An extract from The Asset Tracing and Recovery Review, 8th Edition

Seizure and evidence

i Securing assets and proceedsFreezing orders

The BVI court may grant a freezing order on a domestic or, in suitable cases, a worldwide basis, in aid of domestic proceedings in the BVI.

These are granted if:

  1. the applicant has a good, arguable case;
  2. there is a risk of the defendant dissipating his or her assets so that the judgment or award in favour of the claimant would go unsatisfied; and
  3. it is just and convenient for the injunction to be granted.

These orders are often coupled with a disclosure order regarding the defendant's assets to ensure that the freezing order is effective (i.e., by which to police the order). Orders can be granted ex parte, but cannot exceed 28 days. A claimant who successfully obtains an interim freezing order must give an undertaking for damages and costs with the object of compensating the defendants if the claimant should ultimately be unsuccessful at the trial and the court should later find that the defendants have suffered loss as a result of the grant of the order.

The Court of Appeal, however, has demonstrated a reluctance to grant worldwide relief, given the expense and inconvenience to respondents unless there are sufficient safeguards provided for by way of undertakings. Jurisdiction of the courts in the BVI is based on Section 24(l) of the Eastern Caribbean Supreme Court (Virgin Islands) Act 1968, and is ordinarily ancillary to the court's substantive jurisdiction. Typically, a freezing order is made personally against the respondent rather than against specific assets. However, the BVI court can also grant an order for the 'detention, custody, or preservation' of specific assets that are the subject of a proprietary claim.

Freezing orders against third parties are available in the BVI (and are known as Chabra injunctions), and the court follows established English and Cayman Islands jurisprudence in this area.

The Court of Appeal has recently overturned Black Swan Investment, in which Justice Edward Bannister QC had found that a freestanding freezing order could be granted in the BVI even when no proceedings were contemplated or pending in the jurisdiction, and that there was no cause of action against the BVI respondent. The effect of this decision is that freezing orders can only be made in aid of domestic proceedings in the BVI.

The Court of Appeal held that the BVI High Court's jurisdiction under Section 24 of the Supreme Court Act does not, in the absence of enabling legislation, give the High Court jurisdiction to grant freestanding interlocutory injunction in support of foreign proceedings. The Court of Appeal found that Mr Justice Bannister QC fell into error by improperly applying the dissenting judgment of Lord Nicholls in the case of Mercedez Benz AG v. Leiduck.

The decision is currently being appealed to the Privy Council, and it appears that there may be a viable ground for appeal. Importantly, on 16 June 2020, Mr Justice Jack handed down the decision in Commercial Bank Dubai v. 18 Elvaston Place Ltd and Fairmont Grand Holding Ltd where he weighed in on the matter. While accepting that he was bound by the Court of Appeal's decision, the learned judge noted that in Australia, the Privy Council held that Australian courts were entitled to develop common law to suit local conditions. The learned judge observed that, should the matter go to the Privy Council, it might well deicide that Black Swan represented the consensus of opinion of the public, the elected legislature and the judiciary in the BVI. Mr Justice Jack observed correctly that the Court of Appeal did not consider whether Caribbean common law (like Australian common law) had developed differently.

It remains to be seen whether the Court of Appeal decision will be overturned, but there is some force in the local conditions argument. In any event, there is currently work afoot in the BVI to pass legislation to circumvent the restrictive effect of the Court of Appeal's decision.

Provisional liquidators

A more drastic option than a freezing order, in which a claimant seeks the ultimate winding-up of a BVI company, would be the appointment of provisional liquidators. Creditors or shareholders can apply, although not persons claiming only a beneficial ownership in a company.

The applicant must show that the company's assets are being dissipated, and satisfy the court that the appointment of provisional liquidators is either necessary to preserve the value of the company's assets or necessary in the public interest.

