No black holes in the British Virgin Islands: the Black Swan jurisdiction

In 2010, Justice Bannister bravely created what is now known as the Black Swan jurisdiction through incremental development of the common law in his judgment in Black Swan Investment ISA v Harvest View Ltd. The Black Swan jurisdiction provides the British Virgin Islands (BVI) courts with the power to grant an interim freezing order in support of foreign proceedings. It is a key weapon in the British Virgin Island’s arsenal in the fight against fraud. In expanding the freezing injunction jurisdiction Justice Bannister acknowledged the judgment of the Jersey courts in Solvalub Ltd v March Investments Ltd and decided to follow Lord Nicholls’ dissenting judgment in Mercedes Benz v Leiduck in order to ensure that the BVI would not be the black hole into which fraudsters could disappear with their assets.

English approach

It is interesting to compare the development of the common law in the British Virgin Islands with the English approach. As explained in Republic of Haiti v Duvalier, until the Civil Jurisdiction and Judgments Act 1982 (CJJA) came into force, an English court would not have entertained relief of this nature. The jurisdiction was limited by the House of Lords in Siskina (Owners of cargo lately laden on board) v Distos Compania Naviera S.A. (The Siskina): "A right to obtain an interlocutory injunction is not a cause of action. It cannot stand on its own... The High Court had no power to grant an interlocutory injunction except in protection or assertion of some legal or equitable right which it has jurisdiction to enforce by final judgment...".

The conclusion of Lord Diplock in The Siskina has been superseded by section 25(1) of the CJJA introduced due to the requirements of article 24 of the 1968 Brussels Convention on jurisdiction and the enforcement of judgments in civil and commercial matters (the Brussels Convention): "the High Court in England and Wales or Northern Ireland shall have power to grant interim relief where (a) proceedings have been or are to be commenced in a contracting state other than the United Kingdom."

This provision expressly permitted English proceedings in which only interim relief is sought. However, other common law jurisdictions, not being subject to European Union law, have been left to interpret the law and authorities in determining how to resolve this issue in the absence of section 25 of the CJJA.

BVI approach

In the BVI, Justice Bannister analysed the authorities in this area before deciding to fill the lacuna in the law by adopting the reasoning of Lord Nicholls in his dissenting judgment in Mercedes Benz which he described as "compelling" and which the learned authors of Dicey, Morris and Collins have described as "powerful".

According to Channel Tunnel Group Ltd v Balfour Beattyl, The Siskina did not prevent an English court from granting an interlocutory injunction ancillary to a claim for substantive relief to be granted by a foreign court or arbitral body. In Fourie v Le Roux Lord Scott held that the passage from Lord Brown-Wilkinson speech in Channel Tunnel and the other authorities showed that the English court does have jurisdiction, in the strict sense to make an order in aid of a prospective judgment to be obtained in foreign proceedings provided that the person restrained is subject to the in personam jurisdiction of the English court. Lord Scott noted that in 1977 freezing injunctions were in their infancy and that the position was settled in England due to section 25 of the CJJA.

Summarising the authorities, Justice Bannister found that there was high authority to suggest that in the absence of a provision to the effect of section 25 CJJA, the BVI Court may not grant a freezing order in aid of foreign proceedings against a defendant who is not subject to the court’s in personam jurisdiction. He also found that the question as to whether a freezing order should be granted in aid of foreign proceedings against a defendant who is subject to the court’s jurisdiction is open. It was not dealt with by the court in The Siskina, a case which was not dealing with that set of facts.

Lord Nicholls in Mercedes Benz pointed out that freezing orders are unlike "ordinary" interlocutory injunctions because they bear no relation to the subject matter of the proceedings. Their only purpose is to prevent dissipation of assets available to satisfy a money judgment. They do not depend on there being a pre-existing cause of action. Bannister agreed with Lord Nicholls that Channel Tunnel is high authority for the proposition that standalone writs may be issued. Other examples include anti-suit claims and Norwich Pharmacal relief.

