In Koshigi Limited v. Donna Union Foundation (BVIHCMAPP 50/2018), Donna Union Foundation (DUF) had the benefit of a substantial award of the London Court of International Arbitration (the LCIA) against Svoboda Corporation (Svoboda) and Koshigi Limited (Koshigi). Together, Svoboda and Koshigi (the KS Shareholders) were ordered to acquire DUF’s shareholding in a Maltese vehicle, Ulmart Holding Limited, for approximately USD 67m.
Beginning on the very day that the liability phase of the proceedings before the LCIA came to an end, the KS Shareholders began to divest themselves of their assets in what a Judge was later to observe “must have been a concerted judgment proofing exercise.” DUF therefore applied to the BVI Court for a worldwide freezing order, an ancillary asset disclosure order and the appointment of a receiver. This was done pursuant to section 43 of BVI’s Arbitration Act, 2003 (Arbitration Act), which allows the Court to grant interim measures in support of arbitral proceedings. DUF was obliged to give notice of its application, which it did by serving Svoboda on Friday 20 April 2018. In full knowledge of that application, by 24 April 2018 Svoboda had re-domiciled itself to Anguilla.
Before the Judge and before the Court of Appeal, Svoboda argued that the Court lost jurisdiction over it when it re-domiciled. In addition, the Respondents both claimed that the power to grant injunctive relief and to appoint a receiver was only engaged where it was possible to identify assets within the jurisdiction which were amenable to enforcement, and that ancillary disclosure orders were unavailable. These, they argued, were limitations on the Court’s power at common law to order interim relief in support of foreign proceedings, irrespective of whether there was an available cause of action in BVI. This has come to be known as the Court’s ‘Black Swan’ jurisdiction.
The Commercial Court and the Court of Appeal rejected those contentions. Three important principles emerge from the judgment of the Court of Appeal.
1. The Black Swan jurisdiction in arbitration cases
The Court of Appeal was unequivocal in its support of foreign arbitrations. The Court observed that local courts play an important role in the potential enforcement of awards, and that section 43 of the Arbitration Act “comprehensively clothes the court with jurisdiction to grant interim measures and there is no need to resort to the Black Swan line of cases in order to give efficacy” to that.
It also took the opportunity to confirm that the jurisdiction of the BVI Court to act in aid of foreign arbitral proceedings is significantly wider than its English equivalent, and that the “the BVI courts are entitled to grant relief [under section 43] even if the existence of BVI assets cannot be established.”
2. Jurisdiction over Svoboda
Svoboda sought to argue that the Court had no in personam jurisdiction over Svoboda, and thus no entitlement to appoint a receiver. The Court of Appeal firmly rejected that analysis: in personam jurisdiction was established at the point in time at which Svoboda had been served with the application. In any event, the “progressive” BVI Business Companies Act, 2004 (the BCA) contained effective anti-avoidance mechanisms: the BCA provided that a former BCA company may continue to be served in the BVI, and that proceedings were not abated or impaired as a result of its re-domiciliation.
3. Failure to disclose assets
Finally, it is worth noting that DUF relied heavily upon the Respondents’ failure to provide disclosure of their assets pursuant to ancillary disclosure orders attached to an earlier injunction as being sufficient evidence of a propensity to disobey an injunction that would merit the appointment of a receiver. There was ample additional evidence of such a risk and the Court was therefore not required to decide whether, had that factor existed in isolation, it would have been sufficient. However, a few weeks after Koshigi was argued, the Court of Appeal returned to the same theme in Konoshita v. J Trust (BVIHCMAPP2018/0047). In that case, the Court of Appeal held that a receiver would “invariably” be appointed where there was a “continuous failure to comply with a disclosure obligation”.
