Fraud, Asset Tracing & Recovery 2021/2022 ' British Virgin Islands (Commercial Dispute Resolution, CDR)

• Published date: 25 March 2021
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Criminal Law, Insolvency/Bankruptcy/Re-structuring, Corporate and Company Law, Insolvency/Bankruptcy, Arbitration & Dispute Resolution, White Collar Crime, Anti-Corruption & Fraud
• Law Firm: Carey Olsen
• Author: Mr Richard Brown, Alex Hall Taylor QC, Tim Wright and Simon Hall

This guide explores the latest legislative, regulatory and enforcement developments in the British Virgin Islands, and provides expert analysis on industry-wide topics including cryptocurrency fraud, confiscation proceedings and the coronavirus pandemic.

1. EXECUTIVE SUMMARY

The BVI is a major offshore financial centre, particularly specialising in the formation of group parent companies, asset-holding special purpose vehicles and investment funds. The BVI's recognisable English law origins and progressive legal framework governing the administration of trusts has made it a popular jurisdiction for international private wealth structures. As described further below, the BVI is a truly international jurisdiction and its relationship to fraud, asset tracing and recovery must be seen in this context.

The key challenges and recent developments relate specifically to this internationalism. Most pertinently, in the last year, the BVI's Black Swan jurisdiction for injunctions in support of foreign proceedings had its wings judicially clipped, then was quickly rehabilitated to fly again by the BVI legislature.

2. IMPORTANT LEGAL FRAMEWORK AND STATUTORY UNDERPINNINGS TO FRAUD, ASSET TRACING AND RECOVERY SCHEMES

As a self-governing British Overseas Territory, the BVI's legal system is rooted in English common law and equitable principles supplemented by legislation passed by the BVI's legislature and certain statutes and instruments passed by the UK Parliament and extended to the territory by Order in Council.

The BVI has a sophisticated High Court and Commercial Court, and a strong local appeal Court in the Eastern Caribbean Court of Appeal, based in St Lucia. The final Court of appeal is the Judicial Committee of the Privy Council, which sits in London and consists of justices of the UK Supreme Court.

The legal rights and remedies available in relation to fraud, asset tracing and recovery are broad and powerful, in a similar manner to other developed common law jurisdictions. The key BVI legislation regulating company law is principally the Business Companies Act 2004 (the BCA), the Insolvency Act 2003 (the Insolvency Act) and related enactments. Civil litigation procedure is governed by the ECSC Civil Procedure Rules 2000 and practice directions (EC CPR).

Injunctions and receivers

As a predominantly holding company jurisdiction, the preservation and protection of assets is vital as is the ability for litigants and creditors to enforce against them. At the early stages of a dispute, often a party suspects illegitimate dealings in the shares of BVI companies. EC CPR 49 allows any person claiming to be beneficially entitled to stock (shares) to apply for a Stop Notice or a Stop Order. In short, a Stop Notice requires a party on whom it is served to give notice of any proposed dealings with specified shares, and a Stop Order prevents certain steps being taken with respect to shares and/or monies held in Court. These are useful tools but only go so far. The need for further protection means that injunctions are an important and regular part of BVI legal practice.

The BVI Courts exercise a statutory jurisdiction pursuant to section 24 of the Eastern Caribbean Supreme Court (Virgin Islands) Act (the Supreme Court Act) to grant injunctive relief where it is just and convenient to do so. This gives the BVI Court a broad and flexible jurisdiction similar to relief available in other common law jurisdictions. The BVI Court may therefore, for example, grant freezing ("Mareva"), prohibitory, mandatory or proprietary injunctive relief on an interim or final basis. In appropriate circumstances, injunctions may be obtained on an ex parte and urgent basis.

In a welcome statutory development in early 2021, an amendment was made to the Supreme Court Act (incorporated as section 24A) to confirm that the BVI Court also has jurisdiction to grant injunctive relief in support of foreign proceedings, including against non-cause of action defendants (the so-called Black Swan jurisdiction, see further below).

The BVI Court may also grant injunctive relief in relation to any arbitral proceedings which have been or are to be commenced in or outside of the BVI pursuant to section 43 of the BVI Arbitration Act 2013. Indeed, relief in support of foreign arbitrations and the enforcement of arbitration awards is a major part of BVI litigation, and the BVI is a generally a pro-arbitration jurisdiction.

For an additional level of protection, a claimant may also apply to Court for the appointment of a receiver. A receiver is a professional person (such as a qualified accountant or insolvency practitioner) appointed by the BVI Court to receive and deal with certain assets, usually in support of and in order to 'police' a freezing injunction. The Eastern Caribbean Court of Appeal recently emphasised that receivers should only be appointed when it is just and convenient, and should not be ordered when the freezing injunction provides adequate protection. (Alexandra Vinogradova v (1) Elena Vinogradova, (2) Sergey Vinogradov (BVIHCMAP 2018/052).)

It is standard practice for the BVI Court to order a respondent to disclose information about its assets when it makes a freezing injunction or a receivership order, in order to allow the claimants and/or the receiver to police the orders.

As such, BVI injunctions have some teeth. A defendant may be found in contempt of Court if they are in breach, which may have grave consequences for the defence of a BVI claim, but only goes so far. If an individual defendant, or the director of a BVI company, is out of the jurisdiction then a BVI Court ordering committal may be of little concern.

Further, and similarly, BVI injunctions and receivership orders may technically have "worldwide" effect, but the BVI Court does not seek to impose exorbitant, extra-territorial jurisdiction on persons not before the Court and regarding property abroad. The BVI Court has adopted the same "Babanaft" provisos in its injunction orders as the English Commercial Court (Babanaft International Co v Bassantne [1990] Ch. 13 at 44), out of respect for judicial comity. Steps may therefore be required in the local Courts before a BVI order becomes fully effective abroad.

Third party disclosure orders & letters of request

The BVI has long followed the equitable common law jurisdiction to grant disclosure orders. A 'Norwich Pharmacal' order allows an applicant to obtain disclosure from a third party who is likely to have the relevant documents or information and who has become mixed up in wrongdoing committed against the applicant. Letters of request to foreign Courts to obtain evidence in support of BVI proceedings, and to the BVI...