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Litigating in the BVI courts - International Law Office

International Law Office

Litigation - British Virgin Islands

Litigating in the BVI courts

April 12 2011


The global financial crisis has placed an increased focus on the British Virgin Islands as an offshore jurisdiction. Home to approximately 900,000 incorporated international business companies and a major centre for mutual and hedge funds, captive insurers and wealth planning vehicles, such as trusts, the jurisdiction has been at the forefront of many recent developments, especially in the law relating to distressed securities and investment funds. The familiarity of the legal system and a bespoke Commercial Court have heightened its reputation as a reliable and efficient centre for international dispute resolution.

English common law applies to the British Virgin Islands, as do the principles of English equity, so BVI common law is largely identical to that of England (except as modified by BVI statutes).

Decisions of the Judicial Committee of the Privy Council are binding on BVI courts. In addition, in the absence of any BVI authority, on-point decisions of English courts are strongly persuasive. BVI courts will often develop BVI law in line with decisions of English courts and broadly recognise the desirability of having the same common law throughout the Commonwealth.

In 2009, in response to the number of high-value and complex international commercial cases appearing before the High Court, a dedicated Commercial Division was opened, greatly raising the profile, efficacy and quality of reported case law and responding to the unprecedented events of the post-Lehman Brothers world.

BVI vehicles are commonly used to hold assets or form a layer of a more involved structure. BVI law will apply to many disputes and provides for urgent ancillary relief applications, such as disclosure and freezing orders.

The jurisdiction to freeze the assets of a BVI company is well established and will be exercised, in broad terms, where the court is satisfied that:

• there is a good arguable case;
• there is a threat of dissipation of assets; and
• the balance of convenience is in favour of an injunction being ordered.

A more recent development is the court's recognition that a freezing order may be issued in support of foreign proceedings where the enforcement of a money judgment that had previously been obtained might otherwise be frustrated. Ancillary disclosure orders will usually follow freezing injunctions, requiring a target defendant to give details of its assets.

A public search of the Corporate Registry will not provide details of shareholders or directors of BVI companies. As such, freestanding disclosure orders (eg, under the Norwich Pharmacal or Bankers Trust v Shapiro principles) can be sought where the identity of a wrongdoer is required in order to bring an action or to assist in the preservation of assets. These applications are usually aimed at the BVI registered agent of the company, as it will normally hold details of a company's membership and beneficial ownership.

The Insolvency Act 2003 provides a balanced and effective framework in which creditors may seek redress and companies may enter liquidation. Secured creditors enjoy statutory protection and may therefore seek to enforce their security outside the insolvency regime. Time limits provide for swift recourse to the court and leave little room for stalling tactics. While the act provides for a corporate rescue facility in the form of administration, this is yet is to be brought into force and there are few restrictions on the enforcement capability of a creditor.

However, while the insolvency regime is largely creditor-friendly, recent Commercial Court decisions - specifically those relating to the hedge fund industry - have afforded a level of protection to funds and their managers as they attempt to realise illiquid portfolios in the face of disgruntled investors.

The Arbitration Act has been in place since 1976, yet the incidence of arbitrations has been relatively low, despite the fact that many of the governing documents of BVI companies contain an arbitration clause. This may begin to change following a recent decision of the Commercial Court which found that an arbitration agreement applied between two parties, even though the broader dispute involved other entities that did not fall within the arbitration agreement.

There has been a considerable surge in contentious trust litigation in the British Virgin Islands, including:

• Beddoe applications;
• applications for declarations for the construction of settlement deeds; and
• applications for directions by trustees.

The jurisdiction offers corporate trustees the opportunity of becoming private trust companies and the Virgin Islands Special Trusts Act provides flexible trust arrangements for assets held on trust. Smooth management of a trust necessitates trustee confidence in the local court and judges to deal with complex trust and commercial arrangements. The considerable experience that the BVI court is building up in this area can only enhance the underlying utility of the various trusts products available in the British Virgin Islands.

For further information on this topic please contact Andrew Thorp at Harney Westwood & Riegels by telephone (+1 284 494 2233), fax (+1 284 494 3547) or email (andrew.thorp@harneys.com).

An earlier version of this article was published by Global Business Magazine in March 2011.


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