Justice Bannister was fortified in this conclusion, by findings of the Court of Appeal in Jersey which had reached a similar conclusion in Solvalub (noting that he had not yet had a chance to read the judgment). The Court of Appeal in Solvalub adopted the reasoning of Lord Nicholls and held that the Royal Court had the jurisdiction to issue a Mareva injunction in aid of proceedings overseas where that was the only remedy claimed in the jurisdiction. Justice Bannister went on to say:

"Quite apart from the jurisdictional analysis of Lord Nicholls which I have respectfully adopted, there are sound policy reasons why important offshore financial centres, such as Jersey and the BVI, should be in a position to grant in aid where necessary. The business of companies registered within such jurisdiction is invariably transacted abroad and disputes between parties who own them and others are often resolved abroad. It seems to me that when a party to such a dispute is seeking a money judgment against someone with assets within this jurisdiction it would be highly detrimental to its reputation if potential foreign creditors were to be told that they could not, if successful, have resort to such assets unless they were to commence substantive proceedings here in circumstances where, in all probability, they would be unable to obtain permission to serve them abroad – thus presenting them with an effective brick wall or double bind of the sort so deplored by Lord Nicholls in Mercedes Benz."

The test for a Black Swan freezing injunction in the BVI has since been summarised by the Court of Appeal in Yukos CIS Investments Ltd & Another v Yukos Hydrocarbons Investments Ltd & Ors:

  1. the jurisdiction to grant an interim freezing order is not ordinarily exercised unless it is necessary to do so in the aid of either relief the applicant is likely to obtain from the local court or from a competent foreign court
  2. the relief the applicant is likely to obtain from a foreign court must lead to a foreign judgment which may be enforceable by whatever means against BVI assets owned or controlled by the defendant
  3. in appropriate cases, interim relief might be granted to an applicant in support of a foreign claim against third parties to the foreign proceedings who are resident in the BVI and
  4. a failure to seek equivalent injunctive relief in the foreign proceedings is a discretionary factor which may mitigate against relief being granted

Over the last ten years, the BVI courts have frequently applied this test and granted Black Swan injunctions in order to preserve assets in the BVI against which a foreign judgment will be enforced.

Recent developments

In the BVI, we are currently awaiting two critically important judgments from the Court of Appeal on the scope of the Black Swan jurisdiction (BVIHCMAP 2019/0014 Convoy Collateral Ltd v Cho Kwai Chee Roy and BVIHCMAP 2019/0026 Broad Idea International Litd v Convoy Collateral Ltd). One appeal seeks to expand the jurisdiction to permit service out on persons who own assets within the BVI but who are not subject to the in personam jurisdiction of the BVI court and the other appeal quite incomprehensibly seeks to reverse the scope of the Court’s jurisdiction to the limited scope set out in The Siskina. A contention, that can only be described as "Dickensian" in its regressive nature.

It is hoped that the Court of Appeal will be persuaded on the facts of CCL’s case and by the Jersey decision in Krohn GmbH v Varna Shipyard and Others (No. 2) which represents the completion of the decision of the Jersey Court of Appeal in Solvalub. Krohn closed the circle in Jersey by permitting service out of the freezing injunction granted in support of foreign proceedings. If the BVI Court of Appeal were to follow Jersey in this regard, it would represent a necessary and much desired expansion of the existing common law without the need for recourse to fresh legislation.

These are in short critical appeal judgments. The appeal where CCL is a respondent should be dismissed in limine to ensure that the Black Swan injunction remains part of the BVI’s armoury and the other should be granted (in CCL’s favour) so that the BVI is properly equipped to protect international creditors and victims of fraud.

Lord Nicholls’ comments in Mercedes Benz could not be more apposite as international fraud becomes instant and more sophisticated in the digital era. There should not be a black hole into which a defendant can escape out of sight and become unreachable. The BVI should not be that black hole.

We await developments with keen interest. 

This article first appeared on the website of the Litigation Committee of the Legal Practice Division of the International Bar Association, and is reproduced by kind permission of the International Bar Association, London, UK. © International Bar Association.