Recent cases before the British Virgin Islands courts include matters dealing with arbitration agreements and awards, and default judgments.
BVIHCMAP0013/2014: Anzen Ltd and others v Hermes One Ltd: On Paper, 11 June 2014
Applications to enforce arbitration awards or to stay of proceedings in favour of arbitration are regularly entertained by the BVI Courts. There has been a recent decision of the Court of Appeal which affirms that the language of an arbitration clause must be one that makes arbitration mandatory rather than optional.
Facts: The Court of Appeal had to construe whether an arbitration clause merely gave the parties an option to arbitrate or was mandatory in nature therefore preventing a party from resorting to the court to have his dispute resolved. The Appellants contended that the learned trial judge was wrong to refuse their application to stay the proceedings holding that the arbitration clause did not make arbitration mandatory but merely optional. The Court of Appeal upheld the decision of the High Court finding that an arbitration clause which gives an option to arbitrate does not create an immediately binding contract to arbitrate. The Court of Appeal ruled that with arbitration clauses of this nature, there is only a binding agreement to arbitrate when one party refers any dispute arising to arbitration. If a party by-passes the arbitration clause and files a claim in court, the other party still has the option to invoke the arbitration clause by referring the matter to arbitration and apply for a stay of the court proceedings. If however the party against whom court proceedings were initiated does not refer the dispute to arbitration and does not submit to the court’s jurisdiction, the dispute will continue under the court’s jurisdiction.
Outcome: The Court of Appeal therefore dismissed the application finding that there was no binding agreement between the parties to arbitrate as the Appellants had failed to refer the dispute to arbitration. Therefore the remedy of a stay given by section 6(2) of the Arbitration Act was not available to them. Costs were awarded to the Respondent.
Enforcing an Arbitration Award:
BVIHC (COM) 115 of 2013: Conocophillips China Inc v Green Dragon Gas, Ltd, 29 April 2014
On the other hand, BVI courts respect the finality of arbitration awards and once satisfied that an award has been properly granted, it will not deprive the recipient from being able to enforce the award.
Facts: Conocophillips China Inc (CCI) a Liberian company, obtained an arbitration award against Green Dragon Gas Ltd (Green Dragon), a Cayman incorporated company and Greka Energy International BV (Greka) for breaches by Greka of contractual representations, warranties and undertakings contained in a mineral exploration agreement and guaranteed by Green Dragon to the limit of US$20 million plus interest and costs. The arbitration agreement was governed by the Rules of Arbitration of the Singapore International Arbitration Centre.
CCI applied to both the BVI and Cayman courts to enforce its award against Green Dragom while Green Dragon applied to the Singapore High Court to have the award set aside on the basis that there was a breach of natural justice and or that it was unable to present its case before the tribunal. Both the BVI and Cayman courts adjourned the applications seeking to enforce the award pending the determination by the Singapore High Court of whether to set aside the award. The Singapore High Court dismissed the application and found that the award was properly granted and did not breach natural justice principles. Green Gas and Greka appealed the decision of the Singapore High Court and CCI proceeded to apply for enforcement of the award in the BVI and the Cayman Islands together with the payment of security in the sum of the award in the event that the Court was minded to stay enforcement pending the appeal. Green Gas opposed the enforcement application seeking a stay pending the appeal.
Issues: The BVI court therefore had to determine whether it should stay the enforcement of the arbitration award pending Green Gas’s appeal to the Singapore Court of Appeal. The BVI court considered the discretion given to it under sections 36(1), 36(2)(f) and 36(5) of the Arbitration Act which provide as follows:
“36 (1) Enforcement of a Convention award shall not be refused except in cases mentioned in this section (2) Enforcement of a Convention award may be refused if the person against whom it is invoked proves- (f) that the award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, it was made. (5) Where an application for the setting aside or suspension of a Convention award has been made to such a competent authority as is mentioned in subsection (2)(f), the court before which enforcement of the award is sought may, on the application of the party seeking to enforce the award, order the other party to give security.”
The Defendant argued that the BVI court should not enforce the award where it was not enforceable in the seat of arbitration seeing also the language of the Singapore order itself indicated that enforcement should be postponed ‘until after the application is finally disposed of’.
