on 24 march 2026, justice segal handed down his long-awaited trial judgment in laggner v uphold, dismissing a petition to wind up a cayman islands digital money platform on just and equitable grounds. the petition was filed on 14 june 2022. in the four years since, the matter has been before the court on three interlocutory occasions, proceeded to a three-week trial, and culminated in a 349-page ruling. it is one of the most substantial contested winding-up petitions to have reached a full trial in the cayman islands. the trial judgment is, subject to any appeal, a conclusive determination of the dispute.

background

uphold ltd is a cayman islands exempted company operating a digital money platform (formerly known as ‘bitreserve’). the company was founded in 2013 and has over 800 shareholders, including significant institutional and individual investors. the dispute at the heart of this case arose from a funding arrangement entered into in mid-2016 (the 2016 transaction) involving adrian steckel, a director and (through his entities, uphold holdings llc and asp capital sub i inc) a major shareholder.

the petitioners were six minority shareholders, led by william laggner, a former director of the company. they alleged that mr steckel had, through the 2016 transaction and a series of subsequent actions, gained de facto control of the company and caused a dilution of independent shareholders’ interests without their knowledge, consent, or any opportunity to participate.

the petitioners’ complaints fell into three broad categories. the first was that the 2016 transaction itself was designed to hand control to mr steckel at the expense of other shareholders. the transaction took the form of a revolving credit facility accompanied by a warrant which, upon exercise, gave mr steckel’s entity approximately 50 per cent of the company’s issued shares on a fully diluted basis.

the second concerned subsequent amendments to the revolving credit agreement, in particular the third amendment dated may 2017, which permitted the company to pay interest on the loan by issuing shares to mr steckel and mr james chen at a fixed (and allegedly artificially low) valuation of us$48 million. this resulted in vast numbers of shares being issued as “pik interest” without independent shareholders being informed, consulted, or offered the opportunity to participate.

the third was that a valuable corporate opportunity, namely the company’s uk banking licence application (which ultimately became tbol plc), was improperly diverted to mr anthony watson, then a director and the company’s former ceo, in september 2017. discovery had revealed an undisclosed side agreement pursuant to which mr steckel, mr thieriot, and mr dennings were each to receive personal shareholdings in tbol.

this was the second winding-up petition brought against the company. a first petition was filed in february 2021 and settled in june 2021, leading to the establishment of a litigation committee chaired by mr jim hilton, an independent director appointed in january 2021. when the current petition was filed on 14 june 2022, the petitioners sought either a winding-up order under section 92(e) of the companies act (the act) or, as their primary relief, a buy-out order under section 95(3) of the act.

before the matter reached trial, justice segal delivered three interlocutory judgments addressing service, the company’s participation in the proceedings (discussed further in our recent post 'defanged: curtailing company participation in winding up proceedings'), and a strike-out application. on the strike-out, justice segal dismissed the respondents’ applications, holding that the petitioners’ case was not bound to fail and that the disputed factual and credibility issues required a full trial.

the trial took place over three weeks in april and may 2025 and judgment was delivered on 24 march 2026.

the issues

by the time of closing submissions at trial, the petitioners’ case had narrowed significantly from the wide-ranging complaints set out in the petition. several allegations were abandoned, including the allegation that a “steckel faction” existed and the central contention that mr steckel had orchestrated a conspiracy with other directors to gain de facto control of the company. the petitioners’ focus was reduced to two core grounds.

the first was what the judgment terms the “dilutive events”: the dilution of minority shareholders through the exercise of the warrant under the 2016 transaction and, most significantly, the issuing of enormous volumes of pik interest shares under the third amendment to the rca. the court noted that dilution had occurred “on a significant scale, on three separate occasions, in circumstances where [the petitioners] were not informed of the dilution before it had occurred or offered the opportunity to avoid dilution on terms which were fair.”

the second was what the judgment terms the “diversion event”: the alleged improper transfer of the company’s uk banking licence opportunity to mr watson in september 2017, coupled with the undisclosed personal shareholding arrangements for mr steckel, mr thieriot, and mr dennings.

the petitioners relied on these events to support both a justifiable loss of confidence ground and an oppression ground. they accepted, following the evidence at trial, that they could not challenge the probity of the litigation committee itself, but maintained that the committee’s failure to pursue claims or otherwise remedy the consequences of the earlier misconduct compounded their loss of confidence in the management of the company’s affairs.

the petitioners’ late narrowing of their case and the abandonment of serious allegations of dishonesty against named individuals only at the trial stage also drew criticism from the respondents.

the judgment

justice segal dismissed the petition in a judgment running to 349 pages.

the applicable legal principles

the court confirmed that the gateway to alternative relief under section 95(3) of the companies act is that the court must first be satisfied that it would be “just and equitable” to wind up the company, referring to sir john chadwick in camulos partners offshore limited v kathrein and company at [38]. the burden of satisfying that threshold rests on the petitioners.

on the justifiable loss of confidence ground, the court applied loch v john blackwood ltd and tianrui v china shanshui cement, confirming that what is required is “some serious misconduct by those in control of the company which goes to the heart of the relationship between corporators.” the court held that the misconduct must be “serious, continuing and likely to continue.”

on the question of whether a mere suspicion of misconduct could suffice, justice segal held that the second to fourth respondents and the company were correct that “a mere suspicion of a lack of probity in the conduct of the company’s affairs by those in control of its management is insufficient. there needs to be evidence to show that there has in fact been such a lack of probity.“

on the oppression ground, it was common ground that oppression requires a “visible departure from the standards of fair dealing” and a conscious decision to override or brush aside the interests of the minority, as defined in re jermyn street turkish baths ltd. justice segal also referred to the jersey court of appeal’s analysis in financial technology ventures ii (q) lp v etfs capital ltd, noting that “probity” embraces concepts of both honesty and decency, and that a lack of probity or impartiality need not amount to actionable dishonesty.

the 2016 transaction

the court found that the second to fourth respondents’ submissions on the 2016 transaction were “in almost all respects correct.” there was no “steckel faction.” the board had entered into the transaction acting in good faith, during a genuine acute cash crisis, and had reasonably believed that no viable alternative existed. mr laggner was found to be “an unsatisfactory witness in a number of important respects”.

the pik interest dilution and the third amendment

the court was more sympathetic to the petitioners’ complaints regarding the third amendment. justice segal found that the process by which the third amendment was agreed was “wholly inadequate” and that “insufficient independent advice was obtained.” he accepted that the fixed us$48 million valuation was adopted without proper independent assessment of its consequences. the court found that shareholders had been made aware of the terms on which pik interest could be paid, noting a shareholder q&a call in september 2017 and a subsequent complaint by another investor.

the judge expressed “sympathy with the disappointment felt by many at mr steckel’s refusal to give up any part of the substantial windfall” that resulted from the fixed valuation, but ultimately concluded that the repeated failures to observe the requirements of the investor rights agreements, while amounting to poor corporate governance, were “not deliberate or part of a plan to disregard the interests of the petitioners”.

the tbol diversion

on the tbol issue, the court accepted the evidence of mr steckel, mr milby, and mr hilton that the company simply could not have taken forward the uk banking licence opportunity itself, given the enormous capital requirements (tbol had raised over us$120 million by the time it obtained its clearing licence), the regulatory restrictions imposed by the pra and fca relating to the company’s ownership structure, and the practical impossibility of funding the project. the judge found at [573] that the litigation committee’s settlement with mr watson, which preserved the company’s 9.8 per cent interest in tbol, was “a reasonable commercial settlement that was in the interests of the company.”

the decisive role of governance reform

the single most significant factor in the court’s reasoning was what justice segal described as the “sea-change” in the company’s governance since mr hilton’s appointment as chairman in april 2021. mr hilton was found to be “an impressive witness who gave clear, honest and convincing evidence” and had led “the transformation of the company’s approach to governance, risk and compliance.” the litigation committee, chaired by mr hilton, had engaged an independent us law firm to investigate the petitioners’ complaints as well as taking cayman islands legal advice. the court found that the committee “acted properly, and adopted a careful and thorough process” and that its decisions were “based on reasonable, realistic and sound legal and commercial decisions.”

the court held that the petitioners had failed to show “a real and serious prospect that the conduct of the company’s affairs will continue to be undertaken with a lack of probity or a lack of impartiality,” and had not shown “any real or serious prospect of the oppressive conduct continuing under the current board.”

the petition was accordingly dismissed.

key takeaways/comment

this is one of the most substantial trial judgments ever delivered on a just and equitable winding-up petition in the cayman islands. several points stand out for practitioners and for companies.

governance reform as a shield

the most immediate lesson is that proactive governance reform can serve as an effective answer to a winding-up petition when that petition is grounded in historic misconduct. the appointment of mr hilton to the board, the establishment of a properly constituted and independently advised litigation committee, and the company’s belated steps to remedy ira breaches were plainly decisive in the court’s analysis. as we noted in our previous post on the re seahawk china dynamic fund decision, a company facing a winding-up petition may neutralise investigatory complaints by welcoming an open, independent investigation into its affairs. uphold provides the clearest example yet of this principle being applied at trial.

the burden is assessed at the date of hearing

the court confirmed that the just and equitable test is to be applied by reference to the facts as at the date of the hearing of the petition. even serious past misconduct may not justify a winding-up order if the current board has demonstrably reformed and the oppressive conduct has ceased. petitioners should be prepared for the risk that remedial action by the company during the pendency of proceedings may undermine their case, even where the underlying complaints have real force.

oppression requires probity, not merely unfairness

the judgment reinforces that oppression in the cayman context demands more than commercial unfairness. there must be a visible departure from the standards of fair dealing. the court was willing to accept that some of the conduct complained of was unfair to minority shareholders, but ultimately concluded that carelessness, poor process, and a failure to obtain proper advice fell short of the want of probity required.

suspicion alone is not enough

the judgment clarifies that a petitioner cannot rely on mere suspicion of a lack of probity; evidence must be adduced that such a lack of probity actually existed. this narrows the scope of certain earlier statements that had been understood to permit reliance on well-founded suspicions.

the winding-up gateway remains the only route to unfair prejudice relief in the cayman islands

as we discussed in our recent post on the uk supreme court’s decision in thg plc v zedra trust company, there is no freestanding unfair prejudice jurisdiction in the cayman islands. all such claims must pass through the gateway of section 92(e) of the companies act. even where a company’s past governance has “historically failed to meet acceptable standards” (as the court expressly acknowledged), minority shareholders may be left without a remedy if the high threshold for a winding-up order is not met.

petitioners who narrow their case at trial do so at their peril

the petitioners’ decision to abandon significant parts of their case, including serious allegations of dishonesty against named individuals, only during or after the trial was the subject of sustained criticism from both the respondents and the court. the strategic risk of advancing wide-ranging allegations that cannot be sustained under cross-examination, and later abandoning them, may damage overall credibility.

the litigation committee model works, but process matters

the judgment provides something close to a playbook for how a litigation committee should operate in response to serious shareholder complaints. mr hilton’s committee engaged independent external counsel with no prior connection to the company, gave wide-ranging access to documents (some 50,000 emails), obtained a detailed investigative report, took independent cayman law advice, and made its decisions on the basis of that advice. while these measures appear to go a step beyond what should be expected, companies facing comparable allegations may consider adopting this approach.

personal actions to challenge share issuances may be a better fit

as we noted in our post on tianrui (international) holding company ltd v china shanshui cement group ltd, the privy council has confirmed that shareholders have a personal right to challenge an improper allotment of shares. given the difficulty of meeting the just and equitable threshold, shareholders whose primary complaint relates to the dilution of their shareholding may, in appropriate cases, be better served by pursuing a personal action against the company rather than bearing the burden of proving grounds for winding up a solvent, going-concern company.

since the launch of chatgpt in november 2022, the use of generative ai has proliferated across every domain and litigation is no exception. courts in various jurisdictions have grappled with the challenges posed by the revolutionary technology and provided important guidance.

the decision in guerin v o'doherty

in march 2026, the irish court of appeal provided its first guidance to lawyers and litigants on the use of generative ai in litigation in guerin v o’doherty [2026] ieca 48. the decision concerned an appeal by the defendant, gemma o’doherty against the dismissal of her application to strike out a defamation claim.

the court dismissed ms o’doherty’s appeal. in rejecting all eight grounds of appeal, the court observed that much of ms o’doherty’s submissions and complaints addressed matters that either did not arise on the appeal, or were irrelevant to the question whether the court below had erred in refusing to strike out the proceedings (at paragraph 27).

acting in person, ms o’doherty used ai to prepare her written submissions for the appeal. however, she did not notify the plaintiff’s solicitors in advance that she had done so. the court found that ms o’doherty’s submissions contained a number of “hallucinated authorities” which did not exist, or which did not support the propositions they purported to establish. this caused the plaintiff’s solicitors to spend time and costs attempting to locate non-existent authorities.

the court emphasised that all parties, whether represented or not, have an obligation not to mislead the court. this includes the obligation not to rely on or advance submissions based on authorities that have no basis in law. the court also noted that lawyers are subject to professional and ethical obligations which do not apply to litigants in person, but did not address those obligations as they did not arise in the case.

the court’s guidance on ai use

to assist parties, the irish court of appeal set out the following general guidance for parties, whether acting through counsel or in person:

1. parties are entitled to use ai to assist in carrying out research in respect of their case provided they do so responsibly and do not, even inadvertently, mislead the court by advancing propositions or relying upon supposed authorities which have no foundation.
2. in all cases where they do so, they should expressly inform both the other parties and the court of their use of ai.
3. a self-represented party is as equally responsible for the ultimate written or oral work as lawyers.
4. it is important, therefore, that any party who uses ai as part of their research independently verifies the accuracy of their submissions and the authorities cited as supposedly establishing the propositions advanced.
5. no authority should be cited by a party who has not verified that it is a genuine judgment of the court and that it is, or at least arguably is, authority for the proposition contended for.

consequences of improper ai use

the court had strong words of caution against the improper use of ai, noting that it could lead to wasted time and costs, cast an unfair burden on the opposing party, potentially bring the administration of justice into disrepute, and mislead the court. the court emphasised that it had a variety of sanctions at its disposal in cases where parties use ai in breach of these guidelines and where such improper use has the potential to mislead the court.

fortunately for ms o’doherty, the court declined to draw any adverse conclusions against her on that occasion, reasoning that at the time submissions were filed, no guidance was available to litigants in relation to their obligations to the other parties and to the court as regards the use of ai-generated material in proceedings.

what it does mean is that going forward, all litigants and lawyers appearing before the irish courts will have to ensure that they abide by the guidance set out above, or risk adverse inferences and sanctions.

lawyers be warned

closer to home, at least two published decisions of the cayman islands courts have addressed the improper use of ai in litigation involving litigants in person (see our previous blog: cayman court issues warning on ai use in legal filings). given the courts’ warnings, lawyers can have no excuse.

in other jurisdictions, there have, unfortunately, been several cases of lawyers being found to have used generative ai improperly, resulting in not only professional embarrassment but also personal costs orders. for instance, in singapore, the improper use of generative ai recently resulted in the imposition of a personal costs order of s$800 against a lawyer who blamed his junior for the use of ai: see tajudin bin gulam rasul v suriaya bte haja mohideen [2025] sghcr 33.

by now, lawyers ought to be keenly aware of the limitations and common pitfalls of ai. when in doubt, and even when not in doubt, always challenge the ai.

disclaimer

harneys does not practise the laws of ireland and this blog post is not intended as legal advice in respect of irish law. however, the guidance from the irish court of appeal is instructive for practitioners across all jurisdictions, including the offshore jurisdictions in which harneys operates, where courts have similarly cautioned against the improper use of generative ai in litigation.

in re fang holdings limited the grand court (justice david doyle) confirmed that a company cannot simply assert a right to participate in winding up proceedings brought by shareholders on just and equitable grounds. without evidence of independent governance and a genuine separate and independent interest, the company was restricted to giving discovery alone.

background

koa capital lp and 507 summit llc (together, the petitioners) presented a winding up petition on 16 january 2024 in respect of fang holdings limited (the company), a cayman-incorporated entity. the petition was directed principally at the conduct of tianquan mo (mr mo), listed as the first respondent, who the petitioners alleged had engaged in wrongdoing that benefited him personally at the expense of the company. the company itself was named as the second respondent.

progress was slow. the petitioners had difficulty effecting service on mr mo, and the matter did not come on for a directions hearing until 25 november 2025. by that stage, the company had engaged separate counsel and wished to participate in the proceedings beyond simply providing discovery.

the issues

the hearing concerned three questions:

1. should the proceedings be treated as inter partes between the petitioners and mr mo in his capacity as a member of the company?
2. to what extent should the company be permitted to participate?
3. what procedural directions should be given for the future conduct of the petition, including timetabling for defences, reply, discovery, and evidence?

the petitioners argued that the dispute was properly between them and mr mo, and that the company's role should therefore be confined to giving discovery. the company, on the other hand, contended that the serious allegations against its board necessitated its separate and independent representation, and that its wider shareholder base would be prejudiced if it could not defend the proceedings. the company invited the court to permit it to participate and indicated (without supporting evidence) that it would establish a litigation committee for that purpose, to be comprised of independent directors.

mr mo did not appear.

the judgment

the court applied order 3, rule 12(1) of the companies winding up rules and the established authorities, including the decisions of justice foster in freerider ltd, justice segal in china shanshui, justice richards in madera technology fund ci ltd, and justice segal in uphold ltd. those authorities recognise a “rebuttable distaste” for company participation in shareholder petitions brought on just and equitable grounds, the underlying rationale being that such disputes are typically between shareholders, and the company's involvement risks one faction using corporate funds to fight what is essentially a private battle.

the court characterised the real dispute as one between the petitioners and mr mo. the allegations were that mr mo had acted in his own interests at the company's expense. the company had not demonstrated that it held a separate and independent position requiring protection.

the company's offer to establish a litigation committee was found to be insufficient. in uphold, justice segal had set out in some detail what the court expects where a company seeks to participate through a litigation committee: the committee must be able to act independently and without improper interference from the respondent shareholders; the committee members must confirm that they are not conflicted; and the committee must not overstep its remit, leaving the accused shareholders to take the lead in (and bear the cost of) defending the allegations against them. even in uphold, where the company had already established a litigation committee and put evidence before the court going “a long way towards providing the court with the assurances that it needs”, justice segal still required further evidence of independence. in the present case, by contrast, the company had provided no evidence at all: no evidence of proposed committee members, no safeguards, and no articulated defence strategy. the company had also failed to provide a draft order setting out the directions it actually sought, which the court noted was unhelpful.

on the question of mr mo's membership, the court considered section 48 of the companies act (2025 revision), which provides that the register of members constitutes prima facie evidence of the matters recorded in it. the company's own attorneys had confirmed by letter dated 13 september 2024 that mr mo had ceased to be a registered member on 5 may 2024. the petitioners, however, said the register was unreliable, pointing to inconsistencies in the recorded entries and to other evidence of mr mo's shareholder status – including mr mo’s own evidence in earlier proceedings in which he confirmed that he was a shareholder of the company. the court was satisfied, for present purposes, that mr mo was a member.

the court therefore ordered that the company's participation be limited to giving discovery, the proceedings be treated as inter partes between the petitioners and mr mo, and that advertisement of the petition be dispensed with. notice was to be given to all registered legal shareholders and directors, so that genuinely independent shareholders could, if they wished, appoint a representative, and individual directors concerned about their own position could likewise seek to be heard. the court also set a full timetable for defences, reply, discovery, and evidence.

key takeaways

a company that wishes to participate in winding up proceedings brought by shareholders on just and equitable grounds must do more than simply express a desire to do so. the court expects concrete evidence as to who is proposed to sit on any litigation committee, what safeguards are to be in place so as to ensure the genuine independence of the board, and what the company actually proposes to do by way of defence. bare assertions, even where serious allegations are made against the board, will not suffice.

if the company genuinely has an independent interest to protect, it must prepare and present evidence of that independence at the earliest opportunity. that may well mean establishing a litigation committee (or equivalent governance mechanism) and adducing evidence as its composition and its purpose (rather than merely flagging the possibility of doing so in submissions). uphold confirms that the bar is a high one: even where a committee has been established and some evidence has been provided, the court may still require more.

the order for notification to registered legal shareholders and directors is also worth noting. the court recognised that genuinely independent shareholders may have a legitimate interest in the proceedings and should be afforded the opportunity to participate on their own account. this may prove relevant in future cases involving listed or widely held companies.

finally, the treatment of the register of members is a reminder that section 48 of the companies act (2025 revision) provides only prima facie evidence. where register entries are contested, the court will look at all of the evidence, including any admissions made in related proceedings.

a long-standing question in offshore trust practice concerns the role of the protector and the nature of their power.

when a trust instrument requires a protector's consent before trustees can act, does the protector simply check that the trustees' decision is lawful and rational, or can the protector form its own independent view on whether the proposed course of action serves the beneficiaries' interests?

these two competing positions have become known as the "narrow role" and the "wider role." under the narrow role, the protector satisfies itself only that a reasonable and properly informed body of trustees could lawfully take the decision in question and, if so, must consent. under the wider role, the protector may decide for itself whether to consent by reference to its own assessment of the beneficiaries' interests and the merits of the proposal, even where the trustees' decision is perfectly rational. this debate, which has divided courts and commentators across trust jurisdictions, has now been squarely addressed by the privy council in a and 6 others v c and 13 others (bermuda) [2026] ukpc 11.

facts and judicial history

the case arose from a group of family settlements, many of which had been amended in the early to mid-1990s. those amendments introduced common-form protector provisions requiring the protector's prior written consent for two categories of high-impact decision: capital appointments and dealings with (including the voting of) what were called "specified securities" (primarily a large, coordinated shareholding in a family operating company).

the trustees proposed a substantial reorganisation that would allocate the trusts' aggregate assets between two family branches in a broadly two-thirds to one-third split. the protectors, having been consulted, indicated they were minded not to approve the proposal. their objection was not that the trustees' proposal was unlawful or irrational, but rather that, in their own independent assessment, the proposal did not best serve the beneficiaries' interests. this distinction went to the heart of the dispute: under the narrow view, if the protectors could only withhold consent on the basis of the legality and rationality of the trustee’s proposed action, and there were no legality or rationality concerns in this proposed split, then the protector’s objection had no proper basis; whereas, under the wider view, if the protector’s could bring their own judgment to bear on the merits, it did have proper basis.

the trustees responded by seeking the bermuda court's blessing under public trustee v cooper jurisdiction and, subsequently, a declaration on the proper scope of the protector's role. at first instance, justice kawaley held that the protector possessed only the narrow role. the reasoning emphasised the trustees' paramount substantive powers, the ancillary character of the consent requirement, the unanimity requirement among joint protectors, and concerns that a wider role would create duplication and deadlock. the court of appeal for bermuda affirmed, describing the protector as a "watchdog" whose function was to supervise trustee legality and rationality rather than to substitute its own independent judgment.

the appeal to the privy council squarely presented the same binary choice. one branch of the family contended for the wider role; the other urged the narrow role. the trustees and protectors remained neutral.

the privy council's decision

the board's reasoning proceeded in two stages. first, it addressed the correct analytical framework. second, it applied that framework to the particular trust instruments before it.

the board's starting point was to reject the premise that courts must choose a single, universal "default role" for protectors in the abstract. instead, the proper question is always one of construction: what constraints, if any, does the particular trust instrument impose on the protector when exercising a power of consent, bearing in mind any constraints imported by the general law?

on that footing, the board reasoned that where one party is required to obtain another's consent before acting, the consent requirement creates, in the latter, a power of veto. absent express or statutory qualifications, that veto is unconstrained save, perhaps, by an obligation of good faith. the law does not generally imply a reasonableness or rationality limit into a consent power. this is an important point of principle: the burden falls on the party arguing for a narrower construction to identify something in the instrument, or in the applicable law, that cuts down the apparent breadth of the power. the board reinforced this by stressing that any restriction on the apparent breadth of a grant of power must find its anchor in the words used in the trust instrument, read in context, rather than in general impressions about institutional roles or policy concerns about efficiency. applying that principle, the board found there was "simply no peg on which to hang the narrow role."

the board's conclusion emphasised that, in contrast to "trustee", the term "protector" is not a term of art that carries a fixed legal role across instruments but one that is dependent upon the text and context of the particular deed.

key takeaways: three telling features of the trust instruments

the board's reasoning rests on a general principle of construction, and was informed by three specific features of the protector provisions in the trust instruments before it.

first, the protectors had powers to release, extinguish, or restrict any of their powers, and could waive the consent requirement either generally or in relation to specific matters, even retrospectively. this is a significant pointer towards the wider role. if the settlor had intended the protector to serve as a "watchdog," it would be difficult to explain why the settlor would allow that watchdog to abdicate its supervisory function, whether permanently or on an ad hoc basis. the power to waive consent makes far more sense if the protector's function is understood as a merits-based check that the protector may, in its judgment, choose not to exercise on a given occasion.

second, where there was more than one protector, unanimity was required for consent to be given. however, if unanimity could not be achieved, the trustees were free to proceed, provided they first consulted each protector and took their views into account before reaching a final decision. it makes good sense if protectors are expected to bring their own independent judgment to bear on the merits: reasonable people may disagree on whether a particular proposal best serves the beneficiaries, and the fall-back mechanism sensibly allows the trustees to proceed. by contrast, the mechanism makes rather less sense under the narrow role. if the protectors' function is simply to certify legality and rationality, then the trustees would not be required, by deed, to individually consult each protector in order to consider each view.

third, the consent requirement applied only to a limited and carefully chosen set of high-impact decisions: capital appointments and dealings with designated securities, including voting rights. the selectivity is telling. these are precisely the sort of decisions where a settlor might want an additional, merits-based check by a trusted person with knowledge of the family and its commercial interests.

taken together, these three features formed a coherent picture. they pointed consistently towards a protector who was intended to exercise independent judgment on the merits of specific, high-stakes decisions, as per the trust instrument.

the decision thus makes clear that outcomes will continue to turn on construction of specific terms and that settlors and their advisers remain free to draft for narrower or broader protector consent roles expressly if that is their intention.

in thg plc v zedra trust company, the uk supreme court, by 4-1, overturned the court of appeal and held that no statutory limitation period applies to unfair prejudice petitions under section 994 of the companies act 2006 (the ca).

relevant legal provisions

section 994 of the ca allows a shareholder in a company to petition to the court for a remedy on grounds that the company’s affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of members generally or some of its members, or that an actual or proposed act or omission of the company is or would be unfairly prejudicial. if unfairly prejudicial conduct is established, the court may grant a variety of relief that it thinks fit pursuant to section 996 of the ca, including the payment of compensation.

meanwhile, the limitation act of 1980 (the 1980 act) governs time limits for bringing proceedings in a court of law. section 8 of the 1980 act provides that unless an action for which a shorter period of limitation is prescribed elsewhere in the act, “[a]n action upon a speciality shall not be brought after the expiration of twelve years from the date on which the cause of action accrued.”

under section 9 of the 1980 act, “an action to recover any sum recoverable by virtue of any enactment shall not be brought after the expiration of six years from the date on which the cause of action accrued.”

finally, section 36 of the 1980 act disapplies the limitation periods in sections 8 and 9 for “any claim for specific performance of a contract or for an injunction or for other equitable relief”, except where the court applies such time limit by analogy in limited circumstances.

background

zedra acquired a 13.2% stake in thg plc in 2011 when it was a private company under the name of the hut group ltd. in 2019, zadra filed a petition to the court under section 994 of the ca, alleging that the conduct of thg’s affairs was unfairly prejudicial to it in a number of respects.

in 2022, zadra sought to amend its petition to include an allegation that it was unfairly prejudiced by being excluded from a bonus issue of shares made more than six years earlier to some shareholders, seeking equitable compensation for its alleged loss.

thg opposed the amendment, arguing that it was “an action to recover any sum recoverable by virtue of any enactment” and therefore time-barred by section 9 of the 1980 act.

the high court held that the 1980 act does not impose any limitation period to petitions under section 994 of the ca and as such, the amendment was not time-barred and should be allowed.

on appeal, the court of appeal ruled that all petitions under section 994 of the ca are subject to a 12-year limitation period under section 8 of the 1980 act and that claims for monetary relief under section 994 are subject to a six-year limitation period under section 9. as the only remedy zedra sought was compensation, its claim fell within section 9 and was therefore time-barred.

zedra appealed to the supreme court, arguing that neither section 8 nor 9 of the 1980 act applied to an unfair prejudice petition.

judgment

in a 4-1 majority decision, the supreme court allowed zedra’s appeal, holding that a claim under section 994 is neither an “action upon a speciality” under section 8 of the limitation act, nor an “action to recover any sum recoverable by virtue of any enactment” under section 9 of the act.

the central issue in this case on appeal is whether any limitation period applies to unfair prejudice petitions under section 994 of the ca.

the supreme court decided that:

• under section 8 of the 1980 act, “an action upon a speciality” is, in essence, an action to enforce an obligation which is created by a deed or a statute. section 994 of the ca, however, does not create any obligations but merely provides for remedies and rights of petition if there is or has been unfair prejudice in the conduct of a company’s affairs. hence, a claim under section 994 is not an action upon a specialty and section 8 does not apply.
• the majority consider that a claim under section 994 of the ca seeking only monetary relief is not an “action to recover any sum recoverable by virtue of any enactment” under section 9 of the 1980 act. this is because the court has wide discretion under section 996 to grant any type of relief it seems fit and is not confined to the order sought by the petitioner. therefore, the 6-year limitation under section 9 does not apply.
• zedra was not seeking “equitable relief” within the meaning of section 36(1) of the 1980 act, and the limitation periods in sections 8 and 9 are not disapplied if otherwise applicable.

zedra’s appeal was therefore not time-barred and allowed to proceed.

implications for offshore jurisdictions

british virgin islands

section 184i of the bvi business companies act (revised) 2020 allows members of a company to petition for relief where the affairs of the company have been (or are being or are likely to be) conducted in a manner that is “oppressive, unfairly discriminatory, or unfairly prejudicial to him or her.”

the bvi limitation ordinance 1961 prescribes time limits within which a claimant must commence proceedings, and contains provisions with wording (ie, “an action upon a specialty” and “actions for a sum recoverable by virtue of any enactment”) in sections 4(3) and 4(1)(d) that are comparable to sections 8 and 9 of the 1980 act.

it is, however, already settled law in the bvi that no limitation period applies to unfair prejudice claims. in sumitomo mitsuitrust (uk) ltd v spectrum galaxy ltd, justice jack held that there is no limitation period for claiming unfair prejudice. in j f ming inc v ming siu hung, blenman ja observed that it was “settled law” that no statutory limitation period applies to unfair prejudice claims, but delay by the petitioner would be relevant in assessing the fairness of the treatment of the minority and to the appropriate remedy.

the uk supreme court decision, therefore, will not affect unfair prejudice claims under section 184i of the bvi companies act. that said, delays and reasons for the delay in bringing an unfair prejudice petition are important considerations to the court when deciding such claims and the types of relief that will be afforded. the court would be particularly attuned to the prejudice to the defendant as a result of the delay, whether the claimant benefited from the delay, and whether the delay in some way affected the fairness of the litigation process.

cayman islands

there is no comparable free-standing unfair prejudice jurisdiction in the cayman islands. instead, claims of unfairly prejudicial conduct of a company’s affairs must be brought in the context of a winding-up petition on just and equitable grounds under section 92(e) of the companies act. the cayman courts have repeatedly held that the sole gateway to obtaining the alternative relief set out in section 95(3) of the companies act (such as an order regulating the conduct of the company’s affairs) is through section 92.

it has similarly been established that no limitation period applies to winding up petitions, and they are not subject to the limitation periods prescribed by the cayman islands limitation law (1996 revision). it is, however, worth noting that the court will scrutinise whether there has been an unreasonable delay in bringing such a petition, and a claimant who sits on its hands risks having its petition struck out due to laches or staleness.

bermuda

bermuda has a minority oppression jurisdiction set out in section 111 of the companies act 1981, which is broadly analogous to section 994 of the ca. this provision allows registered shareholders to petition the supreme court for relief where a company’s affairs have been conducted in a manner that is oppressive or unfairly prejudicial to their interests as members.

no fixed time bar applies under bermuda’s limitation act 1984. this aligns with the nature of the remedy: it is discretionary, equitable in character and often involves ongoing or cumulative conduct. the court’s focus on whether relief is just and equitable in the circumstances, rather than applying a rigid cutoff.

as is the case in the bvi and the cayman islands, delay can still be a significant factor. excessive or unexplained delay by the petition may lead the court to refuse relief, particularly if it prejudices the company, other shareholders or third parties.

in conyers trust company (bermuda) limited (as trustee of the first trust) v the protector of the second trust, the supreme court of bermuda exercised its power to set aside a trustee’s mistaken exercise of its fiduciary powers to unwind a transaction which would have resulted in unintended tax implications.

the trustee was the trustee of two related trusts, the a trust and the b trust. as part of a restructuring, the trustee, acting in its capacity as trustee of the b trust, entered into a phased transaction which entailed the distribution of all the assets of the b trust to a beneficiary. thereafter, the beneficiary made a gift of those assets to the trustee in its capacity as trustee of the a trust. the final step of the transaction was the amendment of the a trust to reflect the terms of the restructuring.

however, the trustee had not taken appropriate uk tax advice before exercising its power to make the distribution to the beneficiary. had the trustee done so, it would have realised that the distribution would attract unnecessary additional tax liabilities, and it would not have exercised its power in the way that it did. as a result, the trustee applied to the court under section 47a of the trustee act 1975 for an order to set aside its exercise of its power and consequential declaratory relief that the distribution from the b trust to the beneficiary be treated as never having occurred.

in order to engage the court’s jurisdiction under section 47a, the trustee was required to satisfy the court that (i) when exercising the fiduciary power it did not take into account a consideration of fact or law that was relevant to the exercise of the power and (ii) but for the failure to take that consideration into account the trustee would not have exercised the power at all or would have done so on a different occasion or would have exercised the power in a different manner. where those conditions are met, the court has a broad and unfettered jurisdiction to set aside the exercise of the fiduciary power either wholly or in part without there being any need to demonstrate that the power was exercised in breach of trust. the effect of making such an order is that the exercise of the relevant power is treated as never having occurred.

the evidence demonstrated that the trustee did not take into account a relevant consideration, namely the effect of an aspect of uk tax law, before exercising its power to make the distribution. had the trustee taken such tax advice, the trustee would not have exercised its power in the way that it did. consequently, the court found that the conditions for relief under section 47a were met and set aside the exercise of the trustee’s power and granted a declaration that the distribution from the b trust to the beneficiary be treated as if it had never occurred.

this decision is a useful reminder to trustees of the care that must be taken when exercising their powers. however, where transactions are entered into under a mistaken understanding of their effect, bermuda’s statutory regime (along with similar ones which exist in the british virgin islands and the cayman islands) is helpful in enabling trustees to seek the court’s assistance to unwind those transactions to avoid unintended consequences.

in a previous blog post, we discussed the first instance judgment in the phoenix bvi litigation, where justice mangatal considered the formalities for becoming a shareholder under s49 of the bvi business companies act, revised edition 2020 (bca). that judgment has now been appealed, with an accompanying application for a stay of execution.

on 27 february 2026, in icm spc v jarvis, the court of appeal refused the stay.

the judgment restates the c-mobile services ltd v huawei technologies co ltd criteria for stay relief and offers guidance on credibility-based appeals, the limits of using stays as leverage in foreign proceedings and impecuniosity arguments.

background

phoenix commodities pvt ltd (phoenix bvi) was placed into voluntary liquidation in april 2020. the joint liquidators (jls) settled a list of members which included ancile special opportunity and recovery fund segregated portfolio (asor), a segregated portfolio of icm spc (icm), a cayman islands company.

asor disputed its shareholder status, arguing that neither it nor any authorised agent had agreed in writing to become a shareholder. the judge at first instance dismissed this application, finding that asor had so agreed through its representative.

the jls subsequently issued a call to asor for over us$40 million (call). icm appealed and sought a stay of the first instance judgment, order and the call, though it later narrowed its stay application to the judgment and order only.

meanwhile, the jls served a statutory demand on icm in the cayman islands and filed a winding-up petition.

the court of appeal’s decision

the court of appeal dismissed the stay application with costs. it applied the five settled principles from c-mobile services ltd in determining icm’s application:

• consider all circumstances;
• treat stays as exceptional;
• require cogent evidence of stifling;
• apply a balance of harm test; and
• assess prospects only where strong grounds exist.

on its appeal prospects, icm failed to demonstrate a realistic chance of success. while the appeal raised questions about the interpretation and application of s49 of the bca, the trial judge's findings were heavily influenced by credibility assessments – in particular, her observations that icm’s main witness was “inconsistent, incredible and convoluted” – and appellate courts are traditionally reluctant to disturb such findings absent exceptional circumstances.

on stifling, even if icm were wound up, then the liquidators could pursue the appeal if they considered it meritorious. icm’s evidence regarding its concerns that a winding up order would result in reputational harm and irreparable damage to itself and a second segregated portfolio, fell short of demonstrating that those fears would actually be realised.

on balance of harm, phoenix bvi's creditors had waited nearly six years for the liquidation to complete. their prejudice from further delay outweighed icm's. while a winding-up would mean icm's "death", liquidators could pursue the appeal alongside their other duties.

the court was also critical of icm's true objective: using the stay to influence the cayman winding-up proceedings. this had "unflattering optics" and amounted to seeking a “coercive measure in extra-territorial proceedings”. in any event, the bvi judgment has no binding force on the cayman islands court; it is merely persuasive, to be treated as a matter of judicial comity.

finally, impecuniosity was not relied upon, but the court observed that any such argument requires cogent evidence of means, failing which the application would be "irremediably undermined".

practical implications

this case affirms the five c-mobile services criteria for stay applications. three key takeaways:

• first, appeals challenging credibility-based findings face a steep uphill battle. absent exceptional circumstances, appellate courts will not disturb them.
• second, courts will scrutinise the true purpose behind a stay application. using stay relief to gain leverage in foreign proceedings will not be tolerated.
• third, impecuniosity arguments require cogent evidence of means. anything less will "irremediably undermine" the application.

david chivers kc of erskine chambers, jeremy child and jhneil stewart of harneys acted for the joint liquidators.

in lakhany v hasan, the english high court* discharged a worldwide freezing order (wfo) for an applicant’s failure to adequately discharge their “full and frank” disclosure duty. this case is a welcome reminder of the consequences for artificially elevating a general suspicion of dissipation to a “real risk” before the court.

the facts concerned a contractual dispute over an alleged debt of approximately gbp1 million. the remaining background is of only tangential interest: the key takeaway for litigators is how the “real risk of dissipation” was presented to the court.

there were several grave failings in the presentation of the applicant’s case

1. despite the respondent having relocated from the uk to pakistan in december 2024 (and contemporaneously informing the applicant’s solicitors of this), the applicant gave misleading evidence that the relocation took place months later in march 2025. the applicant invited the court to infer that the respondent had fled the uk to avoid the consequences of any adverse judgment;
2. in respect of a london-based property which the applicant wanted to injunct for the purposes of potential future enforcement, the applicant took four weeks to act on a property alert (being a search to protect a pending purchase) but nonetheless described the alleged risk of dissipation as “compelling”. no explanation was given for the delay between the search and the filing of the injunction application (or indeed the hearing of said application, which took place a further four weeks later); and
3. the applicant alleged that the respondent (a) had control over the property; and (b) was seeking to “liquidate his only asset within the jurisdiction” in circumstances where a reasonable public search would have revealed this to be inaccurate: the london-based property was neither the respondent’s asset, nor under his control (following the appointment of an lpa receiver on 11 august 2020).

to compound the misleading presentation of the case, the applicant’s skeleton argument stated that no response to the application for injunctive relief had been received when, in fact, the application had not even been served on the respondent. the judge hearing the application, unconvinced that the facts supported a conclusion that a risk of dissipation existed, adjourned the hearing to hear from the respondent, but the respondent – by then living abroad – only received two days’ clear notice of the adjourned hearing. the hearing proceeded in his absence (despite some informal written representations being made) and the wfo was granted.

remarkably, the applicant’s procedural inadequacies persisted post-hearing: neither (a) the transcript of the freezing injunction hearing; nor (b) the subsequent judgment itself were provided to the respondent for over 18 weeks. that transcript recorded the fact that the claimant was only seeking a freezing order in respect of the london property, and not a wfo (as had been granted). when the respondent was provided with a copy of the freezing order on 2 july 2025, he was therefore unaware of the basis upon which the wfo was sought and obtained.

in these circumstances, the wfo (granted before the inconsistencies became apparent) could not survive the applicant’s complete failure to provide “full and frank” disclosure. as an aside, the applicant attracted further criticism by drafting a freezing order which (a) not only failed to set a return date, but (b) also failed to provide any exception for either (i) living; or (ii) legal expenses.

the court determined that

1. inadequate notice was given for the injunction hearing;
2. the applicant made misleading representations about the respondent’s move to pakistan and failed to disclose that the property in question was under lpa receivers' control since august 2020; and
3. there was no solid evidence establishing a risk of dissipation. in the circumstances, it’s difficult to see how the court could have arrived at another conclusion.

the test, of course, for a “real risk of dissipation” is whether “unless restrained by injunction, the defendant will dissipate or dispose of his assets other than in the ordinary course of business.” [emphasis added] (per flaux j in the “nicholas m”). in the instant case, the issues raised by the applicant as establishing this risk of dissipation did not withstand serious scrutiny. further, the court found that the wfo granted was disproportionately broad as against what was intended.

practitioners should note this example and take great care to advise clients of the “full and frank” disclosure standard. not only do clients risk adverse costs orders, but they also risk activating any cross-undertakings in damages.

the applicant learned this lesson in earnest: his conduct, summarised in the court’s costs judgment (at [12]) as amounting to an interference with the administration of justice, was so “out of the norm” that the court made an award of costs against him on the indemnity basis. the consequence of costs being awarded on the indemnity basis is that “the court will resolve any doubt which it may have as to whether costs were reasonably incurred or were reasonable in amount in favour of the receiving party” (see [13] of the costs judgment).

