All swans are white….?

10 June 2020

I have always had a soft spot for the Black Swan jurisdiction: nothing to do with the law, but because it reminds me of my previous study of philosophy and the use of “all swans are white” as an example of falsification theory.  The statement could be verified if it was possible to check that all swans are indeed white.  The issue arises because the statement cannot be proved: no matter how many white swans you see, you cannot prove the statement to be true because there may be a black swan lurking just around the corner, unobserved and unknown.  Finding even a single black swan would disprove the statement.

A recent BVI case has revisited the Black Swan jurisdiction and, in a decision which is a blow for asset recovery and enforcement, has found that the case on which the jurisdiction is based was wrongly decided.

The Black Swan Jurisdiction

In the 2010 case of Black Swan Investment I.S.A. v Harvest View Limited and Sablewood Real Estate Limited (“Black Swan”) the BVI Commercial Court granted a freezing injunction where (a) the main proceedings had been brought in another jurisdiction, (b) there were no substantive proceedings in the BVI, and (c) interlocutory relief was sought against a non-cause of action defendant who was subject to the jurisdiction of the BVI Court.

It effectively allowed a free-standing interlocutory injunction to be made in the BVI in aid of foreign proceedings to prevent a non-cause of action defendant dissipating assets which may otherwise be available to satisfy a judgment of the foreign court.

The decision relied on the dissenting judgment in the Privy Council decision of Mercedes Benz A.G. v Leiduck (“Mercedes Benz”).

The jurisdiction was supported in Yukos CIS Investments Limited et al v Yukos Hydrocarbons Investments Limited (“Yukos”) in which the BVI Court of Appeal confirmed that the existence of assets within the jurisdiction was crucial for the jurisdiction to arise.  That same case also suggested that the jurisdiction should not be confined to situations in which a foreign money judgment was sought, thereby widening the scope of the jurisdiction.

Broad Idea International Limited - v - Convoy Collateral Limited

Ten years later and the Court of Appeal of the Eastern Caribbean Supreme Court has revisited whether there is a jurisdiction to grant a freezing order in support of foreign proceedings, against an entity who is not a party to those foreign proceedings and against whom no substantive proceedings have been issued anywhere in the world.

In Broad Idea International Limited - v - Convoy Collateral Limited (“Broad Idea”) it was accepted that there was no enforceable cause of action against the Appellant (Broad Idea).  Nor was there any suggestion that the Appellant and the cause of action defendant (in Hong Kong proceedings) were effectively one and the same.  The cause of action defendant held 50.1% of the shares in the Appellant company, and it would be against that shareholding that any judgment would be enforced, not against the Appellant company itself.

The Court of Appeal found that it had not been available to the Judge in Black Swan to rely on the dissenting judgment in the Privy Council case of Mercedes Benz.  The Privy Council is the highest Court of the BVI and the BVI has an established doctrine of precedent, meaning it was the majority judgment which should have been followed.

The issue of precedent was crucial because the Eastern Caribbean Supreme Court (Virgin Islands) Act 1969 did not extend to granting injunctions in support of foreign proceedings and there was no BVI legislation which gave the Court such power.  This was contrasted with the Arbitration Act 2013 which empowered the BVI Court to grant interim relief in aid of foreign arbitration proceedings.  There was therefore no statutory provision which enabled the BVI Court to grant a freezing injunction against a person against whom there was no cause of action anywhere in the world.

The Court of Appeal commented that whilst the decision in Black Swan was no doubt a well-intentioned attempt to fill the jurisdictional gap, it was not available to the Court to do so: any gap in BVI legislation should be filled by the legislature rather than by the Court.

The Court of Appeal also considered whether it was bound by the decision in Yukos and to what extent that case upheld Black Swan.  Its conclusion was that since the focus in Yukos was whether the judge in the lower Court had been correct to refuse to grant a freezing injunction in circumstances in which the cause of action pursued in foreign proceedings would not give rise to enforcement proceedings against assets in the BVI, there was no challenge to the Black Swan jurisdiction.  Instead the existence of that jurisdiction was assumed in order to explore the central issue in Yukos.

The Court of Appeal therefore concluded that there was nothing binding in Yukos which prevented it challenging the Black Swan jurisdiction and finding that it had been wrongly decided.  The Court of Appeal commented that it was for the legislature of the BVI to provide the necessary authority by way of statute and that it was time that such legislation be enacted.

The Court went on to consider the Chabra jurisdiction and whether there was a risk of dissipation, but those go to the specific facts of the case.

It is not clear whether this decision will be appealed to the Privy Council, but in the meantime the BVI Courts are likely to be faced with a large number of applications to discharge freezing injunctions made under the Black Swan jurisdiction and unless an appeal is successful  it seems that in law at least, all swans really are white.

Further information

You may be interested in the information available on our Injunctions page, our FAQs on Injunctions, and/or our other Dispute Resolution pages.

If you would like to discuss any of the topics raised in this blog, please contact Mary Young or a member of our Dispute Resolution team.

Should you require specific advice in relation to personal circumstances, please use the form on the contact page.

 

About the author

Mary Young is a Partner in the Dispute Resolution team. Her practice covers a wide range of areas but Mary’s particular interests and expertise lie in civil fraud and asset tracing as well as claims against professionals in negligence, breach of fiduciary duty and breach of trust. 

 

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