The Territorial Limitations of the Black Swan Jurisdiction

It confirms:

• That the so called “Black Swan” line of authority cannot be developed and extended by the courts to permit free standing injunctions to be granted against persons that are not subject to the in personam jurisdiction of the British Virgin Islands Court.
• CPR 7.3(2)(a) does not permit service of a free standing application for injunctive relief out of the jurisdiction. The Court held that absent legislative intervention, such relief is therefore not available.
• Decisions of the Privy Council are binding authority on the Courts of the Territory. In reaching this finding the Court of Appeal rejected a conflicting approach to service out of a free standing injunction of the Jersey courts, and held that decisions of the Privy Council delivered in other jurisdictions with an appeal to the Privy Council are binding in the BVI.

In the BVI, the Court has a long standing and well recognised statutory jurisdiction to act in aid of foreign arbitral proceedings by granting injunctive relief or appointing a receiver.  However, it was not until the decision of Bannister J in Black Swan Investments v. Harvest View in 2010 that a power to act in aid of proceedings before a foreign Court was recognised.  The Court’s willingness to restrain dispositions of the assets of a BVI company (and dealings in the shares of that company) rested upon the proposition that a foreign monetary judgment would ultimately be capable of being enforced in the BVI.

Over the years since, the Courts have explored the limits of the Black Swan jurisdiction.  For instance, in Yukos CIS Investments Limited v Yukos Hydrocarbons Limited & Ors HCVAP 2010/0028 (Yukos) the Court of Appeal confirmed that the Black Swan jurisdiction was not limited to cases where a monetary judgment might be capable of being enforced in the BVI.  However, in the same litigation, it decided that because it was acting in a supportive role to a foreign Court, the Court would not lightly grant injunctive relief if the foreign Court was not itself prepared to do so.

Where the foreign Court is prepared to restrain dealings in the assets of a BVI company, the BVI Court will restrain dispositions of the assets of companies wholly owned by a particular enforcement Defendant (Nataili Osetinskaya v Usilett Properties Inc (BVI HCV0037/2013(Usilett)).  The Court has considered whether the Black Swan jurisdiction is confined to local assets (Usilett), whether relief should be available exceeded the scope of that of the foreign Court (VTB Capital v. Nutritek); and in a series of decisions beginning with Magot v. Gazin, the Court considered whether ancillary disclosure orders should be available to support a Black Swan injunction.

Whilst it is now clear that the assets of a BVI company may be frozen to assist in an enforcement process against a particular defendant, the question of whether the Court would also grant injunctive relief against that foreign defendant, which is not otherwise subject to the jurisdiction of the Court, had not previously been considered.

Convoy Collateral v. Broad Idea – The Facts

Convoy Collateral Ltd (Convoy or the Appellant) is a company incorporated in Hong Kong. Broad Idea International Limited (Broad Idea) is a company incorporated in the BVI. The Second respondent is Dr Cho Kwait Chee Roy (Dr Cho) for whom Appleby acted. Dr Cho is resident in Hong Kong and owns 50.1% of the issued shares in Broad Idea.

In February 2018, Convoy commenced proceedings against Dr Cho in Hong Kong. On 2 February 2018, Convoy obtained ex parte freezing orders against Dr Cho and Broad Idea in support of the proceedings in Hong Kong freezing assets up to a value of some USD 75million; permission was also granted to serve Dr Cho in Hong Kong.

On 9 February 2018, Dr Cho applied to set aside the orders of the BVI Court and for a declaration that the BVI Court should not have exercised jurisdiction over him. Hearing the matter at first instance, Adderley J found that the court did not have the power to grant an order permitting service outside the jurisdiction of a freestanding injunction in support of foreign proceedings on a person not subject to the jurisdiction of the court. Dr Cho was the successful party in the first instance and the orders were set aside by the BVI Court.

Grounds of the Appeal

Convoy appealed the decision at first instance on various grounds, which raised, in essence, three issues on appeal:

(i) whether the court had erred in finding that it was bound by the Privy Council decision in Mercedes Benz v Leiduck [1996] 1 AC 284 (Mercedes Benz) and thereby its decision that it did not have jurisdiction to authorise service of an application for freestanding injunctive relief on a person outside the jurisdiction pursuant to CPR 7.3(2);
(ii) the sufficiency of the reasons given by learned judge at first instance; and
(iii) the interpretation of 7.3(2) of the CPR by the judge at first instance.

