BVI Court of Appeal Makes Law on the New York Convention Defences

In a brave and decisive judgment handed down on 20th September 2010, the Eastern Caribbean Supreme Court (on appeal from the BVI Commercial Court) has decided two issues demanding clear and unequivocal guidance, one of which ahead of the Supreme Court of England and Wales.

In Pacific China Holdings Ltd v Grand Pacific Holdings Limited [HCVAP 2010/007], the Court of Appeal ruled on the scope of discretion in deciding whether to enforce an arbitration award under the New York convention; and on the basis of appointing liquidators where there is a real question of enforceability and thus a bona fide dispute on the debt.

The Respondent sought to wind up the Appellant claiming it was owed $55M based on a Convention award made by an arbitration tribunal in Hong Kong. The Appellant raised Convention defences based on the BVI Arbitration Ordinance (which in turn repeated and applied the relevant provisions of the Convention word for word) of inability to present its case; the arbitration process was not in accordance with the parties' agreement, and accordingly that it would be contrary to public policy to enforce the award. The result of such a finding would, if it was contested, mean the Court should exercise its discretion and refuse to appoint liquidators.

At the application to appoint liquidators the Judge found that the Appellants' arguments could not be dismissed as being incapable, if developed in a full application to set aside an order for enforcement. However, he went on to conclude that the irregularities giving rise to those grounds, had they not occurred, would not have in any event impacted on the outcome.

The Court of Appeal held that the Court's discretion to override a Convention defence was narrow and limited to where there was a waiver, or estoppels or some such legally recognized principle, or where the error had been minor and prejudicially irrelevant. Further, the Court held that where there was a real question of enforceability of a Convention award and thus a real or bona fide dispute on substantial grounds, it was not open to the Court to proceed to make a winding up order on the debt grounded on the award.

The significance of the case is not to be understated in the world of cross border enforcement of Convention awards, and more particularly the founding of winding up orders on such. There had yet to be a clearly stated principle of such conclusions as far as could be seen, anywhere in the common law world. Indeed, the...