BVI Commercial Court -- Interfacing With Arbitration

Recent decisions in the BVI Commercial Court have shaped the applicability and enforcement of arbitration clauses and, notably, how they interface with BVI statutory remedies and liquidations.

Standing to arbitrate?

In Comodo Holdings Ltd1 the BVI Commercial Court clarified the need for the arbitration agreement to be 'subsisting' as between the parties before the court, and that the court (rather than arbitration) is the appropriate forum for determining whether parties have standing to arbitrate.

In this case it was argued that the applicant defendants' application for a stay in favour of arbitration in New York should be refused because the defendants were not members of the respondent company for the purposes of the articles of association and/or the BVI Business Companies Act 2004. It was successfully argued that the corollary of their inability to demonstrate membership was an absence of standing to invoke an arbitration clause in the company's articles of association. The defendants sought to rely on the evidence of share certificates issued in 2000 and 2001, to support the contention that they were existing members of the company. However, they were able to demonstrate neither that they had given consideration for the shares nor that they had been entered on the share register. To assert that title to shares constituted membership of a company, either under the old International Business Companies Act 1984 or the BVI Business Companies Act 2004, was to fundamentally misapprehend the policy of BVI companies legislation, which is premised on the English company law framework.

The court found that prima facie evidence of title is not the same as membership of a company, and that corporate membership can be evidenced only by entry on the share register. The Commercial Court's finding followed the recent English Supreme Court ruling in Enviroco Ltd v Farstad Supply A/S.2 The court followed the clear judgment in Enviroco, where the Supreme Court found that ever since the Companies Clause Consolidation Act 1845, membership has been determined by entry in the register of members. The court went further and found that, as in England and Wales, the BVI companies legislation proceeds on that basis; the legislation would otherwise be unworkable and business efficacy requires it.

The court added in passing that arbitration proceedings were not and could not be an apt forum to decide the question of standing to arbitrate.

Arbitration clauses and unfair prejudice

In Ennio Zanotti v Interlog Finance Corp,3 the court allowed the enforcement of an arbitration clause embedded in the company's articles of association and subsequently stayed unfair prejudice proceedings brought by a member...