Recent cases before the British Virgin Islands courts include matters dealing with arbitration agreements and awards, and default judgments.
Arbitration Agreements:
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.
Facts
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.
Issues
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.
Findings
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.
Outcome
The application to set aside the default judgment was therefore dismissed.
Footnotes
1 High Court of England, Northern Ireland, Court of Session of Scotland
2 BVIHC (COM) 2012/0008, 2 April 2012
3 [2003] EWHC 474(Ch)
4 [2011] UKPC 37
5 (1986) 83 LSG 1725
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