*harneys do not practice the laws of england and wales. english decisions can be persuasive in the offshore courts and are therefore of interest.

in the recent decision of unicorn biotech ventures one ltd v unicorn biotech ventures two ltd the grand court has for the first time considered the issue of whether it has jurisdiction to compel parties to participate in alternative dispute resolution (adr) against their wishes, and if so, what factors should be taken into account.

the grand court held that it does have the power to do so and the ultimate test will be whether compelling participation in adr has a real prospect of furthering the overriding objective by bringing about a fair, speedy and cost-effective solution to the dispute.

the application arose in the context of two actions commenced by limited partners of an exempted limited partnership in which they sought declarations regarding the conduct of the fund by the general partner, and the winding up of the fund. there had been a complete breakdown in the personal relationships between those behind the corporate entities which are the lps and gps. notwithstanding proximity to trial, the gp sought orders compelling the parties to attend a mediation at the same time that the parties were due to be exchanging witness statement and preparing for trial. the application raised two issues which had not previously been considered by the grand court.

does the grand court have the power to compel parties to attend mediation or other means of adr against their wishes?

the grand court, following the guidance set out by the english court of appeal in churchill v merthyr tydfil, held that it does have inherent jurisdiction to compel parties to participate in adr in a suitable case. the english court had observed that courts regularly adjourn hearings and trials to allow the parties to discuss settlement and it would be absurd if they could not to do simply because one of the parties resisted the adjournment. in addition, the court has a long-established right to control its own process including by staying or delaying existing proceedings whilst a settlement process is underway. justice asif noted that by virtue of section 11 of the grand court act, the grand court has the same jurisdiction as the high court of justice in england. his lordship held that the decision in churchill was of very persuasive value and should be applied in the cayman islands, and it is consistent with the overriding objective to assist the parties to a resolution of their dispute which may be quicker and cheaper than a court-based determination.

what are the factors that the court should consider in determining how to exercise its discretion?

examples of potentially relevant criteria (as raised in churchill) include the form of adr proposed, whether parties are represented, the urgency of the case and reasonableness of the delay caused by adr, whether any delay would vitiate the claim or give rise to limitation issues, the costs of adr in real terms, relative to the claim and parties’ resources, whether there is any realistic prospect of resolution through adr, any imbalance in bargaining power, and the reasons given by a party not wishing to mediate. however, justice asif held that the decision whether to order adr is multifaceted and declined to lay down any particular criteria to be applied. ultimately, the test is whether compelling participation in adr has a real prospect of furthering the overriding objective by bringing about a fair, speedy and cost-effective solution to the dispute and the proceedings. it is not a balance of probabilities test but whether adr would have a “real prospect of a useful outcome”.

outcome

the grand court declined to compel the parties to attend mediation. the court considered that the positions taken by the parties to date, and the nature of the dispute and relief sought, meant there was no prospect that mediation would be successful. the gp’s application was also late in the day and imposing a mediation at the same time that parties were preparing for trial would be a time-consuming distraction. overall, the court did not consider that the likelihood of a mediation succeeding would outweigh the costs and disruption or would be justified by the overriding objective.

takeaways

the judgment opens the door to litigants seeking orders to compel an unwilling party to participate in adr. we expect that the court will be astute to ensure that a request for adr is not being used inappropriately as a delay tactic. it will also be interesting to see whether the court may order participation in adr of its own motion and if it would do so even where the parties express a lack of motivation to participate.

the fact that parties have engaged experienced attorneys and are commercial business-people is unlikely (per se) to count against the use of adr. as noted by justice asif, a healthy reality check by an independent mediator can facilitate a more realistic view of the strengths and weaknesses of each side’s position and encourage parties to reach common ground. the court is likely to be in favour of adr even if it would not resolve all of the issues in any dispute but would only narrow them.

the decision also casts doubt on the judicial mediation scheme in the cayman islands, which is set out in practice direction 3 of 2022. the court noted that this scheme had not proved to be an effective mechanism for assisting parties due to a lack of sufficient judicial time and the consequences of a failed mediation for a jurisdiction with a small judiciary (ie a mediator of an unsuccessful mediation would need to recuse themselves from sitting at trial).

in jardine strategic limited v oasis investment ii master fund ltd & ors the privy council (on appeal from bermuda) held on july 24 that the so-called “shareholder rule” should be abrogated.

this rule provided that a company could not, in the course of litigation between a company and shareholders, withhold documents from inspection on the basis of legal advice privilege. the board held that the original proprietary justification for the shareholder rule no longer exists and the company shareholder relationship is not one that falls into the joint privilege relationship family.

the board also held, pursuant to its willers v joyce jurisdiction (where the privy council, not being a court of the united kingdom but comprising the same justices those who sit in the house of lords and the uk supreme court, may direct that its decision also represents the law of england and wales), that the domestic courts of england and wales should treat this decision as binding and part of the law of england and wales.

this decision is significant for common law jurisdictions – it is binding in bermuda and england and wales, and likely to be highly persuasive in other common law jurisdictions such as the cayman islands. it provides certainty to company directors seeking legal advice and, in the context of shareholder appraisal proceedings under section 106 of the bermuda companies act (and likely also in the cayman islands in shareholder appraisal proceedings under section 238 of the cayman islands companies act), clarifies that companies are not required to produce legal advice obtained when setting fair value offered to dissenting shareholders.

the facts

this is the second decision of the privy council arising out of the amalgamation of two companies within the jardine matheson group and section 106 proceedings issued by the dissenting shareholders seeking a fair value appraisal by the court.

in the present matter on appeal, the dissenting shareholders had sought discovery of legal advice that was given to the jardine matheson group when it was setting the $33 value which was offered as fair value to dissenting shareholders who had their shares cancelled.

the company asserted that the advice was covered by legal advice privilege. the dissenters asserted that where a party seeking to access the documents is a shareholder, that will override the usual rules on privilege. they submitted that the shareholder rule was in reality a sub-set of joint interest privilege, such that it remains justified notwithstanding the fading away of the original proprietary basis for its creation.

the primary issue for the board was whether the shareholder rule exists as a matter of bermudian law.

the decisions below

at first instance, chief justice narinder hargun of the court of appeal of bermuda rejected the company’s claim to privilege on the basis that the shareholder rule was a long established and complete answer to any assertion of legal professional privilege by a company against its shareholders.

the company appealed the decision. the court of appeal of bermuda dismissed the appeal.

justice of appeal geoffrey bell who gave the main judgment, recognised that the shareholder rule had not been applied in any decision in bermuda but that the court of appeal had clearly operated on the basis that the rule did exist in at least one previous case. justice of appeal bell regarded the rule, if it existed, as based on joint interest privilege and not 19^th century case law (from which the rule originated).

justice of appeal ian kawaley reached a more nuanced conclusion. he rejected the traditional view that the company shareholder relationship was enough to establish an exception to privilege. rather, it would depend upon all the circumstances and was a flexible and context-based rule rather than status-based rule.

president sir christopher clarke agreed with both judgments and added that the joint interest principle, applicable to defeat what would otherwise be a successful claim to legal advice privilege, had a firm foundation in the recognition by the courts that the shareholder and the company may have a joint interest in the subject matter of the relevant communication.

the board, however, disagreed.

origin and foundation for the shareholder rule

the board first considered the history of the shareholder rule noting that it originated from nineteenth century case law and its foundation seemed to be a migration of “the trustee rule” – that trustees could not claim privilege against beneficiaries for materials obtained at the beneficiary’s expense – to the relationship between a company and its shareholders.

the first reported case in which the shareholder rule appeared to have been applied gouraud v edison gower bell telephone co of europe in 1888 before the chancery division of the high court of justice of england and wales) was expressly decided on the basis there was a true analogy as between company and its shareholders and the trustee rule. this was on the basis that shareholders could be said to be the true beneficial owners of the company’s property, even though the company was a separate legal entity, and therefore had effectively paid for the legal advice of which they were seeking disclosure. since directors were in the same position for the shareholders as trustees for their beneficiaries no legal advice privilege could be maintained.

the approach of the court in gouraud was accepted without question by the english court of appeal in woodhouse & co ltd v woodhouse in 1914. justice lush (sitting in the court of appeal) held that where a company obtained advice in the common interest and paid for it out of the common fund, the shareholder would undoubtedly have a right to see it.

the board noted that it has also been recognised for at least 100 years that a company is both the legal and beneficial owner of its property.^[1] further, it has long been established that directors owe their fiduciary duties to the company alone, although they must take into account the interests of shareholders and, in the context of insolvency, the company’s creditors. nonetheless, until very recently a general rule remained, that where a company takes the opinion of counsel and pays for it out of the funds of the company, a shareholder has a right to see it. this was, considered the board, even though the original proprietary justification for it had faded quietly away.

some doubt had, however, been cast in more recent times. the board noted that in the english high court decision of aabar holdings sarl v glencore plc (2024), justice simon picken had held that the shareholder rule should be abandoned. justice picken concluded that it could no longer be supported by reference to its traditional proprietary justification and there was no overarching joint interest privilege between a company and its shareholders to bring it within that category of privilege. picken j did not regard himself as bound by any contrary authority to decide otherwise.

the board noted that the shareholder rule had not fared well in other jurisdictions, except for the cayman islands and bermuda. in in re 58.com inc justice kawaley (sitting in the grand court of cayman islands) held (in an appraisal action under section 238 of the cayman islands companies act) that the common law rule is that shareholders will generally have a joint interest in any legal advice which the company takes about the general administration of the company because the company is deemed to be obtaining the relevant advice on the shareholders’ behalf. his lordship held that the rule deploys an equitable approach to mitigate the consequences of a strict legal approach based on the separation of legal personalities.

the board’s decision: should the shareholder rule continue in some form?

the board held that:

• the shareholder rule forms no part of the law of bermuda, and it ought not to continue to be recognised in england and wales either. the dissenting shareholders therefore had no right to access the documents from the company and the company could resist production based simply on legal professional privilege.
• the original basis for the shareholder rule (being proprietary) is wholly inconsistent with the proper analysis of a registered company as a separate legal person. members have no proprietary interest in the funds of the company that were used to pay for that advice.
• there is no automatic status-based denial of legal professional privilege between every company and all of its shareholders. there cannot always be said to be a community of interest between every company and its shareholders. such an exception from legal advice privilege would also discourage companies from obtaining candid legal advice in confidence. it would wrongly incorrectly assume a coincidence of interests contrary to typical commercial reality.
• the relationship between a company and its shareholders is contractual and that the particular terms will typically restrict what a shareholder is entitled to see. it would be strange if an exception to the usual rules on privilege could be mounted on the basis of a special relationship, when the express contractual terms of that relationship point in the opposite direction.
• a more nuanced basis for occasionally depriving a company of legal professional privilege in litigation with its shareholders was also not justified. the uncertainty as to whether or not there is a coincidence of interests in any given case would make it all but impossible for directors to know whether the advice once received would be privileged from production. the need for certainty as to whether or not legal advice will be privileged demanded a bright line.
• legal advice about the fixing of a fair price for the shares to be compulsorily acquired from minority shareholder was not a matter about which the company and its shareholders shared a joint interest. there was a fundamental divergence of interest between the minority and the majority shareholders.

given that the board concluded that the shareholder rule did not apply and the dissenting shareholders had no right of access to the documents, the other issues in the appeal (relating to the application of the shareholder rule) were otiose or left to be decided in the context of joint retainer privilege cases in the future.

takeaways

this decision abrogates the long-standing shareholder rule and will be of wider application outside the context of fair value appraisal litigation. it confirms that there is no automatic status-based denial of legal professional privilege between every company and all of its shareholders in litigation between the company and shareholders. rather, any shareholders seeking to obtain copies of legal advice provided to the company would need to rely on a fact-specific joint interest privilege, or document access rights pursuant to their contract with the company.

the decision clarifies that the foundation for the original rule was the proprietary interest that a shareholder was said to have in the advice, not a joint interest that the company and shareholders may have. the proprietary basis for the rule has faded away. the shareholder and company relationship does not per se attract joint interest privilege. there is no general entitlement by shareholders to legal advice obtained by the company.

in the context of shareholder disputes including post privitisation fair value arbitrage proceedings, where dissenting shareholders would often seek production by the company of legal advice relating to the fixing of the merger price, a company will be entitled to resist disclosure of advice obtained in connection with fixing fair value provided it is protected by legal advice privilege. this provides welcome certainty for company directors and clarifies that dissenting shareholders have no automatic entitlement to such advice.

given the willers v joyce direction, this decision forms part of the law of england and wales, as well as bermuda. it will also likely be regarded as highly persuasive in other common law jurisdictions (such as the cayman islands, bvi and hong kong) both in fair value appraisal litigation and more general litigation between a company and shareholders. it could also conceptually be applied in other contexts (not relating to companies), such as in the cayman islands in the context of exempted limited partners where a limited partner may seek to obtain legal advice obtained by the general partner, although such a question would need to be decided in a future case.

^[1] salomon v salomon [1897] ac 22.

this article was first published by the law360 on 6 october 2025.

in a recent privy council decision igcf spv 21 limited v al jomiah power limited and another, the board ruled on when a party is held to have submitted to the jurisdiction of a foreign court as a matter of cayman law.

the parties’ positions

it was common ground between the parties that an applicant will forfeit its right to an injunction if it submits to the court of a foreign jurisdiction.

the appellant was pursuing proceedings against the respondent in pakistan. the respondent had sought to appear in pakistan in order to contest jurisdiction.

the respondents applied for an anti-suit injunction in the cayman courts, seeking to restrain the appellant from pursuing the proceedings in pakistan.

the appellant’s argument was that the respondent had submitted to the jurisdiction of pakistan.

the rule in geoprosco

the appellant relied on what they called the “rule in geoprosco” – a 1975 english court of appeal case that held that appearing before a foreign court (pakistan) simply to contest jurisdiction counted as submission. since geoprosco was decided, it had in fact been reversed in england and wales by a 1982 statute.

without an equivalent cayman statute, the question arose: what was the cayman position?

the board concluded at [52] that geoprosco “should form no part of cayman law”. put simply, appearing in a foreign court to contest jurisdiction did not count as submission.

what counts as submission?

in deciding what counts as submission, the board held that cayman law should reflect the current law in england and wales, namely the seminal case of rubin v eurofinance.

key takeaways

the board’s approach to a legislative lacuna in cayman is noteworthy. the board analysed academic texts and english hansard debates, and compared the solutions of other common law jurisdictions. it was also emphasised that the “cayman courts may decline to follow english court decisions where there is good reason to do so” [47].

interestingly, the board noted that some common law jurisdictions had adopted legislation similar to the english statute, and that others without a legislative equivalent had declined to follow geoprosco. the board highlighted a first instance case from bannister j in the bvi to that effect. the appellants had not been able to point to a single common law jurisdiction which followed the rule in geoprosco.

although a cayman judgment, the case may well have extra territorial influence in years to come in those jurisdictions where common law solutions have so far been found, but only at the first instance level.

finally, and as a mark of the jurisprudential significance of the bvi, this judgment is one of a number of important decisions in which the board was assisted by the bvi’s the honourable dame janice pereira, who heard the appeal together with four permanent members.

harneys successfully secured the appointment of a receiver by way of equitable execution over a cyprus private company, in order to assist in the execution of a judgment against a villa in limassol marina.

facts

our client obtained a singapore judgment for over usd 124 million plus interest against the defendants. after filing a common law action in cyprus based on that judgment, the district court of larnaca issued a summary judgment, effectively recognising and localising the singapore judgment in cyprus against the judgment debtors.

subsequent enforcement measures were pursued in cyprus to target assets of the judgment debtors located within the jurisdiction.

one such asset was a villa at the limassol marina, for which no separate title deed had been issued. this, in turn, necessitated the filing of an application for the appointment of a receiver over the judgment debtor owning the villa and/or the villa itself.

legal background

the cyprus courts may appoint a receiver by way of equitable execution, where there exists a practical or legal hindrance or difficulty, which prevents enforcement through ordinary statutory means.

the courts must be satisfied that the receiver is likely to meaningfully assist in executing the judgment. the appointment is discretionary and grounded in equity principles.

this type of order is particularly appropriate, as in this case, when the debtor’s interest in immovable property cannot be enforced under existing statutory provisions.

the case

harneys argued that there was a legal impediment to execution against the property, as no separate title deed had been issued in the name of the judgment debtor.

the property, one of the villas at the limassol marina, is held by the judgment debtor under a long-term lease agreement with the ministry of energy, commerce and industry, as well as a sublease agreement with another cyprus company.

following the issuance of the summary judgment, the judgment creditor attempted to register a memorandum of judgment over the property, with the intention of initiating its sale under the provisions of the cyprus civil procedure law, cap. 6. however, this was not possible. the district lands office of limassol confirmed in writing that such registration could not be effected “since [the judgment debtor] is not the registered owner [of the property] as provided by the relevant legislation.”

relying on this confirmation, harneys argued that the absence of registered title deed meant that no other legal mechanism was available to execute the judgment against the property. this constituted a clear impediment to execution against the property, thereby justifying the appointment of a receiver by way of equitable execution.

ruling

the district court of larnaca held that, indeed, the absence of a separate title deed created a legal difficulty that prevented the property from being sold through the ordinary execution process.

accordingly, the court found it necessary to appoint a receiver with powers to take control of the property, assess its condition and proceed with a private sale by one of several possible means:

• assignment of rights;
• cancellation of the existing lease and sublease agreements and execution of new agreements with a buyer; or
• even the transfer of rights from the lease and sublease agreements to a company, with the sale ultimately effected through the sale of that company’s shares.

the court concluded that this was an appropriate case for the appointment of a receiver, finding that there was a reasonable prospect that the receiver’s involvement and the ancillary powers granted would substantially assist in the execution of the judgment.

consequently, the court appointed the proposed receiver, an experienced lawyer and insolvency practitioner, and issued ancillary orders to facilitate the execution process.

comment

this decision is particularly significant in the context of cross-border litigation and judgment enforcement, as it demonstrates the cyprus courts’ willingness to employ equitable remedies to facilitate the effective execution of judgments. given that only a limited number of reported cases in cyprus have involved the appointment of a receiver by way of equitable execution in cyprus post judgment, the ruling underscores the jurisdiction’s commitment to enabling successful litigants to realise their judgments in practice, not merely in principle.

in the recent judgment of tax v fdq, the bvi court of appeal provided guidance on the granting of anti-suit arbitration injunctions and the court’s supervisory jurisdiction over arbitrations commenced in the bvi.

background

the applicant/appellant, tax, and the respondent, fdq, entered into a license agreement in 2018 and further agreed that any disputes arising out of the agreement would be arbitrated in accordance with the bvi arbitration act 2013. their relationship subsequently broke down and on 21 january 2021, tax initiated arbitration proceedings in the bvi (the 1^st arbitration).

the final award of the 1^st arbitration was handed down on 21 february 2023. on 23 march 2023, fdq filed a fixed date claim form in the bvi high court, seeking to challenge the final award by way of appeal. on the same date fdq also filed a notice of application in the high court for leave to appeal several points of law. the leave has been granted but the appeal is yet to be heard.

fdq’s fixed date claim form was heard in december 2023. on 25 june 2024, mr justice wallbank ordered that the final award be set aside (the setting aside order). in his judgment, mr justice wallbank indicated that by setting aside the final award, this will give the parties opportunity to refer their disputes to a differently constituted tribunal if they so wish. tax has since obtained leave to appeal the setting aside order. the appeal also remains to be heard.

on 21 july 2025, fdq started a new arbitration in the bvi (the 2^nd arbitration) with identical subject matter, factual background and issues as the 1^st arbitration.

on 29 july 2025, tax applied to the bvi court of appeal for an interim injunction to restrain fdq from pursuing the 2^nd arbitration.

key legal issues

at the heart of this appeal is whether it is just and convenient to grant interim injunctive relief to restrain fdq from pursuing the 2^nd arbitration while two appeals are pending.

the court’s starting point is that it may, in the exercise of its equitable jurisdiction and discretion, grant interim injunctive relief where satisfied that it is just and convenient to do so.

while acknowledging the policy imperatives in the act against judicial interference in arbitration proceedings, the court reiterated well-established case law, that the court retains the power to prevent abuse of process in the conduct of court or arbitral proceedings. it would exercise those powers of control only if necessary, and would do so judicially, not to interfere with an arbitration, but rather to restrain a party from abusing the process of a court or arbitral tribunal or using either forum in an oppressive or unconscionable manner. this principle applies whether the arbitration is domestic or foreign.

applying the above principles, the court was be satisfied that it was just and proper to grant an interim injunction, subject to an undertaking in damages based on the following findings:

1. there are two pending appeals before the court in relation to the 1^st
2. parties agree that the issues to be determined on appeal are similar to some of the issues that will arise in the 2^nd arbitration, including construction and meaning of the license agreement and liability.
3. if the 2^nd arbitration advances at the same time as the appeals, those issues would be considered in parallel.
4. by executing the arbitration agreement, the parties have agreed that the bvi is the seat of arbitration and that the act is applicable, thereby submitting them to all stages of the arbitration process including any appeals that may be pursued under the act. the 1^st arbitration will only conclude after the determination of the two appeals.
5. by attempting to pursue the 2^nd arbitration while the 1^st arbitration is in train, fdq will cause duplication of efforts, expenditure and resources, which would run contrary to the overriding objective of the bvi civil procedure rules (revised edition) 2023.
6. more fundamentally, such a course is manifestly abusive and in all of the circumstances, is unconscionable.

in its application, tax also raised an issue as to whether a single judge of the court has jurisdiction to grant interim injunctive relief. however, the court concluded that it would refrain from deciding this issue as it was academic.

key takeaways

the decision reinforces the court of appeal’s willingness to protect the integrity of bvi-seated arbitrations without undermining the arbitral process, as well as highlights the importance of a coherent strategy in arbitral and court proceedings. parties should carefully consider their existing proceedings before embarking on new ones.

it’s a familiar dilemma: a debt remains unpaid under a contract and the creditor wishes to pursue payment of the debt.

the contract contains an arbitration agreement requiring disputes to be resolved in arbitration. the debtor disputes liability to pay the debt. the creditor is left to weigh its options – should it seek to wind up the company on the basis of the unpaid debt, or refer the dispute to arbitration?

courts of several leading common law jurisdictions have long grappled with the inherent tension between insolvency proceedings and arbitration. in the past decade, this debate intensified following the decision of the english court of appeal in salford estates (no.2) ltd vs altomart ltd (no.2)) (‘salford estates’).

following salford estates, certain leading common law jurisdictions have diverged in their approach to the interaction between insolvency and arbitration proceedings. in particular, there has been a marked divergence in the approaches taken by the courts of hong kong when compared with the approach taken in england (and the leading offshore jurisdictions closely associated with it). since 2023, this divergence has crystallised in the landmark decisions of the hong kong court of final appeal in re guy kwok-hung lam (‘re guy lam’) and the decision of the judicial committee of the privy council4 in sian participation corp v halimeda international ltd (‘sian participation’).

now, hong kong law, as established in re guy lam and subsequently re simplicity & vogue retailing (hk) co ltd [2024] 2 hklrd 1064 (‘simplicity’), generally gives primacy to upholding arbitration agreements. the hong kong courts will stay winding up proceedings in favour of arbitration, unless there is a strong reason not to do so, such as the dispute being deemed frivolous or an abuse of process. in contrast, english law, following sian participation, requires a debtor to demonstrate a bona fide dispute on substantial grounds before a creditor’s winding up petition will be dismissed or stayed.

against this backdrop of divergent approaches, the recent decision by the court of first instance of the high court of hong kong (the ‘hong kong court’) in hyalroute communication group limited v industrial and commercial bank of china (asia) limited [2025] hkcfi 2417 represents a significant and welcome development.

the case marks the first time the hong kong court had to consider whether an anti-suit injunction should be granted to restrain a creditor from presenting a winding up petition in the cayman islands (or another similar common law jurisdiction which applies the sian participation approach) despite the existence of an arbitration agreement requiring the dispute to be ‘finally resolved’ through hong kong arbitration. it raises an important question as to the relevant law when the hong kong courts determine whether to restrain foreign winding up proceedings in jurisdictions that are now bound, or likely, to apply the approach in sian participation in favour of a hong kong arbitration.

download the pdf to read the full article.

this article first appeared in volume 22, issue 6 of international corporate rescue and is reprinted with the permission of chase cambria publishing - www.chasecambria.com

in a landmark decision of the supreme court of bermuda (‘court’), harneys and the joint provisional liquidators (‘jpls’) of a bermuda company (the ‘company’) successfully argued that the court’s power to summon officers of a company in liquidation or provisional liquidation before it for a private examination and delivery up of books and records under the companies act, 1981 (‘companies act’) has extra-territorial effect.

the company is a class c long-term insurer registered under the bermuda insurance act 1978 (‘ia’), and is a segregated accounts company under section 6 of the segregated accounts companies act 2000 (‘sac act’). it has been licenced by the bermuda monetary authority (‘bma’) since 2013.

download the pdf to read the full article.

this article first appeared in volume 22, issue 6 of international corporate rescue and is reprinted with the permission of chase cambria publishing - www.chasecambria.com

in cyprus, companies that are struck off the official companies register maintained by the department of intellectual property and registrar of companies in cyprus (the register and the registrar) can be restored, mainly, through two routes: (1) administrative restoration by the registrar; or (2) court-ordered restoration.

the appropriate route depends primarily on the reason for the strike-off and the time that has passed since the company was removed from the register. this article outlines both processes and explains the key legal considerations involved.

strike-off process

under section 327(1) and (2a) of the companies law, cap. 113 (the law), a company that is not under a liquidation process may be struck off by the registrar in the following scenarios where:

1. the registrar believes the company is not carrying on business or is not .; or
2. the directors apply for strike-off to the registrar, provided the company has fulfilled all legal obligations; or
3. failure to pay the annual levy (which applied from 2011–2023, as now abolished) within one year from the due date; or
4. failure by a variable capital investment company to file the required special resolution within the timeframe set by the companies (amendment) (no. 3) law of 2021.

if the registrar has reasonable cause to believe a company is inactive, as per scenario (1) above, then:

1. a first letter is sent requesting confirmation of the company’s operational status.
2. if no response is received within one month, a second letter is issued within 14 days, warning that a strike-off notice will be published if the company does not reply within another month.
3. if there is still no response, a three-month notice is published in the official gazette.
4. during this period, the company, its members, or its creditors may file an objection showing that the company is active or compliant.
5. if no objection is made, the company is struck off the register.

administrative restoration

a company struck off by the registrar may be restored administratively within 24 months of the strike-off date, following an application for restoration submitted to the registrar

who may apply?

the application for restoration may be filed by a director or a member of the company.

what must accompany the application?

for the purposes of the company meeting any outstanding requirements from before its strike-off date, the application must be accompanied by:

1. all outstanding filings including forms, reports, financial statements and documents due prior to the strike-off date;
2. any unpaid fees, charges, and/or fines for omissions that occurred and/or were imposed before the strike-off date;
3. a written consent from a competent representative of the republic for the company’s restoration, in the event that its assets and/or rights have been managed by the republic; and
4. payment of a €20 fee, plus €20 if the procedure needs to be expedited.

if satisfied that at the time of the strike-off, the company was offering services or was in operation, and all legal requirements relevant to the circumstances have been met, the registrar will restore the company by re-registering it on register and issue the restoration certificate.

following the restoration through the administrative route, the company is deemed to continue to exist as if it had not been struck off.

this option is undoubtedly faster, more cost-effective, and simpler than going through the courts. however, it is only available within 24 months from the date that the company was struck off the register.

restoration by court order

at any point between 2 - 20 years after the strike off, a company may be restored by court order.

who may apply to the court?

the application for restoration may be filed before the court of competent jurisdiction by:

1. the company itself; and
2. any member or a creditor of the company that feels dissatisfied with the strike-off, or has suffered damage as a result of the company’s actions prior to the strike-off.

what does the court consider?

in applications made by members, the court examines if there is a real prospect of establishing anything of value for its members if the company is restored in the register, while in applications made by creditors, the court examines whether a person who has a claim, which can be enforced only if the company is restored^[1].

if satisfied that the company at the time of the strike off was offering services or was operating, or otherwise that it is fair for the company to be reinstated, the court will issue an order for the restoration of the company to the register.

additional directions by the court

the court via its order issued in the context of a restoration application may also:

1. issue directions as deemed fair for the restoration of the company and other persons in the same position as before the strike off;
2. order the submission of company documents to the registrar for the updating of the register;
3. order the payment of due levies to the registrar (if applicable); and
4. order payment registrar’s expenses.

to complete the process, an official copy of the court order must be submitted to the registrar, along with a payment of €160, plus €20 for expedited processing, if required.

following the restoration by a court order, the company is deemed to continue to exist as if it had not been struck off.

this route is generally pursued by a company or member when the company is no longer eligible for administrative restoration or by creditors who intend to file legal proceedings against the company to recover due amounts. court-ordered restorations offer several advantages, such as greater flexibility on timing, the ability of the court to impose specific terms, and the potential to address more complex cases effectively.

conclusion

the appropriate route for a company’s restoration will depend on the reasons of the company’s strike off and the time that has elapsed. by carefully considering these factors, along with seeking the right legal guidance, companies can be efficiently restored to their legal status while ensuring the most cost-effective solution and appropriate timeframe for the interested parties.

^[1] the supreme court of cyprus in logicom ltd v. p.g. caresys ltd, confirmed a creditor’s locus standi to apply to have a cyprus company reinstated with the intent to pursue legal proceedings against it to recover due amounts.

harneys successfully opposed a claimant’s application seeking the court’s leave to testify via videoconference during civil proceedings, before the district court of limassol, due to alleged health issues that prevented the claimant from travelling to cyprus to testify.

the legal grounds

the claimant’s request was based on section 36a of evidence law, cap 9, which provides that, in criminal or civil proceedings, a court in cyprus may permit a witness located outside the country to testify via videoconference if it deems it to be in the interests of justice.

according to the same provision, videoconferencing refers to real-time audio and visual communication that enables the witness and courtroom participants (including the court, the defendant, lawyers, interpreter, or assistants) to see and hear each other.

where such request is approved, the court may impose any conditions it considers necessary, provided that these do not conflict with cyprus’s obligations under any applicable bilateral or international conventions.

therefore, for the court to grant such leave, the following must be satisfied:

• the witness shall be situated outside of cyprus; and
• it is in the best interests of justice.

what constitutes the “interests of justice” is at the discretion of the court, taking into account all the surrounding circumstances.

the judgment

the court held that the evidence submitted was insufficient to establish that granting leave to testify via videoconference would serve the interests of justice.

although it was alleged that the claimant suffered from a “serious health problem,” the medical certificate submitted failed to provide the court with adequate detail or evidence regarding the claimant’s actual state of health, that would justify a departure from the fundamental principle that trials should be conducted with witnesses physically present before the court.

accordingly, the court dismissed the application.

significance

this judgment is particularly noteworthy, as recent case law reflects a generally more permissive approach to such applications under the new civil procedure rules, the overarching aim of which is to empower the courts to resolve cases fairly, efficiently, and at a lower cost. nevertheless, fairness demands solid evidence; without it, even modern conveniences such as videoconferencing cannot override fundamental trial principles.

the supreme court of the bahamas has recently ruled in gabriele volpi v delanson services ltd & ors, providing a clear statement on when a court will refuse to halt an arbitration because of a pending challenge to the tribunal.

background

the dispute concerned three bahamian family trusts – the winter, spring and summer trusts (the trusts) – which were settled for the benefit of the volpi family by gabriele volpi, an italian-nigerian businessman with substantial interests in logistics, ports and energy. mr volpi’s children, matteo, simone and isabella, were discretionary beneficiaries.

in 2016 the corporate trustee, delanson services ltd (delanson), distributed the entire assets of the trusts to garbriele volpi. matteo volpi challenged those distributions, claiming they were made in breach of trust and contrary to delanson’s duties to the wider family. matteo alleged that his father had directed or authorised the payments and that delanson had simply followed his wishes. the trust instruments contained exclusive arbitration clauses, therefore the dispute was referred to arbitration seated in the bahamas.

a three-member arbitration tribunal was appointed, comprising lord neuberger of abbotsbury, dr georg von segesser and professor alberto malatesta (the tribunal). the proceedings were divided into two phases, dealing with liability and quantum.

in june 2020 the tribunal issued a phase i partial award finding that the distributions were in breach of trust and that gabriele had known this when he received them. court challenges to that award by gabriele and delanson were dismissed, and phase ii (quantum and valuation) was listed for a hearing in october 2025.

days before that hearing, gabriele began fresh court proceedings seeking to remove the tribunal under section 35 of the bahamian arbitration act 2009 (the removal claim) based on allegations that several procedural decisions showed bias or unfairness. he also asked the supreme court to stay the arbitration until that removal claim could be determined.

matteo opposed the stay, arguing that the removal claim was weak and that any further delay would cause serious prejudice, as the arbitration had already been running for seven years. delanson, simone and isabella supported the stay.

the issues

the question for chief justice winder was whether to exercise the court’s discretion to stay the arbitration while the removal claim was pending. the question was therefore whether the removal claim had sufficient merit to justify a stay and where the balance of prejudice lay between the parties.

the judgment

following a review of the court’s powers under section 16(3) of the supreme court act and rule 26.1(2)(q) of the civil procedure rules, alongside section 45(1) of the arbitration act, which confirms that procedural and evidential matters are for the tribunal, winder cj refused the stay. in doing so, winder cj also noted that article 17(1) of the uncitral rules requires the tribunal to treat the parties equally and to avoid unnecessary delay or expense.

winder cj accepted that stays of this kind are exceptional. drawing on guidance from justice klein in an earlier judgment between the same parties, delanson services ltd v volpi & ors, he held that a stay depends on the balance of harm, the prospects of the underlying challenge and the broader policy of arbitration proceeding without interruption.

after reviewing the alleged procedural missteps, including the tribunal’s refusal to recuse itself after viewing a document said to be privileged, the court found that the tribunal’s reasoning was detailed and fair. the recusal decision (procedural order no 26) showed that the contested document was irrelevant to quantum, and that exposure to such material did not indicate bias.

in arriving at his decision, winder cj noted that the arbitration had already “been delayed some four years as a result of stays pending challenges and appeals by gabriele and delanson” and commented that while "both gabriele and matteo can each demonstrate prejudice or harm […] the issue which tips the scale in matteo's favor […] is that [the removal claim] does not appear to have particularly strong prospects of success” as there was no evidence of actual or apparent bias.

cayman analogies and legal significance

1. exceptional relief and apparent bias

there are similarities between the cayman and bahamian legislative frameworks. under section 29 of the cayman islands arbitration act 2012 (the cayman arbitration act), the parties may agree the rules to be followed by a tribunal, failing which the tribunal may conduct the arbitration in such manner as it considers appropriate. a tribunal also has broad powers relating to evidential matters. in similar terms to section 35(3) of the bahamian arbitration act, sections 20(3) of the cayman arbitration act confirms that a tribunal may continue arbitration proceedings and make an award whilst an application to the court for the removal of a tribunal member is pending.

under section 9(2) of the cayman arbitration act, the grand court of the cayman islands will stay court proceedings brought where an agreement provides for arbitration, unless the agreement is invalid. however, a stay of the arbitration itself is different, and the grand court of the cayman islands has no power to do so when faced with an application for the removal of tribunal members, even when there is a risk of apparent bias on the part of tribunal members.

2. tribunal independence

section 28 of the cayman arbitration act, mirrors article 17 of the uncitral rules. tribunals must act fairly and impartially, allow each party a reasonable opportunity to present its case and avoid unnecessary delay or expense. the grand court respects that autonomy within an international framework, and where interim measures are sought from the court, it must consider the “specific principles of international arbitration” in accordance with section 54 of the cayman arbitration act.

3. delay and cost

the court gave weight to the procedural history in volpi, including that the arbitration had already been delayed by four years of litigation. this caused a practical difficulty in rescheduling a complex international hearing. cayman tribunals face similar realities, albeit the risk of delay by parties seeking a stay of arbitration proceedings is somewhat diminished as the court has no power to intervene in this way.

4. guidance for cayman practitioners

• understand tribunal autonomy: in contrast to the bahamian position, the cayman court does not have an express power to stay an arbitration simply because a challenge to an arbitrator is pending. this places procedural control squarely with the arbitrators, not the court.
• challenge does not mean pause: a pending application to remove or challenge an arbitrator does not automatically halt the proceedings in cayman. unless and until the tribunal elects to suspend the process, parties should assume that hearings and procedural steps may proceed. parties should therefore maintain full engagement with the arbitration timetable and be ready to continue even while a tribunal challenge is pending.
• minimal curial intervention: the guiding statutory principle is one of minimal judicial intervention. the grand court will only intervene in the arbitral process where expressly permitted by the act, and its powers to do so align with supporting the arbitration process; for example, the court may appoint or remove arbitrators, grant interim relief only if the tribunal lacks power or is unable to act effectively or by enforcing or setting aside arbitral awards.
• comparative seat analysis required: practitioners handling cross-border arbitrations should be alert to the important difference from other jurisdictions such as the bahamas, where the court may intervene to stay an arbitration. in cayman, intervention is not currently available unless it is within the narrow confines allowed by the cayman arbitration act.

key takeaways

the decision in volpi reinforces a principle well recognised in both the bahamas and the cayman islands: courts are reluctant to interfere with the arbitral process unless a serious injustice is shown. weak claims of bias or unfairness will not justify stopping an arbitration that is otherwise ready to proceed. in the cayman islands, the position is strict: the tribunal controls the continuation of proceedings during a challenge, and the grand court has no power to stay the arbitration in those circumstances.

for cayman counsel and parties to arbitration, the practical lesson is simple. when a tribunal-removal claim is launched, the safer assumption is that the arbitration may continue, and the best course is to prepare for the hearing rather than wait for the tribunal to order a stay of its own proceedings.

the cayman islands court of appeal has refused a renewed application for leave to appeal in frye-chaikin v bradley, affirming a grand court summary judgment grounded in foreign issue estoppel arising from prior michigan proceedings. the decision underscores the high threshold for leave to appeal, the potency of foreign issue estoppel, and the litigation risk of attempting to revisit merits arguments already determined abroad.

background

the dispute stemmed from a 2014 agreement to sell a cayman property. the plaintiffs originally issued cayman proceedings, but at the defendant’s urging, the action was stayed on forum grounds so the matter could be determined in michigan (where the parties lived). after a contested hearing, the michigan circuit court granted summary judgment upholding the property sale agreement and ordered specific performance. the defendant’s subsequent appeal to the michigan court of appeal was dismissed and the michigan supreme court refused leave. when the defendant still did not comply, the circuit court signed the sale agreement on her behalf. relying on those outcomes, the plaintiffs obtained cayman summary judgment in september 2024. the defendant’s subsequent leave to appeal this summary judgment was refused in the grand court and by a single judge of the court of appeal. the defendant then renewed her application before the full court of appeal.

what the court of appeal decided

the court of appeal held that any appeal had no real, as opposed to fanciful, prospect of success and agreed with the single appeal judge that the requirements for foreign issue estoppel were satisfied (relying on dicey, morris and collins on the conflict of laws):

• the michigan courts were competent;
• their judgments were final, conclusive and on the merits;
• the parties were the same; and
• the issues now raised in cayman were the same as those determined in michigan.

it was therefore too late to revisit the merits in this jurisdiction.

in reaching their conclusion, the court of appeal also considered and agreed with the single judge’s analysis regarding the test for summary judgment under cayman law, being whether the defendant has a realistic, as opposed to a fanciful, defence and one that is more than merely arguable (derived from the english case of easyair v opal telecom).

why the appeal failed

the defendant, acting in person, repeated and expanded on her complaints about the agreement’s validity, alleged duress, unconscionability, evidential falsity, and impropriety in the michigan proceedings, and contended the grand court should have engaged those points under cayman law.

the court of appeal held that such submissions did not confront the basis of the grand court’s decision, being issue estoppel. having successfully contended at the outset that michigan was the appropriate forum, the defendant was bound by the michigan outcomes and could not re‑argue the dispute in cayman. to the extent any points were not advanced in michigan but could and should have been, it was now too late.

key takeaways

1. final, merits‑based decisions of competent foreign courts between the same parties on the same issues will be given issue‑estoppel effect in cayman.
2. parties who secure an overseas forum should expect to be held to the result; cayman will not readily offer a second bite at the cherry.
3. summary judgment remains a robust filter. defences foreclosed by estoppel, or that are merely fanciful, will be disposed of summarily, saving cost and time.

there is increasing demand in the prc for obtaining grants from the bvi probate court. a grant of probate is typically required in order to validly deal with bvi assets held by a deceased person. in this update, we share some key points from our significant experience in handling probate applications originating from the prc.

the most common probate applications we deal with at harneys in shanghai involve shares in bvi companies. pursuant to the bvi business companies act, shares in bvi companies are deemed to be situated in the bvi. accordingly, it is necessary for the appropriate grant to be obtained from the bvi probate court before the deceased’s interest in a bvi company can be validly transferred to the intended legatee or heir (often resident in the prc).

when it comes to the application itself, the applicant needs to submit various documents. the two key documents are:

1. an affirmation of foreign law

• as the deceased was typically domiciled in the prc, an affirmation by a prc lawyer is required confirming the validity of the will and explaining why the personal representative is entitled under the laws of the prc to administer the estate. not all prc lawyers are willing to comment on the validity of the will, because as a matter of practice this may involve assuming liability should there be any issue subsequently arising as to the validity of the will. competing heirs may make a claim against the prc lawyer for any perceived loss of his or her share in the deceased estate.

2. the ‘marked’ will

• the issue of will marking will not arise if no will is available; the intestacy rules governing the shares in bvi companies as movable assets are those of the deceased’s jurisdiction of domicile, hence normally the prc.
• however, if there is a will that is to form the basis of an application for a grant of probate or letters of administration under the eastern caribbean supreme court (non-contentious probate and administration of estates) rules 2017, then the will must be ‘marked’ by the applicant with the standard oath and signature. in the prc, the marking is to be done before a notary public. afterwards, the notarised documents will be further apostilled under the convention abolishing the requirement of legalisation for foreign public documents before it may be recognised in the bvi. an issue we frequently encounter is that because the convention only came into effect in the prc on 7 november 2023, local foreign affairs offices have relatively little experience dealing with cases that require will marking. with the added complication that under prc law a will may be invalid if it is marked, local foreign affairs offices are typically cautious to apostille such documents which can result in the initial rejection of an application. we have encountered delays in multiple provinces including fujian, but have had considerably more success in our cases in beijing and shanghai. we expect that efficiencies will improve as local foreign affairs offices become more familiar with the convention and their obligations arising therefrom.

the long-established practice of prc nationals using bvi companies as holding vehicles means there is an inevitable demand for bvi probate grants and letters of administration. harneys has considerable experience in this field, and works closely with local counsel to ensure the process of notarisation and apostilling of the will ‘marking’ goes smoothly – bridging the differences between the two legal systems. if you would like to learn more about the process, or require assistance with bvi probate, please contact the author or your usual harneys contact.

in the follow up to their article on recent guidance from the cayman islands’ courts on fraudulent trading claims, harneys partner james eggleton and counsel anya allen unpack the uk supreme court’s decision and its relevance for the cayman islands.

this is the second article in a two-part series on recent decisions concerning fraudulent trading claims under section 147 of the cayman islands companies act and section 213 of the uk insolvency act, being conway & ors v air arabia [2025] cigc (fsd) 41 (20 may 2025) and bilta & ors v tradition finance services [2025] uksc 18 (7 may 2025).

bilta & ors v tradition finance services

bilta was one of several companies which were vehicles in a missing trader intra-community fraud involving spot trading in carbon credits under the eu emissions trading scheme. spot trading in eu allowances within eu member states at that time attracted vat. the rules were changed when the authorities realised that the eu allowances were being used in relation to such fraud. in this case, the fraud involved five companies which were left with enormous vat liabilities owing to hmrc.

the companies issued a claim against tradition financial services alleging that it had dishonestly assisted their directors in the breach of their fiduciary duties to the claimant companies. the liquidators also brought a claim under section 213 of the insolvency act alleging that tradition had knowingly participated in the fraudulent trading of the businesses of the claimant companies. the parties reached a partial settlement, leaving two substantive issues for the court to decide.

the uk supreme court addressed two key issues. firstly, whether the persons who may be required to make contributions to a company’s assets under section 213 of the uk insolvency act are confined to those involved in the management or control of the business, or extend also to third party “outsiders”. those “outsiders” include, for example, those who have transacted with the company in the knowledge that by those transactions, the company was carrying on business for a fraudulent purpose.

secondly, the court looked at the operation of section 32(1) of the uk limitation act, which defers the commencement of limitation periods in fraud cases to the point at which the claimant has discovered or could with reasonable diligence have discovered, the fraud. it considered the effect of the legislation within the context of a related claim brought by the company in dishonest assistance, during the period in which the company had (prior to its restoration) ceased to exist.

issue 1: whether tradition fell within the scope of section 213

the uk supreme court considered the scope of the words in section 213(2): “any persons who were knowingly parties to the carrying on of the business in the manner above-mentioned.”

tradition argued that the words were restricted to persons exercising management or control over the company in question, such that it should not, and could not, be treated as a party to the carrying on of the fraudulent business.

applying principles of statutory interpretation and by reference to previous authorities, the court noted that certain features of the statutory language contained in section 213 limit the circumstances in which liability may be incurred under section 213, as follows:

• the person must be a party to the carrying on by the company of a fraudulent business and not merely involved in a one-off fraudulent transaction, unless that fraud is sufficient evidence on its own of the carrying on of a fraudulent business;
• being a party to the carrying on by the company of a fraudulent business does not extend to a mere failure to advise; and
• the person liable must have had an active involvement in the carrying on of the fraudulent business by the company.

however, the supreme court held that subject to those limitations, there is nothing in the language of section 213(2) which restricts the scope of the provision to directors and “insiders” who were directing or managing the business of the company. the natural meaning of the statutory words is wide enough to cover not only such insiders, but also persons who were dealing with the company if they knowingly were parties to the fraudulent business activities in which the company was engaged. such persons could include those who transacted with the company in the knowledge that by those transactions the company was carrying on its business for a fraudulent purpose.

in this respect, the court agreed with neuberger j in in re bank of credit and commerce international sa [2002] bcc 407 that the concept of being “parties to the carrying on” of a business in a certain way is not limited to persons who actually direct or manage the business.

issue 2: whether the dishonest assistance claims were time-barred

in addition to their section 213 claims which vested in the liquidators personally, the liquidators also brought claims in the name of the companies against tradition for dishonest assistance. at first instance, the judge held that the claims were time-barred. permission to appeal was granted in respect of two companies.

the acts of alleged dishonest assistance occurred during 2009. both companies were subsequently abandoned by their directors and were then struck off and dissolved in 2010 and 2011 respectively. the companies were subsequently restored to the register in 2012, with a winding up order made and liquidators appointed a year later.

the claims were issued in november 2017 and tradition argued that they were time-barred as the relevant acts occurred more than six years prior.

the companies’ central case was that during the periods when they were struck off (but later deemed to have existed by virtue of being restored) they had a bare existence but with no other features. as such, time did not begin to run until they were each restored to the register because, under section 32 of the limitation act (which provides for the postponement of the commencement of the limitation periods until the plaintiff has discovered the fraud or could with reasonable diligence have discovered it), there were no directors who could have exercised reasonable endeavours to discover the fraud.

alternatively, the companies argued they should be deemed to have had in place the fraudulent directors who had been in office when they were dissolved, so their knowledge of the fraud could not be attributed to them until they were restored and put into liquidation.

the uk supreme court rejected these arguments and held that the dishonest assistance claims were time barred.

the starting point is that the court is applying section 32 to a counterfactual state of affairs rather than to historical facts about them. accordingly, each company was struck off, dissolved, and had ceased to exist. they did not in fact have directors during the period in which they were dissolved.

however, section 1032(1) of the (english) companies act 2006 requires the court to deem that they had not been struck off or dissolved but had in fact continued to exist.

the deeming provision in section 1032 does not mean, however, that the companies should (separately) be deemed to have had no directors or liquidators for so long as they were struck off. applying settled principles on statutory deeming provisions, all that is to be deemed to be true about the restored company is that it continued in existence during the period of its dissolution.

the question of whether it should be assumed during that period to have had competent directors or liquidators is to be answered by other means. that question is to be answered on the balance of probabilities as a question of fact.

adopting a purposive approach, if every restored company wishing to pursue a claim in fraud was deemed to have had no competent offices, and therefore to have been unable to discover the relevant fraud while dissolved, that would give restored companies carte blanche to rely upon the postponement of the running of time because they could always demonstrate that they could not have discovered the fraud by the use of reasonable diligence.

in this case, the companies had adduced no evidence to prove that they could not with reasonable diligence have discovered the fraud. the burden lay on them to do so and they had failed to discharge that burden.

concluding remarks

the key takeaway from the decisions of conway v air arabia and bilta v tradition finance services, taken together, is that section 147 claims may in principle be brought against any persons that are knowingly party to the carrying on by the relevant company of fraudulent business. that is irrespective of whether they are in or out of the jurisdiction and irrespective of whether they are involved in the management or control of the company in question. section 147 (and sections 145 and 146) is of extraterritorial effect. notably, this is subject to certain safeguards that are in place in order to avoid injustice, including the need for liquidators to obtain the sanction of the court in order to bring claims and the wide discretion afforded to the court to ultimately make an order that the defendant make a contribution to estate assets.^[1]

the grand court’s decision in conway also addresses novel points concerning jurisdiction and service of claims under section 147 and will be extremely useful on a practical level to insolvency practitioners and advisors dealing with section 147 claims against foreign persons outside of the jurisdiction.

the uk supreme court’s decision in bilta provides authoritative guidance on the broad scope of section 213 of the insolvency act. bilta will be highly persuasive in the cayman islands in relation to claims brought pursuant to section 147 of the companies act (which is in the same terms as section 213 of the uk insolvency act).

in addition, the supreme court’s decision regarding the interaction between the postponement of limitation and the deeming provision for restored companies is likely to be of wider application beyond section 147 claims. it would likely extend to other claims that a restored company may wish to pursue, for example, claims against former directors for breach of fiduciary duties.

