation to Broad Idea was granted and the BVI freezing order was discharged.

The subsequent application brought by Convoy Collateral against Broad Idea was granted by the Honourable Mr Justice Adderley. In his judgment the Judge reasoned that, pursuant to the decision in Black Swan, he had jurisdiction and continued the freezing order against Broad Idea. It is this order that Broad Idea appealed.

The Appeal

As outlined by Madam Justice Blenman, the following issues stood to be determined by the Court of Appeal:

• Whether in the absence of statutory provisions, it is possible for the Court to grant a freezing injunction against a person against whom there is no cause of action in any part of the world;
• If so, whether the jurisdiction extends to granting a freezing injunction in support of foreign proceedings to which the person is not a party; and
• Even if this is so, whether the learned judge properly exercised his discretion in granting the freezing injunction.

Section 24 of the Eastern Caribbean Supreme Court (Virgin Islands) Act, Cap 80 (the “Supreme Court Act”) and Black Swan

In considering the effect of section 24 of the Supreme Court Act Chief Justice Pereira held that:

“the authorities all support the proposition that, for the court’s jurisdiction under section 24 of the Supreme Court Act to be properly invoked, there must be an enforceable cause of action against a defendant which the court has jurisdiction to enforce by final judgment, and that cause of action must be raised in substantive proceedings or an undertaking must be given to commence such proceedings’’[2].

The judgment found that it was a critical failure that Convoy Collateral had no cause of action against Broad Idea nor did it plan to bring proceedings at a later date (as a third party with control of assets of one of the parties to the proceedings, such orders often come within the heading of “Chabra Orders”[3]). The absence of an enforceable cause of action giving rise to actual or potential substantive proceedings “falls short of the requirements… for the grant of interlocutory injunctions such as freezing orders’’[4].

Similarly, in the judgment given by Justice Blenman, it was considered that the necessity for the applying party to have a cause of action was a “safeguard”[5] that was “built into the court’s exercise of discretion”[6]. Justice Blenman concluded that she failed to see how a freezing injunction could be obtained “in circumstances where there is no cause of action or a substantive claim against Broad Idea in the BVI or in any part of the world”[7]. Her Ladyship favourably cited a passage from Lord Diplock in The Siskina[8] which states “a right to obtain an interlocutory injunction is not a cause of action. It cannot stand on its own. It is dependent upon there being a pre-existing cause of action against the defendant…The right to obtain an interlocutory injunction is merely ancillary and incidental to the pre-existing cause of action”[9].

Turning to a consideration of Convoy Collateral’s reliance on the decision in Black Swan, Chief Justice Pereira commented that the facts in Black Swan are on “all fours”[10] with the facts in this matter. This necessarily, Broad Idea argued, meant that the decision of Black Swan had to be reviewed. As part of this review, Chief Justice Pereira referred to section 24 of the Supreme Court Act stating that this does not provide any foundation for the grant of injunctions in aid of foreign proceedings and, as per Justice Blenman, it must be given its clear meaning:

“Further, pre-1982 English authorities such as the Siskina suggest that interlocutory injunctions should not be granted otherwise than as ancillary to substantive proceedings in the BVI. There is therefore no common law basis for the grant of such injunctions apart from Black Swan. In my view, the jurisdiction to grant such interlocutory injunctions must be one which arises as a result of an enactment’’[11].

Justice Blenman reasoned further that it was significant that Justice Bannister in Black Swan felt able to grant the freezing injunction on the basis of his interpretation of the dissenting judgment of Lord Nicholls judgment in Mercedes-Benz A.G. v Leiduck[12] and did not, for instance, follow the decision of the House of Lords in The Siskina:

“I fail to see how the learned judge of the Commercial Court could have failed to properly apply the ratio decidendi in Mercedes-Benz which followed the tested pronouncements in Mareva Compania Naviera SA v International Bulkcarries SA and The Siskina and which had been consistently applied in our courts until Black Swan”[13].

Comparison with the position in the United Kingdom

In dealing with submissions from Counsel, Chief Justice Pereira referred to the UK’s Civil Jurisdiction and Judgments Act 1982. Section 25 of that Act empowers courts to grant injunctions in support of specified foreign proceedings. Notably, comparable legislation has not been enacted in the BVI. In this regard the position in the UK was deemed to be “vastly different”[14] from that as currently exists in the BVI. Justice Blenman added that there was “a clear process…provided for obtaining such an order by rule 25.4 of the Civil Procedure Rules of the United Kingdom”[15]. In the absence of such an equivalent in the BVI, she found that:

“…in the absence of any statutory authorisation, it was not open to the learned judge in Black Swan to have concluded that he could have expanded the jurisdiction of the court, even though he was very well intentioned. In my view, the courts in the BVI, in the absence of legislative authority, have no jurisdiction to grant a free standing interlocutory in aid of foreign proceedings”[16].

 Distinction of Yukos Cis Investments Limited et al v Yukos Hydrocarbons Investments Limited et al (“Yukos”)[17]

The Court moved on to consider the application of the decision in Yukos to the appeal. In holding that “the existence of the Black Swan jurisdiction was merely assumed in order to ventilate the central issue”[18], Chief Justice Pereira reasoned that Yukos should not be read as confirming the jurisdiction put forward in Black Swan and indeed was not applicable to this case:

“In other words, as the source of the Black Swan jurisdiction was not in issue, any pronouncements in Yukos affirming its existence can only be regarded as obiter. It follows that the decision in Yukos is not binding on this Court in so far as it assumed the existence of the Black Swan jurisdiction. As the existence of the jurisdiction is being challenged for the first time on this appeal, this Court is at liberty to render its view on Black Swan”[19].

The Court thereby concluded that whilst having personal jurisdiction over Broad Idea (as a BVI incorporated company) the BVI courts have no subject matter jurisdiction to grant a free standing interlocutory injunction against it in aid of foreign proceedings as there is no statutory basis for the exercise of this jurisdiction. If this jurisdiction is to be sanctioned in the BVI, it must be done by the legislature.

Commentary

This decision has significant repercussions for the BVI.

Unless this decision is overturned by the Judicial Committee of the Privy Council or, alternatively, remedied by legislative intervention, the absence of such relief puts parties (particularly claimants) at a significant disadvantage if they wish to safeguard assets.