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Expert Insights

08 November 2021

Black Swans freezing in BVI but not migrating; white elephant spotted in the Cayman Islands?

An indigenous species

It is “already…the law of the BVI (and other jurisdictions where courts have inherited the equitable powers of the former Court of Chancery)”, that “where the court has personal jurisdiction over a party, it has the power to grant a freezing injunction against that party to assist enforcement through the court’s process of a prospective (or existing) judgment [of a foreign court]”.

With those historic words, the Privy Council in Broad Idea International Limited v Convoy Collateral Limited1 confirmed the existence and origin of Justice Bannister’s Black Swan2.

Non-migratory

Concurrently, the Privy Council also held that there was no power under the existing rules to serve “on a defendant outside the jurisdiction…a claim form in which a freezing injunction is the only relief sought”, and noted that “in BVI, there has, as yet, been no new statute introducing a gateway for interim or freezing injunctions.

The absence of a service-out gateway distinguishes the BVI free-standing freezing injunction from its Cayman Islands and English counterparts. Does this distinction make a difference?

Context

The Siskina3 and Mercedes Benz4 concerned applications to freeze assets within the jurisdiction owned by a ‘cause of action defendant’ (CAD) outside the jurisdiction; and the freezing injunctions were denied on the ground that there was no gateway for serving the applications out of the jurisdiction.

Black Swan on the other hand did not involve service out of the jurisdiction. Freezing relief was sought and granted against ‘non-cause of action defendant’ (NCAD) BVI companies within the jurisdiction, on the Chabra basis.

After Black Swan, there were BVI cases in which leave was sought to serve Black Swan applications out of the jurisdiction, but no definitive position emerged. As late as February 2018, it was seemingly still possible for Convoy Collateral to obtain leave to serve a Black Swan application out of the jurisdiction against Dr. Cho.

In the meantime, other jurisdictions such as the Cayman Islands had enacted legislation to put beyond doubt, the power of their courts i) to grant free-standing freezing injunctions in aid of foreign proceedings5; and ii) to permit applications for such injunctions to be served out of the jurisdiction on foreign CADs6.

When in May 2020, the Eastern Caribbean Court of Appeal allowed Broad Idea’s appeal7 and overturned8 10 years of Black Swan jurisprudence, the BVI legislature swiftly enacted a statutory power9 to fill the gap. However, it refrained from enacting any service-out gateway.

Is a gateway needed?

Absent a gateway, Black Swan10 relief is unavailable against the foreign CAD and his BVI shares and only available against the NCAD BVI company and its assets. Consequently, freezing relief against the foreign CAD and his BVI shares needs to take the form of a WWFO11 from the foreign court seised of the substantive proceedings.

In these circumstances, should freezing relief be sought against i) the NCAD company in BVI; or ii) the foreign CAD in the foreign court; or iii) both?

(1) The impact of WWFOs

According to Broad Idea,

a) where a foreign WWFO is available but has not yet been sought, Black Swan relief against the BVI company will not be “justifiable”12; and

b) where there is already a foreign WWFO restraining a foreign CAD from disposing of, dealing with or diminishing the value of his shares in a BVI company, an additional Black Swan injunction against the BVI company will rarely13 be necessary.

Therefore, a foreign WWFO is the priority – in time, and in effect.

Injunctions operate in personam and not in rem. If the foreign court enjoys jurisdiction in personam as of right over the foreign CAD and is able to freeze his BVI shares on that basis, there is no reason for BVI to have a concurrent long-arm in personam jurisdiction to do the same thing. Nor then, it follows, would there be much need for Black Swan relief against the BVI company whenever such a foreign WWFO can be obtained against its shareholder.

(2) If no foreign WWFO available

What if WWFOs are not available in the foreign jurisdiction?

For example,

a) in Mercedes-Benz, the unavailability of a Monégasque WWFO coupled with the absence of a Hong Kong service-out gateway meant that Mercedes was unable to obtain any freezing relief in aid of an eventual Monégasque judgment; and

b) WWFOs are also unavailable in the PRC. The widespread use of BVI companies to hold PRC interests means that PRC proceedings regularly feature in cross-border disputes involving BVI companies and their shareholders.

Does it follow that without a gateway for Black Swan applications, BVI law is no more helpful to claimants today than Hong Kong law was to Mercedes in 1995? That depends on the scope of Black Swan relief against NCAD BVI companies in such circumstances.

In Broad Idea, Lord Leggatt reasoned that “In circumstances where Dr. Cho remained free to dispose of or deal in any other way with his shares in Broad Idea, there was no justification for seeking to prevent conduct which would indirectly diminish the value of those shares. There was therefore no justification for granting a freezing injunction against Broad Idea which was designed to maintain the value of Dr. Cho’s shares in Broad Idea.14

If Lord Leggatt was saying that Black Swan relief is unavailable against the BVI NCAD company even when (and whenever) there is no foreign WWFO available against its foreign CAD shareholder, then it would be useful for BVI to enact a service-out gateway – in order that Black Swan relief can be available against a foreign CAD and his shareholding whenever a foreign WWFO is unavailable.