^[1] this point is not addressed in any further detail in these articles, but is considered in the conway decision at [86]-[89].

this article was first published by the global restructuring review on 19 september 2025.

harneys partner james eggleton and counsel anya allen in the cayman islands examine two recent authorities on fraudulent trading claims in complex cases, from the grand court of cayman islands in the first instalment of a two-part series and from the uk supreme court in the second instalment.

there is, perhaps surprisingly given the breadth of its potential application, very little authority in the cayman islands concerning fraudulent trading claims under section 147 of the cayman islands companies act.

this two-part series considers two recent decisions from the cayman islands grand court concerning section 147 and the uk supreme court concerning the corresponding english provision (section 213 of the uk insolvency act 1986), being conway & ors v air arabia [2025] cigc (fsd) 41 (20 may 2025) and bilta & ors v tradition finance services [2025] uksc 18 (7 may 2025).

conway & ors v air arabia

the proceedings arose out of the collapse of the abraaj group of companies in early 2018.

the defendant company, uae airline air arabia, had submitted two proofs of debt in the liquidation of abraaj holdings (ah) in connection with loans it had made to ah. the airline had also been appointed to ah’s liquidation committee.

the liquidators commenced proceedings against air arabia for a declaration pursuant to section 147 that the airline had knowingly been a party to ah’s business being carried out with intent to defraud creditors and/or for a fraudulent purpose, and was accordingly liable to contribute to ah’s assets.

the cayman court addressed several novel points relating to section 147 claims against persons outside of the jurisdiction.

issue 1: does submitting a proof of debt in a foreign liquidation amount to submitting to jurisdiction?

the court first considered whether air arabia lodging a proof of debt in ah’s cayman islands’ liquidation amounted to submission to the offshore jurisdiction.

it was not in dispute that submitting to the jurisdiction is separate from establishing the jurisdiction of the court over a person by service of process. where the court’s jurisdiction over a defendant is based on voluntary submission, the rules relating to service out are irrelevant because the court’s jurisdiction is not founded on service.

air arabia and ah also agreed that lodging a proof of debt in a winding up process amounted to a submission to the jurisdiction of the court with conduct of the winding up, even if the proof of debt has not been adjudicated or is ultimately rejected.

however, the parties disagreed as to the scope of the submission to the jurisdiction which results from lodging a proof of debt. the liquidators argued that lodging a proof of debt amounts to a submission to the jurisdiction of the court for all purposes connected with the winding up of the company. air arabia argued that the submission was narrow and did not extend to submission for the purposes of claims that liquidators might bring under section 147 of the companies act.

the presiding judge, justice asif kc, held that submission to the jurisdiction by lodging a proof of debt is effective for all purposes connected with the winding up of the company (including any claims brought under section 147 of the companies act).

the principles expressed in english and bvi authorities favoured this approach. the judge held they are general common law principles that apply with equal force in the cayman islands.

those common law principles include the uk supreme court’s decision in rubin v eurofinance sa [2012] uksc 46. there, the court held that there is no doubt that orders may be made against a foreign creditor who proves in an english liquidation or bankruptcy, on the basis that by proving, the foreign creditor submits to the jurisdiction of the english court. a creditor should not be allowed to benefit from the insolvency proceeding without the burden of complying with the orders made in that proceeding.

the privy council came to a similar conclusion in the 2015 case stichting shell v krys [2015] ac 616, where it held that where a defendant has lodged a proof of debt, it makes no difference whether the proof is subsequently admitted or a dividend paid.

by submitting a proof of debt, a creditor obtains an immediate benefit consisting in the right to have his or her claim considered by the liquidator and ultimately by the court if necessary. the board rejected the contention that lodging a proof of debt amounted to submission only for the purposes of claims under the insolvency act and not the general law.

in the same year the english court of appeal summarised the impact of submitting a proof of debt in erste group v vmz [2015] ewca civ 379. lady justice gloster said that under principles of english law, a foreign creditor submits to the jurisdiction of the court supervising the company’s insolvency by proving in that insolvency. that is sufficient to require the creditor to have all questions against the debtor resolved within the insolvency as administered by the court of the jurisdiction of that insolvency.

it is not a valid argument that the separate claims are of a different character from the claim to which the proof of debt relates, or brought under the general law, or are subject to the exclusive jurisdiction of a foreign court.

justice asif kc accordingly held in conway v air arabia that proving in the liquidation constitutes submission to the jurisdiction for the purposes of a section 147 claim.

a declaration under section 147 that a person should contribute to the company’s assets must properly be characterised as an order within the winding up proceedings. it is the fact of the winding up that gives rise to the liquidators’ statutory cause of action under section 147 to apply for relief and the court’s power to grant that relief.

claims under section 147 should not be treated differently from claims under section 145 and 146, which deal with voidable transactions and dispositions of property at an undervalue. the defendant had accepted that such claims would fall within the scope of submission to the jurisdiction.

there are more similarities than differences between these types of statutory claims, vesting in the liquidator (as opposed to the company itself) and which arise only in the context of insolvent liquidations. the claims each give the liquidator a power or remedy to achieve a proper distribution of estate assets by remedying some deficiency resulting from pre-liquidation conduct.

in each case, the remedy is for the purpose of bringing additional assets into the estate for the general body of unsecured creditors. it is also against someone whose conduct has caused the value of the estate to be diminished in some way, whether that is due to a preference, a void payment or assistance in fraudulent trading causing or facilitating the deficiency in the estate to increase.

in addition, justice asif kc held that it would generate unfair and absurd results if section 147 claims were excluded from any submission to the jurisdiction following the lodging of a proof of debt. for example, a liquidator could potentially be obliged to pay a dividend to a creditor based outside of the cayman islands without the possibility of any recourse to section 147. this would be the case even in the clearest case of the involvement of that creditor in blatant fraudulent trading before the collapse of the company.

issue 2: whether section 147 has extraterritorial effect

the judge held that section 147 does have extraterritorial effect, following consideration of after previous cases from england and wales and the cayman islands.

• in re paramount airways, the english court of appeal held that “any person” in the provision dealing with transactions at an undervalue includes a foreigner resident abroad such that the provision has extraterritorial effect. this decision was subsequently affirmed by the uk supreme court in bilta (uk) ltd v nazir (no 2).
• in icp strategic justice jones reached similar conclusions to those in the english cases and held that if the remedy were available only against persons resident or domiciled in the cayman islands, it would be stripped of much of its utility.

justice asif kc held that the english cases addressing the interpretation of the english legislation comparable to sections 145 to 147 also reflect the law of the cayman islands. it was likely that parliament intended section 147 to be interpreted in a similar way to the view expressed in paramount (without an implied limitation on its territorial scope along the lines of earlier english authorities).

even before the 2007 amendments to the companies act (introducing part v and section 147), the cayman islands had become a major global financial services centre, providing the ability for businesses around the world to create corporate structures suitable for international business of all kinds. with this comes a significant likelihood that insolvency and fraud touching such corporate structures will have an international element.

providing the environment for a successful financial services centre requires robust mechanisms for dealing with insolvency and fraud, on which international clients can depend. it is inevitable, in those circumstances, that most of the transactions that exempted companies enter into will be with parties operating outside of the cayman islands.

it was likely that parliament intended sections 145 to 147 to have extraterritorial effect so that liquidators have appropriate powers to pursue those involved in transactions or conduct with the effect of diminishing the value of an insolvent estate, wherever they are located. it would make absolutely no sense if those provisions were limited to persons and transactions within the cayman islands.

the old approach of limiting extraterritoriality because of the perception that the court would be overstepping the court’s geographical limits has become less of a concern due to the growth of international cross-border trade, the globalisation of the world economy and the speed with which digital transactions can be effected.

issue 3: whether a claim under section 147 can be served out of the jurisdiction without leave pursuant to gcr order 11, rule 1(2)

under gcr o.11, r.1(2), service out of a writ out of the jurisdiction is permissible without the leave of the court if the action is one which the court has the power to hear and determine notwithstanding the defendant is not within the jurisdiction or the wrongful act did not take place within the jurisdiction.

justice asif kc adopted the position expressed in orexim trading ltd that given the extraterritorial nature of the statutory provisions being considered in that case, he would expect procedural rules to exist to enable the court to exercise those powers. the judge held it would be surprising for section 147 to be available in circumstances where a respondent has filed a proof of debt so that leave to serve out is not required, but not to be available where the respondent has not done so (whether that is because they are not a creditor at all or because they have made a strategic decision not to file a proof of debt because of the risk that a section 147 claim might ensue).

if this were not the case then the liquidators would be required to pursue section 147 claims in the respondent’s home jurisdiction. this would lead to a number of difficulties, including creating an inconsistency in application between different cases as the ability to pursue the claim would depend on whether or not the respondent’s home jurisdiction would recognise and apply cayman islands law.

additionally, the term “court” in section 147 (specifically defined in the companies act to mean the grand court) would then necessarily have to be read as meaning the court in the respondent’s home jurisdiction.

justice asif kc disagreed with the view expressed by justice jones in icp strategic that it was not possible for the liquidators to pursue a section 147 claim against a foreign law firm in the cayman islands because the law firm did not have a presence here and that it was therefore necessary to stretch the meaning of “court” to mean any court in the world. rather, justice asif kc considered that service under rule 1(2) would have been possible on the basis that the provision has extraterritorial effect.

issue 4: the appropriate procedure to be adopted in connection with section 147 claims (and other applications brought under part v of the companies act)

the judge also provided guidance on two practical issues related to the procedure to be adopted in connection with section 147 claims (and under part v of the companies act generally).

air arabia took issue with the fact that the section 147 claim had been issued by way of writ, within a proceeding separate to the liquidation proceedings. justice asif kc held that where there are existing proceedings, an application under part v of the companies act (including under section 147) must be brought by summons within the liquidation proceedings.

however, given that the airline had submitted to the jurisdiction by lodging a proof of debt, the liquidators did not need to obtain leave to serve the defendant out of the jurisdiction. the liquidators had therefore not obtained any improper procedural advantage by wrongly commencing the proceedings by writ instead of by way of ordinary summons within the liquidation. it was appropriate that the proceedings should be treated as if commenced by way of summons within the liquidation proceedings, and that the cause number should be updated to reflect this.

the liquidators also sought a declaration that service of the writ had been validly effected by email and courier delivery to the defendants’ office using the addresses specified in the proof of debt. asif j held it is well established that parties can agree their own mechanism for service: that is the purpose of a creditor providing contact details on a form for the proof of a debt.

alternatively, the liquidators would have been entitled to rely on order 65, rule 5 of the grand court rules (which prescribes methods for ordinary service of proceedings) to serve a summons on the defendant. there was no need for the liquidators to obtain leave to serve air arabia out of the jurisdiction or for the proceedings to be served on the airline by way of personal service.

key takeaways

the grand court’s decision in conway addresses novel points concerning jurisdiction and service of claims under section 147 and will be extremely useful on a practical level to insolvency practitioners and those dealing with section 147 claims against foreign persons outside of the jurisdiction.

we examine the uk supreme court’s decision in bilta in part 2 of this series.

this article was first published by the global restructuring review on 12 september 2025.

in 2017, singapore incorporated the uncitral model law on cross-border insolvency (the ‘model law’) into its domestic legislation, providing a comprehensive and structured framework for the recognition and assistance of foreign corporate insolvency proceedings.

by contrast, the offshore jurisdictions of the british virgin islands, the cayman islands, and bermuda have not adopted the model law. each relies on its own domestic statutory mechanisms and common law principles. the singapore model law regime thus provides a useful reference point against which to examine the more varied approaches taken in the bvi, cayman and bermuda.

this article offers a comparative analysis of the recognition regimes with a view to identifying the practical tools available to insolvency practitioners seeking recognition and assistance in these jurisdictions.

this article addresses certain aspects of singapore law for general informational purposes only. harney westwood & riegels do not practise singapore law and its contents should not be construed or relied upon as legal advice on singapore law.

download the pdf to read the full article.

this article first appeared in volume 22, issue 5 of international corporate rescue and is reprinted with the permission of chase cambria publishing - www.chasecambria.com

section 36(13) of the exempted limited partnership act (2021 revision) (‘elpa’) gives the grand court of the cayman islands the power to override a limited partnership agreement and replace the general partner (‘gp’) of an exempted limited partnership (‘elp’) during its winding up, if necessary for a proper dissolution.

recent cases, notably in the matter of one thousand & one voices africa fund i, lp (in voluntary liquidation) fsd 22 of 2024 (ikj) (‘1k1v’) and in the matter of sensegain vorak investment l.p. (in voluntary liquidation) fsd 62 of 2025 (ddj) (‘sensegain’) confirm the primacy of the commercial will of the limited partners (‘lps’), while highlighting the readiness of the court to intervene where trust and cooperation with the gp have broken down.

the ongoing case of kuwait ports authority v port link gp ltd fsd 236 of 2020 (rpj) (‘port fund’) litigation illustrates how the court handles deadlock and conflicts, sometimes promoting hybrid governance solutions such as receivership and ongoing case management to protect investor value.

each case points to a general rule: robust consensus by lps, fully documented processes and prompt engagement with statutory remedies are all essential to overcome obstructive gps and bring cayman funds to an orderly close.

drafting best practice now includes explicit recognition of statutory rights, including section 36(13) of the elpa, in all limited partnership agreements (‘lpas’); effective winding down depends more on commercial alignment and process discipline rather than the words of the partnership agreement.

download the pdf to read the full article.

this article first appeared in volume 22, issue 5 of international corporate rescue and is reprinted with the permission of chase cambria publishing - www.chasecambria.com

in a recent decision of the cayman islands grand court, justice asif kc granted leave to serve foreign defendants out of the jurisdiction and extended the validity of a writ to accommodate service under the hague convention: linksure global ltd v infinite solution ltd.

the plaintiff alleges that three defendants conspired to derail its planned ipo. according to the claim, the defendants sought to prevent the listing in order to trigger a put option, from which they expected to derive greater financial benefit than would be the case with the proposed ipo. the three defendants were: (i) an investment company, which was invested in the plaintiff; (ii) a director of the plaintiff; and (iii) a director of the investment company.

service out of the jurisdiction

the cayman islands grand court rules (the gcr) contain a list of the principal cases in which service out of the jurisdiction is permissible. in cases in which the court’s leave is required, applicants must bring themselves within one of the “gateways” in gcr o11, r1(1) and also show a serious issue to be tried and that the cayman islands is the appropriate forum.

in this case, the plaintiff relied on two gateways:

• gateway (c): permits service on a foreign defendant where there is already (or will be) a properly served anchor defendant in the proceedings, and it is appropriate for the foreign defendant to be joined as a “necessary or proper party”.
• gateway (ff): which permits service on a person who is, or was, a director or officer of a cayman company in respect of claims concerning the performance of their duties in that role.

the plaintiff sought leave to serve the two director defendants in singapore and in hong kong under gcr o11, r1(1)(c) as “necessary and proper parties” and under (ff) as “directors of cayman companies”. justice asif kc held that there was a serious issue to be tried and that both gateways were satisfied.

notably, the court held that, although unusual, it was at least reasonably arguable that the language of gateway (ff) was drafted sufficiently widely to cover a situation whereby the director defendant was not a director of the plaintiff (and so would not owe any duties directly to the plaintiff), but to another defendant.

forum

on the issue of forum, the court concluded that the cayman islands was clearly the most appropriate jurisdiction, notwithstanding the likelihood that there would be few if any witnesses located physically within the cayman islands and the current uncertainty about the whereabouts, globally, of relevant documents. “considerable weight” was to be given to the fact that the plaintiff and first defendant were both cayman companies, the issues turn on cayman law, and no alternative forum was preferable.

hague service and writ extensions

the judgment highlights the practical realities of international service. the plaintiff pre-emptively sought an extension of the writ’s validity, anticipating significant delays in serving under the hague convention. justice asif extended the writ by six months (longer than the four months initially requested) and granted liberty to apply for further extensions if necessary.

this pragmatic approach recognises the complexity of hague convention service. in practice, hague requests involve processing through numerous government bodies: filing through the clerk of court (the cayman “designated authority”), processing through the local governor’s office and transmission through the uk foreign, commonwealth and development office to the foreign state’s central authority (in this case singapore and hong kong). once received, the request is often scrutinised for technical compliance before being passed down to local courts for execution of service.

service through the hague convention is unpredictable and can take many months. against that backdrop, the court’s willingness to extend writ validity ahead of time reflects a realistic understanding of the obstacles to timely service abroad. indeed, in this case, the court of its own volition suggested a longer extension than is ordinarily sought under the scheme of the procedural rules (4 months), on the basis that there was a real risk that it may not be possible to serve under the hague convention within that period (such that it would be necessary, in due course, for the plaintiff to make a further application for renewal). the court also granted the plaintiff liberty to apply for a further extension in due course, if needed following the advice of local attorneys.

in the recent decision of rcf vii sponsor llc v blue gold ltd, the cayman islands grand court granted an interim injunction restraining the defendant company from holding an extraordinary general meeting, demonstrating the court’s flexible approach to injunctions and cross-undertakings where the balance of convenience favours early judicial intervention.

background

the plaintiffs sold some of their shares in a special purpose acquisition company (spac) to a buyer. the transaction documents explicitly provided that the plaintiffs’ remaining shares in the spac would be freely tradeable. after the sale was completed, the buyer announced a business combination with the defendant. correspondence from the related negotiations appeared to confirm the contention that the plaintiffs’ new shares in the defendant would be freely tradable. on that basis, the plaintiffs agreed to the transaction which was then completed.

subsequently, the defendant took the position that the plaintiffs’ shares were subject to trading restrictions and the plaintiffs commenced proceedings in the cayman islands to determine the issue. the defendant’s board of directors then called an egm to resolve that the plaintiffs’ shares are to be treated as restricted.

injunction application

on this basis, the plaintiffs made an ex parte interim injunction application to restrain the defendant from holding the egm, on the grounds that:

1. the proposed resolution would alter class rights without the requisite consent in breach of the defendant’s articles of association;
2. the defendant’s directors called the egm for an improper purpose – to benefit the majority shareholders and disadvantage the plaintiffs – in breach of their duty to act for benefit of the company as a whole;
3. the directors’ actions constitute a breach of contract or there is an estoppel by convention; and
4. the calling of the egm is abusive of the plaintiffs’ pending proceedings as it would predetermine the precise issue to be determined by the court.

the court’s decision

the court granted the injunction and held that:

1. there were serious issues to be tried. the court confirmed that:
   1. the question as to whether a shareholder can be described as having the benefit of a class right is really a question of substance rather than labelling, in that a shareholder would be considered to have class rights if it enjoys certain rights which are different or separate from rights to which other shareholders in the company are entitled; and
   2. class rights attaching to a class of shares cannot be varied merely by a resolution of shareholders without the express agreement of the shareholders of that class.
2. the adequacy of damages as a remedy was not clear given there would likely be real difficulties in quantifying the plaintiffs’ loss if no injunction was granted.
3. the balance of convenience favoured granting an injunction to ‘hold the ring’ until determination of the proceedings:
   1. there was no time pressure for the egm to occur on the scheduled date or any particular future date; and
   2. the unlikelihood of the defendant suffering any significant damage from the grant of the injunction.

cross-undertaking as to damages

the court expressed concern that only the first plaintiff was willing to offer a cross-undertaking, but not the second plaintiff, based on a mere assertion that the second plaintiff is a small company with limited assets.

that said, the court was prepared to excuse the second plaintiff from providing a cross-undertaking for the time being based on the unusual circumstances before it, namely that:

1. the first plaintiff was willing to give a cross-undertaking for the entirety of any loss to defendant; and
2. it was very difficult to see what loss, if any, the injunction would cause to the defendant.

however, the court will revisit the question of the second plaintiff providing a cross-undertaking at the return date. the court will consider any submissions that may be made by the defendant and the second plaintiff is expected to provide substantive detailed evidence as to its financial position and submissions as to why the court should continue to excuse it from providing a cross-undertaking.

takeaways

this decision demonstrates the cayman islands court’s willingness to intervene early in shareholder disputes where class rights and contractual expectations are at stake, rather than having to wind back the clock at some stage in the future. it also highlights the court’s readiness to scrutinise directors’ motives, particularly where corporate actions risk undermining pending litigation.

harneys secured a significant recovery of approximately €9 million for our client through garnishee (attachment of debt) proceedings against two major banks in cyprus.

under cyprus law, a payment order in garnishee proceedings can be issued when:

1. the claimant is a judgment creditor and can demonstrate that the judgment debt remains unsatisfied;
2. there is a creditor-debtor relationship between the judgment debtor and the garnishee; and
3. the court exercises its discretion in favour of the claimant.

a complicating factor in this case was that, out of the €9 million, substantial sums were held in bank accounts in the names of third parties, as a means to alienate or conceal funds.

in cyprus, funds held in the name of third parties can be subject to garnishee proceedings, if it can be proven that the judgment debtor has a beneficial interest in those funds. the third parties must be properly served with the proceedings, in order to be given the opportunity to appear before the court and be heard.

the court concluded that the third parties were indeed holding the funds for the benefit of the judgment debtors and ordered the banks to transfer the funds to our client.

this result not only marks a major success in our ongoing efforts to enforce the judgment in question, but also highlights the critical role of strategic legal action in recovering debts, particularly when the assets are concealed through third parties.

the cayman islands court of appeal has issued a strong warning on the risks of using generative artificial intelligence in court proceedings in the recent decision in samuel johnson v cayman islands health services authority [2025] cica (civ) 15 (johnson v hsa).

the judgment is the first in the jurisdiction to directly address the use of ai in legal submissions and highlights the duty of candour owed by litigants, whether they are represented by counsel or appearing on their own.

background

the appellant, a self-represented litigant, brought an appeal against the cayman islands health services authority. johnson filed a skeleton argument that included references to two legal cases but was unable to produce copies of those cases when requested by the court.

the appellant admitted that the cases had been generated using a generative ai tool and confirmed that at least one of them did not exist. at first, the appellant did not disclose that he had relied on ai at all, only acknowledging it when questioned by the court. this raised a serious and unprecedented issue for the court with regard to the reliability of ai-generated legal research and the potential for misleading submissions undermining the administration of justice.

the court’s response

the court of appeal, led by justice clare montgomery kc, was unequivocal in its criticism. it emphasised the following:

• litigants-in-person are subject to the same duty as lawyers not to mislead the court, intentionally or otherwise;
• the appellant’s actions as a breach of this duty, particularly because he initially failed to disclose the use of ai and only admitted it when pressed;
• while it chose not to impose sanctions in this instance, it issued a stern warning about the future consequences of such conduct. these could include contempt of court proceedings, referral for criminal investigation, costs orders, and/or the case being stayed or struck out; and
• the court made clear that any future use of ai in preparing court documents must be disclosed, and the party submitting those documents remains personally responsible for ensuring their accuracy.

the risks of generative ai

citing the english case of r (ayinde) v london borough of haringey [2025] ewhc 1383, which similarly explored the pitfalls of relying on generative ai tools such as chatgpt for legal research, the court highlighted that, while ai can be a helpful tool, it cannot replace human judgment or legal expertise. the english court likened the use of ai to relying on the work of a trainee solicitor or pupil barrister: just as a lawyer remains fully responsible for checking the accuracy of their junior’s work before it goes before the court, so too must anyone using ai take personal responsibility for verifying the results.

a regional perspective: turks & caicos

the cayman decision in johnson v hsa comes at a time when other caribbean jurisdictions are beginning to grapple with how generative ai should fit within court processes. just weeks before this judgment, the turks & caicos islands judiciary issued practice direction 1 of 2025, a landmark step in setting clear boundaries for ai use in litigation.

this practice direction applies to all courts in turks & caicos and introduces a structured framework for managing the risks of ai-generated content. it requires parties to explicitly disclose when ai has been used in preparing submissions, skeleton arguments, or other documents, and to independently verify all legal authorities and factual content before filing. it also prohibits the use of ai for creating evidentiary material, such as affidavits and witness statements, recognising that these must reflect first-hand human knowledge and accountability.

perhaps most importantly, the practice direction empowers judges to sanction non-compliance, including striking out improperly prepared documents, imposing adverse costs orders, and, in serious cases, referring matters for further investigation. this signals a strong judicial commitment to protecting the integrity of the court process.

together with the cayman court of appeal’s warning in johnson v hsa, these developments suggest a regional trend toward proactive regulation of ai in legal practice. while cayman has yet to issue a formal practice direction, the court’s comments make clear that it expects litigants (represented or not) to act transparently and take personal responsibility for all submissions.

key takeaways

the message from the cayman court of appeal is clear: ai may assist in preparing legal documents, but ultimate responsibility remains with the human author. those who submit ai-generated content without proper verification or disclosure risk serious consequences.

in sandoz ag v bayer intellectual property gmbh, the english high court provided important clarification that a claimant in an inquiry for damages is not entitled to an account of profits under the standard cross-undertaking as to damages.

background

the inquiry defendants had obtained certain interim injunctions against the inquiry plaintiffs which were subsequently discharged. following the discharge, the court ordered an inquiry as to damages caused to the inquiry plaintiffs as a consequence of the interim injunctions, pursuant to cross-undertakings given by the inquiry defendants.

the inquiry plaintiffs' principal claim was for an account of the profits that the inquiry defendants had made as a result of the injunctions being in place. they also made an alternative claim for loss of profits, though they pleaded that such a remedy would not provide adequate compensation in the circumstances.

terms of the cross-undertaking

the cross-undertaking contained the key provision that if the court found that the injunction "has caused loss" to the inquiry plaintiffs and decided that they "should be compensated for that loss", then the inquiry defendants would comply with any order the court may make and would be "jointly and severally liable for any monetary award relating to such loss".

the court's analysis and decision

citing various authorities, the court considered that the purpose of cross-undertakings is to compensate for loss caused by the injunction which was wrongly granted. in construing the terms of the cross-undertakings with regard to their underlying purpose, the court found that the inquiry defendants had undertaken to comply with any order requiring them to compensate the inquiry plaintiffs for losses suffered as a result of the injunctions, and to be jointly and severally liable for any monetary award made to that end. however, crucially, they had not undertaken to disgorge profits they made as a result of the injunctions.

the court specifically rejected the inquiry plaintiffs' construction that, so long as the court decided they had suffered loss for which they should be compensated, the inquiry defendants had undertaken to comply with any order the court might make, even if that order was not an award of compensation for that loss. the court found this interpretation would be inconsistent with the purpose of a cross-undertaking, which is to ensure that a party which has suffered loss as a result of an injunction that should not have been granted is compensated for that loss.

the court also rejected the argument that, under a cross-undertaking, monetary relief should be assessed as if there had been a contract in which the applicant agreed not to prevent the respondent from doing that which the injunction prevented them from doing.

significance of the decision

while harneys does not practice the law of england and wales, this decision provides important guidance on the interpretation and scope of standard cross-undertakings given in interim injunction proceedings, which are also typically given in the offshore jurisdictions in which we practice. a standard cross-undertaking is compensatory in nature and does not extend to restitutionary remedies.

in maso capital investments ltd v trina solar ltd the privy council reinstated the first instance decision of the grand court, confirming that the task for the trial judge in an assessment of fair value pursuant to section 238 of the companies act (as revised) is highly fact specific and will depend on the relative reliability of the valuation methodologies contended for.

the privy council also reiterated that the principles to be applied by an appellate court to findings of fact or evaluative assessments of a lower court are restrictive and designed to be so.

grand court decision

the petition of the appellant, trina solar, was heard by the grand court in may and june 2019. the judge’s carefully and thoroughly reasoned judgment comprised 353 paragraphs over 249 pages. the judge heard extensive expert evidence over sixteen days and determined the values per ads reached by applying three valuation measures, after a minority discount, to be merger price us$11.37; market price us$7.26; and discounted cash flow (dcf) value us$17.81. the judge then applied a weighting of 45 per cent to the merger price, 30 per cent to the market price and 25 per cent to the dcf value in reaching his decision that a fair value was us$11.75 per ads.

court of appeal decision

in an equally thorough judgment, the cayman islands court of appeal (cica) correctly identified the appropriate legal principles which would allow an appellate court to interfere with findings of fact or evaluative assessments. in short, it would need to satisfy itself that the judge’s conclusions were plainly wrong; conclusions which no reasonable judge could have reached on the evidence. the cica concluded that:

“on the facts of this case … i do not see that any reliance can safely be placed on the merger price. the whole point of the protections and processes which have been developed in the delaware jurisprudence and adopted in this jurisdiction is to give the court comfort that the merger price can be probative of fair value.”

the cica concluded that the judge’s assessment of merger price was indeed plainly wrong and decided it should interfere by giving it no weight. it was not persuaded that the judge’s assessment of market price was ultimately in error and, in effect, redistributed the relative weighting of the three methodologies so that fair value would be comprised 30 per cent market price and 70 per cent dcf (almost three times that attributed by the judge).

the present appeal

the jcpc restored the judge’s original decision. it concluded that the reasoning adopted by the cica for interfering with the judge’s assessment of the weight to be accorded to the merger price was flawed. instead, the jcpc held the judge’s nuanced assessment based on a sea of evidence, which acknowledged deficiencies in the sales process, was within the reasonable bounds of evaluation and that while the cica had “correctly identified the limits on its entitlement to interfere … it seems to the board that it impermissibly strayed into the realm of substituting its own evaluation for that of the judge”. the jcpc criticised the cica’s approach to reliability in this context, explaining that it is a comparative concept which allows the court to attribute weight even where it concludes that there are weaknesses or uncertainties.

the jcpc also concluded that the cica was not justified in treating the judge’s conclusions on management projections as plainly wrong. it disapproved of the cica approach characterising it as a “calculation exercise” as opposed to an exercise in estimation which could produce a range of reasonable results. the cica’s alternative figures were arbitrary and unsupported by evidence – the figures were “plucked out of the air” and had “no greater claim to validity” than trina solar’s projections. the judge was ultimately better placed to make an assessment of the relevant inputs and the reliability of the management projections.

conclusions

in the highly valued and complex area of appraisal litigation in the cayman islands, the jcpc’s decision to restore the grand court’s assessment of fair value is a seismic one. the cica’s repeated and unjustified interventions were “called out” in three important ways:

1. first, the cica wrongly treated the legal principles from delaware as a rigid “checklist”;
2. second, it erred by treating reliability as a binary concept rather than a sliding scale where a valuation measure can still be useful, even if imperfect; and
3. third this culminated in a failure to conduct the necessary comparative analysis which led to the illogical outcome of vastly increasing the weighting of the dcf valuation measure.

the jcpc’s reinstatement of the judge’s fair value determination of us$11.75 per ads represented a significant victory for trina solar.

harneys represented trina solar in the grand court, cica, and jcpc.

the privy council has just handed down judgment in fang ankong & anor v green elite (in liquidation) which clearly restates how the duomatic principle is to be applied and, in particular, the need for certainty, knowledge and an actual assent that can be objectively established.

at first instance the bvi commercial court found that a historical understanding between joint venture partners (and eventual shareholders in green elite) did not objectively evince an intention to create a binding shareholder agreement. in this case, the proceeds of a sale of shares were paid directly to one of the directors of green elite who paid them on to the intended beneficiaries of a share incentive scheme for key employees. the appellants argued that the payments were properly made to implement green elite’s agreed purpose to provide an employee share incentive scheme. if the payments would otherwise have constituted breaches of duty, the appellants’ case was that the payments were made with the unanimous approval of the shareholders and therefore duly authorised. they argued that such approval was given when the shareholders agreed that green elite would act as the vehicle for the employee share incentive scheme for the intended beneficiaries.

the first instance judge determined that “there was never any meeting of minds on the terms which mr fang believed gave him the absolute power to deal with the proceeds of sale of the… shares held by green elite” such that the duomatic principle could not apply. the court of appeal upheld this decision, which has now been followed by the privy council.

the duomatic principle operates so as to allow the shareholders of a company to approve matters informally which would otherwise require a formal shareholder resolution.

in this case, the shareholders could have authorised or ratified the director’s actions by unanimous informal consent. however, on the facts, those actions and the breaches of duty involved were not approved. whilst it was agreed that green elite would be used to provide an employee share incentive scheme, all other matters relating to the scheme were to be agreed at a later date and in fact were never agreed. it was impossible to see how the shareholders of green elite would have agreed by way of formal resolution to something which lacked critical details; given that there could not have been a formal resolution, the duomatic principle could not regard equivalent approval to have been given informally.

the first instance judge had previously couched his finding in the language of contract; but the privy council found that assent given in accordance with the duomatic principle need not have the particular features of a binding contract. it is not a question of creating legal relations, as understood in the law of contract, nor whether the assent is “legally enforceable” or has “legal effect”, but whether the shareholders intended to bind themselves legally “as if they had passed a formal resolution.”

while the judgments of the lower courts had also considered the scope of section 175 of the bvi business companies act, revised edition 2020, which applies where there is a disposal of more than 50 per cent of the assets of a company outside the company’s “usual or regular course of business”, the privy council found that since a valid duomatic assent did not arise, it was unnecessary to consider the issues in relation to section 175.

the privy council decision upholds the lower courts’ clarification on the application of the duomatic principle in the bvi, building on the landmark decision of the privy council in ciban management corp v citco (bvi) ltd, and in particular the need for objective certainty and knowledge by the shareholders.

harneys has represented green elite (acting through its liquidators) throughout the proceedings.

the decision of justice mangatal in ming v jf ming inc is the latest judgment from the long-running family dispute and unfair prejudice proceedings over jf ming inc (jfm), a bvi holding company with subsidiaries holding substantial real estate in hong kong.

the judgment is notable as it is the first detailed bvi decision that deals with the valuation of real estate-holding companies in hong kong in unfair prejudice proceedings and the question of whether a minority discount should be applied in a non-quasi partnership case.

procedural history

in 2014, the claimants, three of seven siblings, jointly commenced unfair prejudice proceedings against their brother (lawrence) and jfm. the proceedings were bifurcated and structured in phases:

• in 2016, the bvi court found in favour of the claimants on all aspects of their claim and granted them the relief sought, including a buyout.
• on appeal by lawrence, in 2017 the eastern caribbean court of appeal set aside the buyout order but otherwise upheld all findings of lawrence’s unfairly prejudicial conduct and the other discrete remedies granted to the claimants.
• in 2021, the claimants appealed successfully to the privy council, which reinstated the buyout order, concluding the liability phase of proceedings (see our blog on the judgment here).
• in 2022, at the first stage of the valuation phase, the bvi court (i) fixed the valuation date, (ii) determined the share entitlement of each claimant, and (iii) decided that certain contested claims should be excluded as assets of jfm for the purpose of valuing jfm’s shares.

issues for determination

the matter then proceeded to trial before justice mangatal, where the principal issue for determination was the fair value of the claimants’ shares as at the valuation date. the court was concerned with two main issues: first, which expert’s valuation was to be preferred, and second, whether a minority discount should be applied in valuing the claimants’ shareholdings.

property valuation methodology

on the first issue, both share valuation and property valuation experts were instructed, but by the time of trial the only dispute concerned the property valuations of kyoto plaza, the most valuable real estate in jfm’s portfolio:

• the experts adopted different methodologies, leading to differing valuations. the claimants’ expert relied primarily on an income approach, with a market approach used as a cross-check, producing valuations of hk$1.44 billion (income approach) and hk$1.40 billion (market approach). lawrence’s expert, by contrast, relied exclusively on the market approach and arrived at a lower valuation of hk$1.27 billion.
• the claimants argued that lawrence’s expert erred in failing to apply the income approach or, at the very least, an alternative method as a cross-check. they contended that best practice, informed by the international valuation standards (ivs), required the income approach where the property’s critical attribute was its income-generating ability from a market participant perspective.
• lawrence disagreed, arguing that in hong kong commercial real estate is valued both for capital appreciation and income-generation, such that the income-producing ability of kyoto plaza was not a critical element, and therefore did not mandate the application of the income approach. lawrence also argued that there were insufficient reliable rental comparables to support a meaningful income approach adopted by the claimants.
• the difference between the experts’ market approach valuations turned largely on their treatment of ground-floor units (in particular a unit with an unusual layout) and their selection of comparables and adjustments for factors such as location and age.
• ultimately, the court preferred the evidence of the claimants’ expert, finding that it better complied with the ivs, particularly ivs 105, which emphasises the income approach for income-generating properties. in doing so, the court implicitly accepted, without elaboration, that kyoto plaza’s income-producing potential was a critical element of its value thus justifying the application of the income approach. while the court accepted the primacy of the income approach, the judgment does not contain any detailed technical explanation of how the claimants’ expert applied the income approach (eg rent assumptions or yield selection) or why the court was satisfied that reliable rental comparables existed to support the claimants’ income approach despite lawrence’s objections.

minority discount

the second issue concerned whether a minority discount should be applied:

• the parties agreed that there was no prior bvi authority and that the court could adopt either the obiter approach in strahan v wilcock, which suggests a minority discount should ordinarily apply unless exceptional circumstances exist, or the approach in a line of english first-instance authorities holding that there is no presumption in favour of a discount.
• justice mangatal accepted the claimants’ submissions that a presumption of discount would reward the wrongdoer and incentivise oppressive conduct. she held that: (i) even in non-quasi partnership cases, the general rule is that no minority discount should be applied, (ii) it is only in exceptional cases that such a discount should be brought into play and (iii) that such circumstances might include cases where the minority shareholder acquired the shares at a discount, or otherwise acted in a manner justifying their exclusion from the company.
• on the facts, the court found that the longstanding non-payment of dividends since 1994 pointed strongly against applying any discount, and therefore valued the shares on a pro rata basis.

takeaways

• primacy of the income approach to property valuation: the court held that where a property’s value lies in its income-producing potential, the international standard (namely, ivs 105) requires application of the income approach. experts who fail to use it, or at least to deploy it as a cross-check, risk having their evidence rejected.
• no minority discount save in exceptional cases: the court confirmed that even in non-quasi partnership cases, there is no general presumption in favour of a minority discount. such discounts will be confined to rare cases (such as shares acquired at a discount), with the default position being full pro rata valuation.
• consistency with commonwealth case law: the court noted that its ruling against the presumption of a minority discount was in line with numerous commonwealth authorities.

in hyalroute communication group limited v industrial and commercial bank of china (asia) (hyalroute), the hong kong court dismissed an application by a cayman islands-incorporated company for anti-suit relief to restrain a creditor from filing a winding-up petition in the grand court of the cayman islands.

this is the first time the hong kong court has had to consider the circumstances in which it should restrain winding-up proceedings in a similar common law jurisdiction (here, the cayman islands) in circumstances where the two jurisdictions have conflicting approaches as to how they deal with winding-up proceedings in favour of arbitration.

background

the underlying dispute arose from a term facility agreement (tfa) containing an arbitration clause mandating resolution of disputes in hong kong: the creditor had served a statutory demand in the cayman islands for a debt allegedly owed under the tfa and other arrangements. the company disputed the debt was due.

the company applied to the hong kong court to injunct presentation of a winding-up petition in cayman arguing that it would be in breach of the tfa’s arbitration clause. the hong kong court had to ascertain whether the cayman islands winding-up proceedings would have the effect of finally resolving the dispute regarding the plaintiff’s indebtedness under the tfa.

the judgment

in order to reach a determination, mr recorder william wong sc considered (at [31]) that the starting point for the court was to “[evaluate] the foreign proceedings on broader grounds, such as whether they are vexatious, oppressive, or inconsistent with principles of forum non conveniens. in such cases, the court is mindful of international comity and adopts a more cautious and restrained approach”. [emphasis added]. the court’s reasoning in determining whether to grant anti-suit injunctive relief then continued as follows (at [38]):

“[the] court’s focus here is on enforcing the arbitration agreement, not to prejudge or evaluate the merits of the underlying dispute. this approach ensures respect for the parties’ contractual choice to arbitrate and avoids undermining the arbitral process by prematurely addressing issues that are properly reserved for the arbitral tribunal.” [emphasis added]

by considering the tension between the approach taken by the hong kong court and that of the cayman islands, the court held that the intended cayman islands winding-up proceedings did not breach the tfa, and even if it had, there were strong reasons not to grant the injunction.

analysis: the approach in hong kong

in re lam kwok hung guy (re guy lam), the hong kong court (g lam ja) specifically considered and rejected the principle that winding-up proceedings based on a disputed debt do not, in themselves, determine the dispute and therefore do not contravene a relevant arbitration clause.

drawing an analogy between a winding-up proceeding and a summary judgment, g lam ja explained that both processes can determine a dispute because both of them can give rise to an estoppel over the precise issues decided (subject to the usual conditions being satisfied). a proceeding which determines a dispute is a proceeding which is capable of giving rise to an estoppel.

put simply, the court held (at [64]) that: “[t]he starting point is that a pursuit of foreign proceedings in breach of an arbitration agreement would be liable to be restrained by an anti-suit injunction” and since “the plaintiff seeks a contractual anti-suit injunction by invoking the arbitration agreement … it has to establish a breach … by the defendant. the burden is on the plaintiff to show a “high probability of success” that the defendant’s pursuit of the anticipated cayman winding-up proceedings breaches [the arbitration clause of the tfa]”.

analysis: the approach in the cayman islands

the court then turned to the judicial committee of the privy council decision of sian participation corp v halimeda international (which is binding in the cayman islands).

under cayman islands law, the determination of a winding-up petition would not finally resolve the underlying dispute over the debt claimed: the grand court will only determine whether there is a bona fide dispute on substantial grounds, not the substantive merits of the dispute itself. resolution of the underlying dispute would be a matter for arbitration, in accordance with the contractually agreed format for dispute resolution.

how the tension between common law jurisdictions was resolved

the court therefore had to determine whether the presentation of a cayman islands winding-up petition would be a breach of the arbitration clause of the tfa, meaning that the cayman islands winding-up proceedings would ultimately have the effect of finally resolving the dispute on the plaintiff’s indebtedness under the tfa.

based on the approach adopted in cayman, relying on the decision in sian, as the cayman islands winding-up proceedings would not finally resolve the underlying dispute, the creditor’s intended presentation of a cayman islands winding-up petition could not breach the arbitration clause in the tfa, and the hong kong court therefore refused to injunct presentation of the petition in the cayman islands.

conclusion

in summary, the hong kong court will not grant an anti-suit injunction to restrain foreign insolvency proceedings where the approach adopted by the foreign court will not finally resolve the underlying contractual dispute, as determined by the law of the foreign forum.

the court also noted that even if the winding-up proceedings had fallen within the scope of the arbitration clause, there were strong reasons not to grant the injunction, having reference to public policy considerations in the plaintiff’s home jurisdiction of the cayman islands and, in the court’s view in this particular case, the hopelessness of the plaintiff’s stated defence to the debt.

*harneys do not practice the laws of hong kong.

fraudsters sometimes choose offshore vehicles in their illegal schemes under the mistaken belief that the misappropriated assets will not be found or that the victims of fraud will not be able to identify the fraudsters.

this is completely wrong. the bvi courts apply a well-known legal maxim originally developed by the english courts in lazarus estates v beasley [1956] 1 qb 702: “no court in this land will allow a person to keep an advantage which has been obtained by fraud ... fraud unravels everything.”

when can fraud cases be brought in the bvi?

to secure assistance from the bvi courts in tackling fraud, there must be a nexus to the bvi that engages the court’s jurisdiction. this will invariably involve one or more bvi companies participating in the fraud. the role of the entities located in the bvi, and the circumstances of the individual case, will dictate the extent to which the bvi courts can assist.

claims arising out of fraud might be pursued in the bvi in the following circumstances:

1. where entities that participated in the fraud are located in the bvi

for example, where bvi entities paid or received bribes, where bvi entities are used as conduits through which proceeds of wrongdoing are passed, or where bvi entities enter into sham contractual agreements to conceal the diversion of assets to third parties.

2. where property situated in the bvi has been transferred for the purpose of defrauding creditors

for example, where the shares of a valuable bvi company are transferred to a third party to put those shares out of the reach of the transferor’s creditors.

3. where the proceeds of fraud are held by an entity located in the bvi, regardless of whether that entity is directly involved in the wrongdoing

for example, where a bvi company used as the vehicle of a fraud holds a bank account in a different jurisdiction, through which it routes the proceeds of its scam.

