BVI Case Notes, July 2013

Below is a summary of recent cases out of the British Virgin Islands (BVI) Commercial Court, compiled by Harneys’ Litigation team.

Further Developments in Black Swan Relief

Harneys successfully acted for an individual seeking free standing relief in aid of foreign proceedings brought in Cyprus. The Cyprus proceedings were a derivative claim brought by the claimant in the name of a Cypriot company. Relief sought included a declaration that the relevant BVI company held property on trust for the Cypriot company and a judgment against the BVI company and others for US$3million. The Cypriot courts granted the applicant interim injunctive relief restraining the BVI company from dealing with the relevant property.

On the application to the BVI Court for “mirror” relief, the applicant successfully argued that the Black Swan jurisdiction applies to prevent non-cause of action defendants from disposing of identified assets – as long as those assets might be available to satisfy a future judgment of a foreign court, in proceedings in which the owner, or arguable owner, of the assets is a defendant.

The BVI Court held that in the circumstances it was just and convenient to make an order restraining the BVI company from giving effect to any dealing that might be attempted in breach of the Cyprus injunction.

Previously, the BVI Court had granted a Black Swan freezing injunction in support of a foreign claim in which part of the relief abroad was sought derivatively. Harneys acted for the successful BVI applicant. This is believed to have been the first example in the BVI of the Black Swan jurisdiction being used to support a foreign derivative action.

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BVI Insolvency Assistance to Foreign Office Holders

Harneys successfully appeared on behalf of a foreign liquidator seeking urgent recognition in order to assert control over BVI assets at risk of dissipation.

Previous BVI case law (Picard v BLMIS, BVI HC (Com) 140 of 2010) suggested that Parts XVIII and Part XIX of the Insolvency Act 2003 provided an exhaustive statutory code by which a foreign appointee could seek recognition or assistance in the BVI.

Part XVIII largely mirrors the UNCITRAL model law for cross-border insolvencies but has not been enacted and Part XIX, whilst giving prescriptive powers to foreign appointees, is limited to those appointed in a small number of "designated" countries.  This had the effect of limiting the ability of foreign office holders from non-designated jurisdictions to operate in the BVI and, for example, to secure assets and investigate the affairs of related entities or individuals.

However, here, following argument from counsel that there still existed a common law power to recognise office holders from non-designated jurisdictions, the BVI court recognised the foreign appointee's entitlement to the BVI assets (a majority holding in a BVI vehicle). Reasons for the decision are pending.

Harneys’ Cyprus team worked simultaneously with the BVI team to take control of the underlying Cypriot entity through which the ultimate assets (based in the CIS) were secured.

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Economic Torts and Unjust Enrichment

Maruti Holdings PTE Limited v Sinclair Strategies Limited and others BVIHC (Com) 2012/0130

Harneys successfully applied to set aside service of a US$21 million claim brought in the BVI against a professional corporate services provider based in Guernsey. The claim alleged a series of economic torts (intimidation, duress, conspiracy) and unjust enrichment.

The application succeeded on the basis that the claimant did not have a good cause of action against the defendants, of which the Guernsey service provider was one. The claimant had argued that the defendants intended to harm a third party, Mr. O and/or Mr. O’s “economic interests”, of which the claimant formed a part. On that basis the claimant said it had a cause of action against the defendants in tort.

The defendants successfully argued that where it was not alleged that they had intended to harm the claimant itself directly, the claimant had no cause of action. The Court accepted this view.

The Court also found that even if the defendants had committed the alleged torts against Mr. O, the claim would still have failed because the defendants had not been unjustly enriched at the expense of the claimant. The claimant might have some form of claim against Mr. O but there was no restitutionary claim available to the claimant against the defendants.

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The Meaning of “Member” under the BVI Company Law

Comodo Holdings Ltd v (1) Renaissance Ventures Ltd; and (2) Joseph Katz (executor for the estate of Eric D Emanuel Dec’d) BVIHC (Com) 2013/0045

Harneys recently acted for successful respondents in a dispute relating to how the Court should determine membership of a BVI company.

The factual matrix was complex: the applicants sought a stay in favour of arbitration in New York. The respondents argued the stay should be refused as the applicants were not members of the relevant company under the Articles and/or the BVI Business Companies Act 2004, as a result of which they had no standing to invoke the relevant arbitration clause. The applicants sought to prove their standing as members of the relevant company by relying on share certificates in their names. However, they were unable to demonstrate that their names were recorded on the share register, nor that they had paid for the share certificates.

In short, Bannister J. held that prima facie evidence of title is not the same as membership of a company; and that corporate membership can only be proven by entry of a name on the company’s share register. He followed the recent English Supreme Court ruling Enviroco Lt v Farstad Supply A/S [2011] 2 BCLC 165 which held that membership is determined by entry in the register of members. Bannister J. held that the BVI position was the same as that in England & Wales, and the legislation would otherwise be unworkable.

Harneys also successfully argued on behalf of the respondents that in any event, an arbitration was not the appropriate forum to decide the question of locus to arbitrate, as had been erroneously argued by counsel for the applicants.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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