However, Lord Leggatt said there was “no justification” rather than ‘no utility’ – and he said this only after first observing that “no application had yet been made for such a freezing injunction against Dr. Cho in Hong Kong despite that being the obvious place in which to seek one.15

Given that context, Lord Leggatt can arguably be taken to mean that there was no justification because Convoy Collateral had been able to but did not apply for a WWFO in Hong Kong16; while if a Hong Kong WWFO had first been obtained, it would only be in exceptional circumstances17 that Black Swan relief in BVI would have sufficient utility to be justifiable.18

On that interpretation, Black Swan relief against a BVI company is not ruled out in other circumstances where there is no WWFO – for example where a foreign WWFO is unavailable; or is available but cannot be obtained in time:

(i) No foreign WWFO available: Mercedes-Benz revisited

On the same facts today19, in the absence of a gateway for Mercedes to serve its injunction application out of the jurisdiction, a free-standing freezing injunction might instead lie against the Hong Kong company restraining it from disposing of its assets20 or allowing or giving effect to any dealings in its shares21, 22. Such an injunction would be justifiable because the Monégasque attachment was not effective to prevent the foreign CAD from dealing with or devaluing those shares; and would have utility and be justifiable if no freezing relief was available against those shares23.

(ii) WWFO cannot be obtained in time

A situation could arise where it was necessary, and possible, to obtain Black Swan relief against the BVI company before a foreign WWFO could be obtained against its shareholder. For example, because BVI and Asia are 12 hours apart, Black Swan relief against the company could be obtained in BVI first, followed 12 hours later by an Asian WWFO against the shareholder. In such a case, whether a subsequent WWFO was still necessary and if so, whether it should be in addition to or substitution for the BVI relief would depend on the circumstances of the particular case. In this context, it may be recalled that in Broad Idea, Lord Leggatt held that once the Hong Kong WWFO had been obtained, there was no reason to continue the earlier freezing injunction against Broad Idea24.

Therefore if, as suggested above, Black Swan relief against the BVI company remains available and effective in such circumstances, it provides a viable alternative without recourse to enacting a gateway for Black Swan applications.

Conclusion

A gateway to serve Black Swan25 applications out of the jurisdiction;

a) is unwarranted where the foreign jurisdiction has in personam jurisdiction as of right26 over the foreign CAD and is able to grant WWFOs against him;

b) is unnecessary where the foreign jurisdiction has in personam jurisdiction as of right over the foreign CAD but is unable to grant WWFOs against him; and

c) would, if enacted, be a white elephant.

Summary

Black Swans are indigenous to BVI and do not migrate. They hibernate in most conditions but can quickly freeze on the spot in response to exposure abroad. Meanwhile, reports of a white elephant in the Cayman Islands are being investigated.

1 [2021] UKPC 24
2 Black Swan Investment ISA v Harvest View Ltd (BVIHCV 2009/399) 23 March 2010
3 [1979] AC 210
4 Mercedes-Benz v Leiduck [1996] AC 284
5 Grand Court (Amendment) Law 2014
6 Grand Court (Amendment) Rules 2014
7 Broad Idea International Limited v Convoy Collateral Limited (BVIHCMAP 219/0026) 29 May 2020
8 But not for long
9 Section 24A of the Eastern Caribbean Supreme Court Act 1969, inserted by section 3 of the Eastern Caribbean Supreme Court (Virgin Islands) (Amendment) Act 2020.
10 Or the statutory version.
11 Worldwide freezing order.
12 [2021] UKPC 24, paragraph 112.
13 Ibid, paragraph 113. ‘Exceptional circumstances’ per Hildyard J in Group Seven Ltd v Allied Investment Corpn Ltd [2014] 1 WLR 735, paragraphs 80-81.
14 [2021] UKPC 24, paragraph 112.
15 Ibid.
16 Until circa one year after the BVI injunction against Dr. Cho had been discharged - see paragraphs 134 and 139 of the dissenting judgment of Sir Geoffrey Vos.
17 Per Hildyard J in Group Seven, noted earlier.
18 Equally, if the foreign court had the power but refused to grant a WWFO because grounds for freezing relief were not made out, a second bite at the cherry in BVI would rarely be justifiable.
19 Assuming no supervening legislation.
20 Based on the “extended application of the enforcement principle” (per Lord Leggatt, [2021] UKPC 24, paragraph 110). Semble, a Black Swan injunction against a BVI company.
21 See the wording used in the Chabra order initially obtained against Broad Idea, set out at paragraph 10 of the ECCA judgment in Broad Idea. The wording is equally/a fortiori apposite for an anti-devaluation injunction.
22 Mercedes had not sought to injunct the Hong Kong company as a NCAD on the Chabra basis; while in 1995, freezing an NCAD company’s assets to prevent devaluation of its shares was still several years into the future.
23 In Gilfanov v Polyakov (BVIHCMAP) 2016/0009, a freezing injunction was justifiable against the company after the foreign CAD had transferred his shares to a third party. One would be similarly/a fortiori justifiable where a WWFO is unavailable (as opposed to being available but not sought) to restrain the foreign CAD from transferring his shares to a third party.
24 [2021] UKPC 24, paragraph 113.
25 Or the statutory version.
26 If the foreign jurisdiction only had long-arm in personam jurisdiction over the foreign CAD, the foreign judgment would be unenforceable in BVI (see Dicey, Morris & Collins, 15th Edition, paragraph 14-088 et seq), in which case there would be no basis for Black Swan relief in any event.

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