4. where fraudulent acts took place in the bvi

such as the issuing of fake invoices by a bvi company or the issuing of deliberately misleading or untruthful statements by a bvi company to attract investment into a fund.

what are the claims that can be brought to tackle fraud in the bvi?

the term "fraud" can encompass a wide variety of actions that share the common theme of dishonesty, there are various causes of action that can be pursued in the bvi depending on the circumstances of the case. the most obvious ones are as follows:

1. where fraudulent statements have persuaded people to part with their money or other assets then a tortious claim for deceit may accrue, which would allow the victim to seek compensatory damages. where a statement has led to the victim entering into a contract then a claim in fraudulent misrepresentation may accrue which will allow the contract to be set aside and/or a claim in damages.
2. a claim in bribery will arise in circumstances where a person or entity pays secret commissions to the agent of a person or entity with whom they are dealing and where the principal has no knowledge of the payment. such payments will often be made to induce the agent to act other than in the best interests of their principal and to favour the bribe payer in some way, although there is no requirement to prove such inducement (it will be presumed).
3. if the director(s) of a bvi company have misapplied company assets or otherwise acted for an improper purpose, not in the best interests of the company and/or dishonestly then they will be in breach of their fiduciary duties, which gives the company a cause of action against the director(s). in addition, the breach of fiduciary duties by the director(s) may give rise to ancillary claims against third parties that had knowledge of the breach of fiduciary duties (see below).
4. where there has been a payment of money or transfer of assets in breach of trust or breach of fiduciary duties, then a person or entity receiving the money or assets with knowledge of the breach of duties can be liable in “knowing receipt”. a similar cause of action is “dishonest assistance”, which can be used to pursue a person or entity that assisted in the breach of trust or breach of fiduciary duties with knowledge of the breach, but who need not have actually received the property transferred in breach of trust.
5. should two or more entities combine to cause loss to a third party then the victim may have a claim in conspiracy. a claim in “unlawful means conspiracy” can be pursued where the combination involves unlawful activity that causes the loss and there is an intent to injure the victim. a claim in “conspiracy to injure” can (less frequently) arise where the combination involves lawful acts but where those combining act with the sole or predominant purpose of injuring the victim.
6. any person prejudiced by a conveyance of property made with intent to defraud creditors can commence proceedings to rescind that transaction pursuant to section 81 of the bvi conveyancing and law of property act.
7. in many instances where there has been fraud there will have been unjust enrichment and this will often give rise to a restitutionary claim on the part of the victim, at whose expense the enrichment has taken place, to disgorge the profits made by the person or entity that has been unjustly enriched. because of the requirement that the enrichment be unjust, this cause of action will often accrue alongside other causes of action – a restitutionary remedy may be preferred where the enrichment to the defendant is greater than the loss suffered by the claimant.
8. in scenarios where liquidators have been appointed over a company, whether on an insolvency or just and equitable basis, there are various claims the liquidators can bring under bvi insolvency act to recover assets, including in respect of the actions of delinquent former directors and officers, fraudulent trading and/or where the company was trading whilst insolvent.

what approach do the bvi courts take to jurisdiction?

the bvi courts have personal jurisdiction over persons, entities and/or assets located within the bvi. therefore, persons or entities located in the bvi can be sued in the bvi "as of right". for the bvi court to stay a claim against a defendant located within the bvi on jurisdictional grounds it must do so on the basis that there is another available forum that is clearly or distinctly more appropriate to try the claim such that the bvi court should not exercise the personal jurisdiction it has over the defendant. this test is referred to as forum non conveniens and it is used to determine whether the court has "subject matter jurisdiction" (ie rightful jurisdiction over the claim as opposed to merely having jurisdiction over the defendant).

the position is effectively reversed when seeking to claim in the bvi against defendants that are located elsewhere: for the court to be seized of jurisdiction over the defendant the claimant must confirm that the proceedings fall within at least one of the jurisdictional gateways under the eastern caribbean supreme court. under the eastern caribbean supreme court civil procedure rules (revised edition) 2023 (the ec cpr), it is no longer necessary to obtain permission from the court to serve a claim outside the jurisdiction. but the claimant must file a certificate confirming (i) the claimant has a good cause of action, (ii) the claim falls within a category listed in ec cpr 7.3, and (iii) the person signing the certificate believes that the bvi court is the appropriate forum and the proposed method of service does not infringe the law of the foreign state.

in the bvi matter nilon limited v royal westminster investments sa [2015] ukpc 2, the privy council clarified the approach to forum non conveniens disputes in several key respects. first, where tortious wrongs are alleged but it is not known where the acts in question took place, it may not be possible to ascertain the governing law of the claims (which would ordinarily be a factor in determining the appropriate forum to try the claim) and that there is no requirement on claimants to positively plead and prove a foreign governing law. second, the decision confirmed that the place of incorporation of corporate entities will not, on its own, be a decisive factor in determining the appropriate forum.

however, the privy council went on to say (as obiter) that in the context of international fraud and bribery, the availability of remedies was a crucial part of the claims and that practical justice might well not be done if the claim had to be brought in a jurisdiction which did not have equivalent remedies. this is potentially very relevant to future claims in which defendants argue that fraud claims should be heard in jurisdictions without the same breadth of remedies that are available in the bvi (such as those giving rise to proprietary claims), because the bvi court has a discretion to refuse to stay proceedings in the bvi, even if some other forum is clearly and distinctly more appropriate, if practice justice will not be done in that alternative jurisdiction.

what other legal tools and remedies are available in the bvi?

besides the substantive claims that can be pursued in the bvi where the court has the necessary jurisdiction, the bvi courts are also able to order a variety of interim and ancillary forms of relief, often in support of proceedings to be commenced or already ongoing elsewhere. the most common examples include:

what role will the bvi regulatory authorities play in pursuing fraudsters?

there are various public authorities in the bvi that have powers to investigate and take action against activities related to fraud. these include the financial investigation agency, the international tax authority, the financial services commission, the director of public prosecutions, the attorney general and local police force.

these authorities have various administrative, quasi-judicial and judicial powers at their disposal, including the ability to levy criminal penalties and custodial sentences on individuals and corporations.

because it is unusual for individual fraudsters to be based in the bvi – their connection to the bvi will usually be through their use of bvi companies to perpetrate or facilitate a fraud – it is rare that criminal action will be taken in the bvi. however, the bvi regulatory authorities are frequently relied upon by foreign authorities to obtain information that is required to be held by bvi companies for use in foreign criminal investigations and prosecutions.

in the recent decision of suning international group co ltd v carrefour nederland bv the cayman islands court of appeal provided guidance on the procedure to be followed under order 73, rule 31(6) of the grand court rules for service of proceedings to enforce a foreign arbitral award.

in doing so, the court of appeal emphasised the policy of cayman islands law in favour of swift enforcement of arbitral awards. it also cautioned that failure to follow the guidance in this judgment will likely result in a service order being set aside.

background

the respondent obtained an arbitral award in hong kong requiring the appellants to pay rmb1 billion (plus interest and costs) arising out of the failure by appellants to make payment pursuant to a put option for shares exercised by the respondent.

pursuant to section 5 of the foreign arbitral awards enforcement act (1997 revision) and with leave of the court a convention award may be enforced in the same manner as a judgment or order of the grand court. gcr order 73, rule 31 deals with the procedure to be followed. rule 31(6) provides that an order giving leave may be served personally, by sending to the respondent’s usual or last known place of residence or business, or in such other manner as the court may direct, including electronically.

grand court’s decision

the grand court made an order ex parte granting leave to enforce the arbitral award in the cayman islands and directed that the order and associated documents be served on the appellants by delivery to their hong kong counsel in the arbitration proceedings. the respondent arranged service pursuant to the terms of the order, and also effected service by hand and registered post on each appellant respectively.

the appellants then applied to set aside the order on various grounds including that the method of service ordered by the judge was allegedly not in accordance with the relevant law.

the appellants submitted that service of an ex parte order pursuant to rule 31(6) should be by way of service on a body corporate at its principal office or registered address and that the option of serving in some other manner should only be utilised on exceptional grounds. they submitted there was no evidence before the court to show that service in according with the hague convention would cause any particular difficulty or delay, and there was no justification for in effect ordering substituted service.

justice kawaley rejected these submissions and held that the wording of rule 31(6) gave the court a suite of equal options rather than a suite of options sequentially ranked. he drew a distinction with the wording of gcr order 65, rule 4 permitting substituted service where personal service is “impractical”. he also noted there was no suggestion that serving the documents on the appellants’ arbitration attorneys was contrary to hong kong law.

the grand court dismissed the application to set aside the order but granted leave to appeal on the basis that the manner in which service of an ex parte order giving leave to enforce a foreign arbitral award is a matter of public interest which would benefit from a decision from the court of appeal.

the appeal

the court of appeal dismissed the appeal.

policy of “speedy finality”

the court of appeal endorsed mr justice foxton’s comments in the english decision of m v n. in particular, the policy of speedy finality reflected in the approach to arbitration cases is even more compelling in connection with applications for enforcement of awards.

mr justice foxton set out factors that he held justified an order for alternative service notwithstanding that the hague service convention applied. these included that the application was brought to assist with the enforcement of an arbitral award which engages the policy of speedy finality, the respondent had fully engaged (through counsel) with the proceedings that culminated in the award, the award had been outstanding for a considerable period of time (two years), the effect of a lengthy delay in service would be to increase the period during which any challenge to the enforcement order might be made, the method of service was likely to be effective to bring the documents to the respondent’s attention, and the applicant had a contractual right to serve at least some of the documents in the relevant jurisdiction.

as with english law, the court of appeal held that the policy of the cayman islands is in a favour of enforcement of awards. this is illustrated by section 7(1) of the act which provides that enforcement of a convention award shall not be refused except in certain specific circumstances. further, alternative service is not, in this context, being effected to commence a dispute but after it has already been determined. the need for legal certainty dictates that such awards can be enforced speedily, without long delay caused by the need for service under the hague convention.

the court also held that swift enforcement of an award is essential to the effectiveness of arbitration as a means of resolving disputes. it would be contrary to the public interest and the cayman islands’ policy of upholding international standards if enforcement of arbitral awards were to become a slow and long drawn-out process because service had to be effected through the hague convention channels.

correct procedure under rule 31(6)

the court of appeal agreed with justice kawaley that the wording of rule 31(6) is to be distinguished from order 65, rule 4. rule 31(6) permits service in any case “in any such other manner as the court may direct” and confers a wide discretion on the court.

when considering how to exercise the wide discretion, the provisions of the hague convention must be considered. there must be good reason to order service by some method other than through the central authority of the relevant country.

• in order for the court to be able to consider whether there is such good reason, an applicant must adduce evidence of the practicalities of serving the order in question in the relevant country in accordance with the hague convention. in particular, how long would such service be expected to take and how reliable is it.
• if service other than personal or ordinary service is requested, the applicant must explain the need for urgency and why the third alternative (in any other manner as the court may direct) is appropriate in that case.
• the applicant must also set out whether the relevant country has made an objection under article 10. if it does, the court would then need to consider whether exceptional or special circumstances exist so as to justify some other form of service.
• the application must explain any need for urgency and which of the factors described by mr justice foxton in m v n are in play so as to justify the court departing from the hague convention method of service.

if an application contains all the necessary information and is considered by the court in light of the specific facts, the court of appeal held that there would be no reason why the court should not routinely decide that good reason, or exceptional circumstances where a state has made an article 10 objection, are made out so as to justify an order for service other than through the central authority. this could result in the court ordering personal or ordinary service but directly rather than through the official channel, or ordering some other method of service such as service on the relevant party electronically or on lawyers instructed in the arbitration.

the decision

the court of appeal held that there was no evidence before the judge as to how long service via the central authority would take in either hong kong or china, nor as to urgency. the judge was therefore not in a position to consider whether the requirements of speedy finality justified a departure from the hague convention service method or to apply the appropriate test.

the court however declined to set aside the order. doing so would, it held, be a “triumph of form over substance” and in the unusual circumstances where the procedure in relation to rule 31(6) had not previously been clarified (and the appellants had also been served by delivery to their registered offices), the court of appeal treated the service point as an irregularity which it waived.

the court of appeal cautioned that, given the clarification on rule 31(6) has now been provided, failure by any applicant or by a judge to follow the approach on a future occasion is likely to result in any service being treated as ineffective.

takeaways

this is the leading decision in the cayman islands on the procedure for service of an order enforcing an arbitral award, where the respondent is resident in a state that is party to the hague convention, otherwise than pursuant to the hague service convention procedures. the court of appeal’s emphasis on swift enforcement will be useful for award creditors seeking to take enforcement action in the cayman islands and is consistent with the jurisdiction’s pro-enforcement approach.

the court provides practical guidance on the evidence that will be required to establish “good reasons” exist so as to justify service under rule 31(6) other than through a central authority. despite the need for “good reasons” (or “exceptional” circumstances in the case of a state with an article 10 objection), there is no reason that alternative service should not be routinely directed.

failure to follow the guidance in the judgement will likely result in service being treated as ineffective, even if the documents have come to the attention of the respondent. award creditors seeking service orders under rule 31(6) should therefore pay close attention to the procedure in the decision.

on 8 july 2025, new horizon health limited (the company), a cayman company listed on the hong kong stock exchange (hkex), filed a petition to appoint provisional liquidators (pls).

the company operates predominantly in china. it is in the business of assisting with screening and diagnosis of cancers of various kinds and has developed products to provide early screening, particularly for bowel cancer. it appeared to have been successful for a number of years. however, in 2023, complaints were made by a third party that the company’s sales figures did not appear to be justifiable.

this triggered an internal investigation which raised questions about the reliability of sales data within the company and some suggestions that the company's revenue had been overstated.

due to the question marks over the accuracy of the figures, the company’s accounts for 2023 were not completed. moreover, the company’s auditors, deloitte, resigned and new auditors were appointed but were not (as at the date of the petition hearing) able to complete their audit of the 2023 accounts.

the investigations continued but the issues remain unresolved. as a result, hkex suspended trading in the company’s shares in march 2024. hkex further warned that if the company failed to resolve matters to its satisfaction by 27 september 2025, the shares would be de-listed.

the board of the company determined that it would be in the company’s best interests to appoint pls to continue to carry out the investigations and at the same time attempt to achieve a rescue, or perhaps a restructuring, to allow it to continue its operations.

on 6 august 2025, in an ex tempore judgment, justice asif kc, sitting in the cayman court, ordered the appointment of the pls.

the decision

the court considered that it was clear from the material before it that the company held valuable assets and appeared to have a viable business (provided that its internal difficulties can be resolved). justice asif kc observed that although no restructuring plan had yet been formulated, the board had demonstrated an intention to pursue a restructuring. in those circumstances, the case fell within the scope of appointing pls to facilitate potential restructuring, if achievable.

the court was taken to section 104(1) of the cayman companies act which establishes the court’s jurisdiction to appoint pls. the court then considered the difference between the appointment of pls and the appointment of restructuring officers (ros) and the two cases of kingkey financial international (holdings) limited (unreported, 12/04/24) and oakwise value fund spc (unreported, 16/12/24).

justice asif kc concluded that in this case, a restructuring officer’s powers “would not be sufficiently broad or are unlikely to be sufficiently broad to cover all the various steps that this company is likely to need to happen in order for a rescue to be successful. the additional powers that are likely to be available to a provisional liquidator makes the appointment of provisional liquidators a preferable one for this particular company.” accordingly, it was appropriate for pls to be appointed within the meaning of section 104(3) of the act.

takeaways

following kingkey, oakwise and now most recently new horizon health, it is certainly not the case, as a matter of practice, that the ro regime has displaced the restructuring provisional liquidator regime. the jurisdiction of the court to appoint pls on the application of the company is now broader than it was prior to the coming into effect of the ro regime. whereas formerly, restructuring pls could be appointed on the application of the company where it was unable to pay its debts and intended to present a compromise to creditors, the position now is that upon an application by the company, the court may appoint pls “if it considers it appropriate to do so.” this is, on its terms, a broader and far less prescriptive jurisdiction.

for a more in-depth discussion of this important issue, see our article restructuring the cayman islands segregated portfolio company: a closer look at in re oakwise value fund spc.

the rise of digital assets and cryptocurrency has transformed financial markets, but it has also raised novel legal and practical challenges, particularly in the context of corporate insolvency.

for insolvency professionals, trustees and investors navigating the murky waters of cryptoasset recovery, recent common law authorities provide an important guide toward legal certainty, particularly for questions of ownership, fiduciary obligation and the treatment of unclaimed or misappropriated tokens.

against this backdrop, the singapore high court's recent decision in re genesis asia pacific pte ltd (in liquidation), commonly referred to as re taylor, is a pivotal moment in the common law's evolving engagement with digital asset ownership.

the decision, which underscores the importance of clarity in custodial arrangements and offers useful guidance on when a trust over cryptoassets may be inferred or implied, is relevant across jurisdictions that regularly deal with digital asset structures, such as the british virgin islands, the cayman islands and bermuda. these offshore centres often host the holding companies, token issuers and custodian structures that underpin crypto exchanges or decentralised finance platforms.

the singapore high court in re taylor considered whether unclaimed cryptocurrency held by a liquidated exchange could be distributed to customers on the basis that it was held on trust. the joint liquidators of eqonex capital pte ltd said the assets were either held on express trust (based on the exchange's user agreements) or that a resulting or quistclose trust could be inferred.

the court applied orthodox trust principles, requiring the "three certainties" of intention, subject matter and objects. despite the user agreements stating that digital assets "are custodial assets held by the eqonex group for your benefit" and that "title … will at all times remain with you," the court found this insufficient to constitute certainty of intent.

the mere fact that assets were segregated and designated for customer use was insufficient to evidence an intent to create a fiduciary relationship. additionally, the court rejected the existence of resulting or quistclose trusts due to the absence of a clear purpose or mutual intention. a similar approach was taken by the hong kong courts in re gatecoin (in liquidation).

this decision is significant for two reasons. first, it demonstrates that courts are increasingly prepared to apply conventional trust and property principles to blockchain-based assets. second, it highlights the importance of documentation, platform terms and wallet architecture in determining ownership and fiduciary obligations.

for liquidators and trustees, re taylor offers a roadmap. where a trust can be clearly identified, recovered digital assets can be distributed back to beneficial owners or, in some cases, to shareholders through established trust mechanisms. where no trust exists, these assets may instead be applied in satisfaction of the company's general liabilities.

asset recovery during liquidation creates legal, technical maze

recovering digital assets during liquidation is often a multi-jurisdictional and multidisciplinary exercise. the process typically begins with asset tracing, including reviews of internal ledgers, blockchain transactions and exchange accounts to identify and secure relevant wallets. in jurisdictions such as singapore, hong kong, the british virgin islands, the cayman islands and bermuda, liquidators have powerful tools for summoning former officers, compelling document production and initiating proceedings for non-cooperation.

these powers, however, only go so far. in many instances, access to wallets may depend on seed phrases, keys or multifactor authentication devices retained by former insiders.

liquidator roles are also made difficult by the practical hurdles that necessarily exist with digital and cryptoassets.

these include:

• identifying fraudsters who routinely exploit pseudonymous wallets and cross-chain bridges to obscure the trail of stolen assets. in chainswap v persons unknown, a british virgin islands-based protocol provider secured freezing orders over wallets used in a major hack, but the culprits remained unidentified.
• obtaining clarity as to custody and legal status of the cryptoassets, particularly when they are held in a pooled or omnibus wallet. without user-specific segregation or detailed internal registers, the chain of beneficial ownership can be irretrievably broken.
• overcoming difficulty in accessing systems and wallets, particularly where private keys or administration credentials may have been lost or deleted, either maliciously or negligently, rendering wallets inaccessible despite being visible on-chain.

in each of the above instances, liquidators must be experienced in handling cryptoassets. they must also be prepared to engage with forensic and legal specialists to seek recovery or obtain judicial relief for information and visibility in respect of identified assets.

engagement with former directors, key management and platform operators is often critical and frequently required to obtain access credentials, seed phrases and back-end systems. this process can be time-consuming, especially where there is limited cooperation or where key individuals have departed or are unreachable or are under investigation.

where management is uncooperative or has absconded, liquidators may be forced to seek urgent relief through ex parte disclosure orders, freezing injunctions or even search-and-seizure (anton piller) orders.

it is a complex and involved area of law that will typically require specific, multi-jurisdictional advice and processes. once this hurdle is overcome and digital assets are recovered, however, liquidators face a critical second question of how to deal with them. the answer depends on whether the assets are trust property or part of the general estate.

distribution via trust a viable but nuanced mechanism

where a trust relationship is established, assets must be returned to the beneficiaries. this is relatively straightforward if customer identities are known, wallets are segregated and robust know-your-client records exist. when trust obligations are absent or assets are unclaimed, liquidators may consider alternative distribution routes.

in the cryptopia liquidation in new zealand, unclaimed cryptoassets were pooled and redistributed to verified claimants through a judicially sanctioned plan. similar approaches may be adopted elsewhere, particularly where in-specie distributions are impractical.

unclaimed assets may also be distributed to shareholders via resulting trusts, though this raises questions about entitlement, especially if customer claims remain unresolved. any such distribution must be done transparently and in accordance with applicable insolvency and trust laws. in most cases, it will require some form of judicial sanction. in some situations, liquidators may be empowered to top up estate assets using recovered crypto before settling creditor claims.

defining asset ownership from the outset is critical

if one lesson emerges consistently from the common law cases, including re taylor and gatecoin, it is that crypto platforms must define the legal nature of custodial arrangements in precise, legal terms.

to establish a trust over customer assets, the following three certainties must be present:

• certainty of intention: an explicit declaration that assets are held on trust.
• certainty of subject matter: identifiable digital assets linked to individual customers.
• certainty of objects: clearly defined beneficiaries.

additionally, platform terms and conditions should clarify whether customers retain legal and beneficial title or whether their claims are merely contractual. ideally, terms should also anticipate insolvency scenarios by explaining how assets will be treated, prioritised or distributed. in best practice scenarios, assets will also be segregated to reflect the trust arrangements. still, in the absence of that, detailed internal ledgers demonstrating the intention to create a trust and to identify where assets are held for beneficiaries will be sufficient.

without this clarity, courts will be reluctant to uphold trust claims, potentially exposing customers to unsecured creditor status and diluting recoveries.

legal principles

the evolving legal treatment of cryptocurrency in liquidation reflects a broader maturation of the digital asset ecosystem. decisions such as re taylor and gatecoin offer important guidance, but they also expose the limits of the trust doctrine in the absence of clear custodial arrangements.

for businesses handling client assets, and for liquidators dealing with unclaimed or recovered crypto, the message is clear: define ownership structures explicitly, anticipate insolvency risk and consider trust-based distribution solutions. as digital assets become increasingly mainstream, traditional legal principles, particularly those governing trusts, will remain central to resolving disputes, recovering value and ensuring equitable stakeholder outcomes.

this article was first published by thomson reuters on 15 august 2025.

in a recent decision of in the matter of troops inc, the grand court declined to appoint joint provisional liquidators (jpls) on an ex parte basis over troops inc. (the company). the ruling provides a useful reminder of the court’s “especially cautious” approach to pressing the “nuclear button” of appointing jpls, especially when that appointment is sought on an ex parte without notice basis.

background

the application was brought by real estate and finance fund (in official liquidation) (the petitioner), which had obtained a hong kong high court judgment against in the company and others for approximately hk$405 million (c.us$52 million). the petitioner alleged that the company had been involved in a fraudulent restructuring and asset diversion scheme designed to strip value from the petitioner’s assets.

fearing dissipation of assets, the petitioner applied without notice for the urgent appointment of jpls to preserve the company’s assets pending enforcement and/or determination of an appeal of the hong kong judgment.

decision

in an earlier decision, position mobile ltd sezc (7 april 2022 and 31 october 2023) (position mobile), justice doyle set out (by reference to various earlier authorities) the four “main hurdles” for the appointment of provisional liquidators. these are:

1. the presentation of the winding up petition hurdle: a winding up petition has been duly presented and a winding up order has not yet been made.
2. the standing hurdle: the applicant has standing to make the application, i.e. the applicant is a creditor, contributory or cima.
3. the prima facie case hurdle: there is a prima facie case for making a winding up order.
4. the necessity hurdle: the appointment of jpls is necessary in order to prevent the dissipation or misuse of the company’s assets; and/or the oppression of minority shareholders; and/or mismanagement or misconduct on the part of the company’s directors.

in the present case, the same judge presided and affirmed position mobile, holding that the petitioner had overcome the first three of these hurdles. however, he was not persuaded that the fourth “necessity hurdle” was satisfied. therefore, the petitioner did not succeed.

in the judgment, the judge emphasised that the appointment of jpls is “one of the most intrusive remedies in the court’s armoury” and requires clear and strong evidence.

the judge also reiterated that where less draconian remedies are available, such as injunctive relief, jpls should not be appointed. in the present case, the petitioner’s position was that the existing injunction that it had obtained in hong kong (the hk injunction) was limited in scope and essentially inadequate to prevent the dissipation of assets. however, doyle j was not persuaded by this argument and suggested that there was nothing stopping it from returning to hong kong to seek further relief.

key takeaways

• ex parte applications for jpl appointments: applicants must be prepared for the court to heavily scrutinise an application for the appointment of jpls on an ex parte basis. the appointment of jpls is the “nuclear option”.
• necessity and proportionality: even with a strong prima facie case, the court will not appoint jpls unless it is strictly necessary, and proportionate, to protect the petitioner’s position. the existence of alterative remedies may be considered adequate protection, making the appointment of jpls unnecessary.
• form of order of appointment: the court criticised various aspects of the draft order (albeit these criticisms were academic, as the relief sought was declined). for example, it was inappropriate for an order providing for the company to be wound up on an application for the appointment of jpls on an ex parte basis. the judge also questioned why the petition was proposed to be advertised only in the cayman islands, and not elsewhere, for example in hong kong. the judge noted that he would have needed to be satisfied as to the wide jpl powers sought, and would have needed to be heard on the issue of the stifling of any appeal in hong kong.
• limited undertaking: justice doyle expressed concern that the petitioner was only willing to give a limited undertaking. in this respect, the ordinary course is that applicants should provide an undertaking to the court to pay: (a) any damages suffered by the company by reason of the appointment of jpls; and (b) the remuneration and expenses of the jpls, in the event that the winding up petition is ultimately withdrawn or dismissed. however, as the application to appoint the jpls was dismissed, the judge did not say any more on this issue.

the grand court’s recent decision in re superb summit international group ltd [2025] cigc (fsd) 62 offers a legally straightforward, albeit unusual, illustration of how cayman islands restoration and winding-up procedures can be utilised to support foreign regulatory enforcement efforts, particularly where cross-border fraud is alleged and local recovery action is essential.

background

on 22 april 2025 a petition was presented by creditors seeking:

• orders restoring superb summit international group limited (the company), a cayman islands entity, to the register;
• a winding up order on insolvency and/or just and equitable grounds; and
• the appointment of joint official liquidators.

the petitioners’ evidence showed that they had each entered into subscription agreements with the company in 2014 paying hk$10 million in return for interest payment obligations assumed by the company which fell due in 2019. they were apparently not alone in having their commercial expectations disappointed. in 2020 the company was delisted from the hong kong stock exchange and on 18 december 2020, hong kong’s securities and futures commission (sfc) commenced proceedings against the company’s former management and the company in respect of (amongst other things), alleged fraud (the hk proceedings). however, the fact that the company had been struck off the register posed a procedural hurdle.

the petitioners therefore brought a restoration application pursuant to section 159 of the companies act (2025 revision). section 159 relevantly provides:

“company, member or creditor may apply to court for company to be reinstated

159.(1) if a company or any member or creditor of a company feels aggrieved by the company having been struck off the register in accordance with this act, the company, member or creditor may apply to the court to have the company restored to the register.

(2) an application referred to in subsection (1) shall be made by the company or any member or creditor of the company —

(a) within two years after the date on which the company was struck off the register; or

(b) where the cabinet allows, after the two-year period referred to in paragraph (a) but not more than ten years after the date on which the company was struck off the register.

(3) upon an application under subsection (1), if the court is satisfied that —

(a) the company was, at the time of the striking off, carrying on business or in operation, or otherwise; and

(b) it is just that the company be restored to the register,

the court may order that the name of the company be restored to the register on payment by the company of a reinstatement fee equivalent to two times the original incorporation or registration fee, and on terms and conditions as to the court may seem just…” [emphasis added]

the legal framework

justice kawaley granted the restoration under section 159, which, as set out above, permits a company to be restored where “just,” even outside the initial two-year window (with cabinet approval, which was obtained). restoration was sought to enable the company to:

• participate in the hk proceedings;
• receive any compensation awarded; and
• potentially pursue claims against former management.

winding-up and liquidation

it was also held that as the aim of restoration was to enable the company to take part in the hk proceedings where the former management were the defendants, it was entirely logical to place the company into official liquidation.
the court appointed joint official liquidators (jols) and granted targeted powers, including the power to:

• participate in and bring ancillary proceedings in hong kong;
• engage counsel locally and abroad; and
• seek recognition from the hong kong courts of their appointment.

takeaways

this case underscores several key themes for offshore practitioners:

• discretion should ordinarily be exercised in favour of restoration: where there is some valid purpose for seeking restoration, for instance the recovery and/or distribution of assets, the discretion should ordinarily be exercised in favour of restoration.
• restoration as a strategic tool: restoration is not merely a formality. where cross-border enforcement or asset recovery is at stake, especially in regulatory actions, restoration can play a critical role in preserving corporate personality and rights.
• sanction for the exercise of appropriate powers: the court granted the jols targeted powers to take steps in the hk proceedings and to take such action as may be necessary to obtain recognition of their appointment in hong kong. the judge noted in this respect that the petitioners had properly acknowledged that pre-emptively granting official liquidators the full suite of the powers conferred by part i of the third schedule of the companies act has been judicially disapproved. the judgment is, in this regard, entirely consistent with the decision of justice jones in ucf fund limited [2011] (1) cilr 305 and a raft of more recent decisions to similar effect.

in target global growth fund ii v liu xun, the grand court of the cayman islands granted the plaintiffs’ application for a worldwide freezing injunction against the defendant’s assets up to a value of us$35 million, as well as a proprietary injunction targeting specific assets. the court clarified the test for the grant of a worldwide freezing order and the standards by which to evaluate the factors concerning a real risk of dissipation.

the plaintiffs are venture capital entities that invested significant funds of about us$31.5 million pursuant to a subscription agreement signed among the plaintiffs, the defendant, artem ibragimov and a cayman islands company xangroup holdings corp (xangroup). the plaintiffs allege that their investment was induced by the defendant through fraudulent misrepresentation – namely, they were led to believe that the investment funds would be used to further xangroup’s business when in fact the funds were diverted from xangroup’s bank account to an account in the defendant’s name for his personal benefit.

holding dual dutch and hong kong citizenship, the defendant is an individual with worldwide connections who seems to also have residency and employment rights in singapore. further, the defendant provided an address in china and stayed in vietnam during the periods in question.

among other questionable behaviours, the defendant purportedly signed a false share repurchase agreement on behalf of xangroup to disguise the payment transfer from xangroup’s account to his own.

the plaintiffs, having obtained a worldwide freezing order against the defendant in singapore, now brought suit in the cayman court seeking a freezing injunction against the defendant’s worldwide assets and a proprietary injunction against specific assets.

legal principles

at the outset, justice doyle noted that a worldwide freezing order is “a very big step to take” and the court must “scrutinise the basis for such an injunction with the utmost care”. the central question in granting such an injunction is a requirement that there be a real risk of dissipation of assets, ie, that absent an injunction, the defendant will deal with such assets with the result of leaving the judgment unsatisfied.

the legal test for a freezing order is set out in the recent decision of the court of appeal of england and wales in dos santos v unitel sa, which is followed by cayman courts. specifically, the applicant must show:

• a good arguable case on the merits (which in effect is equivalent to a “serious issue to be tried”, and does not necessarily have to have a better than 50% chance of success);
• a real risk of dissipation of assets (defined as “something which is more than fanciful”, with no requirement to show a high probability thereof or that dissipation is more likely than not); and
• that it would be just and convenient to grant the order.

the plaintiff has the burden of satisfying the threshold of a real risk of dissipation, and in making this determination, the court evaluates the totality of the evidence, looking at the relevant factors cumulatively.

as regards proprietary injunctions, it is well within the court’s power to grant such injunctions, provided that there is a serious issue to be tried (meaning that the facts alleged, if proven, would afford the claimant a proprietary remedy), the balance of convenience comes down in favour of granting the proprietary injunctive relief, and it is just and convenient to do so.

decision

noting that the application for freezing injunctions was dealt with at an interlocutory stage without complete discovery and any cross-examination of witnesses, the court was satisfied that all three limbs of the test for freezing injunctions were met.

in particular, the totality of the circumstances in this case shows that there was a real risk, judged objectively, that a future judgment would not be satisfied because of dissipation of assets. in so ruling, justice doyle had regard of the following factors:

• the defendant’s sophistication, his worldwide connections, and ability and ease of transferring monies in the crypto currency world;
• the defendant appeared to be content to have authored a false document and signed false declarations;
• the defendant’s disappearance and loss of contact with the plaintiffs;
• the singapore court’s grant of a worldwide freezing order, which indicates that the court there found a real risk of dissipation;
• the terms of the defendant’s late undertaking were insufficient to assuage the court’s serious concerns of the risk of dissipation;
• the delay raised by the defendant had been adequately explained by the plaintiffs.

similarly, justice doyle agreed with the plaintiffs that the test for a proprietary injunction had been met and a court order was needed to preserve the status quo.

the court therefore granted a worldwide freezing injunction up to a value of us$35 million, along with a proprietary injunction against the defendant’s specific assets.

takeaway

this judgment will serve as valuable precedent in the cayman islands in future cases involving freezing injunction applications, especially as regards the circumstances that a court should take into consideration when deciding whether there is a real risk of dissipation of assets.

in the course of complex contested succession proceedings in the case of ath v bnu, justice mithani gave an (anonymised) judgment dated 10 july 2025 in the bvi high court. this is an important judgment of particular significance to practitioners dealing with estates pending a full grant of administration.

two sisters, bnu and ath, disputed the division of the estate of their late father.

their late father’s will named an executor, but the executor renounced his right to apply for probate. while the authority of an executor stems from their appointment in a will and takes effect from the death of the testator, an administrator is in a different position because their title depends on the grant of administration itself.

bnu applied ex parte under the non-contentious probate rules to the bvi probate court for the appointment of herself as administratrix ad colligenda bona (aacb) of the bvi estate. a grant aacb is a limited form of authority to collect and preserve the assets of a deceased person’s estate before a full grant is issued.

justice young made an order appointing bnu as aacb and granted bnu permission to bring a derivative action under section 184c(1) of the bvi business companies act, revised edition 2020 (permission application). following the obtaining of that order, bnu applied for and obtained ex parte freezing and proprietary injunctions against ath’s husband and a company of which he was the executive director (injunction application).

ath, her husband and the company subsequently applied to set aside justice young’s order and discharge the injunctions respectively.

justice mithani strongly disapproved of bnu’s appointment as an administratrix of an estate on a temporary or emergency basis for multiple reasons, including that the application had been made ex parte, there had been a failure to give immediate notice of the appointment to ath, and bnu had later applied without notice for a grant to perfect that entitlement.

his lordship concluded that justice young’s order did not permit bnu to act without taking out a formal grant of representation. the documents necessary for a formal grant of representation to be issued were not before justice young and, therefore, her ladyship had had no power to issue the grant to follow on from the order she made appointing bnu as aacb. justice mithani rejected a further contention that he, sitting in the commercial court, should issue a grant, rather than a judge of the probate court.

a claim based on a cause of action, where legal capacity to sue is lacking, is a nullity. accordingly, the high court held that the permission application was simply not valid on account of the lack of authority on the part of bnu to bring it. further, the injunction application, which was brought in the course of the permission application, also fell away.

in any event, justice mithani concluded that justice young’s order should itself be set aside because the procedure initiated by bnu to apply for her appointment as aacb was wholly inappropriate.

this is an insightful judgment that that merits careful reading by all those interested in this specialist field.

in stevens v hotel portfolio ii uk ltd (hpii), a judgment handed down by the supreme court on 23 july 2025, lord briggs gave the leading judgment (with only lord burrows dissenting), providing a clear statement of the law on compensation for breach of constructive trust by a trustee and a dishonest assistant.

in 2005, hpii sold three hotels to a company owned by mr stevens. in fact, both the company and mr stevens were nominees for mr ruhan who concealed from hpii that he was the real purchaser. the hotels were sold at market value. accordingly, hpii suffered no loss at that stage. between 2006 and 2008, the company sold the hotels at a significant profit. mr ruhan benefitted from a dividend by the company of £95 million, which he dissipated for his own purposes and subsequently lost in poor investments.

when the loss was discovered by the liquidators of hpii, hpii sued mr ruhan and mr stevens; mr ruhan for breach of his fiduciary duties and mr stevens for dishonest assistance.

the high court in this case found that mr stevens had dishonestly assisted mr ruhan in both the acquisition of profits and their dissipation. the judge found that the dissipation of the profits caused hpii an equivalent loss and ordered mr stevens to compensate hpii accordingly. however, the court of appeal allowed an appeal on the basis that (a) hpii was only the temporary beneficial owner since both the gain and the loss were parts of a single pre-arranged fraudulent scheme by mr ruhan and (b) the loss caused to hpii by the dissipation was set off by an equivalent gain caused by mr ruhan’s related breach of fiduciary duty such that there was no loss.

the supreme court took a step back and stated that the argument that a complete dissipation by a trustee can have caused the beneficiary no loss defied both equity and ordinary common sense.

the supreme court helpfully restated the basic law surrounding dissipation of constructive trusts as follows

1. there is no fundamental difference between the relationship between trustee and beneficiary and the analogous relationship between fiduciary and principal (such as a director and company).
2. the recipient becomes a constructive trustee of the dividend immediately upon its receipt with a duty to conserve the trust property for the benefit of the beneficiary and not destroy the beneficiary’s proprietary interest in it. from the moment of receipt, the dividend belongs to the beneficiary.
3. a dissipation of the fund is a breach of trust for which the trustee is liable to compensate the beneficiary.
4. a dishonest assistant is jointly liable with the trustee.
5. if the dissipation caused the beneficiary a loss, and if no equitable set-off is available, then that is a loss for which compensation is due.

the questions for the supreme court to answer were whether the court can order compensation for loss caused by breach of a constructive trust; whether the dissipation of the dividend caused hpii a loss; and whether mr stevens could pray in aid an equitable set-off of the gain made by hpii.

on the facts of this case, the supreme court held the answers to these three questions were as follows

1. the constructive trust imposed the usual obligation on the trustee not to dissipate the trust property and the usual obligation on both him, and any dishonest assistant, to compensate the beneficiary for that loss.
2. applying a but-for analysis, the dissipation caused hpii to lose the whole value of its beneficial interest in the trust property regardless of the fact that the dividend was the fruit of an earlier breach of trust in making the profit in the first place.
3. the purpose of the constructive trust would be entirely defeated by allowing a set-off of the gain represented by the profit against the loss, since this would wipe out any personal liability by the trustee and dishonest assistant. the fundamental principles were therefore unaffected by (a) whether there was an earlier breach of fiduciary duty to the same beneficiary; (b) whether the making of the profits caused the beneficiary no loss (and in this case it did not); and (c) whether the effect of the constructive trust was to confer a gain on the beneficiary.

while harneys does not practise the law of england and wales, the decision will be of general interest to practitioners in the bvi and cayman islands, where a constructive trustee and/or a dishonest assistant’s compensatory duties to the beneficiary of a constructive trust may often be tested.

in commercial bank of dubai psc v al sari, the english commercial court granted a declaration sought by the bank that a united arab emirates court judgment in favour of the defendants was obtained by fraud. the decision also clarifies that the rule in house of spring gardens v waite (no 2) does not apply to enforcement proceedings, such that a party is not precluded from re-litigating the issue of fraud in a domestic court where the same issue had been dismissed in the foreign court.

the bank obtained a judgment in the sharjah court in the uae against the al sari defendants. the bank sought to enforce the judgment by taking control of the shares of several bvi companies formerly owned by the second and third defendants. the bank had been unable to realise any value from the real properties held by the bvi companies by reason of what the bank described as a dishonest scheme designed by the defendants to preserve the properties and their proceeds of sale for the benefit of the al sari family, via a series of sham contracts.

the sham contracts first emerged after the bank commenced enforcement proceedings against the bvi companies. the contracts purported to impose a debt on the bvi companies in favour of the seventh defendant. the al sari defendants commenced proceedings in the sharjah court seeking recovery of the purported debt arising under the sham documents, and were successful on appeal in obtaining a judgment against the bvi companies (uae appeal judgment) in a sum significantly exceeding the earlier judgment due from the defendants to the bank (bank’s judgment). the bvi companies (as parties) and the bank (as non-party) requested the sharjah court of appeal to review its decision in the uae appeal judgment arguing that the contracts between the al sari defendants and the bvi companies were fabricated. the sharjah court of appeal rejected the request for a review.

in connection with uk enforcement proceedings of the bank judgment, the bank sought a declaration from the commercial court that the uae appeal judgment had been obtained by fraud and sought an injunction restraining the enforcement of the uae appeal judgment against the bvi companies. in finding that the bank had established that the contractual documents relied upon were shams, the english commercial court concluded that the uae appeal judgment was similarly obtained by fraud and should not be recognised or enforced at common law in the uk. the english court granted the bank’s claim for declaratory relief, and a permanent anti-enforcement injunction restrain the al sari defendants from enforcing the uae appeal judgment in the uk.

in giving its decision, the english court gave guidance on the scope of application of the rule in house of spring gardens v waite (no 2) and held that the bank was not precluded from alleging fraud in the english proceedings by reason of bringing a review procedure within the uae appeal proceedings in which the allegation of fraud was rejected. specifically, the decision clarifies that:

1. the principle is a rule of estoppel or abuse of process. it would operate only where the issue has already been raised and adjudicated upon in a separate action, or in new proceedings after a final and enforceable judgment has been entered in earlier foreign proceedings.
2. the review procedure under the civil law of sharjah does not constitute a separate action and did not determine whether the uae appeal judgment had been obtained by fraud. rather, the review amounted to a procedural mechanism for the same court to reconsider its judgment, which is fundamentally different to a fresh action before a new court to set aside a prior judgment for fraud.
3. there was no issue estoppel and it was not an abuse of process for the bank to argue new matters which the bank could not have argued before the sharjah appeal proceedings, which was not party to the sharjah appeal proceedings.

the decision confirms the broad discretion of the english courts to grant anti-enforcement injunctions to restrain the enforcement of an impugned judgment by a party who has submitted to the jurisdiction of the english courts. while harneys does not practise the law of england and wales, the decision will be of general interest to practitioners in the bvi and cayman islands, where enforcement of foreign judgments is a regular procedure invoked before the courts of those jurisdictions.

in jardine strategic limited v oasis investments ii master fund ltd the privy council (on appeal from the court of appeal for bermuda) held that shareholders who acquired their shares after the date of notice of the meeting at which a proposed amalgamation would be voted on, and with knowledge that the proposed amalgamation would be approved and implemented, had standing to pursue fair value appraisal proceedings under section 106 of the companies act 1981 of bermuda. this decision is likely to be considered in other jurisdictions with similar statutory appraisal regimes.

in jardine, approximately 84 per cent of the shares held by the dissenting shareholders were acquired after the date of the notice and with knowledge that the amalgamation would be approved (due to an undertaking given by the jardine matheson group’s ultimate holding company to vote in favour of the resolution). the company sought to argue that only those shareholders who held shares at the date of the notice had standing to bring appraisal proceedings under section 106 – a position which was rejected at first instance and on appeal.

on appeal, the board rejected each of the company’s three grounds of appeal.

1. the company submitted that as a matter of construction of section 106, the right to apply for a court appraisal is restricted to those who held shares at the date of the notice of the egm

section 106(6) provides that any shareholder who did not vote in favour of the amalgamation or merger “and who is not satisfied that he has been offered fair value for his shares” may apply to the court, within one month of the notice, to appraise the fair value of their shares. the company submitted that these words demonstrate that a company putting forward an amalgamation proposal is making an “offer” to its shareholders. the company argued that an “offer” is made to shareholders entitled to receive the notice, being those on the register of members at the date of the notice of meeting (or any applicable record date), and therefore only those shareholders are entitled to apply for relief.

the board held that:

• the company was seeking to place undue weight on the word “offered”. no “offer” to shareholders is made in an amalgamation. there is no offer capable of acceptance or rejection and at no stage is a contract concluded between the amalgamating parties and their shareholders. an amalgamation is a statutory process and the rights of shareholders arise and are enforceable under statute. the words “he has been offered fair value for his shares” in section 106(6) refer to the fair value of the consideration under the amalgamation proposal or to the fair value stated in the notice. it is therefore irrelevant to identify the group of shareholders to whom an “offer” is made.
• there is nothing more generally in section 106 to suggest that the right to apply for a court appraisal is limited to those shareholders to whom notice is sent. the notice is a notice of meeting, not the communication of an offer. as previously noted by justice kawaley (in a commercial law publication in bermuda) a dissenting shareholder is one who does not vote in favour of the amalgamation at the meeting convened by the notice. that is the only means under the statutory provisions by which a shareholder can dissent. therefore, it is the shareholders at the date of the meeting who have the right to be paid the “fair value”.

the company also submitted that the legislation of other countries from which the shareholder appraisal regime took its inspiration, particularly canada, shows that the purpose of the regime was to protect shareholders as at the time when the proposal was made and not those who subsequently acquired shares. in addition, the company sought to rely on a decision of the new york supreme court (application of stern) where the court held that those in the position of shareholders who had acquired stock after a plan for merger had been adopted and publicised did not enjoy appraisal rights.

the board rejected that the company’s submission on the purpose of section 106, identifying two fundamental difficulties:

• the provisions are bespoke and do not follow the terms of similar provisions in other jurisdictions. decisions on differently worded provisions elsewhere will, the board noted, be of very limited, if any, value. the board held that there is nothing in the preparation materials for this legislation to suggest that only dissenting shareholders with shares at the date of the notice of meeting should be entitled to apply for a court appraisal.
• the opposite approach has been taken in other jurisdictions, including canada and the cayman islands. the approach taken by the new york courts has also been rejected by the delaware courts.

the company also submitted that the effect of a legislative amendment, requiring the notice of meeting to state the fair value of shares as determined by the amalgamating or merging company, was to put the argument beyond doubt that the right to have the fair value appraised by the court was to be available only to shareholders at the date of the notice. the board again rejected this submission, noting that if correct, the amendment would have introduced a significant change to those dissenting shareholders entitled to apply for relief and there was nothing in any material relevant to the amendment to suggest that this was the intended effect.

the board also held that the company’s proposed construction of section 106 would give rise to difficulties which are unlikely to have been intended:

• if the right to apply for a court appraisal can be exercised only by those shareholders at the date of notice, that may act as a serious inhibition on those shareholders’ rights to sell their shares between the date of notice and the date of the meeting. no purchaser would be required to pay more than the value of the consideration under the amalgamation proposal because that would be the maximum that they could receive for the shares. this would depress what would otherwise be the market price for the shares.
• the company’s construction was difficult to reconcile with the position of a shareholder who is registered as the holder of some shares at the date of notice and subsequently acquires other states. it would be inconsistent with the terms of section 106(6), which entitles a dissenting shareholder to seek an appraisal of “the fair value of his shares” without qualification.
• the company’s construction would create difficulties with regard to shares held by a nominee for more than one beneficial owner.

2. the company submitted that the proceedings were in any event an abuse of process because they were brought by persons who acquired shares with knowledge of the amalgamation proposal and its terms

the company accepted this ground of appeal could only succeed if the board accepted that the purpose of the legislation is to provide an opt-out to shareholders who are facing a fundamental change in the company in which they invested, which it did not. accordingly, the board also rejected this ground of appeal.