Interim receivers

The court can appoint a receiver to preserve assets that are liable to dissipation pending the outcome of a claim. However, an applicant must demonstrate to the court that it ought to exercise its discretion to make the appropriate order and that the assets in the respondent's control would be liable to enforcement if the applicant is successful at trial.

There are four requirements for appointment:

  1. there must be sufficient evidence to show a good, arguable case;
  2. there must be peril to the property to be preserved, and the court must be satisfied that the applicant will be in a worse situation if the appointment of a receiver is delayed;
  3. the claim or the application would not be frivolous or vexatious, and the claimant must show that the appointment is appropriate because other, less invasive remedies would be inadequate; and
  4. it must be just and convenient.

The appointment of a receiver is often regarded as a remedy of last resort, and the receiver is usually appointed ex parte when the court is faced with allegations of fraud and immediate action is needed to prevent the court's orders from being rendered futile. Recently, in Vinogradova v. Vinogradova, the Court of Appeal expressed concern that there has been an increasing number of applications for the appointment of interim receivers when the grant of less draconian and intrusive relief would provide sufficient protection. The Court of Appeal admonished the lower courts to be more vigilant to ensure that the court's jurisdiction to appoint interim receivers is exercised only when it is truly just and convenient to do so. It should be expected that the lower courts will head the Court of Appeal's warning and exercise more vigilance with respect to applications to appoint interim receivers. In the BVI, this could very well result in the court rejecting applications that are not based on sufficiently cogent evidence demonstrating that the applicant has exhausted other remedies and the appointment of an interim receiver is indeed a remedy of last resort.

ii Obtaining evidence

Evidence and information can be obtained in the BVI both at the pre-action stage and during the proceedings themselves. The regime for first-party discovery – that is, discovery from the defendant him or herself – is wider than third-party discovery; indeed, the CPR does not contain any provisions for third-party discovery similar to those in England and Wales. In broad terms, in civil cases, the law of evidence of England and Wales has been adopted in the BVI. The primary test is one of relevance; that is, evidence is admissible 'if it were accepted, could it rationally affect, whether directly or indirectly, the assessment of the probability of the existence of a fact in issue in the proceedings'.

Preserving evidence

The BVI court will grant a search order if an applicant demonstrates an extremely strong prima facie case, potential or actual serious damage and clear evidence that the respondent has the items in his or her possession, and that there is a real possibility that the respondent may destroy that material.

Pre-action disclosure

There is no pre-action disclosure in the BVI. However, the rules on interim injunctions may provide some relief through Norwich Pharmacal jurisdiction (described below). Disclosure can be ordered ancillary to a freezing order made before or at the outset of proceedings for information on which assets the freezing order 'bites', so as to police the order.

Disclosure in the course of proceedings

The BVI follows English procedure and practice in respect of first-party disclosure. Documents can be withheld on the grounds of privilege. This can be either litigation privilege (documents prepared for the dominant purpose of providing professional legal services in relation to actual or contemplated legal proceedings, or documents prepared for the dominant purpose of preparing for or conducting the proceedings) or legal professional privilege generally (documents prepared for the dominant purpose of giving a client legal advice).

Privilege can be defeated by fraud. That does not mean that, if a privileged document discusses or relates to fraud, the privilege is overcome: the document must itself be used in furtherance of the fraud to defeat privilege.

Third-party disclosure

There is no statutory basis for third-party disclosure or pre-action disclosure as is possible under English procedural law. The remnant of the old equitable bill of discovery, the Norwich Pharmacal order, is possible in the BVI. This is discussed further below.

Disclosure orders can also be made ancillary to a regular freezing order in the BVI (as in England and Wales). If a freezing order is made in support of arbitral proceedings, the BVI court is able to order disclosure. In light of the Court of Appeal's decision overturning Black Swa, in A Foreign Representative in Foreign Insolvency Proceedings v. Five Registered Agents, Mr Justice Jack recently considered whether the court's jurisdiction to grant Norwich Pharmacal relief in support of contemplated foreign proceedings survived the expunging of Black Swan from the BVI's common law. The learned judge held that the Norwich Pharmacal jurisdiction survived, since the jurisdiction is only deployed against persons against whom no substantive cause of action lies.