The decision at first instance was upheld and the appeal dismissed on all of its grounds.  The decision of the Court of Appeal raises a point of some interest in relation to the power of the Court to grant freestanding relief against persons that are not subject to the jurisdiction of the Court, whilst also firmly endorsing the existence of the Black Swan jurisdiction.

Privy Council decisions are binding

In this case, the Appellant had sought to restrain Dr Cho from dealing with his shares in Broad Idea. The purpose of the injunction was simply to restrain Dr Cho from dealing with his assets in the BVI so that they be made available to satisfy a money judgment against him in the future. The Appellant did not have a substantive claim against Dr Cho in the BVI and the relief sought was simply that of a free standing injunction. The Court of Appeal held that the relevant case law, in particular Siskina [1979] AC 210 (Siskina), did not support the proposition that the Court had a jurisdiction to grant freestanding injunctive relief.

The principles in Siskina were considered and applied in the Privy Council case of Mercedes Benz. In Mercedes Benz it was held (by majority decision with Lord Nicholls dissenting) that an injunction does not decide any rights or issues between the parties and is no more than a method to preserve assets; a free standing injunction was therefore not a sufficient basis to obtain leave to serve out of the jurisdiction because it was not based on any right asserted by a substantive claim. The Court of Appeal agreed with these findings describing the Mercedes decision as “very clear and powerful” in this regard and applicable .

Black Swan represents an exception from that principle. In Black Swan, Bannister J held that he had identified a lacauna in the decision in Mercedez Benz, which he was entitled to fill in this jurisdiction in cases where the Court was acting in aid of the enforcement of a judgment against assets over which the Court had jurisdiction.

The Appellant sought to argue that the Court of Appeal was not bound to follow the Mercedes Benz case because the decision was not binding upon the BVI Court. Instead, the Appellant argued that the judge at first instance should have followed the approach taken in Jersey where courts can, without changing the rules, permit service out the jurisdiction.

The Court of Appeal rejected these arguments finding that Privy Council decisions are indeed binding where the decision in question is an appeal from the same jurisdiction as the court that is considering the previous decision.

Limitation of the Black Swan Jurisdiction

The Court of Appeal thereby rejected the Appellant’s further submission that the Black Swan jurisdiction be developed to permit freestanding injunctions in circumstances where that was the only relief sought. The Court of Appeal held that the facts of the present appeal were different from those in Black Swan because the latter concerned a substantive action against a BVI company rather than a foreign individual whom had not submitted to the jurisdiction. The Appellant needed to satisfy the relevant gateway in the rules for service out while Black Swan did not consider this. It was also held that the Black Swan line of authority was never intended to be developed in this manner.

As settled by Mercedes Benz, the mere presence of assets in this jurisdiction was not enough to satisfy the relevant test to pass within the gateway. Because the Privy Council decision in Mercedes Benz was binding in the BVI the Court of Appeal was bound to follow it.

In view of the above, the Court of Appeal went on to consider the proper basis on which freestanding injunctions could be permitted in the BVI. Noting that other jurisdictions (including England & Wales and the Cayman Islands) had amended their rules, the Court agreed that until an equivalent is introduced in the BVI by a legislative change, then the Territory will be unable to grant free standing injunctions of the type for which the Appellant had contended.

The Approach in Jersey

The decision also raises an interesting question relating to stare decisis.  In refusing to follow authority in Jersey, the Court held that it was bound by Mercedez Benz – even though Mercedes Benz was a decision of the Privy Council on an appeal from a jurisdiction other than the British Virgin Islands.  The Court also took the view that the position of the Cayman Islands had more in common with the BVI, and that the decision of the Court of Appeal of the Cayman Islands in VTB v. Nutritek should be followed.  Whether or not Black Swan itself can survive this decision is an issue that will no doubt arise for debate in the future.

Conclusion

The decision in Convoy Collateral is a welcome recognition that the Court should exercise caution when granting injunctive relief against parties that are not subject to the jurisdiction of the BVI Court, in the absence of substantive litigation against them is not proceeding in the BVI.  In practical terms, the decision of the Court of Appeal in Yukos had already recognised that injunctive relief should not usually be granted except where the Court with primary carriage of the litigation was minded to grant injunctive relief itself.  Since injunctive relief is likely to be more effective in the jurisdiction in which the Defendant is resident, the need for such relief in the BVI is questionable, particularly where a Chabra / Black Swan jurisdiction continues to be recognised over BVI assets.

Appleby appeared on behalf of the successful Respondent, instructing David Mumford QC.