3. the company submitted that in appraising the fair value of any particular shares, the court may take into account the time at which and the circumstances in which those shares were acquired

the company submitted that it should be open to the court to take into account the timing of the acquisition of the relevant shares. section 106(6) requires the court to appraise “the fair value of his shares” which is in contrast to the wording of section 238(9) of the cayman islands companies act which requires the court to determine “the fair value of the shares of all dissenting members.”

the board rejected the company’s position and held that:

• the wording and context of section 106 makes it clear that the court is charged with appraising the fair value of dissenting shareholders’ shares on an objective basis, unconnected with the circumstances in which particular shareholders acquired their shares or their motives in doing so.
• section 106(2) requires, it was held, the statement of a single fair value and there is no reason to think that section 106(6) was intended to produce a range of different values unconnected with objective value.
• the company’s submission could also complicate proceedings due to investigations into the circumstances and reasons for the acquisition of shares by each dissenting shareholders, which the board was confident cannot have been intended.

in the cayman islands decision of re qunar, similar arguments were made. justice parker held that the character and motivations of the dissenters are strictly irrelevant to the entitlement to be paid the fair value of their shares. likewise, his lordship held, was the timing and motivation of their investment. it did not matter that they had bought after the merger announcement with full knowledge of it, or whether they in fact voted for or against the merger. justice parker held that fair value had to be determined in one way for all dissenting shareholders.

the decision is likely to be considered in other jurisdictions with similar statutory dissenting rights and fair value appraisal regimes. as a corollary, if it is the case that dissenting shareholders’ motivations in buying in are irrelevant to fair value then it ought properly to follow that motivations of the buyer group are also irrelevant when it comes to the assessment of fair value in appraisal proceedings. whether that parity of approach will be universally adopted remains to be seen.

in the recent english case of waypark commercial mortgage ltd v vanguard number 1 ltd (in liquidation), the court had to consider whether the sale of property by a secured creditor of a company in liquidation was impacted by the automatic stay imposed by section 130(2) of the english insolvency act, 1986.

section 130(2) of the insolvency act, 1986 provides that:

“when a winding-up order has been made or a provisional liquidator has been appointed, no action or proceeding shall be proceeded with or commenced against the company or its property, except by leave of the court and subject to such terms as the court may impose.”

the court determined that the statutory stay did not impact the sale of property subject to security by a secured creditor. in reaching its decision, the court considered the definition of “action” and “proceedings” and whether a sale of a property by a secured creditor fell within the scope of these terms. neither term is defined in the insolvency act but in reliance on common law, the court concluded that the term “action” referred to court proceedings, and the word “proceedings” was limited to legal proceedings or quasi-legal proceedings such as arbitrations. it followed, therefore, that it is not necessary for leave to be obtained from the court before a sale of property that is subject to security may proceed notwithstanding that the debtor company is in liquidation.

the court’s decision provides secured creditors and prospective purchasers of property subject to security assurance that the purchase is not subject to the automatic stay arising under the insolvency act. however, waypark is of no assistance to an unsecured creditor that seeks to realise property of a company in liquidation. the term “proceedings” had been interpreted to include execution and distress in other case authorities because those remedies are likely to have the effect of conferring an advantage on creditors who avail themselves of such remedy, thereby offending against the pari passu rule of distribution in a liquidation. property that is subject to security will not normally form part of the general pot of assets available for distribution amongst unsecured creditors.

the ruling in waypark serves as helpful guidance for liquidators, secured creditors and prospective purchasers of assets of companies subject to liquidation. the ruling may be persuasive in the cayman islands and british virgin islands, both having statutory provisions equivalent to section 130(2) of the english insolvency act, namely section 97 of the cayman islands companies act 2025, and section 175(1)(c) of the bvi insolvency act 2003 (although note that under bvi law, a secured creditor is expressly empowered to enforce their security against the secured assets despite the appointment of liquidators to the company).

please note that we do not practise the law of england & wales.

the grand court of the cayman islands has consistently favoured providing assistance to foreign courts to the fullest extent possible. this has again been demonstrated in the recent decision in shen v inspire inc (no 2).

background

this case arises from the ongoing divorce proceedings between the plaintiff and the second defendant (i.e. the wife and the husband) in the united states superior court of california.

a contentious issue in the divorce was the valuation of the husband's share options in inspire inc (the company), a company incorporated in the cayman islands. the husband claimed these options are worth us$0, while the wife contended they could be valued at over us$70 million if exercisable.

the husband could not provide discovery of the relevant documents, as they were not in his possession, custody, or control. on such basis, the us court requested assistance from the cayman islands grand court to obtain discovery regarding these share options and related documents which would assist the valuation of such options.

legal principles

the jurisdictional basis for the cayman islands court to give effect to a letter of request from a foreign court is provided for under the evidence (proceedings in other jurisdictions) (cayman islands) order 1978. in deciding to grant the discovery order, the grand court outlined seven principles guiding the exercise of its discretion:

1. the court will ordinarily give effect to a letter of request from a foreign court so far as it is proper and practicable under local law. this reflects judicial and international comity and conforms with the spirit of the relevant international conventions.
2. the court must first decide whether it has jurisdiction and then whether it should exercise discretion to make or refuse the order.
3. the court should accept the foreign court's statement that the evidence is required for civil proceedings, but at the same time must objectively examine the request.
4. the court should exercise discretion to make the order unless satisfied that the application is frivolous, vexatious, or an abuse of process.
5. the court has power to accept or reject the request in whole or in part, but should not attempt to restructure, recast or rephrase the request so that it becomes different in substance from the original request.
6. the issue of relevance falls to be determined by the foreign court controlling the proceedings for which assistance of the grand court is sought.
7. the foreign court should be afforded the fullest help possible.

decision

despite the husband’s opposition to the disclosure of some documents on the basis that such categories were too widely defined, the grand court refused to remove such categories in their entirety, as this would undermine the entire purpose of the letter of request. instead, the court only made slight modifications such as deleting ambiguous terms like "portfolio companies" and "affiliates" to avoid unnecessary burden on the company. this was also to ensure that the nature of documents to be disclosed are sufficiently identified and distinguished from each other.

the court also ordered that the company be reimbursed by the wife for the costs incurred in complying with the order, whilst the husband who had largely failed in challenging the order was directed to pay the costs of the application.

takeaway

this decision is encouraging for parties involved in foreign proceedings, particularly for those seeking access to corporate information and records which are typically not publicly available. the grand court has again demonstrated its willingness to facilitate international judicial comity, providing a viable avenue for obtaining evidence necessary for the determination of complex cross-border disputes.

this article examines how the ‘immovables rule’ intersects with the practice of modern cross-border insolvency under english common law.

the english conflict of laws position holds that rights to land are governed by the law and courts of the country where the land is located (the lex situs). however, in cross-border insolvency, the principle of modified universalism encourages english courts to assist foreign liquidation proceedings to achieve a unified asset distribution. the supreme court addressed the tension between these principles in kireeva v bedzhamov [2024] uksc 39 (‘kireeva’).

this article discusses certain aspects of english law for general informational purposes only. however, harney westwood & riegels do not practise english law and the contents should not be construed as legal advice on english law.

download the pdf to read the full article.

this article first appeared in volume 22, issue 4 of international corporate rescue and is reprinted with the permission of chase cambria publishing - www.chasecambria.com

the gerald metals group was awarded an unprecedented $2.5 million fine against its former joint venture partner china national gold group hong kong limited (cng) for its significant and persistent non-compliance with court orders in the bvi.

case background

the underlying dispute (resolved in arbitration) involved a dispute between a gerald metals entity, global mining development lp (global) and cng, the two shareholders of a bvi joint venture vehicle, soremi investments ltd (sil). global exercised a right of first refusal under the terms of their shareholder’s agreement (the sha) to purchase cng's shares in sil. in breach of the sha, cng refused to effect the transfer. consequently, global commenced arbitral proceedings in hong kong to enforce the sha. by a first partial award (fpa), the tribunal found that global was entitled to exercise the right of first refusal.

the tribunal ordered cng to transfer its 65% shareholding in sil to global. global was therefore the beneficial owner of 100% of the shares in sil. cng did not comply with the fpa. global & gerald therefore sought and obtained an order for specific performance from the tribunal (spa) which along with the fpa were recognised in the bvi as orders of the bvi courts. cng applied unsuccessfully to set aside the recognition orders and gerald’s bvi counsel harneys, vigorously pursued an enforcement strategy on their behalf.

cng unlawfully stripped around usd200 million out of sil’s french bank accounts an transferred this significant sum of cash to accounts in china in breach of undertakings it had given global. global and gerald applied to the bvi commercial court for, and were granted, both a freezing injunction against cng's assets and a mandatory order requiring that the monies wrongly transferred to be repatriated to sil's french bank account.

enforcement judgments

as a result of cng’s contumelious conduct, gerald and global sought to enforce cng’s delinquent behaviour through contempt proceedings. at the same time, gerald and global enforced the fpa and spa through a rectification order because cng refused to transfer the shares into the name of global as required under the recognition orders and spa.

a four-day omnibus hearing before justice mithani (ag.) took place between 26 to 29 may 2025. mithani j found in global and gerald’s favour on every application and made damning findings of dishonesty by cng and its subsidiary soremi sa, as well as findings of collusive and deliberately obstructive conduct by cng’s employee mr cheng.

mithani j’s displeasure at cng’s defiance of bvi court orders and its devious conduct is reflected in the record fine he ordered against cng in the sum of $2.5 million at a rate of $100,000 for every week of cng’s non-compliance. this is the highest fine for contempt levied against a party in bvi and english legal history.
it is a reminder to litigants in the bvi that compliance is not just expected—it is mandatory.

jonathan addo (partner), natasha guthrie (counsel), mark wells (senior associate) and james wilton (associate) of harneys represented the claimants led by peter de verneuil smith kc and judy fu of 3vb. also assisted by penny madden kc and sam firmin of gibson dunn & crutcher who represent global in the hkiac arbitration proceedings.

over the past decade, the hong kong courts have given multiple important judgments concerning their power to wind up foreign companies. in a recent judgment, the court of appeal provided important clarification regarding a key element of this power.

background

the judgment arises from the long-running cross-border insolvency of up energy development group ltd. the company is a bermuda-incorporated coal mining business previously listed in hong kong. from early 2016, it experienced financial distress. by mid-2016, this led to different creditors presenting winding up petitions in hong kong (its place of listing) and bermuda (its place of incorporation).

the company subsequently attempted a restructuring, which failed. it was then wound up by the bermuda court in march 2022. shortly afterwards, in may 2022, the hong kong court also ordered that the company be wound up.

grounds for hong kong winding up

the hong kong court’s jurisdiction to wind up foreign companies is governed by well-established common law principles. a petitioner must satisfy the court that the case meets three jurisdictional thresholds, before the court will exercise its jurisdiction to wind up a foreign company:

1. sufficient connection to hong kong;
2. reasonable possibility that the winding up will have a “real” – as opposed to “theoretical” – benefit to the petitioner; and
3. jurisdiction over person(s) involved in the distribution of the company’s assets.

at first instance, the hong kong court held that all three thresholds were satisfied.

of particular relevance, the hong kong court held that the second threshold was satisfied given that (within hong kong) the powers of a hong kong-appointed liquidator were more extensive than those of a bermuda liquidator following recognition in hong kong.
the hong kong court held that this fact conferred a real – as opposed to a theoretical benefit – even in the absence of any evidence that these wider powers were in fact needed or likely to be used. in other words, the court held that the need under the second threshold for a real benefit was satisfied on the basis that the wider powers available to a hong kong liquidator were only potentially necessary or useful.

one creditor appealed to the hong kong court of appeal, arguing that benefits relied upon by the earlier hong kong judge under the second threshold were “either non-existent or theoretical rather than real.”

court of appeal decision

in setting aside the winding-up order against the company, the court of appeal held that while the second threshold test is low, the requirement was not satisfied because:

• there was no prima facie evidence of valuable hong kong assets to benefit creditors in a local winding-up; and
• the mere availability of the broader liquidator powers under hong kong law alone is insufficient: for the court to accept only a theoretical or speculative advantage would render the second threshold redundant because it would be automatically satisfied in all cases. with regard to decisions such as re china huiyuan, the court clarified that petitioners must demonstrate a factual basis for a real possibility of some discernible benefit (eg targeted asset or claim investigations) in respect of the second threshold, not theoretical legal advantages.

takeaways

this decision emphasises the important role hong kong’s jurisdictional thresholds for winding up foreign companies play in cross-border insolvencies. of course, the hong kong court will not wind up a foreign company where it has no legitimate interest to do so as that would be an exercise of exorbitant jurisdiction contrary to international comity. in respect of the second threshold, it is important to note that while flexibility exists regarding the required benefits to the petitioner, assertions must be grounded in specific, plausible facts rather than purely theoretical or abstract legal advantages.

harneys, while not advising on hong kong law, assists clients with offshore insolvency and restructuring matters in bermuda, the british virgin islands and the cayman islands, often with cross-border elements.

one of the fundamental difficulties that arises with crypto recovery claims is that the wrongdoers responsible for the misappropriation will (at least at the outset) almost always be unknown. that difficulty is (or may be) compounded in circumstances where different people or categories of people: (i) are responsible for the initial wrongdoing, eg a hack or scam; (ii) receive the misappropriated assets pursuant to the wrongdoing; and (iii) have received the misappropriated assets through subsequent transfers (whether in the knowledge of the misappropriation or not).

to overcome these difficulties, victims may need to bring claims against “persons unknown” for the purpose of recovering the assets (or equivalent monetary value). in doing so, it may be necessary or helpful to take steps to reveal the identity of some or all of the above categories of people. as his honour judge pelling kc put it (speaking extra-judicially):

“in a crypto fraud claim it is likely that crypto assets will have been moved multiple times ultimately to an exchange after removal from the claimant’s wallet. this is usually for the purpose of enabling assets to be “cross chained” so as to render tracing more difficult or practically impossible or to facilitate the conversion of the defalcated crypto currency and its transfer in a way that makes tracing impossible or practically so. it may be necessary therefore to bring proceedings against different classes of persons unknown in order to cater for these possibilities.”^[1]

this article considers the bvi and cayman islands courts’ jurisdiction to order service against persons unknown in further detail.

the persons unknown jurisdiction: cameron^[2]revisited

the jurisdiction to sue persons unknown, by reference to a description that “is sufficiently certain as to identify both those who are included and those who are not,” has been invoked by the english courts on numerous occasions, particularly within the context of abuses of the internet, trespassing and other torts committed by protesters, demonstrators and paparazzi; and, more recently, within the context of crypto fraud.

in cameron, the uk supreme court distinguished between two kinds of cases in which defendants cannot be named and in respect of which different considerations apply:

• the first category comprises anonymous defendants whose names are unknown but who are otherwise identifiable (for example, squatters, who are identifiable by their location at the relevant property).
• the second category comprises anonymous defendants whose names are unknown and who cannot be identified either (for example, hit and run drivers, who have fled the scene and in respect of which there is no cctv or other evidence available with which to identify them).

the distinction is that in the first category, the defendant is described in a way that it makes it possible in principle to locate or communicate with him or her and to know, without further enquiry, whether he or she is the same person described in the claim form; whereas, in the second category, that is not possible.

the appeal in cameron was primarily concerned with the issue or amendment of the claim form on persons unknown, rather than the issue as to how a claim form may actually be served on them. however, the supreme court held in that case that the “legitimacy of issuing or amending a claim form so as to sue an unnamed defendant can properly be tested by asking whether it is conceptually (not just practically) possible to serve it. the court generally acts in personam. although an action is completely constituted on the issue of the claim form, for example for the purpose of stopping the running of the limitation period, the general rule is that “service of the originating process is the act by which the defendant is subjected to the court’s jurisdiction.”^[3]

the court then went on to hold that an identifiable but anonymous defendant (i.e. the first category of defendant set out above) could be served, if necessary by alternative service, on the basis that it is possible to locate or communicate with him. for example, in proceedings against anonymous trespassers, the court held that service is to be effected under english procedural rules by attaching copies of the documents to the main door or placing them in some other prominent place at the property in question.

that is not, however the case with unidentifiable defendants (i.e. the second category of defendant set out above):

“one does not, however, identify an unknown person simply by referring to something that he has done in the past. “the person unknown driving vehicle registration number y598 sps who collided with vehicle registration number kg03 zjz on 26 may 2013”, does not identify anyone. it does not enable one to know whether any particular person is the one referred to. nor is there any specific interim relief such as an injunction which can be enforced in a way that will bring the proceedings to his attention. the impossibility of service in such a case is due not just to the fact that the defendant cannot be found but to the fact that it is not known who the defendant is. the problem is conceptual, and not just practical. it is true that the publicity attending the proceedings may sometimes make it possible to speculate that the wrongdoer knows about them. but service is an act of the court, or of the claimant acting under rules of court. it cannot be enough that the wrongdoer himself knows who he is.

this is, in my view, a more serious problem than the courts, in their more recent decisions, have recognised. justice in legal proceedings must be available to both sides. it is a fundamental principle of justice that a person cannot be made subject to the jurisdiction of the court without having such notice of the proceedings as will enable him to be heard. the principle is perhaps self-evident.”

accordingly, the court held that (subject to any statutory provision to the contrary) it is an essential requirement for any form of alternative service that the mode of service should be such as can reasonably be expected to bring the proceedings to the attention of the defendant.

more fundamentally, a person who is not just anonymous but (also) cannot be identified, cannot be sued under a pseudonym or description unless the circumstances are such that that the service of the claim form can be effected (or in an appropriate case, properly dispensed with).^[4]

the crypto context

as the most widely-used blockchains have publicly disseminated ledgers and therefore a permanent log of the address(es) that received the proceeds of any wrongdoing, most crypto recovery cases involve the first category of defendants referred to in cameron.^[5] this is because the names of the wrongdoers are not known, but the pseudonymous nature of crypto ownership is such that the recipient will be identifiable by reference to the public address(es) they have used to take possession and/or control of the crypto assets that are the subject of the claim.

the cayman islands and bvi courts both have jurisdiction to grant relief against “persons unknown” in circumstances where the identity of the defendants is not currently known. the underlying principle justifying the existence of the jurisdiction is that, where there is a right, there is a remedy:

“… in circumstances where it is plain that persons are infringing proprietary interests which the law recognises, or deceiving the public by way of trade in a manner which may indirectly affect the commercial interests of others, the law should, if it reasonably can, provide a remedy.”^[6]

categorising persons unknown

in fetch.ai limited^[7], wide ranging relief, including a worldwide freezing order, was initially sought against two categories of persons unknown, being: (i) individuals who first accessed the claimant’s accounts and who were responsible for the transfer out of those accounts of various crypto assets; and (ii) those individuals who “own or control the accounts into which [the crypto assets or the traceable proceeds thereof] are to be found.”

the judge in that case found that this definition was too wide-ranging having regard to the fact that the relief sought included a worldwide freezing orders against persons who, at least potentially, were innocent in the sense of not having reason to believe that assets belonging to the claimant had been credited to their account. this factor was something which led him to require, in that case, that the persons unknown be broken down into three categories, as follows:

1. first, those who are were involved in the fraud, against whom it may be appropriate to seek relief in the form of both a proprietary injunction in respect of the misappropriated crypto currency (or the traceable proceeds thereof), and also a worldwide freezing order.
2. secondly, a class of persons unknown designed to capture those who have received assets without having paid a full price for them, against whom it may also, again, be appropriate to seek both a proprietary injunction and worldwide freezing order.
3. thirdly, those who fall within the category of “innocent receivers”. the purpose of the introduction of this third class was stated to be to enable those who have received the claimant’s assets without knowing or believing the assets belonged to the claimant, to be excluded from the scope of freezing orders (whilst, at the same time, recognising that claims against such defendants might be made for the recovery of such assets, though subject to defences such as bona fide purchaser for value)^[8].

in the chainswap decision in the bvi, justice jack held that it would be inappropriate (relying on the cameron v liverpool victoria insurance co ltd decision, to simply sue “persons unknown” but directed that the defendants should be identified by reference to their ownership of digital wallets that were alleged to have been used to receive and dissipate stolen crypto tokens.

in lavinia deborah osborne v persons unknown,^[9] the defendants were categorised as follows: (i) the persons who had unlawfully gained access to and removed from the claimant’s wallet, certain nfts; and (ii) the persons in possession and/or control of those nfts.

in tippawan boonyaem v persons unknown^[10], two categories of persons unknown were identified, being: (i) persons connected to the ingfx group and/or associated with the ingfx website and/or particular phone numbers and/or giving themselves a particular name on facebook for the purposes of a fraudulent scheme; and (ii) persons operating or owning particular crypto wallets on various exchanges. an order for disclosure had been made^[11], but had produced no results or assisted in terms of identifying the perpetrator of the fraud. that being the case, on the claimant’s application for summary judgment, the judge was not “presently” prepared to give final judgment against the first category of persons unknown (on the practical and conceptual basis that there was no identifiable person against whom judgment could be given).

as can be seen from these decisions, care must be taken in any given crypto recovery case to appropriately categorising the persons unknown defendants in order that any relief awarded by the court is appropriately targeted. in particular, the decisions to date have noted the core distinction between the ‘primary’ wrongdoer(s) and the recipient(s) of the misappropriated crypto (which may form part of the same network, but which should be distinguished for legal purposes).

in any given case, the key to successfully recovering crypto is to focus on the recipients (at least initially) because that will potentially lead to further information about not only the identity of the recipients but also, information as to how they came to receive the assets pursuant to the wrongful transactions.

service by alternative means

d’aloia v persons unknown and others^[12] was the first reported decision in which the english high court granted leave to serve out of the jurisdiction by email and by service of an airdropped nft, following a submission to the effect that doing so would embed service of the documents into the blockchain. the judge in that case remarked that he “may not have expressed that [concept] very happily” but that “there can be no objection to it: rather it is likely to lead to a greater prospect of those who are behind the tda-finan website being put on notice of the making of this order and the commencement of these proceedings.”

more recently, in the osborne decision, the high court allowed service by way of nft airdrop as the only method of service on certain defendants, there being no other available method of service available. the judge in that decision noted that a similar order had been granted in jones v persons unknown [2022] ewhc 2543 (comm) and that there may well now be other decisions to like effect.

in the bvi, justice mangatal sitting in the eastern caribbean supreme court granted leave to effect service by way of nft airdrop: aqf v xio and ors^[13].

given these decisions, there appears to be no principled basis upon which the cayman islands court would not also be prepared to make a similar order in circumstances where it is impracticable to serve by alternative means. to the contrary: the cayman islands grand court rules confer a wide discretion on the court to order substituted service where appropriate (in circumstances where personal service is required) or in such manner as the court may direct (in circumstances where personal service is not required)^[14].

these developments are extremely helpful. the nature of crypto recovery claims is such that there will invariably be category of defendants that are identifiable by reference to public addresses. in turn, this means that there should always be at least one practical mode of service (nft airdrop) available.

concluding remarks

the well-established jurisdiction of the courts to grant relief against persons unknown is crucially important within the crypto context, in which the pseudonymous nature of crypto is such that most defendants (including the wrongdoer(s) and any recipients of the misappropriated assets) are likely to fall within the first category of defendant identified in cameron (ie anonymous, but identifiable). so too, is the jurisdiction of the courts to order service by alternative means in an appropriate case.

^[1] at a seminar given at the difc on 13 november 2023.

^[2] cameron v liverpool victoria insurance co ltd [2019] uksc 6

^[3] citing barton v wright hassall llp [2018] 1 wlr 1119

^[4] cameron v liverpool victoria insurance co ltd [2019] uksc 6, judgment of lord sumption (lord reed, lord carnwath, lord hodge and lady black agreeing) at [8]-[26].

^[5] in this article we focus only on recovery actions concerning those blockchains that have public ownership and transaction information available.

^[6] ernst & young limited v ors v department of immigration [2015] (1) cilr 151 at [63]-[74]. in the bvi, see for example chainswap limited v persons unknown bvihc (com) 2022/0031, 4 may 2022.

^[7] [2021] ewhc 2254 (comm).

^[8] as explained, for example, by his honour judge pelling kc speaking extra-judicially, at a difc seminar given on 13 november 2023. see: speech by hhj pelling kc: issues in crypto currency fraud claims – an update - courts and tribunals judiciary.

^[9] [2023] ewhc 39 (kb).

^[10] [2023] ewhc 3180 (comm).

^[11] for more on this, see our article: identifying wrongdoers in the crypto space: the norwich pharmacal and bankers trust jurisdictions.

^[12] [2022] ewhc 1723 (ch).

^[13] bvihccom 2023/0239.

^[14] gcr o.65, r.4 and r.5.

the english high court recently handed down judgment in caxton international ltd v essity aktiebolag (publ), in which mr justice fancourt held that the claimants not being parties to the subject notes was no bar to seeking declaratory relief that an event of default had occurred under such notes.

background

the case involves caxton international limited and others’ claim for declaratory relief against essity aktiebolag and essity capital bv (collectively essity), the defendants, who are the issuers of three series of euro-denominated bearer notes. the notes are held through clearing systems as legal owners and custodians as “noteholders”. the claimants are account holders with the custodians and ultimate beneficiaries of the notes.

upon essity’s disposal of the entire stake in one of its subsidiaries known as vinda international, some of the custodians served acceleration notices on essity on the basis that such disposal constituted “cessation of a substantial part” of essity’s business and that an event of default under the notes has occurred. essity disputed the occurrence of any event of default, and contended that only the clearing systems are entitled to serve acceleration notices as legal owners of the notes.

the decision

the high court held that the claimants, despite not being contractual counterparties to the notes, have a sufficient and legitimate interest to seek declaratory relief due to their equitable proprietary interest in the notes. the court acknowledged that the claimants are the real creditors, as recognised in insolvency situations, and went on to find that the claimants have a good arguable case that their interests are sufficiently affected by essity's contested legal rights which justify the declaratory relief.

essity also relied on secure capital sa v credit suisse ag to argue that allowing ultimate beneficial owners to seek declarations would disrupt the “no look through” structured chain of relationships that exists for such securities in the capital markets for good reason. however, the court did not accept that the claimants were subverting the structure, as there is no contractual term precluding them from seeking a determination of rights under the notes. the court distinguished secure capital, in which the claim was to enforce payment directly, from the declaratory relief being sought in caxton.

in respect of the utility of the declaratory relief, the court took the view that the claimants clearly have a legitimate interest in having the matters in dispute determined, including the validity of the acceleration notices already served. the declaratory relief sought could serve a useful purpose by clarifying the rights under the otes. the court further noted that joining the custodians could enhance the effect of the declarations sought and reduce the possibility of further disputes, but the absence of such joinder may be justified for the purpose of saving unnecessary costs.

implications

this english court ruling has significant implications for both note issuers and investors. whilst the claim in caxton is still pending determination, the english court has recognised ultimate beneficial owners’ rights to seek declaratory relief even if they lack direct contractual rights under such notes. whilst notes issuers may face increased litigation risks, an avenue is opened for ultimate beneficial owners to bypass clearing systems and custodians to take legal action against note issuers directly in safeguarding their economic interests.

over the past couple of weeks, key players in the financial services world converged on the shores of the british virgin islands for two globally significant conferences: insol bvi seminar and fintech on the seas (fots). the bvi relished its opportunity to play host, showcasing the sophistication of its financial services sector and legal market to an elite global audience.

these events were a fantastic reminder of the relevance of this jurisdiction to the global legal industry. delegates from all over the world, including the uk, europe, the us, asia, and the caribbean, descended on the bvi, making it the heart of international discussion on pressing topics such as insolvency, fintech innovation, regulatory developments, and disputes.

insol bvi seminar

hosted on peter island, insol bvi delivered compelling discussions on insolvency and restructuring in an offshore context, with insights tailored to real-world challenges. topics ranged from director liabilities in a globalised business world to redefining practices with innovative solutions. attendees and speakers alike included some of the brightest legal and financial minds, creating an unparalleled forum for collaboration.

fintech on the seas

fintech on the seas solidified the bvi’s position as a hub for fintech innovation. it demonstrated the deep knowledge of its professionals (and those from other jurisdictions that work in close collaboration with the bvi) in advising and assisting fintech businesses and highlighted the flexibility and adaptability of both its regulatory framework and the approach of its courts.

for harneys, it was a particularly active conference. eight of our lawyers, representing bvi, cayman, and europe, attended and participated in multiple key panel discussions across both days. their contributions highlighted harneys’ expertise in navigating complex legal landscapes in the fintech industry. notable presentations included:

james kitching explored the regulatory implications of token issuance.

david mathews provided a forward-looking perspective on decentralised autonomous organisations (daos).

christopher pease offered practical advice on mitigating risks and how professional experts and the court system can step in to assist when needed. he was able to draw from his first-hand experience in liquidating a dao through a court-appointed receivership process (a first of its kind).

aki corsoni-husain added to the robust discussions with a fireside chat on global regulatory frameworks.

adding a little levity to the intellectually charged discussions, resident necker island lemurs paid surprise visits to the panels, proving that innovation isn’t the only thing thriving in the bvi.

showcasing expertise and innovation

for the bvi, hosting such high-profile conferences reflects the territory’s global significance in financial services and its ability to convene some of the brightest minds in law, technology, and business.

pervading both conferences was the theme of innovation and adapting to the ever-changing challenges faced by our clients. as a jurisdiction, bvi has proven its resilience and ability to be at the forefront of change in global finance and legal services.

the conferences were a huge success. harneys celebrates and is grateful for the efforts of all of the organisers and the engagement and keen participation of delegates.

for harneys, contributing to these conferences reinforces our mission of delivering superior service and innovative legal solutions. we excel at using our expertise to guide clients through the complexities of global financial markets and new technologies.

interested in how harneys can help your business stay ahead of the innovation curve? get in touch today.

in a significant ruling for cryptocurrency litigation, the english court of appeal in bsv claims ltd v bittylicious ltd dismissed the applicant’s appeal against binance and other crypto exchanges in proceedings arising out of the alleged anti-competitive delisting of bitcoin satoshi vision (bsv) in 2019. the collective proceedings claim, brought on behalf of 243,000 bsv holders, alleged that the delisting caused substantial financial harm, particularly to a sub-group of long-term crypto holders.

the appeal focused on “sub-class b” – around 75,000 individuals who held bsv on 11 april 2019 and continued to do so when proceedings began in july 2022. the claim sought damages quantified by reference to a supposed “foregone growth effect”. this theory posited that the respondents’ alleged wrongdoing had prevented bsv from becoming a top-tier cryptocurrency like bitcoin, in which scenario its value would have massively increased.

the applicant claimed that sub-class b holders were entitled to damages due to the respondents’ preventing bsv from becoming a major cryptocurrency (and the associated increase in its value). alternatively, the applicant claimed that the respondents’ actions had caused sub-class b to lose the chance of bsv becoming a major cryptocurrency. the total quantum claim for sub-class b was a staggering £8.99 billion – over 350 times the original value of their holdings.

the applicant’s appeal concerned the first instance findings of the competition appeal tribunal, which ruled that the applicant’s loss was subject to the “market mitigation rule”. this rule states that a claimant seeking damages for lost or damaged goods should ordinarily mitigate its loss by buying or selling substitute goods, where there is an available market. where the rule applies, recoverable losses will generally be limited to the difference between the value of the original goods and the value of the substitute goods.
in this case, the court of appeal confirmed that the market mitigation rule applied.

since bsv remained tradeable and comparable cryptocurrencies were available on the open market, sub-class b holders who knew of the delisting could have sold their coins and reinvested in substitute crypto assets, thereby crystallising their losses. their failure to do so meant they could only claim the immediate loss of bsv’s value caused by the respondents’ alleged wrongdoing – not speculative future gains.

the court of appeal also rejected the applicant’s ‘loss of a chance’ argument for similar reasons. the court ruled that this principle was inapplicable on the facts. it was also disapplied by the market mitigation rule, which required that sub-class b ought to have crystallised, and thereby mitigated, their loss by selling their bsv holdings upon becoming aware of the respondents’ alleged breach (which they failed to do).

this judgment is helpful for all crypto investors. in confirming the applicability of principles of mitigation to quantum in the crypto context, the court of appeal has limited the scope for claims seeking exaggerated damages based on hypothetical market outcomes. the judgment confirms that traditional common law rules are entirely applicable to disputes involving digital assets and sets a precedent for how courts may treat speculative claims in the volatile world of cryptocurrencies.

although harneys does not advise on the laws of england & wales, this judgment is likely to be of strong persuasive value in the courts of our jurisdictions when adjudicating crypto-related disputes.

adam v adam is a recent decision of the english high court which provides a useful illustration of when pleadings ought to be struck out.

factual background

the adam brothers had been business partners. the brothers had agreed to dissolve the partnership, and the claimant now sought an account from his brother, the defendant, of his 50 per cent share of the partnership assets. the defendant’s case was that parts of the claimant’s pleadings were unclear and contradictory, and he therefore issued the strike out application in relation to those specific parts of the claimant’s particulars of claim.

the particulars of claim alleged that the brothers had entered into an oral agreement relating to the partnership. the defendant complained that the way in which it was pleaded was vague, and that the claimant described it in multiple, contradictory ways as the case progressed.

the legal test for strike out

the relevant provision of the english civil procedure rules is rule 3.4(2): pleadings may be struck out where they disclose “no reasonable grounds for bringing or defending the claim”, amount to “an abuse of the court’s process” or because “there has been a failure to comply with a rule, practice direction or court order”.

having considered recent english authorities, deputy master valentine noted that the power to strike out all or part of a statement of case is a discretionary case management power, and – being a draconian power – should be used only as a last resort. while a claimant ought to be free to “advance his case as he wishes”, it is clear that pleadings may be struck out where they are “endlessly mutable” (nekoti ltd v univilla ltd) or where the claimant is “flip-flopping” (ashraf v dominic lester solicitors).

ultimately, it is “necessary that the other party understands the case which is being made against him”, so pleadings must be set out intelligibly (towler v wills).

decision

the court held that the inconsistencies regarding the alleged oral agreement were not “irreconcilable”. even where there were inconsistencies, deputy master valentine commented that they were not “so serious as to lead to a conclusion that the case has been altered in different tellings”; nor did the “alleged inconsistencies render the case incomprehensible, unreasonably vague, abusive of the court process or otherwise deserving of strike out”.

similarly, while the pleadings were not as clear as they could have been, this was “not a case where the claimant has disregarded or flouted the rules”, and neither was it a case where “the defendant cannot understand the case being made … to prepare a defence”.

the strike out application therefore failed entirely, underscoring how pleadings will not be struck out lightly.

conclusion

while harneys does not advise on english law, various offshore jurisdictions have similar strike out provisions to english cpr 3.4(2). for example, see rule 26.3(1) of the eastern caribbean supreme court civil procedure rules (applicable in the bvi and anguilla), order 18, rule 19 of both the cayman islands grand court rules and the bermuda rules of the supreme court, and rule 6/13(1) of the jersey royal court rules. therefore, as is typical in matters of civil procedure, adam v adam will likely be seen as relevant guidance by the courts in these common law offshore jurisdictions when considering strike out applications.

in a recent decision involving the china evergrande group, the hong kong court of first instance reaffirmed the policing provisions of disclosure orders under mareva/freezing injunctions.

background

the liquidators of the china evergrande group successfully obtained an ex parte mareva/freezing injunction with ancillary disclosure orders against certain defendants, including the group’s former ceo, mr xia haijun on 24 june 2024.

the court provided numerous extensions of time in light of mr xia's unsuccessful attempts to discharge and/or vary the disclosure order. mr xia eventually filed an asset disclosure affirmation on 24 april 2025; however, the disclosure only related to his assets around the date of his affirmation, not 24 june 2024 – the date of the original disclosure order.

issue

the central dispute before the court was the relevant reference date for the asset disclosure. china evergrande’s liquidators argued it should reflect the date of the original order – 24 june 2024, while mr xia argued it was at the time of compliance – being the date of his affirmation.

decision

the court took a measured approach, focusing narrowly on compliance. it held that any extension of time to comply with a disclosure order does not alter the disclosure's reference date: it only changes the compliance date of that obligation. the court said that it would be "absurd" for it to allow a 10-month information vacuum as there may have been a disposal of assets in that period.

the inherent nature and purpose of an ancillary disclosure order is to ensure the associated mareva/freezing order is properly policed and effective. the court stressed the possibility of the disposal of assets in the period between the date when disclosure ought first to have been given, and the date when it was ultimately provided. if that position was not properly identified, one of the primary purposes for making the disclosure order would have been defeated. the fact that a disclosure affidavit is late provides no justification for not providing what had to be provided if the affidavit had been served on time, notwithstanding that a late affidavit should also contain any up-to-date information.

here, the order required disclosure of the assets frozen under the injunction on the date they were frozen – 24 june 2024. mr xia was ordered to confirm by affidavit the position as at that date, as well as provide full particulars of any subsequent dealings in respect of those assets. further, the court made an ‘unless order’ that any non-compliance within seven days would result in a debarring order against mr xia, and also ordered indemnity costs in favour of china evergrande.

takeaways

although harneys does not advise on hong kong law, this decision underscores important principles of common law jurisprudence for disclosure orders. for liquidators and creditors, this is a victory for transparency; for defendants, a warning that non-compliance can invite severe repercussions. as experts in offshore disputes, harneys frequently assists clients with such matters in jurisdictions such as the british virgin islands, cayman islands, and bermuda. for example, a helpful summary of the legal position in the cayman islands can be accessed here.

in a recent landmark decision, the singapore high court in re taylor, joshua james and another (official receiver, non-party) addressed the treatment of unclaimed cryptocurrencies during the liquidation of eqonex capital pte ltd, a digital asset exchange operator.

the applicants, acting as liquidators, sought court approval to distribute unclaimed digital assets and funds held in eqonex capital’s custody to customers under a proposed trust arrangement. they also requested indemnity rights and for any remaining assets to vest with the official receiver upon the company’s dissolution. the case highlights the tension between liquidators’ practical challenges in distributing unclaimed assets and the legal requirements for establishing trusts in crypto insolvencies. with only a small fraction of eqonex’s customers engaging in recovery efforts, the liquidators sought a streamlined solution, but the court prioritised strict adherence to trust law principles.

justice aedit abdullah dismissed the application, holding that no trust – whether express, resulting or quistclose – had been created over the cryptocurrencies. the ruling affirms that customers retain full ownership of cryptocurrencies held on exchanges unless terms explicitly transfer title. this aligns with global trends, such as hong kong’s re gatecoin ltd (in liquidation) (explained further below), where similar disclaimers in terms prevented trust claims. notably, clauses in the user agreement affirmed that digital assets remained the property of customers and that eqonex capital held no fiduciary duties toward them.

the judgment emphasised that mere custodial arrangements or operational controls do not constitute a trust. the court also rejected the argument that the assets should vest with the official receiver under section 213(1) of the insolvency, restructuring and dissolution act, as eqonex capital had not yet been dissolved and did not hold title to the assets.

this decision reinforces the principle that digital asset platforms must clearly define asset ownership and fiduciary responsibilities. it also underscores the importance of customer engagement during liquidation, as only a small fraction of eqonex’s users had responded to recovery efforts.

the singapore decision mirrors hong kong’s approach in re gatecoin ltd (in liquidation), where the court also refused to recognise a trust due to explicit disclaimers in terms. the specific set of terms and conditions that applied to the majority of account holders in re gatecoin (in liquidation) clearly stated the cryptocurrencies were not to be held on trust for the account holders.

the ruling provides critical guidance for insolvency practitioners navigating the complex intersection of cryptocurrency and trust law. while harneys does not provide legal advice on the laws of singapore and hong kong, the judgments in the eqonex and gatecoin liquidations underscore a growing common law consensus: crypto platforms must use unambiguous language to define asset ownership. liquidators must carefully review the terms and conditions issued by the platform to each account holder to determine whether a trust exists over the relevant cryptocurrencies.

when a scheme of arrangement involving a compromise or arrangement is proposed between a company and its creditors or any class of them, the court is required to consider whether it would be appropriate to convene one or more meetings of creditors for the purposes of considering and voting on the scheme of arrangement.

the question of how creditors are to be classed is a crucial element to any scheme of arrangement as it often affects the bargaining power (and potential veto capabilities) of creditors which ultimately determines whether the relevant scheme will be approved by the requisite majorities at the scheme meeting.

it is well-established that, in determining whether scheme creditors are properly classed, the court looks at whether the creditors voting in the same class have sufficiently similar legal rights such that they can consult together with a view to their common interest. in determining whether a class of creditors can consult together, the court must consider both their existing legal rights and rights in the relevant alternative if the scheme is not implemented.

it is also well-accepted that it is the rights of creditors, not their separate commercial or other interests, which determine whether they form a single class or separate classes.

whilst these principles relating to class composition are relatively uncontroversial, its application is often far less straightforward in practice. complexities arise when the difference in the scheme creditors’ relative positions involve different commercial interests and private rights, making it difficult to distinguish between ‘legal rights’ and ‘interests’. this is particularly evident in the context of group restructurings where scheme creditors often consist of some creditors who hold different claims against distinct entities within the same corporate group, and who may, as a result, have additional rights derived from the wider restructuring of the group which the scheme forms part of.

in this article, we explore the case of china aoyuan group, where the hong kong court of first instance and the grand court of the cayman islands grappled with the issue of whether certain creditors who purportedly had a special interest by reason of their ability to vote and receive scheme consideration in both of the inter-conditional schemes proposed by the china aoyuan group should be classed separately from other creditors who only had the right to receive consideration in one of the schemes.

in coming to its decision, the courts had to consider whether it should be limiting itself to solely considering a scheme creditor’s rights under the specific scheme in question when deciding class composition, or whether it should also consider how the scheme creditor’s rights would be affected by the broader restructuring (ie both inter-conditional schemes) as a whole.

download the pdf to read the full article.

this article first appeared in volume 22, issue 3 of international corporate rescue and is reprinted with the permission of chase cambria publishing - www.chasecambria.com

the bvi has robust corporate insolvency legislation, fostering recoveries for creditors in the event of a liquidation. this article examines two areas where the bvi’s legislation, as interpreted by its courts, is particularly developed: unfair preferences and challenges to the decisions of liquidators, as well as other office-holders. the strength of the bvi’s corporate insolvency legislation provides a reason for companies to incorporate in the territory.

by way of introduction, unfair preferences, which are one of several voidable transactions provided for by the british virgin islands (bvi) insolvency act, revised edition 2020 (bvi ia), offer an important potential avenue for recovery by a liquidator when a company is wound up. the purpose of the unfair preference regime is to uphold the fundamental insolvency principle of pari passu distribution – that all creditors of a particular class should be treated equally in the distribution of assets, or any proceeds from the sale of those assets, and without preference to one another – by ensuring that any payments to creditors that were unfairly made in priority to other creditors during the lead up to a company’s insolvency are returned to the liquidation estate. this article examines the key features of the bvi’s unfair preference regime including, in particular, the test for what constitutes an unfair preference and how it differs favourably from that applied in certain other common law jurisdictions, facilitating recoveries by liquidators.

separately, the article also examines the recent landmark privy council decision in stevanovich v richardson [2025] ukpc 18 (stevanovich), which clarifies the interpretation of a ‘person aggrieved’ under section 273 of the bvi ia, a provision which allows for the decisions of liquidators and other office holders to be challenged. by limiting the circumstances in which third parties may challenge such decisions, stevanovich serves to encourage the orderly winding up of bvi companies.

both the flexible unfair preference regime and the protections afforded by section 273 of the bvi ia highlight the advantages of the bvi as an offshore jurisdiction, both in terms of the bvi ia and the pragmatic approach of the bvi courts to its interpretation.

download the pdf to read the full article.

this article first appeared in volume 22, issue 3 of international corporate rescue and is reprinted with the permission of chase cambria publishing - www.chasecambria.com

on 4 june 2025, the supreme court handed down judgment in waller-edwards v one savings bank plc. the judgment provides welcome certainty to lenders as to when they are put ‘on inquiry’ of undue influence in hybrid loan transactions.

waller-edwards concerned undue influence in respect of a hybrid loan – that is a loan which is partly for joint borrowing by the couple and partly to discharge the debts of one party (often the husband) to the financial disadvantage of the other party (often the wife).

ms waller-edwards opposed the lender’s possession proceedings on the basis that she had entered the loan as a result of the undue influence of her former partner mr bishop. she also opposed the possession proceedings on the basis that, because some of the loan was being applied for mr bishop’s sole benefit, the bank should have been on inquiry of the risk of undue influence to ms waller-edwards and the lender’s security should not be enforceable against her.

the law had already been clarified as regards three-way loan transactions (i.e. transactions involving a couple and a lender) where on the face of the transaction the wife stands as surety for a loan for her husband (or vice versa). three cases in the early 1990s and 2000s established the “etridge” principle to the effect that, in such a circumstance, the lender was put on inquiry of undue influence. the lender could protect themselves against the risk of having such a transaction set aside by the party at risk (i.e. often the wife) by taking modest steps set out in what is known as the “etridge protocol” designed to ensure that the party at risk understood the nature of the transaction into which they were entering and the risks to them.

by contrast, in a case of a transaction which was on its face a joint borrowing transaction to the advantage of both people in the couple, the law had previously clarified that the lender was not put on inquiry, and the etridge principle therefore did not apply, unless the lender is aware that the loan is being made for the husband’s purposes as distinct from the joint purposes of husband and wife (or vice versa).

the distinction between the law’s treatment of these two kinds of transactions was, the supreme court said in waller-edwards, “straightforward and binary”.

waller-edwards, however, clarified the law in respect of the more difficult “middle-ground” situation of a hybrid loan. in waller-edwards, the lower courts had held it was a matter of fact and degree as to when a lender is put on inquiry of undue influence. in other words, the court was required “to look at a non-commercial hybrid transaction as a whole and to decide, as a matter of fact and degree, whether the loan was being made for the purposes of the borrower with the debts, as distinct from their joint purposes”. this would lead to a situation where lenders must carefully look at each hybrid transaction and determine the risk of undue influence.

the supreme court thought this was unduly onerous on the lenders and advocated a bright line approach

“either there is, on the face of the non-commercial transaction, a surety element giving rise to a heightened risk of undue influence or there is not…. the level of risk presented by a surety transaction is the same whether it is accompanied by joint-borrowing or not. they hybrid element does not reduce that risk.”

accordingly, there is to be no third test for hybrid transactions – the existence of any exclusive benefit for one borrower, which is not de minimis (trivial), moves the case out of the joint loan category and into the surety category, triggering the need for lenders to comply with the modest steps set out in the “etridge protocol”.

harneys does not advise on the law of england and wales, but this judgment will be of significant interest to all lenders including in the bvi where the etridge principles have been applied.

the uk supreme court has recently provided important clarification as to the breadth of section 213 of the insolvency act in bilta (uk) ltd (in liquidation) v tradition financial services ltd (bilta), holding that it is not intended to apply only to persons exercising management or control of the company’s business, but extends also to third party outsiders who have assisted or knowingly become parties to the carrying on of fraudulent business.

the decision will be of great interest to cayman islands and bvi practitioners, because section 213 of the insolvency act is in substantially the same form as section 147 of the companies act (in the cayman islands) and section 255 of the insolvency act 2003 (in the bvi). as a supreme court decision, bilta is highly persuasive.*

the underlying fraud discovered in bilta involved a conspiracy related to the trading of carbon credits during the summer of 2009: payments intended to account for vat to the relevant tax authorities were instead directed to third parties via multi-layered and high-speed transactions. based on assumed facts (which are not addressed in any detail in this blog), tradition - a third-party brokerage firm - had been involved to a certain extent in that underlying fraud.

section 213 of the insolvency act provides (emphasis added)

1. if in the course of the winding up of a company it appears that any business of the company has been carried on with intent to defraud creditors of the company or creditors of any other person, or for any fraudulent purpose, the following has effect.
2. the court, on the application of the liquidator may declare that any persons who were knowingly parties to the carrying on of the business in the manner above-mentioned are to be liable to make such contributions (if any) to the company’s assets as the court thinks proper.

following a helpful summary of the key principles concerning the correct approach to statutory interpretation and a consideration of prior authorities, the supreme court held that (subject to certain exceptions not relevant for present purposes) there was nothing in the language of section 213 which restricts the scope of the provision to directors and other “insiders” who were directing or managing the business of the company.

the natural meaning of the statutory words is wide enough to cover not only such “insiders” but also persons who were dealing with the company if they knowingly were parties to the fraudulent business activities in which the company was engaged. such transactions could include those who transacted with the company in the knowledge that by those transactions the company was carrying on its business for a fraudulent purpose. section 213 was therefore held to be sufficiently broad in principle such that tradition fell within its crosshairs.

there is, perhaps surprisingly given the breadth of its potential application, very little authority in the cayman islands concerning section 147 of the cayman islands companies act. that being said, the cayman islands grand court has very recently handed down an important decision concerning, amongst other matters, the effect of submission to the jurisdiction within the context of s.147 claims against persons based overseas, and the issue of whether s.147 has extraterritorial effect: conway & ors v air arabia pjsc. a further blog concerning that decision will follow.