Findings: The BVI court concluded that once the award has been upheld by the supervisory court, it should treat the question of enforceability as concluded, whether or not that decision is presently under appeal. The Court noted that an award under the Singapore International Arbitration Court (SIAC) Rules was not like a foreign judgment where an appeal on the merits will decide the substance of the claimant’s case. With a SIAC award, the merits will have been conclusively pronounced upon by the arbitral tribunal itself and the parties will have become bound by, and have either agreed not to appeal the award on the merits or be without any available avenue of appeal from the tribunal’s decision on the merits- or both. A court enforcing such an award therefore need not have any concern provided there has been no failure of due process, that enforcement will cause injustice. Once the supervisory court has removed whatever doubts there may have been about the question of due process, the court can see no reason in principle why recipient of the award should be further prevented from enforcing it worldwide because a different result might be obtained on appeal. The Court further highlighted that there was no provision of the Arbitration Act which encouraged the Court, in the exercise of its enforcement jurisdiction, to refuse or delay enforcement in such circumstances. The Court doubted whether it is open to the Court to defer enforcement in a case where a challenge to the supervisory court has failed. He concluded there appears to be no discretion under section 36 (5) of the Arbitration Act to delay enforcement in such circumstances unless words can be read into that section. The Court concluded that it was unable to find any principles of construction requiring words to be read into section 36(5) of the Arbitration Act which follows the wording of article IV of the New York Convention.
Outcome: The Court therefore refused Green Gas’ adjournment application and dismissed its application to set aside its enforcement order.
Registering an English Judgment:
BVIHC (COM) 0016 of 2014: Concept Oil Services Limited v Mr Alexander Kontsevoy; Mr Yerlan Buratov and Akkert SA, 16 April 2014
While a party can easily apply to register a judgment from the Courts of a jurisdiction recognised by the BVI Reciprocal Enforcement of Judgments Act1, it must ensure that it has complied with the basic requirements for registration, such as whether the Court had jurisdiction over the defendant.
Facts: The Claimant made an ex parte application pursuant to the BVI Reciprocal Enforcement of Judgments Act, Cap 65 (Cap 65) to register a money judgment obtained from the High Court of England and Wales on 5 July 2013 against the Defendants, two of whom were residents of Kazakhstan and the 3rd Defendant being a BVI company.
Issues: The Court was satisfied that there was all but one requirement that needed to be resolved as outlined in Cap 65. This was whether the Defendants, who were neither resident nor carrying on business in England when the proceedings were commenced, voluntarily appeared in the English proceedings or otherwise, submitted to the jurisdiction of the English Court. If they did not, then section 3(2)(b) of Cap 65 provides that this Court may not register the judgment in the Territory.
The Court had to determine: (i) what amounts to submission or voluntary appearance before a foreign court; (ii) whether a defendant’s failure to challenge the jurisdiction of the Court makes him subject to the Court’s jurisdiction; (iii) whether the abandonment by the defendants of the jurisdictional challenge was to be treated as submission to the jurisdiction of the English Court; (iv) whether an agreement to comply with a discovery order in the event that a jurisdictional challenge failed amounted to submission by the defendants.
Findings: The Court examined the conduct of the Defendants in the English proceedings and observed that letters from the Defendants’ legal representatives expressly reserved their rights to challenge the English Court’s jurisdiction while indicating their willingness to provide information pursuant to the discovery orders in the event that their jurisdiction challenged failed. The defendants therefore initiated an application, which they eventually abandoned before it was heard, to set aside permission to serve out; to discharge the freezing order; to get an extension of time for acknowledging service until after determination of the set aside application and an order for security for costs. The Applicant argued that the defendants voluntarily appeared or otherwise submitted to the jurisdiction of the English Court by either a combination of (i) agreeing to comply with the provisions of the freezing order and eventually complying with the disclosure provisions of that order; and failing in their challenge to the jurisdiction of the English Court.
The Court found that there was no authority supporting the Applicant’s propositions regarding voluntary appearance and or submission and concluded this did not represent the law. In order to become subject to the Court’s (territorial) jurisdiction, the foreigner must voluntarily appear or (voluntarily) otherwise submit. The Court defined ‘Appear’ to mean no more than that the foreigner overtly engages the Court’s processes on the merits. A useful test is whether the foreigner takes some step which is only necessary or useful if no objection to jurisdiction is being taken- or if a prior objection is being waived. On the facts of the present case, the Defendants did not appear or otherwise submit to the courts territorial jurisdiction. They did not thereby engage with, or indicate any intention to engage at any time in the future with the merits of the claim before the English Court. What is required from a submission is an indication that a defendant assents to the issues going to trial. Participating in steps concerned merely with conservatory relief is not sufficient.
In dealing with the further submission that when the Defendants failed in their jurisdictional challenge they became subject to the territorial jurisdiction of the English Court, the Court reiterated its decision in Star Reefers Pool Inc v JFC Group Co Ltd2 which holds that a foreigner who argues that the Court does not have territorial or exorbitant jurisdiction over him cannot be said, by so arguing, to have voluntarily appeared in the proceedings or to have otherwise voluntarily submitted to the jurisdiction. The position cannot change if the argument is rejected, unless it is possible to identify an act subsequent to the rejection capable of amounting to a voluntary submission.
