Koshigi Limited and Svoboda Corporation v. Donna Union Foundation (BVIHCMAPP2018/0043 and 0050 of 17 January 2019)
On an appeal from the BVI, the Eastern Caribbean Court of Appeal handed down judgment in one of the first cases in the jurisdiction dealing with interim relief – in this case both an injunction and a receiver - in support of foreign arbitral proceedings. The receiver arguably represents the most powerful weapon in the armoury available for asset tracing in the British Virgin Islands. As BVI companies are often used as holding vehicles, using a receiver to take control of the corporate structure and move 'downstream' to the assets is a particularly potent strategy. Recent developments in case law have made this remedy more widely available.
The Donna Union Foundation was the beneficiary of a substantial award granted by the London Court of International Arbitration (the LCIA) against Svoboda Corporation and Koshigi Limited who, inter alia, were ordered to acquire DUF’s shareholding in a Maltese endeavour for a sum of US$67 million. The eventual award debtors had already taken steps, during the arbitration itself, to divest themselves of their assets in what a court noted “must have been a concerted judgment proofing exercise.”
The Court of Appeal held that the jurisdiction to grant interim measures in support of foreign arbitral proceedings is to be found in the clear wording of Section 43 of the Arbitration Act; the Court need not rely on or read-in Black Swan principles (the common law authority for granting injunctions in the BVI in support of foreign proceedings) into the Act, which would require evidence of assets within the jurisdiction. The court cited with approval an earlier BVI case of PT Ventures v Vidatel where it was held that relief could be granted under section 43 even if the existence of assets in the BVI could not be established. It was also made clear that asset disclosure orders can be made as part of a freezing injunction granted pursuant to Section 43, which represents another difference from the Black Swan relief. The disclosure order was necessary to give teeth to the freezing injunction and was part of the judge's exercise of discretion under Section 43 of the Act.
In the BVI High Court, Commercial Division, Justice Adderley had appointed receivers over the award debtors, Koshigi and Svoboda. A freezing order had initially been granted over the assets of Koshigi and Svoboda in support of the LCIA award, but failure to comply with the injunction lead to the appointment of receivers under the J Trust Asia PTE Ltd v Mitsuji Konoshita and APF Group Co Ltd jurisdiction. Similarly, the Court of Appeal upheld the Learned Judge’s exercise of discretion in appointing those receivers in the circumstances. The court of appeal held that a failure to comply with the terms of a freezing order (being a prohibition against dissipation of assets and a disclosure order) provided cogent evidence to justify the appointment of receivers.
A court may appoint a receiver where it is just and convenient to do so. Typically, the application is made where it can be shown that the relevant assets are in jeopardy and the appointment is necessary on an interim basis in order to secure and protect them. As explained in JSC BTA Bank v Ablyazov:(1) "If, therefore, a freezing does not, of itself, provide adequate protection to a claimant because there is a measurable risk that a defendant may use the structure by which he holds his assets to deal with those assets in breach of a freezing order, then a receivership order will normally be justified". The receiver therefore 'holds the ring' and preserves the assets pending trial and/or award enforcement.
Seeking appointment of a receiver has also become increasingly attractive, since the courts have shown more willingness to appoint receivers in a variety of situations. For example, a creditor may seek appointment of a receiver in aid of executable execution of a judgment. Receivers can also be appointed in cases of claims for misappropriation of assets, bribes, joint ventures or competing businesses. Receivers may be appointed over shares, limited liability partnership interests, bank accounts, contractual rights or rights reserved under a trust or beneficiary entitlement.