*harneys do not practice the laws of england and wales. whilst decisions of the supreme court only bind the lower courts of england and wales, the decisions of the judicial committee of the privy council (jcpc) bind the british overseas territories, crown dependencies and commonwealth countries which it serves. a number of the jcpc’s members are the same judges who sit on the uk supreme court.

in the recent decision of in the matter of position mobile ltd sezc, the cayman islands grand court has thoroughly reviewed the legal test as to whether the documents of a subsidiary are within the “power” of its parent company in the context of a specific discovery application in winding-up proceedings. the decision also serves as a helpful reminder on the importance of formulating specific discovery applications with precision and full particulars.

a preliminary matter arising in the proceedings was whether the applicable regime for discovery applications brought in winding up proceedings is contained in the grand court rules (gcr) rather than the companies winding up rules (cwr). the petitioner’s application for specific discovery against the respondents was formulated on the basis that gcr (specifically, gcr o.24) should apply.

as to this, the court cited with approval the 2023 decision of kawaley j in in re global cord blood corporation to the effect that:

1. gcr o.24 does not apply to winding up proceedings.
2. nevertheless, the court does have the jurisdiction under the cwr (specifically cwr o.3, r.12(1)(i)) to give directions for discovery as the court considers appropriate.
3. within the context of contributories’ petitions, there is no starting assumption, corresponding to gcr o.24, r.10, that production of documents will be ordered because they are referred to in affidavits or pleadings. the court has the jurisdiction to order discovery which is to be exercised where it is “appropriate.”
4. however, where a discovery application is made under the cwr in circumstances which are procedurally similar to circumstances which would arise under the gcr, the practice under the gcr will be analogous and highly persuasive although not dispositive.
5. the practice under the gcr is not dispositive because the jurisdiction contained in the cwr is expressed in more open-ended terms. however, where there is no material distinction between the winding up jurisdiction and the general civil jurisdiction, it will generally be desirable for legal clarity and consistency that the same procedural approach is adopted in each jurisdictional context.

the court agreed to proceed in this particular case to determine the application, taking into account both the gcr and the cwr (likely because the parties agreed to specific reference to gcr o.24 in a previous consent order).

the court then went on to examine the test to be applied as to whether the documents of a subsidiary are within the “power” of its holding company. after considering the relevant caselaw, the court concluded that it is bound by the decision of the cayman islands court of appeal in wafr holdings ltd which followed the house of lords’ decision in lonrho ltd v shell petroleum co ltd, meaning that:

1. a party has a document in his “power” only if he has a presently enforceable legal right to obtain inspection of the document from whoever actually holding it without the need to obtain the consent of anyone else.
2. a parent company does not merely by virtue of being 100% parent have control over the documents of its subsidiaries.
3. it is not sufficient that consent could be obtained if it were asked from the subsidiary. if there is no evidence of an existing right or understanding or arrangement giving a parent access to subsidiary’s documents then the parent does not have the necessary control over its subsidiary’s documents.
4. however, a party may have sufficient practical control if there is evidence of the parent already having unfettered access to the subsidiary’s documents or if there is material from which the court can conclude that there is some understanding or arrangement by which the parent has the right to achieve such access.
5. each case will depend on its own facts and the burden of proof lays on the applicant to prove that the documents are within the “power” of the other party or parties.

ultimately, the court decided on the facts to refuse most of the petitioner’s requests.

in making its decision, the court also emphasised that, in applications for specific discovery, the documents or at least the classes of the documents sought should be identified with precision in the application.

in a recent bvi case, the commercial court navigated various issues arising out of a winding up application brought by a creditor against a struck off and dissolved bvi company, based on an unregistered foreign judgment.

the bvi business companies act, revised edition 2020 (bca) expressly provides that where a company has been struck off and dissolved, a creditor may make a “claim” against the company and pursue the claim through to judgment or execution. whilst the court was comfortable that the bca enabled, for example, a monetary claim to be commenced and pursued by a creditor against a struck off and dissolved company, it was concerned that winding up proceedings, commenced by way of originating application, were not a “claim” within the meaning of the bca.

to address the court’s concerns, harneys took a deep dive into various legislation. in particular, rule 13(3) of the bvi insolvency rules, revised edition 2020 states that for the purposes of applying the eastern caribbean supreme court civil procedure rules (cpr) to insolvency proceedings, an application in insolvency proceedings, whether originating or ordinary, is to be regarded as a fixed date claim. once it was established that a winding-up application was to be treated as a “claim” under the cpr, the court was satisfied that a winding up application was a claim for the purposes of the enabling provisions under the bca, and the creditor was entitled to pursue its claim against the company by way of insolvency proceedings, even after the company had been struck off and dissolved. the winding up order was granted.

in our earlier blog on the same case, the court briefly addressed the english court of appeal’s decision in drelle. it is yet to be seen how drelle may be applied by the bvi court in cases with similar facts.

this article forms part of a series prepared by partners james eggleton and christopher pease, of our cayman islands and bvi offices respectively, in connection with digital assets disputes. for more information, please click here.

the jurisdiction of the cayman and bvi courts to adjudicate claims depends upon whether the defendant(s) to those claims can lawfully be served with originating process^[1].

where the defendant(s) are within the jurisdiction, this is a straightforward matter. however, where the defendants (or some of them) are located in another country – as is more likely than not to be the case in any multi-party crypto dispute – the question arises as to whether the court will be prepared to exercise its discretion to permit service of process on those defendants outside the jurisdiction (and thereby to assume jurisdiction over them).^[2]

the principle underlying the need to seek the permission of the court to serve out of the jurisdiction in such cases has traditionally been said to be that a court should be cautious in allowing process to be served on a foreigner out of the jurisdiction, as to do so may amount to an exorbitant^[3] or inappropriate interference with the sovereignty of other states.

however: “this traditional characterisation has been held to be no longer realistic in today’s world. in the overwhelming majority of cases where service is authorised, there will have been either a contractual submission to the jurisdiction of the [english] court or a substantial connection between the dispute and [england], and litigation between residents of different states is a routine incident of modern commercial life. thus the decision whether to merit service out of the jurisdiction is generally a pragmatic one in the interest of the efficient conduct of litigation in an appropriate forum.”^[4]

in the first of this two-part article, we address a number of the issues that have arisen in the crypto context concerning service of process on defendants out of the jurisdiction. in the second part, we consider two specific jurisdictional issues arising within the context of crypto disputes: the so-called “persons unknown” jurisdiction, and the jurisdiction of the court to order service by alternative (i.e. non-traditional) means.

service out of the jurisdiction in the cayman islands

the cayman islands grand court rules (the gcr) contain a list of the principal cases in which service out of the jurisdiction is permissible^[5]. specifically:

• service out of the jurisdiction is permissible with the leave of the court provided there is a good arguable case that the claim falls within one of the “gateways” for service out.
• service out of the jurisdiction is permissible without the leave of the court if every claim in the action is one which, by virtue of a cayman islands law or the gcr themselves, the court has power to hear and determine notwithstanding that the person against whom the claim is made is not within the jurisdiction or that the wrongful act, neglect or default giving rise to the claim did not take place in the jurisdiction.

it is well settled that where a claimant is required to seek leave to serve out, the requirement to show a good arguable case that the claim falls within a particular jurisdictional gateway generally involves the supply by the claimant of a plausible evidential basis for the application for the relevant jurisdictional gateway, based on the material then available^[6].

where a particular gateway is relied upon, claimants seeking an order for service out of the jurisdiction must also satisfy the court that: (i) there is a serious issue to be tried on the merits of the claim (i.e. there must be a real, as opposed to a fanciful, prospect of success); and (ii) that the cayman islands is the appropriate forum in which the case can suitably be tried in the interests of all the parties and to meet the ends of justice^[7].

service out of the jurisdiction in the british virgin islands

in the bvi, it is no longer necessary to obtain permission from the court to serve a claim outside the jurisdiction. in the absence of a court order permitting service out of the jurisdiction, the claimant should comply with the three criteria found in rule 7.2 of the eastern caribbean supreme court civil procedure rule (revised edition) 2023 (the ec cpr) and file a certificate for service out of the jurisdiction pursuant to ec cpr 7.6 confirming compliance.

that being said, similar principles apply and in particular, the claim must fall within one of the gateways for service out. for more, see our article here: how claims work in the bvi.

claimants should be mindful that, even where originating process has been served out of the jurisdiction in accordance with the relevant procedural rules, a defendant(s) may still challenge the jurisdiction of the relevant court on so-called forum non conveniens grounds. in defending such a forum challenge, the burden of proof will be on the claimant to establish that: (i) there is a serious issue to be tried on the merits; (ii) the claimant has a good arguable case that the claim falls within one or more classes of case in which permission to serve out may be given; and (iii) in all the circumstances, the forum in which the dispute is to be heard is clearly or distinctly the appropriate forum for the trial of the dispute, and that in all the circumstances the court ought to exercise its discretion to permit service out of the jurisdiction^[8].

identifying the relevant service out gateways in the crypto context

in the crypto decisions reported to date, the gateways that claimants have most often relied upon, and which have therefore received the most judicial attention, are as follows:

• the subject matter of the claim relates wholly or principally to property^[9] within the jurisdiction. ^[10]
• the claim is made in tort, where the damage was sustained or will be sustained, within the jurisdiction.^[11]
• the claim is brought against the defendant as constructive trustee, or as trustee of a resulting trust, and the claim: (i) arises out of acts committed or events occurring within the jurisdiction, (ii) relates to assets within the jurisdiction or (iii) is governed by the law of [england and wales]. ^[12]

it is important to note that although there is a certain degree of cross-jurisdictional commonality in terms of the service out gateways that may be available in the circumstances of a given case, the gateways themselves – although they may in some cases be analogous – are by no means the same across different jurisdictions. self-evidently, therefore, the findings of an english court regarding the applicability of a particular gateway under the english civil procedural rules in the circumstances of the dispute then before that court, are unlikely to be dispositive of similar issues arising before the cayman islands or bvi courts as to the applicability of different gateways under the cayman islands grand court rules or the ec cpr respectively, in the circumstances of a wholly different dispute.

that being said, some common trends do appear to be emerging in terms of the particular issues thrown up by crypto assets as a relatively new asset class.

where is cryptocurrency located?

on the basis that crypto assets are to be regarded as a form of property, perhaps a more interesting issue then arises: where are those assets to be treated as being located? the question is relevant to the extent that reliance is placed upon the gateway requiring that the subject matter of the claim relates wholly or principally to property “within the jurisdiction.” ^[13]

in legal terms, where a thing is situated is referred to as its situs. the situs of things is determined as follows^[14]:

• choses in action (ie personal property rights to an intangible object) are generally situated in the country where they are properly recoverable or can be enforced. for example, debts are generally situated in the country in which the debtor resides (on the basis that it is in the country in which the debtor resides, where the creditor can enforce payment). shares in companies are generally situated in the country where, under the law of incorporation, they can be effectively dealt with as between shareholder and the company.
• land is situated in the country where it lies.
• chattels are similarly situated in the country where they are at the relevant time (subject to limited exceptions).

what then of cryptocurrencies specifically (and other property held on a blockchain)? the answer is that the law is still evolving.

the difficulties posed by distributed ledger technologies are explained by the authors of dicey, morris & collins in the following terms^[15]:

“blockchain technology allows data, including records of title to various forms of property, to be recorded on a form of register. the register generally exists simultaneously on computers in multiple locations (a “distributed ledger”), although it may also have an identifiable location. the technology has been used to create various “crypto assets”, including most prominently cryptocurrencies such as bitcoin, in which both the currency and its record of ownership exists solely on the blockchain itself…

… it is however, frequently a design feature of this technology that the register has no single identifiable location, which makes it more secure (in conjunction with the use of cryptography) and more resilient to state control. as noted previously, the lex situs rule is generally identified by its ease of ascertainability as an objective connecting factor, and by the idea that the country of the situs has control over the property and a judgment in conflict with the lex situs will often be ineffective. these justifications are not easily applicable to cryptocurrency held on a blockchain whose register is located in multiple countries with no priority operating between them – this factor distinguishes cryptocurrencies from other intangible property and raises unique problems.”

notwithstanding these difficulties, the courts are nevertheless now starting to grapple with these issues.

• ion science ltd v persons unknown^[16] concerned an urgent ex parte application for various relief including a proprietary injunction, a worldwide freezing order and ancillary disclosure order, a disclosure order pursuant to the bankers trust jurisdiction^[17] and an application for permission to serve out of the jurisdiction and by alternative means. the claimants believed that they were victims of an ico^[18]

in that case, the court held that it was satisfied, there having been no decided case on the point, that the situs of a crypto asset is the place where the person or company who owns it is domiciled. the court noted that its conclusion was supported by academic commentary^[19].

• the decision in ion was subsequently followed in ai limited v persons unknown^[20], by reference to the same academic commentary. the decision was then followed again, in lavinia deborah osbourne v persons unknown^[21], in a case concerning nfts^[22]:

“the other factor which is material to this claim is where such tokens are to be treated as being located at the time when they are lost. as is apparent from the limited description i have already given, non-fungible tokens are in effect a stream of electrons resulting in a credit item to a crypto account. as such, insofar as they have a physical manifestation at all, that is likely to be where the servers relevant to the account are maintained. however, attempting to litigate issues such as this by reference to a concept as ethereal as that would be difficult or impossible.

unsurprisingly, therefore, in a series of cases relating to crypto currency fraud, it has been consistently held that crypto assets are to be treated as located at the place where the owner of them is domiciled. there is no reason at any rate at this stage to treat non-fungible tokens in any other way, assuming for present purposes as i do that they are to be treated as property as a matter of english law.”

• in the british virgin islands, in russell crumpler et al. v cheong jun yoong et al,^[23] the issue arose as to whether the location of crypto assets should be determined by reference to the domicile or residence of its owner. in that case, the bvi court concluded that the place of central management and control (i.e. residence) over the assets was the key determining factor in terms of their location, rather than the place of incorporation of the company that owned them. accordingly, the crypto assets were to be treated as being located in singapore (where the directors of the company, the fund administrator and investment manager were situated), rather than the bvi (where the claimant was incorporated)^{[24] [25]}.

importantly in that case, singapore was also where the individual with control over the private key was resident. as to the importance of the private keys:

“in addition, even though direct control over a cryptocurrency might be beyond any individual state, the owner of the cryptocurrency has control over the property, generally through their control over a private encryption key which is required to transfer the property, and the state of location of the owner thereby has the strongest indirect control over the property. the “owner” should generally be understood to refer to the party in possession of the private encryption key giving access to the cryptocurrency at the time of the relevant transaction….”^[26]

• in hector enterprise inc v hector dao & ors^[27], the situs of the treasury assets of a dao^[28] was not clear cut since the token holders were anonymous and spread across the globe. instead, the location of hector enterprise inc in the bvi, the intermediary company used for off-chain transactions such as contracting with service providers, justified the bvi court taking jurisdiction over the assets for the purpose of appointing receivers. in that case, the treasury assets were held in a multi-signature wallet for which numerous individuals located in different countries held the private keys. however, what connected those individuals was the fact that they were each contracted by the bvi company to provide services for the dao and in that sense the bvi could be said to have the closest connection with the ownership of the digital assets when looked at as a whole (and in the absence of any other single location in which the holder of the private key(s) could be said to be located).

when does the cryptocurrency need to be located within the jurisdiction?

in a further decision in lavinia deborah osbourne v persons unknown^[29], the question arose as to when, for the purposes of ascertaining whether the claim relates to property within the jurisdiction such that the claims falls within the relevant gateway, the property or asset has to be located within the jurisdiction.

that question may be relevant in any situation in which crypto assets are misappropriated: (i) first, from the claimant’s wallet into wallets in the possession or control of unknown persons in unknown jurisdictions; and (ii) subsequently, onwards transferred on any number of occasions to other wallets in the possession or control of other unknown persons in other unknown jurisdictions. in those circumstances, does the asset have to be in the jurisdiction when the cause of action arises, or when (subsequently) the application is made for permission to serve out of the jurisdiction?

in fetch.ai and subsequently d-aloia v persons unknown^[30], the court held that it was likely that the answer to that question was that property would need to be in the jurisdiction before the cause of action (or the misappropriation) accrued. however, the court in osbourne cast doubt on that conclusion, noting that it may be a matter for decision in due course in a contested and fully argued case. accordingly, the point may need to be resolved in due course.

for the purposes of the tort gateway, where is the damage sustained?

for the purposes of the tort gateway, in cases of misappropriation or interference with control over the assets, it is logical that the starting point for any analysis in the crypto context as to where damage has been sustained^[31], is the location of the assets themselves prior to their removal from the jurisdiction. that was the approach taken by the english courts in tulip trading limited v bitcoin association for bsv and ors^[32] and lavinia deborah osborne v persons unknown.^[33]

in the chainswap^[34] case, chainswap applied to the bvi court for permission to serve its claim on persons unknown out of the jurisdiction and by alternative means. chainswap sought leave of the court before serving its claim on the persons unknown outside of the jurisdiction (this was before claimants could serve out without permission). chainswap submitted that the bvi was the most appropriate forum for the resolution of the dispute because chainswap was registered as a company in the bvi and had suffered damage in the bvi as a result of hacking incidents relating to its own computer code. although chainswap’s property was not compromised or misappropriated in the hacking incidents, chainswap submitted that it had suffered losses in the bvi as a result of: (i) the reputational harm occasioned by the hacking incidents; and (ii) its decision (in an effort to mitigate that reputational harm) to voluntarily compensate its affected users (i.e. those users of the chainswap cross-chain bridge who had had their cryptoassets compromised or misappropriated).

claims brought against defendants as constructive trustee(s)

when property is obtained by fraud, equity imposes a constructive trust on the fraudulent recipient, and the property is recoverable and traceable in equity.^[35] given the strong likelihood that courts will treat crypto assets as a form of property, they are therefore amenable to recovery and tracing in accordance with established equitable principles.

one of the issues that arises in respect of constructive trusts is which law should govern them. there is, however, no clear english or commonwealth authority on the choice of law rules relating to constructive and resulting trusts, and the law in this area is complex. it suffices for the purposes of this article to note that the trust gateway has been relied upon successfully on multiple occasions in the crypto fraud context for the purposes of applications for leave to serve out: see, for example, russell crumpler et al. v cheong jun yoong et al^[36], fetch.ai limited v persons unknown^[37] and lavinia deborah osborne v persons unknown .^[38].

for more in relation to constructive trust arguments within the crypto context, see further our articles in relation to the decision in fabrizio d’aloia v persons unknown,^[39] to follow in due course.

other jurisdictional issues

in the second part of this article, we address two discrete issues arising regarding service out: the “persons unknown” jurisdiction and service by alternative means (for example, by way of nft drop).

^[1] dicey, morris & collins on the conflict of laws 16^th ed rule 31 (and see [11-004]). in the cayman islands, the term originating process refers to a writ, originating summons, originating motion, petition, arbitration application or written application by which civil proceedings in court may begun: gcr o.5, r.1(1).

^[2] in recovery cases, in circumstances where there has been a hack or a scam, it is likely (or at least possible) that the claimant will not know the identity of the defendant or where the defendant is located. where that happens, it may well be necessary for the claimant to proceed on the basis that the defendant(s) are located outside of the jurisdiction. see further the second part of this article concerning the “persons unknown” jurisdiction and service by alternative means.

^[3] noting, however, that the expression “exorbitant” has been criticised for its “muscularity” within the context of modern-day commercial disputes. see for example the recent discussion in the cayman islands decision of in re taiping trustees limited (fsd 323 of 2022 (ddj), 29 january 2024 at [88]-[93].

^[4] dicey, morris & collins on the conflict of laws 16^th ed at [11-101]. see also aberla v baadarani [2013] uksc 44 at [53].

^[5] at gcr o.11, r.1.

^[6] see, for example, altimo holdings v kyrgyz mobil tel ltd [2012] 1 wlr 1804 and brownlie v four season holdings inc. [2018] 1 wlr 192 (uksc), applied in the cayman islands recently in royal park investments v s&p global, inc and ors (fsd 37 of 2023 (ikj), 3 june 2024.

^[7] see spiliada maritime v cansulex [1987] ac 460 at 476b; ahab v saad [2010] 2 cilr 289; ritchie capital management llc and ors v lancelot investors fund ltd (in official liquidation) and ors (cica (civil) appeal 8 of 2021, judgment 18 july 2022.

^[8] see for example russell crumpler and anor v cheong jun yoong and anor bvihcom 2023//0003 and bvihcom 2022/0119 (12 december 2023;[51]; amerinvest international forestry group ltd. v kwok ka yik bvihcmap 2014/0033 [7]; nilon ltd v royal westminister investments s.a. [2015] ukpc 2 [13].

^[9] there is now a substantial body of case law to the effect that crypto assets are likely to be treated as attracting property rights. see, for example, aa v persons unknown [2019] ewhc 3556 (comm) at [61]; ion science limited & anor v persons unknown (unreported), 21 december 2020 at [11]; fetch.ai limited v persons unknown [2021] ewhc 2254 (comm) at [9]; tulip trading v van der laan [2023] ewca civ 83 at [141]; d’aloia v persons unknown [2024] ewhc 2342 (ch); ; philip smith and jason kardachi (in their capacity as joint liquidators) v torque group holdings ltd [2021] ecscj no 627 (wallbank j); chainswap v persons unknown vg 2022 hc 036. for more on this, see our blog here: close encounters of the third kind of personal property – digital assets and the definition of personal property.

^[10] in england, this is gateway 11, as set out in paragraph 3.1 of cpr practice direction 6b. in the cayman islands, analogously, see gcr o.11, r.1(1)(i). in the bvi, analogously, see 7.3(6) of the ecsc cpr (revised 2023).

^[11] in england, this is gateway 9(a). in the cayman islands, analogously, see gcr o.11, r.1(1)(f). in the bvi, analogously, see 7.3(4) of the ecsc cpr (revised 2023).

^[12] in england, these are gateways 15(a), 15(b) and 15(c). in the cayman islands, analogously, see gcr o.11, r.1(1)(j). in the bvi, analogously, see 7.3(8) of the ecsc cpr (revised 2023).

^[13] tangentially, the issue is also relevant within the context of the tort gateway (where damage has been sustained): see further below.

^[14] dicey, morris & collins on the conflict of laws 16^th ed, rule 136 at [23r-023]

^[15] dicey, morris & collins on the conflict of laws 16^th ed at [23-050]

^[16] (unreported), 21 december 2020 [case no. cl-2020-000840]

^[17] for more on information disclosure orders in the crypto context, see our article here: identifying wrongdoers in the crypto space: the norwich pharmacal and bankers trust jurisdictions

^[18] initial coin offering.

^[19] cryptocurrencies in public and private law, professor andrew dickinson, at [5.108].

^[20] [2021] ewhc 2254 (comm).

^[21] [2022] ewhc 1021 (comm) at [14]-[15].

^[22] non-fungible tokens.

^[23] bvihc (com) 2023/0003, 12 december 2023.

^[24] see further, the decision of the appellate division of the high court of the republic of singapore in [2024] sghc(a) 10, 12 april 2024 at [31].

^[25] on this point, see also tulip trading limited v bitcoin association for bsv and ors [2022] ewhc 667 (ch).

^[26] dicey, morris & collins on the conflict of laws 16^th ed at [23-050].

^[27] bvihccom 2024/0072.

^[28] decentralised autonomous organisation.

^[29] [2023] ewhc 39 (kb) at [33]-[38].

^[30] [2022] ewhc 1723 (ch) at [22].

^[31] in the cayman islands, the relevant gateway refers to the damage being sustained in the cayman islands or the damage resulting from an act committed within the cayman islands: gcr o.11, r.1(f).

^[32] [2022] ewhc 667 (ch).

^[33] [2023] ewhc 39 (kb) at 39.

^[34] chainswap limited v owner of digital wallet & ors bvihc(com) 2022/0031 (14 may 2022)

^[35] westdeutsche landesbank v islington lbc [1996] ac 669.

^[36] bvihc (com) 2023/0003, 12 december 2023.

^[37] [2021] ewhc 2254 (comm).

^[38] [2023] ewhc 39 (kb) at 39.

^[39] [2024] ewhc 2342 (ch).

the english court of appeal’s decision in servis-terminal llc v drelle concerns the issue of whether unregistered or non-domesticated foreign judgments or arbitration awards can be used as a basis for insolvency proceedings. the english court of appeal ruled that such judgments cannot serve as a basis for bankruptcy petitions in england.

post-drelle, harneys has successfully acted for a petitioner in obtaining a winding up order against a debtor company on the basis of an unpaid non-domesticated foreign judgment in the bvi. the judgment in drelle was specifically brought to the attention of the judge who did not consider there was any need to alter the position adopted in the bvi.

this is unsurprising. bvi courts have always permitted unrecognised foreign judgments or arbitration awards to establish an undisputed debt under the bvi insolvency act (see, for example, cases such as pacific china holdings ltd v grand pacific holdings limited and vendort traders inc v evrostroy grupp llc).

in the cayman islands, post-drelle, this very issue has also been considered in the case of re sin capital (cayman) ltd. the grand court ordered the winding-up of a company based on a statutory demand that derived from a foreign arbitration award, explicitly stating that no further steps were needed for recognition in the cayman islands.

the bvi and the cayman islands are known as creditor-friendly jurisdictions. as the law stands in the bvi and the cayman islands, unrecognised or unregistered foreign judgments and arbitration awards can form the basis of a winding up petition and the courts have so far not shown a desire to follow the decision in drelle.

in the recent cayman decision of l.r. capital china growth ii company limited (lr capital) v international corporation services ltd (ics), justice asif refused preservation orders and sealing and gagging orders sought by the plaintiffs in support of an intended norwich pharmacal application.

background

the background to the proceedings involved a substantial loan made by lr capital to a cayman company, strategic global (energy) investment limited (strategic global), whose registered office is the defendant, ics. lr capital claims strategic global defaulted on its repayments under the loan, with the amount outstanding for over us$49 million.

lr capital commenced proceedings against strategic global in 2023 in the high court of hong kong for repayment of the outstanding loan facility. strategic global did not participate in those proceedings and the terms of the proposed default judgment are in the process of being finalised.

anticipating the potential enforcement of the default judgment in the cayman courts, lr capital’s attorneys conducted a companies registry search which, to the surprise of the second plaintiff, mr cong, who is a director of lr capital, also listed him as a director of strategic global. mr cong asserted he never agreed to such appointment and has already commenced defamation proceedings in hong kong against strategic global and its director, mr bo zhou. the false appointment, mr cong argued, was orchestrated to damage his professional reputation.

against that backdrop, the plaintiffs brought an ex parte application in the grand court seeking:

1. a document preservation order;
2. a sealing order; and
3. a gagging order, all against strategic global’s registered office, ics.

analysis

justice asif carefully examined the evidential basis for the relief sought and expressed clear reservations about the necessity and proportionality of the orders sought.

document preservation order

the court found that there was no compelling evidence that ics posed a real risk to the integrity of the relevant documents. the court noted that ics is a cima-regulated entity and would be expected, under the cayman regulatory regime, to preserve corporate records regardless of any client instruction to the contrary.

justice asif also found that the plaintiffs’ concerns - namely, that mr zhou might instruct ics to destroy or transfer documents - were speculative and unsupported by material evidence.

gagging and sealing orders

the court was even less persuaded on the necessity for gagging and sealing orders. justice asif agreed with justice doyle’s reasoning in cathay capital that gagging and sealing orders are exceptional, and found that the plaintiffs failed to demonstrate a sufficient risk of prejudice to the intended norwich pharmacal application or other proceedings.

moreover, mr cong had already initiated litigation in hong kong which significantly undermined the urgency or confidentiality usually required to justify a sealing and gagging order.

the court further acknowledged that the merits of the underlying norwich pharmacal application were a relevant factor in deciding whether to grant interim relief such as sealing, gagging or preservation orders. a strong underlying claim might justify such protective measures, whereas a weak or speculative claim would weigh against them.

key takeaways

this case provides helpful guidance for parties seeking or defending interim relief before an intended norwich pharmacal application. there is a high threshold to overcome before preservation, sealing or gagging orders will be granted, particularly where the defendant is a registered office provider, ie a regulated service provider with statutory obligations and no axe to grind against the plaintiff.

the decision will also be welcomed by practitioners for the confirmation it provides that the court will consider whether there is a prima facie strong case for the underlying norwich pharmacal application as a factor in deciding whether such interim relief is justified in the interests of justice.

in the recent unreported decision of clico international life insurance ltd & anor v eastern caribbean baptist mission & ors, the eastern caribbean court of appeal (coa) provided useful guidance on when it is appropriate to “lift the veil”, as an exception to the well-established legal principle that companies have separate legal personality.

in essence

1. the appellant, clico, had an associated trinidadian entity that was the registered owner of land in antigua;
2. the baptist mission and the other respondents had obtained various default judgments against clico; and
3. in the antiguan high court, the respondents had sought – and been granted – a sale order over the land so as to enforce their rights under the default judgments.

the lower court had granted an order for sale on the basis that the corporate veil should be lifted, such that the land should be treated as belonging to clico despite being held in the name of the trinidadian entity.

on appeal, the coa considered various english and bvi authorities including the seminal english case of prest v petrodel (which was not drawn to the lower court’s attention), and held that there was a limited common law principle that – where a person is under an existing legal obligation, liability or legal restriction, but then deliberately evades or intentionally frustrates those obligations by interposing a company under their control – the court may then pierce the corporate veil so as to deprive that person of the unfair advantage.

on the facts, the coa overturned the decision of the lower court. while there was evidence that the land had been managed by clico (together with its own assets), it could not be said that clico beneficially owned the land. even if the appellant did beneficially own the land, that alone still would not justify disregarding the fact that it was legally owned by the trinidadian entity.

although “fraud unravels all”, would-be litigants should always take care to understand the relevant corporate structure and identify the correct corporate defendants before commencing proceedings.

while strictly a decision relating to the law of antigua and barbuda, being a coa decision, its influence will be felt across the offshore world.

the cayman islands grand court recently considered the circumstances necessitating a second adjournment of a trial where a principal witness was unable to travel outside of the prc to attend trial for cross-examination. in in the matter of shiliu investment group limited, the court re-examined the principles of fairness in a somewhat novel situation where the only two witnesses at trial were unable to travel to the cayman islands to give evidence.

the trial was originally listed for hearing in january 2025 and was adjourned until april 2025 due to difficulties with the two witnesses being unable to attend the trial for cross-examination given certain travel restrictions each was under in the people’s republic of china (prc). both witnesses were prevented from giving evidence within the prc because the prc authorities do not permit evidence for foreign proceedings to be given remotely from within the prc.

the respondents’ witness was still subject to a travel restriction at the time of the adjourned trial in april, preventing him from leaving the prc in order to give evidence either in cayman islands or by video-link from hong kong. the respondents therefore applied for a second adjournment of the trial to afford the witness additional time within which to secure permission from the prc authorities to travel outside of the prc in order to be cross-examined.

the court considered that the fundamental question on any application to adjourn a trial is whether refusal to adjourn would lead to an unfair hearing. if so, the hearing must be adjourned because the court will not countenance an unfair hearing. citing hammer foundation v hammer international foundation the court reiterated the principles governing its approach to an adjournment application:

1. the court must engage in an evaluative assessment of all the material placed before it;
2. fairness involves fairness to both parties - inconvenience is not a relevant countervailing factor and is usually not a reason on its own to refuse an adjournment unless there is truly uncompensatable injustice to the other party; and
3. in assessing what is fair, the court will assess, inter alia, (i) the parties’ conduct and the reasons leading to the request for an adjournment, (ii) the extent to which the difficulties relied on in support of an adjournment can be overcome before the trial; (iii) whether there are specific matters that have arisen affecting the trial and whether they may be managed without losing the trial; and (iv) the consequences of an adjournment for the parties and for the court.

the court ultimately determined “with some hesitation” that fairness required the trial to be adjourned a second time, recognising what it described as “unfortunate bureaucracy” regarding the travel restrictions imposed on the respondents’ principal witness and taking into consideration the potential impact on the respondents’ position if its principal witness was unable to give oral evidence at trial. the court however, warned the respondents that its decision was a “last chance saloon” and awarded the petitioner a wasted costs order.

the judgment is a helpful reminder of the principles the court will consider when determining an adjournment application and the court’s apparent reluctance to do so unless absolutely necessary. while the court’s primary concern will be that of fairness, the court repeatedly emphasised its hesitation in adjourning the trial for a second time - and that “something really out of the ordinary” would have to occur that would further delay the trial.

the recent english high court decision in kireeva v clement glory limited considered conflicts of law principles for the purposes of determining the location of shares in a bvi company and whether the english court had jurisdiction to hear a trust claim regarding the beneficial ownership of bvi shares.

this claim was part of a wider dispute between the claimants – a russian bankruptcy trustee and a russian bank – and the bankrupt individual, the former bank president. the bank claims that the bankrupt perpetuated a massive fraud against it. the trustee is seeking to recover property of the bankrupt in england, where he is now domiciled.

this decision concerned permission for the trustee to serve out of the jurisdiction the proceedings in which she claimed beneficial interest in the shares in the defendant bvi company (cgl). to succeed she needed to establish a serious issue to be tried in relation to the trust claim. for conflict of law purposes, a trust claim is located in the same place as that of the trust property.

following a related uk supreme court decision which confirmed that the common law recognition of the trustee’s appointment was limited to movable property (eg shares) of the bankrupt located in england, the trustee had to show that the claimed trust property – the shares in cgl – were sited in england.

the english court considered section 245 of the bvi business companies act, revised edition 2020, which provides that for purposes of determining matters relating to title and jurisdiction, the situs of the ownership of shares of a company is in the bvi. the court, however, found that section 245 was not determinative for the purposes of english law, as it is a simplifying rule of bvi domestic law.

instead, the court concluded that the english conflicts of law rule for determining the location of shares in a foreign company, including a bvi one, is that shares are situated in the country where they can be effectively dealt with as between the owner and the company. if the shares may be transferred only by registration on a particular register, they will be regarded as situate at the place where the register is kept; if they are transferrable on more than one register, they will be situate in the place of the register on which they would be dealt with in the ordinary course of affairs by the registered owner for the time being.

the trustee submitted that ggl’s articles of association entitled cgl to maintain a share register outside of the bvi and there was sufficient evidence of connections between cgl and england to raise at least a serious issue that there was a share register in england.

however, without any evidence to support the trustee’s position, the court found the default position under cgl’s constitutional documents is that the original register is kept at the offices of cgl’s registered agent in the bvi and therefore the shares in cgl are situated in the bvi. accordingly, the trustee could not pursue the trust claim in the english courts in reliance on recognition of her foreign appointment: she had no authority or standing in the english courts to claim foreign movable property.

while harneys does not advise on english law, the kireeva decision highlights the complications that come with recognition of foreign appointments, conflicts of laws and the extraterritoriality of domestic provisions, and will be helpful guidance on how foreign courts will approach issues regarding the situs of shares in bvi companies.

the grand court of the cayman islands follows the privy council decision in sian v halimeda and confirms that an applicant for an injunction restraining the presentation of a winding up petition must show that the debt is disputed on genuine and substantial grounds, even where there is an arbitration agreement.

in re naas technology inc, a debtor company applied to, inter alia, restrain the presentation of a winding up petition on the ground that there was a genuine and substantial dispute as to the debt which had been demanded by way of a statutory demand. the company alleged that:

1. the parties entered into a series of agreements which were governed by new york law and contained arbitration clauses in favour of hong kong;
2. it was the company’s suspicion that the creditor had participated in manipulative short selling of the company’s stock for its own benefit; and
3. arbitration proceedings between the parties were commenced as a result of alleged breaches of the implied duties of good faith and fair dealing pursuant to the agreements and were ongoing.

justice doyle dismissed the company’s summons on the basis that the debt was not disputed on genuine and substantial grounds. the court followed the privy council decision in sian v halimeda (an appeal from the bvi which was anticipated to receive attention from other common law jurisdictions - read here) and the recent decision of the grand court of the cayman islands in icm spc v jarvis, which represents settled cayman islands law on the issue. in assessing whether the company had shown that there was a genuine and substantial dispute as to the debt, justice doyle found that:

1. the whole thrust of the company’s case was based on belief and not evidence;
2. while the company “suspected” that the creditor might have been engaged in manipulative short selling of the company’s stock, the company had accepted that it had not found any evidence to substantiate this;
3. suspicions and speculation were insufficient to justify the court granting the requested relief;
4. the commencement of arbitration proceedings by the company was “hallmark of a company making a belated tactical manoeuvre in a somewhat hopeless endeavour to delay the presentation and determination of a winding up petition in respect of which there is no genuine dispute of the debt on substantial grounds”; and
5. in the circumstances, there was no satisfactory evidence before the court to enable it to conclude that the claims of the company were genuine, serious and of substance.

this decision reinforces that the cayman islands and the bvi remain creditor friendly jurisdictions as the laws of both jurisdictions are ad idem on the interplay between insolvency and arbitration proceedings and a winding up petition cannot be delayed by meritless attempts at arbitration – the relevant test to be applied is whether the debt is disputed on genuine and substantial grounds.

in the recent decision involving trillion glory limited and r&f properties (hk) company limited, madam justice linda chan of the high court of hong kong dismissed winding-up petitions filed by a secured creditor, on the basis that the secured creditor lacked a real interest in the proposed liquidations and there was no benefit in issuing a winding-up order due to the absence of assets for unsecured creditors.

background

the petitioner sought to wind up trillion and r&f properties, each part of the guangzhou r&f properties co., ltd group. the group, consisting of onshore and offshore entities (including in the british virgin islands), mainly engages in property and hotel development, and tourism, primarily operating in mainland china.

among other obligors, trillion was a borrower, and r&f properties a guarantor, under a us$504 million loan agreement with the petitioner and three other lenders. the debtors defaulted on repayment of the loan, secured by extensive security, granted by trillion, r&f properties and others, which was due in october 2023. the petitioner served statutory demands, which were not satisfied, before petitioning to wind up the companies. notably, the other lenders, holding 82 per cent of the loan, opposed the winding-up petitions.

issue

the issue before the court was whether a creditor, whose debt is secured by effectively all the assets of the companies, has any real interest in seeking a winding-up order against the companies.

decision

the court dismissed the petitions and ordered costs against the petitioner, on the basis that the petitioner and other lenders, as secured creditors, could execute against all of trillion’s and r&f properties’ secured assets to repay the loan. further, the petitioner could not demonstrate any other interest in winding up the companies and had no intention of surrendering its security. the court, therefore, found no benefit in making a winding-up order, as there would be no other unencumbered assets for liquidators to collect in or realise for unsecured creditors.

takeaways

although harneys does not advise on hong kong law, this decision highlights important common law principles. whilst a secured creditor has standing to apply for liquidators on insolvency grounds (see for example our blog on re g3 exploration), a court may dismiss a winding-up petition if the company has no assets available to discharge the unsecured creditors and the petitioner has no other interest in the liquidation.

in the bvi, section 157(1)(c) of the insolvency act, revised edition 2020 requires the court to set aside a statutory demand if it is satisfied that the creditor holds a security interest in respect of the debt claimed and the security's value matches or exceeds the statutory demand amount (less the us$2,000 prescribed minimum). of course, it is not to say that the court will not take into account other considerations. however, in relation to a liquidation application, a court cannot refuse to appoint a liquidator merely because all assets are secured or the company has no assets (section 167(2) of the insolvency act). it must be inferred that other considerations may arise where a secured creditor has applied for the appointment of liquidators, including the wishes of other creditors, in order to persuade the court not to exercise its discretion to wind up a company.

in cases of insolvency, secured creditors have a limited interest in the liquidation beyond their interest in the secured assets. in practice a secured creditor’s only interest in the liquidation will be if there is a shortfall in realisation of the secured assets. the appointment of a liquidator does not impinge on a secured creditor’s right to realise its security (section 175(2) of the insolvency act with a similar provision in the cayman islands under section 142(1) of the companies act (2025 revision)).

in the abraaj general partner viii ltd v abraaj abof iv spv ltd, the cayman islands court of appeal (cica) has clarified the scope of a limited partner’s statutory right to receive “true and full information” under section 22 of the exempted limited partnership act (2024 revision) (elpa) – and where the line should be drawn.

background

abraaj concerned a long-running dispute within a cayman islands exempted limited partnership, neoma private equity fund iv l.p. (formerly abraaj private equity fund iv l.p.) (the partnership). after the collapse of the abraaj group and amid allegations of misconduct, a new manager – neoma manager (mauritius) limited (the manager) – took over the partnership.

a limited partner, abraaj abof iv spv limited (the lp), challenged the manager’s calculation of its capital account balance, arguing it had contributed more than was recorded. when no agreement was reached, court proceedings were instigated by the manager. the lp counterclaimed and brought separate proceedings seeking information and documents from the general partner, abraaj general partner viii limited (the gp), under section 22 of the elpa.

the grand court granted summary judgment and ordered the gp and manager to provide the lp a wide range of documents.

what does section 22 say?

section 22 gives each limited partner the right to “true and full information regarding the state of the business and financial condition” of the partnership. on its face, this is a broad right — but what does “true and full” mean in practice?

cica’s view

the cica concluded that “section 22 entitlement is a fundamental safeguard to the limited partners” its purpose “is to enable the limited partners to have a comprehensive understanding of the business decisions being made on their behalf and the financial consequences of those decisions both to the limited partners and to the business itself.” in granting the order, the cica considered that the grand court had taken too broad a view and disagreed that the lp should be entitled to all the information held by the gp or the manager. the cica held that:

• the right to information is not unlimited.
• it should be interpreted in a practical and purposeful way.
• limited partners are entitled to enough information to understand the business and financial health of the partnership – not all documents a general partner has.

referring to the english case of inversiones friera sl v colyzeo investors ii lp, the cica concluded that a “functional” approach should be taken. in adopting this approach, the question of which documents are actually needed to understand the partnership’s position becomes key, dispensing with the suggestion that the fact that documents exist gives rise to an entitlement by a limited partner to those documents.

the cica held that the grand court should not have granted summary judgment in this case as there were real disputes concerning whether the requested documents:

• had already been provided to the lp;
• existed at all; and
• were necessary to meet the section 22 obligation.

the cica confirmed that these sorts of factual disagreements should be resolved at trial, not decided on a summary basis and overturned the first instance decision of the court.

key takeaways

section 22 has limits

section 22 does not require a general partner to share every document or piece of information requested. the general partner’s duty is to provide what is reasonably needed to understand the business and financial position of the partnership.

the context matters

what is “true and full” depends on the structure and complexity of the partnership and what records are available. there is no one-size-fits-all approach.

general partners: be prepared to explain

general partners should keep clear records and be ready to show what documents have been shared, what remains available, and (to the extent relevant) what efforts have been made to retrieve missing information.

lpas can modify the right

section 22 is subject to the terms of the partnership agreement. careful drafting can help manage a general partner’s obligations and the expectations of limited partners, reducing the risk of disputes.

conclusion

while there are well established principles that confirm the entitlement of the limited partner to information concerning the financial condition of a partnership, there are undoubtedly limits to this. the cica’s decision clarifies the scope and extent of that information; it is not unlimited and general partners must discharge this obligation reasonably, and within clear boundaries.

this article forms part of a series prepared by partners james eggleton and christopher pease, of our cayman islands and bvi offices respectively, in connection with digital assets disputes. for more information, please click here.

the anonymity which digital currencies and online trading more generally permit is one of the factors which makes the digital space so attractive to those seeking to perpetrate fraud. the claims that have come before the courts of england and wales involving digital assets have almost exclusively been fraud cases. in these cases, the courts have generally taken a pragmatic approach, permitting such actions to be begun against the unidentified fraudsters as “persons unknown” and granting freezing and disclosure orders to assist in securing and recovering (so far as possible) the proceeds of the fraud.^[1]

there are two distinct sides to the (stable)coin when it comes to the recovery of misappropriated digital assets. on the one hand, victims can rely on the permanence and transparency of the blockchain to track the movement of the misappropriated assets (at least until it becomes co-mingled and potentially obfuscated), but on the other hand they usually do not know who is responsible for the wrongdoing. this is because for identification purposes they will have only the public address keys for the wallets used to receive the stolen assets.

the good news is that if victims can successfully identify the person(s) behind the wallets, that can often be enough to persuade the wrongdoer to return the stolen assets. every wallet has an owner (or controller) and if it is possible to follow the movement of crypto to a custodial account, such as an exchange, that may well present an opportunity to obtain information by way of disclosure order against the custodian (which could reveal who the owner/controller is). in this way crypto is not anonymous. it is pseudonymous – a potentially critical distinction.

orders for disclosure in these circumstances ordinarily include norwich pharmacal and/or bankers trust orders against third party intermediaries, such as exchanges. such orders require that third party to provide information in its possession regarding the identity of an alleged wrongdoer and/or that relates to the misappropriated assets in question.

depending on the particular circumstances of the case, the information available may include kyc documentation or information concerning the digital wallets into which crypto assets have been transferred. examples of information that may be provided include:^[2]

• the names in which accounts are held;
• any other information which may identify the holder of the relevant account, including email addresses, residential addresses, phone numbers, bank account details (redacted where appropriate);
• an explanation from the relevant crypto exchange as to what has become of the relevant crypto currency;
• the balances outstanding in the relevant customer accounts; and
• to the extent any further transfers have been made to other customer accounts, details pertaining to those other customer accounts.

armed with this information, the claimant may either be able to identify those who have taken their assets without authority or locate the assets themselves (or their traceable equivalent).

the norwich pharmacal and bankers trust jurisdictions overlap to a considerable extent and, in practice, are often sought together.

norwich pharmacal relief

an order for norwich pharmacal relief is an order for the disclosure of documents or information against a third party, who has been innocently mixed up in wrongdoing, in order to assist with the bringing of a claim against wrongdoers or seek legitimate redress for a wrong.

the jurisdiction of the cayman islands courts to grant norwich pharmacal relief is well-established. the same is true in the bvi, where such applications “are an every-day feature of the legal and corporate service landscape”.^[3]

the following requirements must be met:

• a wrong must have been carried out, or arguably carried out, by an ultimate wrongdoer. the term “wrong” or “wrongdoing” may include, for example, a tortious or contractual or other equitable wrong.^[4]
• there must be the need for an order to enable the applicant to seek legitimate redress for the wrongdoing. for these purposes, relief is “necessary” where there are no other straightforward or available, or any, means of finding out the information that the applicant seeks.^[5]
• the person against whom the order is sought must:
  • be mixed up in so as to have facilitated the wrongdoing; and
  • be able or likely to be able to provide the information to enable the ultimate wrongdoer to be sued.

in addition, the court must also be satisfied that requiring disclosure is an appropriate and proportionate response in all the circumstances of the case, bearing in mind the exceptional but flexible nature of the jurisdiction.^[6]

bankers trust relief

where there is strong evidence that the claimant’s property has been misappropriated, the court will not hesitate to make strong orders to ascertain the whereabouts of property and to prevent its disposal. those orders may intrude into what would otherwise be confidential customer information.

there are five criteria that need to be satisfied for bankers trust relief to be granted.^[7] these are:

• that there are good grounds for concluding that the money or assets about which information is sought, belongs to the claimant.
• there is a real prospect that the information sought will lead to the location or preservation of the money or assets.
• the order should be directed at uncovering the particular assets which are to be traced and should be no wider than is necessary.
• the interests of the claimant in obtaining the order must be balanced against the possible detriment to the respondent in complying with the order.
• the claimant must undertake to meet the expenses of the respondent in complying with the order and compensate the respondent in damages if loss is suffered as a result of compliance.

the crypto context

recent decisions of the courts of england & wales, cayman islands and the british virgin islands have shown how, in practice, victims of wrongdoing may avail themselves of these remedies.