The Applicant relied on the authority Smay investments Ltd v Sachdev3 to maintain that the abandonment by the defendants of the jurisdictional challenge was to be treated as submission to the jurisdiction. The Court distinguished the Smay decision on its facts from the English proceedings and found that abandoning a jurisdictional challenge as the defendants did cannot amount to a voluntary appearance or submission.
The Applicant argued that by agreeing to comply with the discovery orders if the jurisdictional challenge failed, they made an unequivocal submission to the English Court’s jurisdiction. They argued that this amounted to a conditional intention to engage in the future with the merits of the claim before the English Court. The Court disagreed with this proposition finding that by agreeing to comply with the disclosure obligation the Defendants were not agreeing to submit to the jurisdiction. A submission to the jurisdiction requires conduct evidencing an acceptance that the Court has jurisdiction to determine the claim. The foreign defendant must have assented to trial. The Court was unable to infer from the material an agreement from the Defendants to go to trial.
Outcome: As the Court was unable to find evidence that the Defendants voluntarily appeared or otherwise submitted to the territorial jurisdiction of the English Court and it was established that none of the Defendants carried on business in England or were ordinarily resident there when the proceedings were commenced, the judgment could not be registered in the Territory. The application was dismissed.
What it takes to set aside a Default Judgment:
BVIHCMAP 2013/0003: Sylmord Trade Inc v Inteco Beteiligungs AG, 24 March 2014
A party served with a BVI claim who fails to take any steps in the proceedings faces the risk of having a default judgment entered against him. Setting aside a default judgment requires that a party meet stringent conditions so care must be taken to ensure proper representation from the outset. This decision of the Court of Appeal provides a useful analysis of the conditions given under Part 13.3 of the Civil Procedures Rules (CPR) for setting aside a default judgment.
Facts: Inteco Beteilingungs AG (Inteco) issued a claim against the Sylmord for the repayment of loans which were advanced to it in the sum of over 74 million Euros and which were to be repaid within a specified period at the interest rate of 7.7% per annum. Inteco issued proceedings because the Appellant declined to have the dispute referred to arbitration. The Appellant failed to file an acknowledgement of service or a defence so judgment in default was entered against it. Within one month of the entry of judgment in default, the Appellant applied to set it aside arguing that it had satisfied the grounds given in rule 13.3 of the Civil Procedure Rules. Rule 13.3 provides that the court may set aside a default judgment only if the defendant (i) shows that he has applied to the court as soon as was reasonably practicable after finding out that judgment was entered; (ii) gives a good explanation for the failure to file an acknowledgement of service or defence as the case may be; (iii) has a real prospect of successfully defending the claim. The default judgment may also be set aside if the defendant can show that there are exceptional circumstances.
Issues: The Court of Appeal had to determine whether the High Court had erred in its decision to dismiss the application to set aside the default judgment entered against the Appellant. The Appellant contended that the trial judge erred in finding that: (i) they had not advanced a good explanation failing to acknowledge service; (ii) they did not have real prospects of successfully defending the claim; (iii) a commencement of proceedings in breach of contract and an express provision for arbitration was not of itself a sufficient reason to set aside the default judgment.
Findings: The Court of Appeal found that the Appellant’s apparent indifference to the legal proceedings instituted in the BVI court connoted real or substantial fault on its part and the learned trial judge was therefore correct to hold that the Appellant did not proffer a good explanation for its failure to file an acknowledgement of service. The Court of Appeal cited the Privy Council decision: the Attorney General v Universal Projects Limited4 where the Court defined what would not be a ‘good explanation’: “if the explanation for the breach…connotes real or substantial fault on the part of the defendant, then it does not have a good explanation for the breach. The Privy Council was also cited as noting that it is difficult to see how inexcusable oversight or administrative inefficiency can ever amount to a good explanation.
In considering whether the trial judge was wrong to find that the Appellants did not have good prospects for successfully defending the claim, the Court of Appeal found that a court has to consider the context of the pleadings and the evidence to determine whether a defence has a real (as opposed to a fanciful) prospect of success and if at the end of that exercise the court arrives at the view that it would be difficult to see how the defendant could establish its case, then it is open to the court to enter judgment against the defendant. The Court of Appeal on its own assessment of the defence agreed with the finding that it did not have a real prospect of success.