Evidence at trial

Evidence for use at trial is governed by the Evidence Act 2006 (Evidence Act). Evidence is admissible if it is relevant (which distinguishes the test for admissibility from the test for disclosure). Evidence-in-chief is provided by way of witness statements that are prepared and circulated in advance of trial. Parties do not normally take depositions of an adverse party's witnesses before trial.

Sections 67–79 of the Evidence Act make admissible (in prescribed circumstances):

  1. hearsay documentary evidence;
  2. the statement of an unavailable witness who previously made an out-of-court statement;
  3. the out-of-court statement of an available witness while testifying;
  4. expert reports; and
  5. oral opinion evidence.
Norwich Pharmacal orders

One of the most widely used tools for obtaining information is the Norwich Pharmacal order. This order permits a victim of a wrong to seek information from a third party, or from the wrongdoer himself or herself, which is necessary to assert or vindicate the victim's legal rights. It is most often obtained when persons, through no fault of their own, have become involved in the tortious acts of another and facilitate his or her wrongdoing. This gives rise to a duty to assist the person who has been wronged by giving them full information, including as to the location of assets, and disclosing the identity of the wrongdoers. This is subject to the usual provisos in respect of Norwich Pharmacal relief (including that it be relevant and necessary to enable the assertion of rights, it is not simply a mechanism for accelerating standard disclosure, and that it follows the mere witness rule). Norwich Pharmacal orders have been made in the BVI in support of foreign proceedings and against the registered agents of respondent companies incorporated in the BVI. The BVI court has recently squarely determined that it can make Norwich Pharmacal orders in aid of foreign proceedings. As an equitable remedy, the grant of Norwich Pharmacal relief is subject to the exercise of discretion.

The BVI court has also granted Norwich Pharmacal relief against registered agents of BVI companies in aid of post-judgment enforcement, but it appears that the relief will not be granted unless the applicant is able to show that the relevant BVI companies have been used in some way to evade enforcement of a judgment debt. The BVI court has also refused to follow the restrictive interpretation of the Norwich Pharmacal jurisdiction that currently prevails in England. In K and S v. Z and Z, Mr Justice Wallbank considered the English decision of Ramilos Trading Ltd v. Buyanovsk, where Flaux J held that the English equivalent of the BVI Evidence (Proceedings in Foreign Jurisdictions) Act 1988 prevented the obtaining of evidence for foreign proceedings otherwise than in accordance with the procedure under the Act. Mr Justice Wallbank rejected this approach as unworkable and not representing the common law of the BVI.

Bankers trust orders

These are orders made against financial institutions to disclose information allowing an applicant to trace misappropriated funds.

Information gathering by liquidators

The Insolvency Act 2003 gives liquidators the power to obtain information from parties involved in the promotion, formation, business, dealings, accounts, assets, liabilities or affairs of a company. These powers, however, do not extend to obtaining information from third parties that simply received funds from a company. Further, the liquidators of a BVI company may apply to the court for an order requiring any person holding documents belonging to the company to deliver them forthwith to the liquidators.

Obtaining evidence from other jurisdictions

Information may be obtained through courts in other jurisdictions to assist in civil proceedings.

The BVI is a signatory to the 1970 Convention on Taking Evidence Abroad in Civil or Commercial Matters, and it is pursuant to this Convention that letters rogatory requests are usually pursued. The proceeding must be civil or commercial in nature and in respect of actual or contemplated proceedings in the BVI. The permissible breadth of such questions would obviously require input from legal practitioners in the receiving state. Typically, when there are asset-dissipation issues, such requests are not appropriate because of the notice of these provided to the target of the request.