• in fetch.ai ltd v persons unknown,^[8] the claimants brought various without notice disclosure applications against binance holdings limited (a company incorporated in the cayman islands) and binance markets limited (a company incorporated in england). fraudsters were alleged to have obtained access to trading accounts held by the claimants with binance and then sold crypto currency held on those trading accounts to third party accounts (inferentially under their control) at massive undervalues.

the court was prepared to grant the relief sought, noting in particular that there were two factors leading firmly to the conclusion that bankers trust relief should be granted: (i) very strong evidence of a significant fraud; and (ii) the existence of contractual terms as between the respondents and binance contemplating that personal data may be disclosed by binance to counterparties, regulatory agents and law enforcement agencies, such that there was no absolute contractual right of confidentiality.

the court also noted the real prospect that the information provided by binance would lead to the location or preservation of assets, because the relevant contractual terms made clear that binance would maintain personal data in relation to its customers. separately, in relation to norwich pharmacal relief, the judge noted that binance was mixed up in the alleged wrongdoing insofar as (and to the extent that) they were administering the accounts into which the fraudsters were able to gain access.

• in lmn v bitflyer holdings inc,^[9] the claimant crypto exchange – itself the victim of a hack – sought bankers trust disclosure orders against six other crypto exchanges. the claimant’s crypto tracing expert had identified 26 exchange addresses into which crypto currency had been transferred.^[10] its evidence was that, as the addresses were all exchange addresses, it was not possible to trace the cryptocurrency any further without information being provided by the exchanges about the individuals behind the transactions.

the court in that case granted the relief sought on the basis that each of the five bankers trust requirements (set out above) had been met. of particular note were the judge’s findings that: (i) on the basis that there was a good arguable case that the law of england and wales was applicable, whoever held the misappropriated cryptocurrency (or its traceable substitutes) arguably did so on constructive trust for the claimant;^[11] and (ii) the potential detriment to the defendant crypto exchanges could be eliminated or at least very effectively mitigated by the claimant’s undertakings as to expenses and damages, the restrictions on any collateral use of the information provided, and a provision contained in the order that the respondent exchanges were not required to do anything that would contravene local law.

notably, the defendants did not raise any substantive objections to the relief sought (albeit one of the exchanges made some points in respect of the width of the information to be delivered up). this is not, perhaps, unsurprising: it is more than arguably in the commercial best interests of crypto exchanges (particularly centralised exchanges) to be seen to reasonably co-operate with the authorities in connection with the taking of steps to prevent and/or identify fraudulent activity on their platforms (subject to the legal and regulatory landscape in which those exchanges operate).

• in the cayman islands, the grand court has recently granted norwich pharmacal relief against a centralised digital asset exchange. whilst the grand court did not issue a formal judgment, it did make a number of noteworthy observations, in particular in relation to procedural points. for more, see our blog here: securing norwich pharmacal relief against a digital asset exchange: a legal milestone in asset recovery.
• in the bvi, the eastern caribbean supreme court granted chainswap, a company providing services to facilitate the transfer of cryptocurrency tokens across different blockchains,^[12] its application for the issuance of a letter of request to the croatian authorities seeking the provision of evidence from a crypto exchange located in croatia (including information that would identify unknown defendants).^[13] for more on that decision, see: contentious crypto - chainswap v persons unknown; judgment handed down in chainswap v persons unknown: the first bvi freezing order against persons unknown concerning crypto fraud.

in any given case, the extent to which transactions may be traced on a blockchain (or across several blockchains) will be inherently fact sensitive. specialist digital asset tracing expertise is highly likely to be needed to assist with that exercise. some cryptocurrencies may be more transparent and/or traceable on their respective blockchains than others.^[14] some issuers may be prepared to freeze funds if they are made aware of illicit activity concerning those funds.^[15] if bad actors^[16] are involved, it is very possible that steps will have been taken to attempt to impede any tracing exercise, for example through the use of a cryptocurrency tumbler or privacy coin.^[17]

assuming, however, that an applicant for an information disclosure order is able to demonstrate that a crypto exchange (or another third party) is likely to be able to provide information that will assist in identifying a wrongdoer or otherwise in preserving or locating misappropriated assets, then the courts of common law jurisdictions have consistently shown that they will take a practical approach and, provided the relevant criteria are satisfied, grant the relief sought.

jurisdictional issues

notwithstanding the theoretical availability of interim disclosure orders against crypto exchanges as a matter of local law, a more fundamental issue arises where relief is sought against defendants that are, or may be, situated outside the jurisdiction or who may otherwise not be identifiable at all. where that is the case, under what circumstances will the local courts be prepared to assume jurisdiction? these matters are discussed in our next article: jurisdictional issues in crypto currency disputes.

^[1] boonyaem v persons unknown category (a) [2023] ewhc 3180 (comm) at [32]. the expression “anonymity”, in this context, may have been intended to encompass the concept of pseudonymity. although certain cryptocurrencies offer anonymity and/or privacy features to their users (for example, so-called “privacy coins” such as monero and zcash), cryptocurrencies generally operate pseudonymously by enabling users to operate alphanumeric wallet addresses that are not directly tied to their real-world identities (but which may nevertheless still potentially be traceable to the individuals controlling them).

^[2] see the form of order made in lmn v bitflyer holdings inc [2022] ewhc 2954 (comm).

^[3] claim no. bvihcm2023/0050 - cif v dlg - eastern caribbean supreme court, per the honourable justice wallbank (ag). the requirements to be met for the grant of norwich pharmacal relief in the bvi are the same as in the cayman islands. see further, claim no. bvihv(com)2010/0037 - al-rushaid petroleum investment co v tsj engineering consulting co ltd.

^[4] orb v fiddler [2016] ewhc 361 (comm). in the crypto context, the misappropriation of digital assets through fraud would clearly satisfy this requirement. see also lmn v bitflyer holdings inc [2022] ewhc 2954 (comm) at [19]-[21].

^[5] discover investment company v vietnam holding asset management limited [2018] (2) cilr 424 and claim no. bvihcm2016/108 - uvw v xyz, both citing the privy council’s decision in the president of the state of equatorial guinea v the royal bank of scotland international [2006] ukpc 7.

^[6] collier v bennett [2020] 4 wlr 116 at [35].

^[7] kyriakou v christie manson and woods ltd [2017] ewhc 487 (qb) at [4]-[15]; c corporation v p [1994-95 cilr 189].

^[8] [2021] ewhc 2254 (comm).

^[9] [2022] ewhc 2954 (comm).

^[10] as explained in the judgment at [8], “exchange addresses” in this context refers to addresses owned and operated by the exchange itself. whilst such addresses tend to be associated with a particular customer, the actual crediting of cryptocurrency to the relevant customer’s account with the exchange takes place ‘off chain’ (i.e via an internal accounting exercise). cryptocurrency received into an exchange address will often be merged by the relevant exchange into an ‘omnibus wallet’ used to service multiple customers’ requests.

^[11] in particular, the judge held that it was arguable that cryptocurrency is a form of property. that being the case, it was arguable that “when property is obtained by fraud equity imposes a constructive trust on the fraudulent recipient: the property is recoverable and traceable in equity” (following westdeutsche landesbank girozentrale v islington lbc [1996] ac 669) (see [19(2)]).

^[12] this is sometimes referred to as a “cross-chain bridge”.

^[13] chainswap v persons unknown vg 2022 hc 036

^[14] the development of privacy coins may have begun, at least in part, as a result of concerns as to the high degree of transparency and traceability of other cryptocurrencies on their respective blockchains. privacy coins have come under increasing regulatory scrutiny in recent times. they may be particularly attractive to bad actors insofar as they undermine the ability of blockchain analytics to trace transactions.

^[15] the stablecoin tether, for example, has recently been recognised for assisting the united states secret service in freezing assets transferred on a sanctioned exchange: tether recognized for assisting the united states secret service in $23m freeze related to transfers on sanctioned exchange, garantex.

^[16] concerns regarding malicious activity within the crypto space are growing. a recent report from chainalysis has found that illicit addresses (as identified so far) received some us$40.9 billion worth of crypto currency in 2024 alone: see chainalysis’ the 2025 crypto crime report (february 2025).

^[17] a good example of this is the chainswap case, in which misappropriated assets were routed via tornado cash. as explained by justice jack at [10], “tornado cash uses smart contracts to receive tokens which it will hold for a period of time and then, at the discretion of the user, transfer out to a different wallet than that from which the transfer was originally made. where numerous users transfer tokens into tornado cash at the same time, it can have the effect of mixing those tokens so that when paid out into different wallets, it will obfuscate their origin”.

a significant recent privy council decision, stevanovich v richardson, clarifies the limits of s273 of the bvi insolvency act, revised edition 2020 (ia). in particular, the decision confirms that only limited categories of persons can challenge a liquidator’s decision, despite the apparently broad language of s273.

in stevanovich, a bvi company (barrington), entered voluntary liquidation in 2010. as part of this process, barrington’s sole director, mr stevanovich, resigned in august 2010. in october 2010 a us chapter 11 trustee (us trustee) filed a complaint in us proceedings against barrington, mr stevanovich and others seeking, inter alia, the return of monies remitted by a us company (petters) to barrington as part of a ponzi scheme. barrington and stevanovich were unaware of the fraudulent nature of petters’ activities.

barrington was dissolved in early 2011 albeit the us trustee had the dissolution declared void in early 2013 with the result that barrington was placed back in liquidation under the court’s supervision with liquidators appointed by the court (the liquidators). the us trustee claimed in the liquidation (claim), which claim the liquidators admitted in the sum of us$398m, thereby rendering barrington insolvent.

to recover amounts in the admitted claim, in 2016, the liquidators, funded by the us trustee, brought bvi proceedings against mr stevanovich for misfeasance as a director and fraudulent trading (main proceedings). the main proceedings were stayed pending determination of mr stevanovich’s s273 challenge discussed further below.

in 2018, mr stevanovich challenged the liquidators’ admission of the claim under s273 of the ia which provides that “a person aggrieved by an act, omission or decision of an office holder may apply to the court and the court may confirm, reverse or modify the act, omission or decision of the office holder”. mr stevanovich failed on the basis that he was not a “person aggrieved” and so had no standing to bring a challenge pursuant to s273.

in reaching its decision, the pc drew heavily on the 2023 uk supreme court decision in brake v chedington court estate ltd. in brake, the supreme court considered the similarly, but not identically worded, s168(5) of the uk insolvency act 1986. lord richards confirmed that despite the apparent breadth of the statutory language, standing under provisions like s168(5) is restricted to three broad categories:

1. first, subject to limited exceptions, a bankrupt or contributory in a corporate insolvency who can show that there is or is likely to be a surplus of assets once all liabilities to creditors and the costs and expenses of the bankruptcy or liquidation have been paid.
2. second, a creditor who is affected in their capacity as creditor or a bankrupt who can demonstrate a surplus and is affected in their capacity as a bankrupt.
3. third, other, very limited, circumstances which will provide standing to an applicant – whether or not the applicant is the bankrupt, a creditor or a contributory – confined to cases where the challenge concerns a matter which could only arise in a bankruptcy or liquidation and in which the applicant has a direct and legitimate interest.

mr stevanovich did not fall within the first two categories because he did not claim to be a creditor or a member/contributory of barrington: he was a former sole director. accordingly, his claim to standing depended on the third category. applying previous authority, the pc held that this third category was unsatisfied.

mr stevanovich was not directly affected by the liquidator’s decision to admit the claim – if he succeeded in his defence in the main proceedings, the admission of the claim would not matter to him. if the main proceedings were not brought against him, he would be a stranger to the liquidation and his rights and interest would not be affected at all.

owing to the fact that the validity of the liquidator’s decision to admit the claim would be determined in the main proceedings, and mr stevanovich was not directly interested in the liquidator’s decision to admit the claim, mr stevanovich lacked standing under s273 of the ia.

the stevanovich decision accordingly draws clear lines around who can challenge liquidator decisions under section 273 of the bvi ia. in doing so, it reaffirms that insolvency remedies are not open to any party affected indirectly by a liquidator’s acts, particularly defendants seeking tactical relief from misfeasance claims.

the decision underscores a broader principle in insolvency law: the framework exists to protect the collective interests of creditors — not to serve as a defensive shield for litigation risk.

the judgment was given by the caribbean’s own dame janice pereira dbe, the former chief justice of the eastern caribbean supreme court, of which the bvi is a member. see our earlier blog on her appointment as a member of the judicial committee of the privy council here.

this article forms part of a series prepared by partners james eggleton and christopher pease, of our cayman islands and bvi offices respectively, in connection with digital assets disputes. for more information, please click here.

perhaps inevitably given the exponential growth in the value of the crypto market in recent years, courts all over the world are now tasked with resolving an increasing number of crypto-related disputes. within the context of crypto recovery claims, this has invariably required the court to grapple with the underlying blockchain technologies.

the decisions we have seen to date have varied enormously in terms of the nature of the disputes, the stakeholders involved, the causes of action alleged and the blockchain technologies and cryptocurrencies forming their subject matter. often, they involve allegations of fraud.

so, for example:

• tippawan boonyaem v persons unknown category (a) & ors^[1] a decision of the english high court, concerned a real estate agent residing in thailand who became a victim of a cryptocurrency investment scam. ms boonyaem obtained an interim worldwide proprietary and non-proprietary freezing order against all defendants, as well as a disclosure order in an attempt to identify the perpetrators. final injunctive relief was obtained against some of the defendants.
• in chainswap v persons unknown^[2], a decision of the bvi commercial court, a blockchain-services provider, which was the victim of two crypto hacking attacks directed at smart contracts through which it operated a cross-chain bridge, obtained a freezing injunction against unknown hackers in addition to other relief that enabled the victim to make a recovery.
• in piroozzadeh v persons unknown category a & ors^[3], misappropriated assets (870,818 usdt) had been traced into deposit addresses held by two crypto exchanges, including binance. the claimant subsequently obtained, on ex parte without notice basis, interim proprietary injunctive relief against the exchanges requiring them to preserve the usdt or its traceable proceeds. in a subsequent decision, the english high court discharged that interim injunction on the basis that the claimant’s legal representatives had failed to comply with their duty of fair presentation (in particular, having failed to explain the defences that were likely to be available to binance in respect of its alleged liability as constructive trustee).
• in in the matter of atom holdings^[4], which was the first liquidation involving a cryptocurrency exchange incorporated in the cayman islands, the cayman grand court ordered the winding up of atom holdings, the holding company for the atom group of entities operating the now defunct centralised cryptocurrency exchange, atom asset exchange.
• fabrizio d’aloia v persons unknown^[5], a decision of the english high court, involved a crypto scam whereby the claimant, mr d’aloia, was induced by persons unknown to transfer cryptocurrency (circle and tether) totalling approximately £5m. the cryptocurrency was subsequently passed through a number of different wallets before being withdrawn as fiat currency (“off-ramped”) through various crypto exchanges.

notwithstanding the wide-ranging and fact-specific nature of the disputes that have arisen in the crypto space, certain trends are beginning to emerge. what we are seeing is that although blockchain technology and digital assets may be technologically and conceptually complex^[6] and unfamiliar to the court^[7], that does not mean that disputes concerning this asset class are unnavigable.

in fact, the contrary is the case. it is now tolerably clear, for example, that (in the common law world at least) courts are likely to treat crypto assets as a form of property^[8]. in those circumstances, traditional asset tracing tools – applied in accordance with long established legal principles – will in principle be available to victims of crypto-related wrongdoing or misappropriation in the same way as they would be in respect of wrongdoing concerning any other more traditional asset type.

moreover, the fact that specific crypto expertise may be required on the given facts of a particular dispute – to take one obvious example, to “follow” or “trace” or investigate crypto transactions ’on chain’^[9] – does not, of itself, elevate crypto-related disputes into any form of special category. the courts of common law jurisdictions hear expert evidence every day. and, to the extent that experts are needed to assist the court, there is no reason in principle why the parties should not be allowed to rely upon their evidence in the usual way, subject to any relevant procedural safeguards that may be in place in the relevant jurisdiction. indeed, because the movement of digital assets is recorded on an immutable ledger which is publicly viewable (at least for the most widely used blockchains), evidencing the way misappropriated assets have been dissipated can be quicker and easier than with cash transfers.

that being said, the problems posed by crypto fraud are manifold. in a difc seminar given on 13 november 2023, his honour judge pelling kc put the problem in the following stark terms:

“the problems posed by these frauds are acute and for many victims can be life changing. attempts to recover what has been lost pose very significant procedural and jurisdictional difficulties with the same common themes arising in most if not all cases. at this moment of acute anxiety, victims are faced with finding lawyers to attempt to recover what has been lost and to do so in a legal environment that is technically and legally difficult…

… in most of these cases the principal actors will be or are likely to be outside england and wales, as will the exchanges that administer the wallets into or through which the victims’ assets have passed. in most cases therefore the victim of a cyber currency fraud domiciled and resident in england, or who has suffered losses in england will be faced with the need to seek information disclosure orders against those who administer the relevant wallets and a worldwide freezing and/or proprietary freezing order, usually against fraudsters who cannot be identified, who are almost certainly located in offshore jurisdictions and for whom the only known contact details are the email addresses used to carry the fraud into effect. the problems that arise are generally ones of identification and jurisdiction in relation to those who have engineered the fraud, those to whom assets belonging to the victims have been transferred and received unconscionably or otherwise and those who can provide relevant information about the identity of those responsible for the fraud or the whereabouts of the victims’ assets or their traceable equivalent…”

with these issues in mind, this series of articles considers some of the more traditional asset tracing tools available to victims of crypto wrongdoing, by reference to the relevant legal principles (primarily but not exclusively as a matter of cayman islands and bvi law) and to the various reported crypto-related decisions in which alleged victims of wrongdoing have sought to deploy those tools and/or seek recourse against wrongdoers.

inevitably, what follows will require at least some rudimentary understanding of crypto assets and the blockchain technologies underlying them. where necessary, explanations will be provided by reference to the authorities cited (which authorities are by no means intended to be exhaustive or dispositive).

in the next article, we consider the so-called norwich pharmacal and bankers trust jurisdictions. where a person (for example, a crypto exchange), through no fault of their own, gets mixed up in wrongdoing, to what extent may that person come under a legal duty to assist the victim of that wrongdoing? to what extent may that person be required to provide information about the wrongdoing and/or the identity of the wrongdoer?

^[1] [2023] ewhc 3180 (comm)

^[2] bvihc(com)2022/0031

^[3] [2023] ewhc 1024 (ch)

^[4] fsd 54 of 2023 (ikj)

^[5] [2024] ewhc 2342 (ch)

^[6] according to michael saylor, the executive chairman of strategy (formerly microstrategy), bitcoin is “a swarm of cyber hornets serving the goddess of wisdom, feeding on the fire of truth, exponentially growing ever smarter, faster, and stronger behind a wall of encrypted energy.” (michael saylor: bitcoin's cyber hornet - coindesk)

^[7] as was recently acknowledged in hong kong in mantra dao inc and riodefi inc. v mullin and ors [2024] hkcfi 2099, in which the court of first instance stated, at [11]: “…at this stage, it suffices for me to say that cryptocurrency trading is a new, novel and innovative business. the hong kong courts, and indeed many other courts in different jurisdictions, have little experience in dealing with such kind of disputes. the courts may not be familiar with the modus operandi and the structures for the operation of such kind of business…”

^[8] see, for example, aa v persons unknown [2019] ewhc 3556 (comm); tulip trading v van der laan [2023] ewca civ 83; d’aloia v persons unknown [2024] ewhc 2342 (ch); philip smith and jason kardachi (in their capacity as joint liquidators) v torque group holdings ltd [2021] ecscj no 627 (wallbank j); chainswap v persons unknown vg 2022 hc 036.

^[9] the concepts of “following” and “tracing” will be considered in closer detail in this series in due course. for a helpful explanation within the crypto context, see d’aloia v persons unknown [2024] ewhc 2342 (ch), at [174] – [200].

after a long week’s work, it is always a pleasure to grab a pint of beer with your colleagues. it is no different at harneys’ hong kong office, and in fact we go way beyond that to enjoy beers. we frequent popular craft beer joints around the city, have had beer tasting sessions with our business partners as networking events and internally as team events to strengthen the bonding among team members. why? it is because our counsel sui hung yeung is a beer enthusiast, to the extent that he has been regularly acting as a beer judge and brewing his own beers at home. as you can tell, the team has been benefitting a lot from his passion for beer.

q1: when and how did you start developing your interest in beer tasting?

perhaps like everyone, my perception of beer for a long time had been that it is produced en masse, every beer tastes the same – bitter and boring.

that changed around 10 years ago when a friend introduced me to the world of craft beer. at that time, he was the manager of a newly-opened craft beer pub called “the ale project” (which recently celebrated their 10th anniversary) on a quiet alley in mong kok. i paid a visit and had my first pint of locally made craft beer. one sip and i was never the same. i never knew that beer could have such complex flavours, and it is in fact possible to appreciate beer just like wine or whisky.

i became interested in discovering and tasting the great variety of craft beers made locally and overseas, and met a lot of good friends (whether from the beer industry or just beer enthusiasts like me) in the process. i wanted to deepen my knowledge about the world of craft beer, and decided to take a course to become a beer judge under the beer judge certificate program (bjcp), a world-wide certifying organisation for judges of beer and related products. since then, i regularly attend homebrew competitions in hong kong and overseas as a beer judge.

q2: do you make your own beer?

as i was so intrigued by the variety of flavour profile of beers, i wanted to learn more about how beers were made and the whole brewing process. i came to know that brewing beer is a very scientific and precise process but at the same time, it gives you the flexibility to let your imagination and creativities run wild. it is in a way so similar to what we do daily as a lawyer, you have to give precise and concise legal advice and be on top of all legal technicalities, but you also have to think out of the box sometimes to provide effective resolutions for our clients. so i immediately fell in love with homebrewing and have never stopped since.

q3: tell us about the most unforgettable beer you have tried.

the most memorable beer for me was cha chaan teng sour, a gose brewed by young master, a local hong kong craft beer brewery. it was the first craft beer i have ever tasted and it opened my eyes to the world of craft beer. it was inspired by salted lime that is commonly found in local cha chaan tengs in hong kong. it gives a slightly sour taste but it is also very refreshing and crisp which will increase your appetite and make you crave more.

q4: any advice for anyone who has a passion for beer like you?

be open-minded and embrace the adventure that craft beers will give you.

in the recent decision of rodrigues v wakefield quin limited, the supreme court of bermuda clarified the high threshold for pleading fraud; determined it had not been met on the facts of the case; struck out the case and made an indemnity costs award against the plaintiffs and their bermuda counsel for pleading fraud without “credible material” to establish a prima facie case of fraud.

this blog focuses on the issue of pleading fraud which, in the field of asset recovery especially, is a recurring theme.

bermuda barrister’s code of professional conduct 1981 (code of conduct)

rule 41 of the code of conduct provides that a barrister must have clear instructions in writing to plead fraud and must have before him reasonable credible material which establishes a prima facie case of fraud (our emphasis). the plaintiff must also show “deliberate concealment”.

applicable test

the bermuda court summarised the legal requirements for pleading fraud as determined by the uk court of appeal in sofer v swissindependent trustees sa:

1. fraud or dishonesty must be specifically alleged and sufficiently particularised and will not be sufficiently particularised if the facts alleged are consistent with innocence.
2. dishonesty can be inferred from primary facts, provided that those primary facts are themselves pleaded. there must be some fact which tilts the balance and justifies an inference of dishonesty, and this fact must be pleaded.
3. the claimant does not have to plead primary facts which are only consistent with dishonesty. the correct test is whether or not, on the basis of the primary facts pleaded, an interference of dishonesty is more likely than one of innocence or negligence.
4. particulars of dishonesty must be read as a whole and in context.

determination

the court concluded, after having considered the evidence upon which the attorney relied to plead fraud, that:

“… i find that all the documents exhibited to the [attorney’s affidavit in support of the case for fraud] do not in any way qualify as “credible material” to establish a prima facie case of fraud.”

the claim was therefore struck out with the court granting the defendants’ costs on an indemnity basis to be borne equally between the plaintiffs and their attorneys of record (ie the law firm and not the individual attorney personally).

two recent decisions illustrate the caution parties should exercise before taking steps that may fall outside the protection afforded by the rules of privilege: (1) a recent english high court decision – mornington 2000 llp (t/a sterilab services) and another company v secretary of state for health and social care [2025] ewhc 540 (tcc); and (2) a recent decision from the supreme court of bermuda – moir v andrew [2025] sc (bda) 28 civ (11 march 2025)(bermuda).

in mornington, the claimants sought a declaration that an audit report commissioned by the defendant during without prejudice (wp) negotiations was not subject to wp privilege. the defendant independently commissioned the relevant report and the claimants agreed that they were prepared to receive the report (before proceedings had commenced) in the course of wp negotiations and reserved their right to challenge the assertion to privilege which they did when the defendant asserted it at the disclosure stage.

the court found that the report was not subject to wp privilege. it did not fall within the public policy rationale for wp privilege (ie. that parties should not be concerned that anything said in negotiations could prejudice them later, in order to encourage settlement) because it was not a statement or offer made in the course of negotiations, it was not a record of negotiations between the parties and it had nothing to do with admissions. the rule did not extend to cover anything the parties did to further discussions at a wp meeting. nor was the report covered by wp privilege by agreement. while the scope of the rule could be extended by express or implied agreement, no such agreement was found in this case – there was simply no proposal which was accepted that the report would be wp.

in moir, the defendants filed an affidavit that had raised a number of issues with respect to their previous lawyers, including that their former counsel did not represent them in a timely and competent manner. such evidence was filed in support of application for an extension of time. the claimants argued that they had a right to test such evidence and that the defendants had waived their legal professional privilege. reliance was placed on a bermudian authority – thyssen-bornemisza v thyssen-bornemisza [1998] bda lr 11 – which stated that a party who puts a privileged relationship in issue is taken to have waived any privilege that could arise from such a relationship.

mussenden cj agreed with the claimants, quoting the reasoning from thyssen: “a party who puts a confidential or privileged relationship in issue is taken to have waived any privilege that he might have arising from that relationship. i do not think that this is based upon some vague notion of fairness… it is rather an example of the court protecting its own process, by declining to adjudicate an issue directly concerning a party’s relationship with his lawyer, without a frank disclosure of all that passed between them on the matter… the waiver arises from the invitation to the court, by the party possessing the right to enforce confidentiality, to adjudicate on the matters to which the privilege relates.”

mussenden cj considered that

1. the defendants had raised issues about their relationship with their lawyers;
2. it would not be fair to allow the defendants to rely on such statements without the claimants having the opportunity to test such evidence; and
3. the defendants chose to rely on such evidence.

both decisions evidence that a party must carefully consider before taking steps that may not be protected by privilege including (1) creating documents which are not privileged; and (2) running arguments which waive privilege. in mornington, the defendant could not rely on wp privilege to prevent disclosure of a report that it independently procured purely because it was commissioned whilst wp negotiations were taking place and in moir, the defendant could not put forward arguments in support of its application and prevent the claimant from interrogating the evidence in support of those arguments on the basis of privilege.

please note that we are not authorised to advise on the law of england and wales.

the cayman islands grand court has awarded indemnity costs in respect of an abusive application for the deferral of a company’s dissolution upon the completion of its voluntary liquidation: in re skye assets fund spc (in voluntary liquidation).

in the background to these proceedings, a former investor in one of the company’s segregated portfolios averred that he had good arguable claims against the company for actionable misrepresentations which had induced him to invest. he therefore brought two applications, in each case designed to ensure that his interests were adequately protected and that the voluntary liquidator (who was also the sole management shareholder and director of the company, and the person responsible for its investment strategies) be properly held to account for his actions. those applications were:

• an application to defer the dissolution of the company upon the completion of its in voluntary liquidation under section 151(3) of the companies act (the act).
• a petition under section 131(b) of the act to bring the voluntary liquidation under the supervision of the court.

both applications failed, the court ultimately concluding that:

1. the allegation that the voluntary liquidation of the company had lacked transparency and accountability, itself lacked substance;
2. the proceedings were abusive and that the former investor’s real objective was to leverage a position of advantage in his personal claims against the voluntary liquidator personally, rather than the company (which had no remaining assets);
3. the former investor had redeemed his shares without demur two months prior to the commencement of the voluntary liquidation and no longer had standing to petition to wind up the company. he had no remaining proprietary interest in the company whose dissolution he wished to defer. there was no apparent basis upon which his claim could be regarded as recovering assets belonging to the company;
4. the underlying claims against the company were merely speculative, being based on his own purported understanding of representations not apparently shared by other investors;
5. the former investor’s objectives would be anathema to the statutory rationale for deferral of dissolution and could fairly be described as “shadowy”, with his pleadings “patently lacking in merit”; and
6. any claims against the voluntary liquidator personally would not depend on the grant of relief by the grand court. court process in the cayman islands should not be allowed to be used as a means for exerting undue pressure.

in the following costs judgment, the court granted the voluntary liquidator’s application for indemnity costs, having carefully considered the underlying decision and noting in particular the findings summarised at paragraphs (ii), (iii), (v) and (vi) above which amounted to plainly improper and unreasonable conduct to a high degree such as to attract the court’s disapproval by way of an indemnity costs order.

harneys acts for the voluntary liquidator.

this blog was also written by paralegal anita warhurst.

in the recent case of j&j snack foods corp v ralph peters & sons ltd, the english court discharged a freezing injunction and an access and imaging order due to multiple and serious failures by the claimants to adhere to their duty of full and frank disclosure and fair presentation. the court also saw insufficient grounds for re-granting any freezing injunction. this decision highlights the fundamental responsibility of an applicant seeking an ex parte injunction to put matters fairly to the court, including articulating any anticipated defences and addressing any weaknesses in the applicant’s own case properly.

the claimants brought proceedings against the defendants for trademark infringement and passing off. in support of the proceedings, the claimants successfully obtained an ex parte worldwide freezing injunction (for £20 million) and an access and imaging order against the defendants. the defendants subsequently applied for the orders to be discharged for failure of fair representation by the claimants’ solicitor at the ex parte hearing.

after considering the parties’ arguments, mr justice fancourt was satisfied that the freezing injunction and the access and imaging order should be discharged, and that there would be no re-granting of any freezing injunction.

in coming to his decision, the judge was critical of the manner in which the claimants’ solicitor had presented the case at the ex parte hearing, in particular, the solicitor’s failure to fully address key aspects of the case to the judge.

these included inter alia:

• not properly explaining the appropriateness of an ex parte hearing in the circumstances;
• failure to distinguish the appropriate test to establish liability and differentiate the quantum for the different phases of the alleged infringement;
• not providing a complete and fair presentation in relation to the risks of the dissipation of assets and destruction of evidence; and
• omitting to bring to the judge’s attention relevant information arising from related proceedings in ohio.

while the judge did not view the foregoing failures as deliberate, he indicated that there was a lack of understanding by the claimant’s solicitor as to what “full and frank” disclosure meant. in that regard, he noted that the claimants’ submissions only contained discreet procedural points that might be raised by either defendant, and these were not “arguments that the defendants could reasonably be anticipated to make against the cogency of key building blocks of the claimants’ case, whether on liability or quantum”.

the scope and nature of the duty was explained as such:

“anyone applying without notice for a freezing injunction or an access and imaging order, and especially if applying for both together, must understand that there is a very high duty on them to ensure that relief of that nature is not granted without the defendant’s case, so far as it can be anticipated, being put squarely before the court, and any weaknesses in the applicant’s case being identified. however much a judge may indicate that they see things the applicant’s way, the absent respondent’s likely case still needs to be articulated and understood before a decision is made.”

this judgment is a timely reminder to all potential applicants in ex parte applications to make proper enquiries beforehand to ensure that the court is apprised of all relevant information and arguments, including any substantive points that the respondent would wish to make were they present. obtaining without-notice relief demands meticulous preparation and a commitment to transparency. the consequences of failing to meet the high standard of full and frank disclosure can be severe, even if the underlying claim appears strong. full compliance must therefore be ensured.

while harneys does not advise on the law of england and wales, this judgment may be considered in other common law jurisdictions such as the bvi, cayman islands, and bermuda, where freezing injunctions are regularly sought.

in the recent hong kong case of chen ming v chen jiagan, the court dismissed a director’s claim that a resolution of the board removing him as chairman of a company was in breach of the company’s articles. this decision confirms the well-established principle that a director is not a party to the articles of a company and has no locus to complain about its breach.

the plaintiff, a director of a company incorporated in the cayman islands and listed in the main board of the stock exchange of hong kong, commenced proceedings by way of writ of summons (the writ) against 6 directors and the company secretary of the company. the only cause of action pleaded was that the resolutions passed at a board of directors meeting on 17 december 2024, in removing him as chairman of the company and from the nomination committee (the resolutions), were passed in breach of the articles of the company. the relief sought only pertained to the same resolutions.

the plaintiff also issued a summons seeking, inter alia, an interim injunction to restrain the defendants from acting upon the resolution, allotting new shares and changing the composition of the board (the summons).

the court struck out the writ on the ground that they are plainly demurrable and unsustainable.

in doing so, the court confirmed the principle that the articles of association is a statutory contract between the company and its members and it regulates the rights between the company and its members and the members inter se. the rights and liabilities of the members under the articles can only be enforced by or against the company or its members, citing english authority london sack & bag co ltd v dixon & lugton ltd [1943] 2 all er 763 and the hong kong case of newmark capital corp ltd v coffee partners ltd [2007] 1 hklrd 718.

the court also confirmed that, under the laws of the cayman islands, a company’s articles of association constitute a multi-party, statutory contract between the company and its members and the members inter se. and that while directors are obliged to act in accordance with a company’s articles of association, it does not render the directors parties to the articles or provide them with the requisite standing or right to complain about any breach of the articles against fellow directors.

the plaintiff argued that his standing arose by virtue of being a director removed by the resolution. this argument was rejected by the court.

the plaintiff also contended that the resolutions were invalid as they were made in breach of the directors’ fiduciary duties. the court found that such contention was wholly misconceived – it is long recognised in common law that save in exceptional circumstances, directors owe their fiduciary duties to the company alone (and not to fellow director). where the company suffers any loss as a result of an actionable wrong, the cause of action vests in the company and the company alone can sue. the court further commented that even for a member to bring a claim for breach of fiduciary duties against the directors, the member must do so by way of a common law or statutory derivative action in the name of the company.

it was held that, as the plaintiff was not a shareholder of the company, he had no cause of action against the defendants for any breach of the articles (to which none of them were parties). further, he had no right to commence any derivative action on behalf of the company against other directors.

the court also dismissed the summons – there is no basis to grant any “interim-interim” relief sought by the plaintiff even if, contrary to the court’s view, the plaintiff does have any cause of action against the defendants. the court highlighted that no relief is sought in respect of the allotment of shares or the change of the board in the writ.

the well-established ralli bros principle is an exception to the general rule that the enforceability of a contract governed by english law is determined without reference to illegality under foreign law. under this principle, a contract shall not be enforced if the performance of it is unlawful in the place of performance. in the recent judgment of litasco sa v banque el amana sa, the high court of england clarified that ’unlawful’ does not cover breaches of foreign court orders.

in the litasco case, the defendant issued a standby letter of credit as security for certain loan agreements. the claimant claimed against the defendant under the standby letter of credit, and applied for summary judgment, based on the defendant’s failure to pay.

the defendant’s case was that, in the two sets of relevant legal proceedings in mauritania, the courts made orders prohibiting the defendant under mauritanian law from paying the sum due under the standby letter of credit. for this reason, the defendant argued that it had a real prospect of success in defending the claim by relying on the ralli bros principle, hence summary judgment should not be granted.

upon considering the authorities, the high court of england refused to extend the ralli bros principle to acts unlawful by reason of breaches of foreign court orders, as opposed to acts unlawful by reason of legislation of the foreign jurisdiction in which acts of performance are supposed to be done. the high court therefore ruled that the defendant had no real prospect of success on this defence, especially as the payment fell due at least two years before the mauritanian court orders were made.

harneys does not advise on the law of england and wales, but this judgment will be of interest to other common law jurisdictions such as the bvi, cayman and bermuda. for example, in the bvi high court, the ralli bros principle was relied upon by the parties in credorax inc v israeli vc partners lp.

it is common ground that hong kong is a major international arbitration hub in asia, and its role will only become ever more important given the advantages in enforcing hong kong arbitral awards in mainland china.

the british virgin islands and the cayman islands also play an important role in the success of arbitration in asia. both jurisdictions have been among the top five geographical originators or nationalities of the parties to arbitration administered by the hkiac for many years. in the statistics recently published by the hkiac for 2024, the bvi and the cayman islands once again are ranked at number 3 and 4, respectively. with the hong kong-mainland china arrangement on interim measures being in place, the hkiac have also processed applications to the mainland chinese courts under the arrangement to preserve evidence and assets. according to the hkiac statistics, over 40% of the applications in 2024 involved assets or evidence owned by parties out of the mainland china, including the bvi and the cayman islands.

families and businesses in hong kong, china and across asia have long used bvi or cayman island corporate vehicles as the holding entities for their businesses and assets. naturally, any subsequent disputes between the stakeholders of these entities will most likely have to be resolved by the bvi and the cayman islands courts. that said, as arbitration clauses become an increasingly common feature in the governing contracts between parties (be it shareholders agreements, joint venture agreements or limited partnership agreements), it is foreseeable that arbitrations will only become more and more prevalent as a means for parties, including offshore entities, to resolve their disputes.

apart from the increased confidentiality and privacy afforded by arbitration, the ability to choose your own arbitrator is an important consideration for parties as it can ensure the tribunal understands all parties’ cultural differences and represents their interests. further, the flexible arbitration regime in hong kong allows asian-based clients to arbitrate bvi or cayman governed law disputes in hong kong, with bvi and cayman law experts acting as the chair or co-counsel in the arbitration.

if you are involved in an arbitration that involves a bvi or cayman entity, it is highly likely that issues will arise during the arbitration that require bvi or cayman law input, as the case may be.

harneys’ team of highly experienced litigation lawyers based in hong kong, are complemented by our dispute resolution teams in bvi, cayman and bermuda. this presents harneys with a unique opportunity to act in arbitrations, taking our practice beyond the usual interim remedies or enforcement steps during or following the completion of an arbitration. harneys is currently acting in several hong kong seated arbitrations, working as co-counsel alongside onshore legal advisers. get in contact if you are interested in learning more about our arbitration practice.

on 19 february 2025, the supreme court handed down judgment in el-husseiny v invest bank psc. the case concerned the interpretation of section 423 of the english insolvency act 1986 which provides remedies to creditors in circumstances where a debtor has taken steps to defeat or prejudice their claims by entering into a transaction at an undervalue.

in this case, the first appellant and judgment debtor, mr el-husseiny caused the legal and beneficial title of multiple assets, including a property worth £4.5 million which was owned by one of his companies, to be transferred to his sons for no consideration. consequently mr el-husseiny’s shareholding in that company was reduced in value, and the respondent bank’s ability to enforce the judgments was adversely affected to this extent.

the court held that section 423(1) contains no requirement that the transaction must involve a disposal of property which directly belongs to the debtor. a transfer by a solvent company, owned by a debtor, of a valuable asset for no consideration necessarily resulted in a diminution in the value of the debtor's shares in the company. it prejudiced the creditor's ability to enforce the judgment. it also removed an asset of the company that might otherwise have become available for enforcement.

the court rejected a range of construction arguments which were advanced by the appellants and found that the appellants’ submission that it was an essential element of any transaction falling within section 423 that it directly involved property owned by the debtor would involve a significant limitation on the operation of the provision and an impermissible interpretation of section 423.

the court considered (albeit obiter) the interrelationship of section 423 with sections 238 and 339 of the insolvency act. those sections were enacted to provide remedies where the debtor had subsequently entered administration or liquidation or bankruptcy (and no mental element was required unlike in section 423). however, the court found there was no good reason to give a different meaning to transactions at an undervalue in those sections.

harneys does not advise on the law of england and wales, but this judgment will be of significant jurisprudential importance in a busy insolvency and restructuring community where asset recovery and insolvency often intersect.

the bvi equivalent to section 423 is section 81 of the conveyancing and law of property act 1961, which provides that “every conveyance of property made … with intent to defraud creditors shall be voidable at the instance of any person thereby prejudiced”.

the cayman islands distinguished guest lecture for 2024, ai transforming the work of lawyers and judges, was given by the rt hon sir geoffrey vos, master of the rolls. sir geoffrey’s lecture addressed the role of ai in the legal profession and explored ai’s potential to enhance judicial efficiency and access to justice, while emphasising the importance of responsible implementation.

more recently, in bradley v frye-chaikin, the grand court has had cause to consider the use of ai tools to produce legal submissions. in so doing, the grand court reviewed:

• the us decision of mata v avianca, inc, in which judge kevin castel had sanctioned two attorneys for submitting a brief drafted by chatgpt that had referred to non-existent case law authorities.
• the subsequent english decision of harber v hmrc, in which judge redston, perhaps unsurprisingly, criticised the applicant for submitting a document that referred to nine purported authorities that did not exist.

the honourable justice asif kc held that there is “nothing inherently wrong” with using technology to aid in the efficiency of the proceedings. however, in so doing, he echoed the sentiments of judge redston insofar as the cayman islands is concerned. he emphasised that reliance on ai, without taking the proper precautionary steps to ensure accuracy, could cause a great deal of harm, including: wasting the court and the opponent’s time; wasting public funds and causing the opponent to incur unnecessary costs; delaying the determination of other cases; failing to put forward other correct lines of argument; tarnishing the reputation of judges to whom non-existent judgments are attributed; and impacting the reputation of the courts and legal profession more generally.

the judge accordingly warned: “as the use of ai tools in the conduct of litigation increases, it is vital that all counsel involved in the conduct of cases before the courts are alive to the risk that material generated by ai may include errors and hallucinations. attorneys who rely on such material must check it carefully before presenting it the court.”

perhaps more notably, the judge also held that opponents “should be astute to challenge material that appears to be erroneous, as was the case here. as officers of the court, in my view, an attorney’s duty to assist the court includes the duty to point out when their opponent is at risk of misleading the court, by reference to non-existent law or authorities.”

this decision is a welcome reminder of the court’s commitment to embracing technology to enhance service delivery, whilst maintaining public trust and confidence. in the words of sir geoffrey, “we will adopt and utilise ai for the things it does well, but we are a long way from being made redundant”.

this blog post was also written by diana demercado, a member of our articled clerk programme.

on 17 february 2025, the bvi court recognised a committee, appointed by the hong kong court of first instance, with responsibility over the financial affairs of a family member who lacks capacity and has movable assets in the bvi.

in the bvi, it is well established that the courts may recognise foreign money judgments, grants of probate, appointments of foreign insolvency office holders and foreign commercial receivership orders.

it has been less clear, however, on what terms the bvi court will recognise the foreign appointment of a curator or committee to take proceedings in the bvi to recover property and or manage the affairs of a person lacking capacity. the advantages to seeking recognition of the foreign appointment principally include that it would expedite the curator’s functions without the need for a further assessment of the individual’s capacity.

first, the bvi court should have jurisdiction if the person lacking capacity has property in the bvi although not actually present in the country. those assets may include shares in a bvi company.

secondly, it is important to establish a sufficiently close connection between the person lacking capacity and the foreign country that originally appointed the curator. that connection may be by way of citizenship or residence.

thirdly, the bvi court has co-existing statutory and common law power to recognise the foreign appointment. section 38 of the bvi mental health act 2014 provides, with respect to foreign appointments, a mechanism for, “direct[ing] any stock standing in the name of that other person or the right to receive dividends with respect to that stock to be transferred into the name of the person so appointed.” on the other hand, the common law is of much wider ambit and allows for recognition of a foreign mental health appointment more generally.

careful navigation of these principles can ensure both an expeditious and efficient recognition and appointment process in the bvi.

in the recent case of sia investment industry v pardus wealth ltd, the english commercial court ruled on the appropriate sanction to be imposed on an individual respondent, who had been found guilty of contempt of court for failure to comply with several provisions of a freezing order.

mr bryce had been found to be in contempt for three specific breaches:

• failure to inform the applicant company's solicitors of his assets exceeding £10,000
• failure to swear and serve an affidavit verifying the disclosed information
• entering into a loan extension that diminished the equity of a relevant property

mr bryce’s mitigation defence was that he was at the time suffering from depressive disorder, suicidal, and self-medicating with alcohol and drugs; hence he “put his head in the sand.”

mr justice bryan made a detailed review of the authorities regarding sanctions for contempt of court, committal and mitigating factors. he found whether the contempt is ongoing, capable of remedy and/or has been purged, to be strong factors. in this case, mr bryce had failed to purge his contempt even after instructing legal representation. moreover, he could not be said to be unaware of his obligations because he had belatedly provided a list of assets by email which was found to be “so general as to be useless of the purpose of policing the freezing order.” the judge was also unimpressed by mr bryce’s reported statement to his medical advisor that the retribution he was facing was draconian for “failing to file a piece of paper.”