Addressing whether a binding agreement to arbitrate amounted to an exceptional circumstance for setting aside a default judgment, the Court of Appeal relied on the English Court of Appeal decision Vann et al v Awford et al5, which rejected the submission that the existence of an arbitration clause provided any arguable defence which could lead to the setting aside of a default judgment. The BVI Court of Appeal therefore noted that if instituting proceedings in breach of an arbitration agreement did not constitute an arguable defence to setting aside a default judgment, it could hardly constitute an exceptional circumstance to justify, on its own, setting aside a default judgment.
Outcome: The Court of Appeal dismissed the application with costs to the Respondent
BVIHC (COM) 11 of 2014: Strategy Success Limited v Dorsey Group Limited, 13 June 2014
Subsequent to the Sylmord Court of Appeal decision, Harneys was successful in opposing an application made by Dorsey Group Limited (Dorsey) to set aside a default judgment obtained against it by Strategy Success Limited (SSL) for the repayment of a loan in the sum of $700,000.
Dorsey had failed to discharge its contractual obligations to SSL thereby causing SSL to rescind the contract and initiate a claim in the BVI courts against Dorsey. SSL claimed for the return of the loan and in the alternative it claimed damages for loss suffered due to Dorsey’s breach of contract. Judgment was entered against Dorsey when it failed to acknowledge service or to file a defence. Dorsey applied to set aside the default judgment after two months of being served.
Dorsey contended that the default judgment should be set aside as of right because it was irregular, alternatively, the Court should exercise its discretion and grant Dorsey leave to defend. Dorsey contended that the judgment was irregular because it was a claim partly for a specified sum and partly for an unspecified sum (being damages for breach of contract, claimed in addition or in the alternative money claim). It was therefore not open to SSL to enter judgment for the $700,000 plus costs and interest unless it abandoned the unliquidated claim in compliance with rule 12.8(3) of the CPR. In the alternative, Dorsey contended that default judgment should be set aside pursuant to rule 13.3 of the CPR because it satisfied the conditions given in that provision (outlined below).
SSL argued that it had impliedly abandoned its claim for unliquidated damages when it applied for judgment to be entered on the liquidated claim. This was derived from the rule that causes of action merge in judgments.
The Court therefore had to determine whether the default judgment was irregular, whether SSL had abandoned its claim for unliquidated damages and whether the court should exercise its discretion under rule 13.3 of the CPR.
How to obtain default judgment
The Court confirmed that there are three separate routes for obtaining a default judgment: (i) under rule 12.4 of the CPR or under both 12.4 and 12.8 (3) using Form 7 where the judgment is for a specified sum of money; (ii) under rule 12.10(1) for an unspecified sum of money whereby the Claimant invokes the assistance of the Court under rule 16 and (iii) pursuant to rule 12.10(4).
Was the default judgment irregular?
The Court looked at whether SSL needed to abandon its claim in order to have judgment in default entered. The learned judge contextualised the meaning of the word ‘abandon’ used in the CPR and indicated that the use of the word is a confusing way of indicating that a clamant with a money claim can ‘park’ the unspecified sum claimed and go ahead to obtain default judgment on the money claim without waiting to have damages on the other claim assessed under CPR 16 or to have the whole claim tried out. He confirmed it cannot mean that by entering judgment for money lent, his claim for damages for breach of contract is automatically extinguished. This he said would conflict with the rules governing the merger of causes of action in judgments. Determining whether a default judgment extinguished one or more claims for unspecified sums of money would require an analysis of the cause of action underling each claim. He concluded that the rules were meant to facilitate pursuing default judgment even where there are claims for unspecified sums and there was no need to take any formal steps to declare that all claims in the prayer other than the claim for which default judgment is sought are abandoned. The Court therefore found that the default judgment was not wrongly entered.
Other grounds for setting aside default judgment
According to rule 13.3 of the CPR, the court may set aside a default judgment only if the defendant shows that: (i) he applied as soon as reasonably practicable after finding out that judgment was entered; (ii) gives a good explanation for failing to file an acknowledgment of service and (iii) has a good prospect of successfully defending the claim. In this case the defendant had allowed two months to lapse before it applied to set aside the default judgment. This time lapse the Court considered was not as soon as practicable. Further, in considering whether Dorsey gave a good explanation for why it failed to file an acknowledgment of service, i.e. because it believed the BVI court had no jurisdiction in the matter, this was rejected with reliance on the decision of the Court in Sylmord Trade Inc v Inteco Betellingungs SA. Finally, the Court assessed the draft defence confining itself only to an assessment of prospects and found that Dorsey had no real prospects of defending the claim.
The application to set aside the default judgment was therefore dismissed.
1 High Court of England, Northern Ireland, Court of Session of Scotland
2 BVIHC (COM) 2012/0008, 2 April 2012
3  EWHC 474(Ch)
4  UKPC 37
5 (1986) 83 LSG 1725