the judge found the respondent’s medical evidence and claim to dependence on substances to be possible but did not interfere with his finding that the respondent knew perfectly well what he had to do, but knowingly failed to do so. mr bryan’s depressive disorder did afford some mitigation when it came to the committal sentencing but only a small downwards adjustment from the top of the sentencing range. the respondent was sentenced to 15 months’ imprisonment and to pay costs of the contempt applications on the indemnity basis.

this case demonstrates that courts will deem continuing breaches of freezing and related disclosure orders to be serious breaches which cause significant prejudice to applicants and are worthy of committal, even when there are personal mitigating factors at play. prejudice, deliberateness and whether the contempt is remedied are all factors which the court will take into account when sentencing. sticking one’s head in the sand is no defence.

harneys does not advise on the law of england and wales, but this judgment will be of interest to other common law jurisdictions in the context of enforcement of injunctive relief.

sir anthony smellie kcmg kc, former chief justice of the cayman islands, has received the prestigious honour of being appointed a member of his majesty’s most honourable privy council and a member of the judicial committee of the privy council. these serve as a testament to sir anthony's distinguished career and contributions to the legal field, and are a reflection of the high quality of the cayman judiciary.

sir anthony's judiciary journey began with his appointment as a judge of the grand court of the cayman islands in 1993, becoming chief justice in 1998, a role he held until his retirement in 2022. his expertise and dedication were further acknowledged in 2018 when he was appointed to bermuda's court of appeal.

the judicial committee of the privy council continues to serve as the final court of appeal for numerous british overseas territories, including the british virgin islands, bermuda, and the cayman islands, as well as crown dependencies such as jersey.

this is a welcome trend of recognising the chief justices of offshore courts, following the judicial committee of the privy council welcoming the hon dame janice pereira dbe to sit as a judge for a week in december. dame janice pereira is the former chief justice of the eastern caribbean supreme court, of which the british virgin islands is a member.

harneys, along with the entire cayman legal community, takes immense pride in sir anthony's achievements and offers heartfelt congratulations to him.

the english court of appeal’s decision in khan v d’aubigny is a must-read for litigators, tackling the perennial issue of valid service—whether under common law, contract, or statute. though arising in a landlord-tenant context, the ruling offers guidance across all litigation, clarifying section 7 of the interpretation act 1978 (ia 1978), the common law presumption of service, and what qualifies as a “notice”.

the landlords served a section 21 notice under the housing act 1988, but the tenant, mrs d’aubigny, denied receiving three key documents—a gas safety record (gsr), an energy performance certificate (epc), and the how to rent booklet. as service of these documents was a statutory prerequisite, the dispute centred on whether they had been validly served.

the landlords relied on three key arguments, all of wider relevance:

1. statutory service (section 7 ia 1978): that properly addressed, prepaid post is deemed served unless the recipient proves otherwise.
2. contractual service: a clause in the tenancy deemed notices sent by first-class post to be properly served.
3. common law presumption: a properly addressed and posted letter is presumed delivered unless the recipient proves otherwise.
   the tenant disputed all three points, arguing that ia 1978 did not apply, the documents were not “notices” under the tenancy, and the common law presumption did not apply as the landlords contended.

the court’s decision

the court of appeal upheld the landlords’ arguments on contractual service and the common law presumption but rejected reliance on ia 1978:

1. statutory service—ia 1978 did not apply: the ia 1978 applies only where a statute expressly requires service by post. the housing act merely requires landlords to “give” documents, so ia 1978 was irrelevant.
2. contractual service—the letter was a “notice”: the landlords’ covering letter was a notice under the tenancy, as it formally notified the tenant of matters relevant to her rights.
3. common law presumption applied: a properly addressed and posted letter is deemed delivered unless proved otherwise. a mere denial of receipt was insufficient.

key takeaways for litigators

• read statutory service provisions carefully—if a statute does not require service by post, the ia 1978 will not assist.
• contractual service clauses matter—if a contract deems postal service effective, the courts will uphold it.
• the common law presumption remains strong—but evidentiary records (eg tracking) remain crucial.

while harneys does not advise on the law of england and wales, english decisions are persuasive in the offshore courts and are therefore of interest. this is especially the case where the ia 1978 applies in bermuda. further the equivalent provisions in both the bvi and the cayman islands (section 25(1) of the interpretation act 1985 and section 53 of the interpretation act (1995 revision), respectively) is identical in wording to section 7 of the ia 1978.

a domain name is an intangible asset of a company, establishing the company’s presence on the internet. the abuse of domain names is a phenomenon that we see evolving in the past few years. in this short guide, we examine the rights associated with domain name registration, the various disputes that may arise over ownership and rights, as well as possible routes for resolution.

domain name registration

a domain name is a websites’ unique address on the internet, which simplifies the complex numerical ip addresses into easy-to-remember words. the registration of a domain name is available on a first come first served basis and is indeed significant if a custom / unique domain name is required, so that registration by a third party is prevented.

domain names are divided in two sections, with the first one being the top-level domain (tld), such as “.com” and the second one the second-level domain (sld), which is a word that each applicant chooses to register, usually being the name of the company.

it is indeed important to secure the rights of a domain name, by registering it with a reliable domain registrar, either accredited by the internet corporation for assigned names and numbers (icann) or a national cctld manager, responsible for the registration of domain names that include the unique top-level domain of each country, such as “.cy” for cyprus.

when a domain name is registered, exclusive use and control are secured for a specified period, along with the ability to sell and transfer ownership. while registering a domain name does not neatly fit into the umbrella of the traditional intellectual property law protections, legal implications might arise if a domain name is identical or similar to a trademark.

domain name disputes

domain name disputes arise mainly when two parties claim the rights of a domain name. broadly speaking, these disputes may be classified, among others, as follows:

1. cybersquatting arises when a domain name, being identical or confusingly similar to a well-known trademark or brand name, is registered and/or used by a third-party in bad faith for the purpose of selling the domain name’s registration, and concurrently its rights, to the trademark owner and diverting traffic from the rightful owner's / user’s website.
2. typosquatting occurs when a trademark is being slightly misspelled and registered in bad faith, again for the purpose of profiting from the sale of the domain name’s registration to the trademark owner thereafter.
3. trademark infringement arises when a domain name is confusingly similar or identical to a trademark, usually containing a well-known brand name or the word trademark itself.
4. passing off happens when someone, inter alia, uses a domain name or a brand name that is confusingly similar or identical to another, misleading consumers and damaging the original brand’s reputation.

dispute resolution

domain name disputes can be resolved through several legal and administrative proceedings, including, but not limited to, filling a complaint with icann or the domain name registrar, court proceedings that may involve claims for trademark infringement and passing off, and arbitration. the route for resolving a domain name dispute can be determined based on the procedural rules of the competent authority, nature of the dispute, complexity of the case, desired outcome, timeframes and financial resources.

conclusion

domain name registration is a crucial step for establishing the online presence of a company and safeguarding the right of exclusive use for the registrant. however, with the rapid growth of the tech industry and the increasing value placed on online presence, domain names have become increasingly susceptible to abuse, resulting in a rise of domain name disputes. resolving these disputes effectively requires an enhanced analysis by your trusted advisors and expertise to undertake steps for resolution.

in a recent decision of the bermuda court of appeal, the judgment in afiniti, ltd. v chishti offered a nuanced costs ruling following an appeal with mixed outcomes. the case provides valuable insights into the apportionment of costs in litigation where neither party emerges as a clear winner.

the dispute centred on a deed of indemnity, under which the respondent, mr chishti, sought to recover costs. the appeal involved three grounds advanced by the appellant, afiniti, and a cross-appeal by the respondent. the court’s earlier judgment on the grounds of the appeal had earlier found:

• ground 1: the appellant partially succeeded in establishing that an internal determination was admissible as evidence but failed to persuade the court that it had binding effect.
• ground 2: the appellant succeeded in arguing that an arbitration award was admissible and raised an arguable abuse of process issue. however, the court declined to make any findings on abuse at this stage.
• ground 3: the appellant’s argument for issue estoppel, relying on the privy council’s decision in munni bibi v tirloki nath was rejected.

the respondent’s cross-appeal—seeking to strike out affidavit evidence and obtain interim relief—was dismissed in its entirety.the respondent’s cross-appeal, which included an application to strike out affidavit evidence and secure interim relief, was dismissed in its entirety.

costs application: two key issues

the costs ruling revolved around two main questions:

1. could the respondent recover costs contractually under the deed of indemnity?
2. if not, how should the court exercise its discretion on costs?

on the first point, the court held that the respondent’s contractual claim to costs should be determined in the supreme court in future proceedings, as it involved complex issues unsuitable for resolution in the context of a costs application.

this left the second question: how should costs be apportioned? justice kawaley, delivering the court’s judgment, emphasised proportionality, applying the principle from first atlantic commerce v bank of bermuda ltd. this principle allows reductions in recoverable costs where a party’s conduct unnecessarily increases the time or expense of litigation.

the court’s analysis

the appellant secured substantial success overall, particularly on grounds 1 and 2, and was awarded 70 per cent of its costs on appeal.

however, two factors led to a reduction in recoverable costs:

1. issue estoppel (ground 3): while arguable, this point took up considerable time and resources but ultimately failed. the court viewed its pursuit as disproportionate.
2. abuse of process: the argument that the lower court should have made abuse findings was dismissed as premature, further justifying a costs reduction.

by contrast, the respondent’s complete failure on the cross-appeal meant the appellant recovered full costs for that aspect.

takeaway

this decision serves as a reminder that full cost recovery is never a given when the outcome is anything short of an outright win. the court’s approach reinforces the importance of strategic precision—if you push too many weak points, the price may well be a proportionate cut to your costs.

implications for future cases

this case serves as a cautionary note for practitioners: ambition must be tempered with pragmatism. while novel arguments can push the law forward, they must be weighed against the time and cost they add to proceedings.

the landmark decision by the privy council in sian participation corp v halimeda international ltd (‘sian’), handed down in june 2024, is of significance for insolvency and arbitration practitioners alike because, amongst other matters:

it confirms that a winding-up petition should not be stayed or dismissed merely because the underlying debt is subject to a broadly worded arbitration agreement, thereby endorsing the approach adopted by the courts in the british virgin islands (‘bvi’). the debt must be disputed on genuine and substantial grounds, which contrasts with the position reached by the english court of appeal in salford estates (no. 2) ltd v altomart ltd (no. 2) (‘salford estates 2’).

it marks the first instance of the privy council (as the bvi’s highest appeal court) using its powers under willers v joyce (no. 2) to declare a previously leading english authority (salford estates 2) as having been wrongly decided.

this article explores the evolution of judicial approaches to the interplay between arbitration clauses and winding up proceedings in england and wales, the bvi and hong kong, both before and after sian.

download the pdf to read the full article.

this article first appeared in volume 22, issue 1 of international corporate rescue and is reprinted with the permission of chase cambria publishing - www.chasecambria.com

image generated by warren bank using ideogram.ai

in a recent event that sounds straight out of a comedy script, bermuda played host to a most unexpected set of vips—very important pigs. a klm aircraft en route from the netherlands to mexico made an emergency stop on the island after the smell from its cargo of live pigs proved too much for the flight crew and pilots to handle. yes, you read that correctly: the pigs were flying, but their odour was grounding!

a smelly situation

the flight, carrying both passengers and over a hundred live pigs, encountered an olfactory crisis mid-journey. the pungent aroma wafting from the cargo hold reportedly began affecting the pilots, posing a safety risk. faced with no alternative, the crew opted for an emergency landing in bermuda—a decision that sparked equal parts curiosity and sympathy from locals.

upon arrival, the pigs were given five-star treatment (or as close as you can get for livestock). they were transferred to a specially prepared facility to ensure their well-being, while the passengers were also well looked after during the unscheduled stop.

a tale of two species

the juxtaposition of passengers stretching their legs in bermuda's fresh air while the pigs basked in bermudian hospitality gave the story an oddly heartwarming twist. local authorities acted swiftly to ensure the animals were cared for, underscoring our island's reputation for resourcefulness and compassion—even in the most unusual circumstances.

meanwhile, passengers took the opportunity to share their experience on social media, with one quipping, “i never thought i’d be rerouted by a smell, let alone one involving flying pigs!”

when pigs fly (and stop in bermuda)

this incident finally confirms what we’ve long suspected—pigs really did fly… straight into the bermuda triangle! bermuda now holds the distinct honour of being a refuge for weary travellers of all kinds, whether human or porcine.

it just goes to show that bermuda has a unique knack for turning logistical nightmares into unforgettable stories. in that spirit, we at harneys bermuda are always ready to adapt—no matter how unusual the circumstances.

this guide covers frequently asked questions on how the courts in the british virgin islands operate.

how are the courts in the bvi structured?

the british virgin islands is a member state of the eastern caribbean supreme court (ecsc). within the bvi, the high court is managed by local registries. the procedure is governed by the ecsc civil procedure rules 2023 (ec cpr) and practice directions.

the key components of the bvi’s civil court system are (i) the high court (civil division), (ii) the high court (commercial division), (iii) the ecsc, court of appeal, and (iv) the judicial committee of the privy council.

how are proceedings commenced in the bvi?

the following five points cover the most sought-after answers to how proceedings are commenced in the bvi.

are there any pre-action protocols that need to be followed?

practice direction 17 no 2 of 2023 introduced pre-action protocols setting out the steps parties should take to exchange information before commencing proceedings to encourage early information exchange, enable settlements and efficiently manage any ensuing litigation. there are specific protocols for (i) claims for a specified sum of money, (ii) motor vehicle accidents and personal injury claims, (iii) defamation claims, and (iv) administrative claims.

claimants must write to the defendants setting out the details of their claim; defendants must respond within a certain period admitting or disputing liability. non-compliance may result in cost sanctions from the court if it leads to unnecessary proceedings or costs, save in urgent claims or where a period of limitation is about to expire, for example.

in cases not covered by an approved pre-action protocol, the court will expect the parties to act reasonably and promptly in exchanging information and documents relevant to the claim and generally in trying to avoid litigation.

can you file online?

most filings are made using the ecsc’s e-filing portal, which is accessible to bvi legal practitioners. the court registry allocates matters to judges, schedules hearings and issues court orders once approved.

how do you start a claim?

depending on the type of dispute, proceedings are initiated by filing either a part 8 claim or a fixed-date claim form.

part 8 claims

ec cpr part 8 deals with the initiation of legal process. a claim is started when the claimant submits the original and one copy of the following documents to the court office:

• the claim form; and
• the statement of claim; or
• if any other rule or practice direction requires it, an affidavit or other document.

ec cpr parts 69 and 70 deal with commercial claims and procedure. the bvi commercial division hears claims or applications relating to, among other things, business contracts and companies, partnerships, insolvency, trusts or arbitration. the claim or value of the subject matter to which the claim relates must also be at least us$500,000, unless the commercial division judge considers the claim warrants being on the commercial list nonetheless. a claimant must file a certificate outlining the relevant facts demonstrating the claim’s commercial nature (ec cpr 69.1(4)).

the claim is issued on the date entered on the claim form by the court office (ec cpr 8.1(2)). claim forms e-filed via the electronic litigation portal will be deemed to be issued on the date and time it was submitted to the portal, if done so within the portal’s business hours (ec cpr 5a.8). documents submitted for filing outside of business hours will be deemed to have been filed at the start of the next business day.

fixed date claims

fixed date claim forms are intended to have a “fixed date” set at the time of issue for the first hearing of the claim (ec cpr 27.2(1)). this first hearing of a fixed date claim may be treated by the court as the trial of the claim if it is not defended or the court considers that the claim can be dealt with summarily (ec cpr 27.2(3)).

examples of the types of matter which must use a fixed date claim form:

• application for recognition and enforcement of a foreign arbitral award
• restoration of a company under section 218 of the bvi business companies act 2004 (bca)
• rectification of a register of members under section 43 of the bca
• beddoe and public trustee v cooper applications
• probate claims
• schemes of arrangement

is it possible to get interim relief in the bvi?

yes, applications for interim relief are frequently made in litigation in the bvi, and a wide range of provisional remedies, including injunctive or other protective relief, is available.

in appropriate circumstances, such as situations where giving notice may defeat the purpose of the application, these applications can be made without notice to the respondent (ex parte).

the legislative framework for interim applications is established by ec cpr part 17 and supplemented by a significant body of common law and equitable principles emanating from decisions of both the bvi and english courts.

injunctive or protective relief which may be awarded includes, in particular, the following:

• freezing orders restraining a respondent from (i) dealing with any asset, whether located within the jurisdiction or not, and (ii) removing from the jurisdiction assets located there. to succeed, the applicant will need to show (a) a good arguable case against the respondent, (b) that the refusal of an injunction would involve a real risk that a judgment or award in favour of the claimant would remain unsatisfied, and (c) that it is just and convenient for the injunction to be granted. before 2010, freezing injunctions in the bvi were only available ancillary to a substantive domestic cause of action against the respondent. however, following the introduction of section 24a of the eastern caribbean supreme court (virgin islands) act (cap 80) and the judgment in convoy collateral ltd v broad idea international ltd [2021] ukpc 24, in appropriate circumstances, it is now possible to obtain a standalone freezing injunction in support of foreign proceedings.
• anti-suit injunctions restraining a party from starting or pursuing proceedings, including in another jurisdiction where it is convenient to do so, with the court weighing various factors depending on the circumstances of the case.
• prohibitory injunctions restraining a respondent from acting in a particular way where it is shown (i) that there is a serious question to be tried on the merits of its underlying claim against the respondent, (ii) that an award of damages would not be an adequate remedy, and (iii) that on the balance of convenience, it is just and convenient to grant the relief sought.
• proprietary injunctions protecting property and trust assets, applying the same principles as those applicable to granting a prohibitory injunction and where the applicant has a proprietary interest in the relevant asset.

how long does it take for claims to get to trial?

the timeframe for progressing claims to trial varies significantly depending on the nature of the claims.

some urgent applications, if issued with certificates of urgency specifying why the ordinary course of listing cannot be followed, may be resolved within days or weeks.

more complex claims may require over a year to progress from initial filing to trial, although trials can also be listed expeditiously in some instances.

trials in the bvi are conducted like other common law jurisdictions. the trial involves advocacy by bvi legal practitioners. oral argument and examination of witnesses of fact and experts take place before a single judge at first instance.

is it possible for hearings to be dealt with remotely in the bvi?

during the coronavirus (covid-19) pandemic the bvi courts conducted all hearings remotely. both the civil division and commercial division have now resumed in person hearings. parties may still request a virtual hearing from the court in exceptional cases. such a request to the court should be made no later than seven days before the scheduled hearing date.

is it possible to appeal a judgment in the bvi?

yes, decisions of the high court are appealed to the ecsc court of appeal.

before the pandemic, the court of appeal operated in an itinerant manner, sitting in each of the ecsc territories and member states. the court of appeal typically convened in the bvi for one week three times per year. since the pandemic, the court of appeal conducts virtual hearings; presently, all hearings continue to be held remotely. it continues to sit for bvi hearings three times per year.

is leave to appeal required?

leave to appeal may be required depending on the circumstances of the judgment or order being appealed.

final decisions

there is an automatic right of appeal to the court of appeal from the high court in the case of final decisions in civil proceedings. no leave to appeal is therefore required.

to determine whether a decision is considered final, the court utilises the “application test”, which assesses whether the resolution of the application before the high court would have conclusively determined the litigation, regardless of the outcome of the decision made by the high court.

similarly, there is a right to appeal the final decisions of the court of appeal to the judicial committee of the privy council, the final appellate court for the bvi. this right is applicable when the disputed matter is valued at a minimum of £300 or where the appeal, either directly or indirectly, involves a claim to or question regarding property or a right of the value of at least £300 or higher.

interlocutory decisions

leave to appeal to the court of appeal is required for interlocutory decisions of the high court, except in relation to the following:

• cases concerning the liberty of the subject or the custody of infants
• cases where an injunction or appointment of a receiver is granted or refused
• decree nisi in a matrimonial cause or a judgment or order in an admiralty action determining liability

the grant of leave to appeal is discretionary, and a prospective appellant must demonstrate reasonable prospects of success or other compelling reasons for leave to be granted. public interest reasons, such as instances where the law is unclear or a new point of law arises, may warrant the grant of leave.

if a decision of the court of appeal on an interlocutory decision of the high court is challenged, leave to appeal to the privy council is required. leave will be granted if the question in the appeal is of great general or public importance or if there are other compelling reasons to submit the case to the privy council.

appeal – timelines and procedure

we cover the following three scenarios, timelines and procedures to follow with appeals.

high court to the court of appeal – where leave is required

application for leave to appeal must be submitted to the high court within 21 days of the order being appealed. if the high court refuses, there is an option to apply to the court of appeal within seven days of the high court’s refusal. once leave is granted, the notice of appeal must be filed within 21 days.

high court to the court of appeal – where leave is not required

in interlocutory appeals where leave is not required, the notice of appeal must be filed within 21 days of the decision.

for final appeals, the notice of appeal must be filed within 42 days of the decision.

court of appeal to the privy council

to appeal from the court of appeal to the privy council, the following steps need to be taken:

1. within 21 days of the court of appeal’s decision, an application for conditional leave should be submitted to the court of appeal.
2. if the court of appeal grants conditional leave, the appellant must fulfil the specified conditions, which typically include security payments and record preparation.
3. once the conditions are met, an application for final leave is made to the court of appeal.
4. if the court of appeal grants final leave, the appellant can appeal to the privy council.

in cases where leave to appeal to the privy council is required but refused by the court of appeal, a prospective appellant may apply directly to the privy council for “special leave”. it is important to note that while the privy council has discretion in granting special leave; in practice, such leave is rarely granted in civil cases.

conclusion

we hope this guide helps you understand how the courts in the bvi operate. if you have any further questions, please get in contact with claire goldstein or christopher pease.

in dos santos v unitel sa, the english court of appeal clarified the threshold test of a “good arguable case” for granting worldwide freezing injunctions should be equivalent to that of a “serious issue to be tried” as applied in other types of interim injunctions, in accordance with the principles laid down in american cyanamid.

ms isabel dos santos founded unitel, the largest mobile telecom company in angola. she was a director of unitel and was also a minority beneficial owner of the company via a bvi company (vidatel limited) until late 2020. unitel commenced proceedings in the english court against ms dos santos in respect of defaults of certain loans advanced by unitel to ms dos santos’ personal company. the first instance court granted a worldwide freezing injunction against ms dos santos’ assets. permission to appeal was granted by the court of appeal to ms dos santos on the basis that the grounds of appeal raised important issues of law on which there had been divergence among the judges and that the appellant had a real prospect of success.

the court of appeal found that it was common ground that an applicant for a freezing order has to show

1. a good arguable case on the merits;
2. a real risk, judged objectively, that a future judgment would not be met because of an unjustified dissipation of assets; and
3. that it would be just and convenient in all the circumstances to grant the freezing order.

the court considered two different approaches to what amounts to a “good arguable case” for granting a freezing injunction: on the one hand, as laid down in ninemia maritime corp v trave schiffahrts gmbh (the niedersachsen), “one which is more than barely capable of serious argument, but not necessarily one which the judge considers would have a better than 50 per cent chance of success”; and on the other, a test set out in brownlie v four seasons holdings inc as applied in the context of jurisdictional gateways, requiring a plausible evidential basis for the court to decide which party has “the better of the argument”.

in dismissing the appeal, the court of appeal unanimously held that the threshold of a good arguable case in the context of freezing injunctions should be as that formulated in the niedersachsen and not the test derived from brownlie.

the court observed that

1. in granting freezing injunctions, the test is applied to satisfy a relatively low merits threshold, in circumstances where the court will substantively determine the merits at trial.
2. where there is a dispute on the evidence, it is invidious for the court at an early stage when a freezing injunction is sought, to have to determine which party has “the better of the argument”.
3. the application of a merits test in the context of jurisdictional gateways would have involved a relative assessment of the parties’ respective legal positions, and is liable to draw the parties and the court into the conduct of “mini-trials” at an early stage. this would put the merits bar too high and would deny the victims of wrongdoing the interim protection which a freezing injunction is designed to provide.
4. the merits test for a freezing order should be the same as that for interim injunctions generally, namely whether there is a serious issue to be tried under the american cyanamid principles.

the decision provides important clarifications as to the correct threshold for granting freezing injunctions, ensuring that a case does not turn into a mini-trial at an early interlocutory stage where a freezing injunction is usually sought on an urgent basis.

harneys does not advise on the law of england and wales, but this judgment will be of interest to other common law jurisdictions such as the bvi, cayman and bermuda. for example, the cayman islands court of appeal in scully royalty ltd ltd v raiffeisen bank international ltd considered brownlie and applied the test in the niedersachsen as elaborated in brownlie – to the effect that “good arguable case” reflects that one side has a much better argument on the material available. in the bvi, the privy council in broad international ltd v convoy collateral ltd confirmed the niedersachsen meaning of “good arguable case”. similarly, bermuda follows the nidersachsen test (see mexico infrastructure finance llc v par-la-ville hotel and residences ltd).

in the british virgin islands, arbitration is principally regulated by the arbitration act 2013 (the act), which came into force in 2014.

the act is modelled upon the uncitral model law on international commercial arbitration (the model law), subject to a number of local modifications. the act is supplemented by the bvi iac arbitration rules (the bvi rules), which were brought into force in 2016.

bvi international arbitration centre

the bvi international arbitration centre (the iac) also opened in 2016. the iac was the first centre of its kind in the caribbean to provide a forum for dispute resolution by way of arbitration. the iac’s board of directors is chaired by mr john beechey cbe, the former president of the international court of arbitration of the international chamber of commerce.

the bvi’s central location between north and south america means that parties with business and other interests in those locations are able to choose a neutral territory in which to resolve their disputes. the iac also provides a perfect venue for arbitrations involving bvi incorporated companies.

the centre itself provides a modern hi-tech facility in which parties from around the globe can expect international high-class standards in a politically neutral environment. amongst the facilities provided at the centre are simultaneous language interpretation services, audio and video conferencing facilities and a concierge service.

bvi arbitration act 2013

the act has three main features which are of interest:

1. it incorporates the uncitral model law on international commercial arbitration (the model law) as adopted by the un commission which is recognised internationally.
2. the bvi is signatory to the un convention on recognition and enforcement of foreign arbitral awards, commonly referred to as the new york convention.
3. the option to opt-in to a right of appeal to court on a question of law arising from the arbitral award.

in addition, other useful matters to note about the act are the arbitral tribunal’s power to consolidate two or more arbitrations in certain circumstances and a party’s ability to apply to court challenging the arbitral award on the ground of serious irregularity.

uncitral model law

the incorporation of the model law into the act enshrines well-established international principles. the same may be said of the bvi rules as they are based on 2010 the uncitral arbitration rules (the uncitral rules). the act and uncitral rules recognise firstly, that the parties are free to choose the terms of the arbitration clause subject to the usual common law rules on validity; and secondly, the parties are able to appoint their preferred number of arbitrators.

the effect of the incorporation of the model law is that a number of matters codified in the model law apply to the act. these are: (1) the arbitral tribunal’s ability to rule on jurisdiction further to section 32; (2) the doctrine of severance or separability under section 32; (3) the ability to challenge the appointment of or to remove an arbitrator further to section 23; and (4) the power of the tribunal to grant interim measures under section 33. these provisions closely follow the model law.

jurisdiction

jurisdiction challenges are common in arbitration so it is important that the arbitral tribunal retains the power to rule on its own jurisdiction in order to avoid unnecessary delay. the tribunal can hear any objections with respect to its jurisdiction including in relation to the existence or validity of the arbitration agreement without needing to take the dispute to court. the jurisdictional power of the arbitral tribunal includes the power to decide whether the tribunal is properly constituted and to decide what matters have been submitted for resolution in accordance with the arbitration agreement.

severance

the doctrine of severance or separability further to section 32 of the act gives the arbitral tribunal the power to sever the arbitration clause as a contract separate from the rest of the agreement in which it is contained. consequently, if the main agreement was never properly formed, or if it exists but subsequently fails or is found to be invalid, this does not inevitably result in a finding of invalidity of the arbitration clause.

challenge to the appointment of an arbitrator

sections 23 and 24 of the act set out that the appointment of an arbitrator may be challenged along with the procedure for doing so. these sections follow the wording of the model law. an arbitrator’s appointment may only be challenged where circumstances exist that give rise to justifiable doubts as to the arbitrator’s impartiality or independence, or where the arbitrator does not possess the qualifications agreed upon by the parties. in the first instance, the parties are free to agree the procedure for the challenge. failing agreement, the parties have 15 days after becoming aware of the tribunal’s constitution or of the circumstances giving rise to the challenge to send a written statement of the reasons for the challenge to the tribunal. if a challenge is unsuccessful, the challenging party has 30 days from receipt of the notice declining the challenge in which to request the bvi court to decide on the matter.

interim measures

unless otherwise agreed by the parties, the arbitral tribunal has wide powers to grant interim measures. article 17 of the model law is fully adopted by section 33 of the act and provides that an interim measure is any temporary measure, whether in the form of an award or in another form by which at any time prior to the making of the final award, the arbitral tribunal orders a party to: (1) maintain or restore the status quo pending determination of the dispute; (2) take action that would prevent or refrain from taking action that is likely to cause current or imminent harm or prejudice to the arbitral process; (3) provide a means of preserving assets out of which a subsequent award may be made; or (4) preserve evidence that may be relevant and material to the resolution of the dispute.

the applicant must be able to satisfy the tribunal that if the interim measure is not granted, harm not adequately reparable by damages is likely to result by the applying party, and that such harm substantially outweighs the harm that is likely to result to the party against which the measure is directed. the applicant must also satisfy the court that there is a reasonable possibility that it will succeed on the merits of the substantive claim.

section 43 of the act enables the court to grant interim measures irrespective of whether the arbitral tribunal is capable of granting the same relief in relation to the same dispute. whilst arbitrators lack the necessary coercive powers to enforce interim measures, the court may decline to grant an interim measure on the grounds that the relief being sought is the subject of arbitral proceedings and that the court considers it appropriate for the measure being sought to be considered by the arbitral tribunal. parties should therefore consider carefully on which side of the line the interim measure sought is likely to fall before applying either to the arbitral tribunal or to court.

the act gives to the courts jurisdiction to consider applications for interim measures in respect of arbitral proceedings which have been or about to be commenced outside the bvi. in these circumstances, the court may grant an interim measure if: (1) the arbitral proceedings are capable of giving rise to an arbitral award whether interim or final which is capable of being enforced in the bvi under the act or any other enactment; and (2) the interim measure being sought is of a type or description of interim measure capable of being granted by the bvi court in relation to arbitral proceedings. a court ordered interim measure is not subject to appeal.

enforcement under the new york convention

while the bvi court has always been able to enforce foreign new york convention awards, the act makes it possible to export bvi arbitral awards to other convention states. the bvi is a signatory to the new york convention, enabling enforcement of bvi arbitral awards in all other states which are signatories to the new york convention of which there are currently over 170 members. the steps to enforcement in a convention state are enshrined in sections 84 to 86 of the act which state that an action for enforcement in court must be brought. alternatively, enforcement may take place by producing to the bvi court: (1) an authenticated original award or certified copy of the original award; (2) the original arbitration agreement or a certified copy of it; and (3) if the award is in a language other than english, a certified translation of the award.

grounds under which the bvi court may refuse enforcement of a convention award include: incapacity of the parties; lack of validity of the agreement; lack of proper notice of the arbitration to the respondent or inability to present their case; where an issue not contemplated by the arbitration has been dealt with; or where the award is not yet binding on the parties or it has been set aside or suspended.

enforcement of non-convention arbitral awards

in respect of non-convention awards, sections 81 to 83 of the act set out that the bvi court can give leave to enforce an arbitral award in the same manner as a judgment or order of the court. where such leave is granted, the court may enter judgment in the terms as set out in the award. the grounds for refusal of enforcement of a non-convention award are the same as for convention awards with an additional ground of any other reason the court considers just.

the bvi court has repeatedly demonstrated its pro-enforcement approach to the enforcement of convention and non-convention arbitration awards. for example, the privy council upheld the bvi court of appeal’s decision in vendort traders inc v evrostroy grupp llc that it is not necessary to obtain a court order enforcing an arbitration award, or indeed an ordinary judgment before a statutory demand may be presented in reliance on the award.

opt-in to right to appeal on a question of law

further to section 89 and schedule 2 of the act, there are a number of provisions which the parties to an arbitration agreement may expressly include in the agreement. arguably, the most important one of these is contained at paragraph 5, schedule 2, which is the right to appeal the final award to court on a question of law. an appeal may be brought wither by the agreement of all the parties to the arbitral proceedings, or with the leave of the court. leave to appeal will be granted only if the court is satisfied that: (1) the decision of the question of law will substantially affect the rights of one or more parties; (2) the question is one which the tribunal was asked to decide; and (3) on the basis of the factual findings in the award, (a) the decision of the arbitral tribunal was obviously wrong or (b) the question is one of general importance and the decision of the tribunal is at least open to serious doubt.

it is important to note that the parties will lose the right to appeal, or to seek leave to appeal if they have agreed to dispense with the requirement to include reasons in the final award.

when hearing an appeal, the court must decide the question of law which is the subject of the appeal on the basis of the findings of fact made in the final award. on hearing the appeal, the court may make an order: (1) confirming the award; (2) varying the award; (3) remitting the award to the arbitral tribunal in whole or in part for reconsideration; or (4) setting aside the award in whole or in part.

this particular opt-in is of significant importance. without choosing the right opt-ins, parties may find themselves with limited rights of appeal. the parties will need to give careful consideration in their choice on whether to opt-in to this right depending on how much court involvement is desired.

costs

unless otherwise agreed by the parties, an arbitral tribunal may require a claimant to give security for the costs of the arbitration proceedings. although an order for security may not be made solely on the basis that the claimant is ordinarily resident or incorporated outside of the bvi (fdq v tax bvihc (com) 55/2023).

an arbitral tribunal may include in any award directions with respect to the costs of arbitral proceedings, including the fees and expenses of the tribunal. a provision of an arbitration agreement to the effect that the parties, or any of the parties, must pay their own costs in respect of arbitral proceedings arising under the agreement is void unless the agreement was made prior to the dispute arising (section 72(8)).

other matters

section 6 and paragraph 2, schedule 2 of the act, if included in the agreement, permits the court to consolidate arbitrations in two or more arbitral proceedings if it appears to the court that there is a common question of law or fact in the arbitral proceedings and that the relief sought in those proceedings are in respect of, or arise out of the same transaction or series of transactions. the court has a residual power to consolidate arbitral proceedings for any other reason it considers desirable to make an order.

further to paragraph 4 of schedule 2 of the act, a party to the arbitral proceedings may apply to court challenging the award on the ground of serious irregularity which has affected the tribunal, the proceedings or the award. serious irregularity has a wide definition and includes a failure by the tribunal to treat the parties with equality, failure on the part of the tribunal to: (1) remain independent; (2) act fairly and impartially as between the parties giving them a reasonable opportunity to present their case; or (3) use procedures that are appropriate to the case, avoiding unnecessary delay or expense.

conclusion

the iac is a significant asset for the bvi and its development of dispute resolution by way of arbitration. the act and the bvi rules draw on the well-established uncitral model law, the 2010 uncitral rules and the jurisdiction is a signatory to the new york convention on the recognition and enforcement of awards. the commercial court which is located moments away from the iac is an internationally respected court and is arbitration friendly. the physical location of the bvi makes it a first-class choice for the seat of an arbitration as it is accessible to clients from south america, the usa, canada and other parts of the caribbean.

the enforcement toolkit available in the bvi is similar to many other common law jurisdictions. however, the bvi courts have tailored their approach to meet the challenges a creditor may face when looking to enforce over a complex structure.

while it has its own legal system, the bvi is a british overseas territory. it is therefore heavily influenced by judicial decisions made in england and wales - widely recognised as one of the fairest jurisdictions in the world. parties also have the added benefit of being able to appeal to the privy council, where supreme court judges regularly hear appeals from the bvi.

this guide sets out a high-level overview of the areas in which we regularly assist our clients.

enforcement of foreign judgments

subject to certain criteria being met, bvi courts can recognise many foreign judgments and have strong legal frameworks in place in this regard. drawing from both common law and statute, the courts offer well tested and flexible procedures that are adaptable to global developments.

disclosure orders

norwich pharmacal orders (npos)

in the bvi it is not compulsory to make publicly available all company records, such as minutes of meetings and the decisions behind the minutes. however, they are kept by a “registered agent” located on the island. sometimes companies do make these records available and for a small fee we can check the record. alternatively, if there has been wrongdoing, the bvi courts have a powerful weapon in being able to compel the registered agents (and other entities such as banks and internet service providers) to release information to your client identifying wrongdoers, proving wrongdoing or identifying assets for enforcement. npos can be accompanied by “seal and gag” orders meaning that if successful, the registered agent cannot tell its client that such an order has been made.

interim remedies

freezing injunctions

where there is a risk that assets or proceeds may be dissipated, bvi courts are frequently used to grant freezing injunctions. these are a powerful tool to prevent any steps being taken to dissipate assets pending the outcome of the wider proceedings (even if those proceedings are in other jurisdictions). the requirements to obtain a freezing injunction are similar to other common law jurisdictions but are flexible so as to recognise the way assets are held in offshore jurisdictions.

the bvi courts have a statutory power to grant freezing injunctions in support of foreign proceedings which ensure that assets located in the bvi, including shares, are kept safe during the pendency of dispositive foreign litigation. this development is particularly helpful in the case of the bvi companies, as such companies typically conduct most or all of their business activities outside the bvi (such that the bvi may not be the most appropriate forum for asset recovery litigation).

methods of enforcement

charging orders

bvi courts have powers to grant charging orders over shares, property or other assets belonging to a debtor (to include beneficially ownership). if successful a charge will be imposed on a judgment debtor’s assets. if the debt remains unsatisfied, further steps can be taken to enforce a sale of the charged asset to satisfy a judgment or other award.

garnishee orders

creditors can make an application to the bvi courts for monies to be paid directly to them which are held by a third party. this method of enforcement is commonly used to take possession of funds held in a debtor’s bank account.

appointment of a receiver

one of the most powerful weapons in the bvi enforcement toolkit is the appointment of a receiver. given offshore companies are often used as holding vehicles, receivership allows a receiver to take control of a corporate structure and move “downstream” to recover assets. in simple terms, a receiver can stand in the judgment debtor’s shoes to gather in and realise property. this has the added advantage of immediately preventing a judgment debtor from dealing with that property.

historically receiverships were viewed as a draconian remedy of last resort. today, however, receivers are appointed to address a wide range of legal circumstances. this guide summarises key features of the court-appointed receiver.^[1]

a receiver is traditionally appointed to get in and hold or secure funds or other property for the benefit of those with an interest in the property. receivership is primarily an enforcement procedure. it contrasts with liquidation in that it is not a collective insolvency procedure for the benefit of the general body of creditors or the company.

the primary sources of law regarding receiverships in the bvi are: (1) section 24 of the eastern caribbean supreme court (virgin islands) act (cap 80); (2) part 51 of the eastern caribbean supreme court civil procedure rules (revised edition) 2023; (3) part iv of the insolvency act 2003, (4) part vi of the insolvency rules 2005; and (5) common law and equitable principles derived from english law.

process and court considerations for appointment

the process for the appointment of a receiver commences with a notice of application to the court supported by affidavit evidence. to exercise its discretion, the court needs to be satisfied from the supporting evidence that it is just and convenient for a receiver to be appointed. the court will determine whether to attach conditions to an appointment. on a case-by-case basis, the court will determine whether the applicant is required to provide a cross undertaking in damages.

the law has evolved to accommodate a wide range of circumstances in which the court will exercise its discretion to appoint a receiver. following decisions like parker v the london borough council of camden [1986] ch 162 and masri v consolidated contractors international (uk) ltd (no 2) [2009] qb 450, the bvi court has appointed receivers by way of equitable execution to secure assets subject to a freezing injunction or to protect and preserve assets pending litigation. the bvi court will follow english law to appoint receivers in the context of a joint venture where there has been a misappropriation of assets, fraud or bribes.

the types of assets over which a receiver may be appointed include:

• shares
• bank accounts
• reserved rights under a trust
• llp interests
• contractual rights
• beneficiary entitlement

effect of appointment

the appointment of a receiver over the assets of a company does not affect its corporate existence, but it places the company's powers to conduct its business in abeyance. this means that the company, acting by its directors, has no power to enter into business contracts, sell, pledge or otherwise dispose of any property that is in the receiver's possession or under the receiver’s control. otherwise, directors remain in office and their powers remain exercisable so far as they are not incompatible with the right of the receiver to exercise the powers conferred on them.

duties

a court-appointed receiver is an officer of the court who is to be nothing more than the hand of the court with only the power and authority given to them by the court.

the receiver's primary duty according to the insolvency act, is to exercise their powers in good faith and for a proper purpose and in a manner which they believe, on reasonable grounds, to be in the best interests of the person in whose interest they were appointed. to the extent consistent with that primary duty, the receiver is to have reasonable regard to the interests of: (1) the company; (2) its creditors; (3) sureties who may need to fulfil obligations to the company; and (4) persons, claiming through the company, having an interest in assets over which the receiver is appointed. the persons listed at (1)-(4) are collectively referred to as interested parties.

on appointment, the receiver is required "forthwith" to notify the company and the registrar of corporate affairs of their appointment.

powers

the receiver's powers come from the order appointing them. their express powers include the implied authority to do acts that are incidental to, or consequential upon, the express powers. where the receiver needs to take steps to preserve an asset, but they do not have express or implied power to undertake the required task, they will need to seek the court's permission before proceeding.

additionally, the insolvency act gives the receiver statutory powers that will apply unless expressly dis-applied by the court order. the receiver has power to: (1) demand and recover income generated by the secured asset, whether by action or otherwise; (2) issue receipts for income recovered; (3) manage, insure, repair and maintain the secured assets; and (4) exercise, on the company's behalf, the right to inspect books or documents relating to the secured asset, which is held by someone other than the company.

vesting of assets

the appointment of a receiver over a company does not automatically vest the assets of the company in the receiver. they are entitled to possession of the assets over which they are appointed and the parties hold the assets for them as custodians. under bvi law, if a receiver is appointed over shares, they will need to have the shareholder execute a share transfer form to effect the transfer of shares to them. if the receiver is to exercise voting powers to change control of a parent company or its subsidiary boards, this power must be expressly given as appointment as a receiver does not vest this right in the receiver. for property located in a foreign jurisdiction, the receiver would need to obtain possession of the foreign assets in accordance with the laws of that jurisdiction.

liability of the receiver – sale of assets

when exercising a power of sale, the receiver owes duties to the interested parties to sell for the best price reasonably obtainable and to segregate the monies they receive from the secured asset from other monies under their control. the receiver will be in breach of their duties if, on selling an asset, they fail to obtain the best price reasonably obtainable and fail to have reasonable regard to the interested parties. they will not be able to assert the defence that they acted as an agent of the company or under a power of attorney. they will also not be entitled to compensation or indemnity from the company's assets for liabilities arising because of their breach of duty in relation to the secured asset. subject to the receiver fulfilling their duties to interested parties, they are personally liable for contracts they enter into to secure the asset. they are, however, entitled to indemnification from the assets of the company.

routes to challenging a receiver

only specific categories of persons may apply to the court to seek the removal of the receiver provided they can justify the removal. the insolvency act gives standing to the company, its directors, creditors or any person with a legitimate interest in the receiver’s removal. in jtrust asia pte v konoshita bvihcmap 22/2020, the bvi court of appeal confirmed the guiding principles for challenging a receiver's decision in relation to the exercise of their powers. the threefold considerations are: (1) whether the receiver has power to perform an act; (2) whether the receiver genuinely holds the view that the act will benefit the company and its creditors; and (3) whether the receiver is unconflicted and acting rationally.

completion of receivership

the receiver is entitled to remuneration as agreed by the person appointing them or as may be fixed by the court. on completion of the receivership, the receiver should notify the company and file a notice of completion with the registrar of corporate affairs.

^[1]this guide does not cover receivers appointed in the commercial context to enforce the security given over an asset by way of a mortgage or charge over shares. see how to enforce security in the bvi - outside of court and enforcing security over mortgage assets in the british virgin islands for guidance on out-of-court receiverships.

there has been a significant increase in the number of lenders enforcing against secured assets in the bvi, which has entailed an uptick in the appointment of out-of-court receivers. this guide highlights the types of disputes arising out of such appointments.

appointment

as many offshore companies operate as holding vehicles, security is often granted by way of share mortgage. the bvi business companies act 2004 (bca), provides a mortgagee with security over shares in a bvi company a statutory right to appoint receivers over those shares. that right is typically mirrored in the underlying security instrument.

the process for appointing receivers in the bvi is set out in the insolvency act 2003 (insolvency act).

powers and duties

once appointed, out-of-court receivers act as agent for the mortgagor unless the instrument pursuant to which they are appointed provides otherwise. while receivers are generally personally liable for their actions, this agency affords them a degree of protection as they act in the name of and on behalf of the mortgagor.

bvi legislation is relatively light-touch on the powers granted to a receiver, generally deferring to what has been agreed and set out within the instrument pursuant to which the receiver is appointed. in the case of security over shares, the receiver will generally have the power to (1) sell the shares, (2) vote the shares, and (3) take such other steps as they consider necessary or desirable to protect, improve or realise the shares.

according to the insolvency act, receivers are subject to a primary duty to exercise their powers (1) in good faith and for a proper purpose and (2) in a way they believe (on reasonable grounds) to be in the best interests of the person on whose behalf they are appointed. to the extent consistent with these primary duties, a receiver has a secondary duty to have reasonable regard to the interests of certain interested parties, such as creditors and those with an interest in any equity of redemption.

disputes relating to the appointment of receivers

as the number of receiverships increase, so does the range of issues being disputed by mortgagors, often seeking to prevent appointed receivers from exercising their powers. the following trends are beginning to emerge:

1. challenges to appointment

a mortgagor seeking to resist having their security enforced will often start by challenging the validity of the receiver’s appointment by reference to the security documents. the relevant documents must have been properly executed and valid, the right to appoint receivers must have accrued (usually contingent upon an event of default) and the necessary processes carried out to notify the mortgagor of the default and give effect to the receiver’s appointment.

2. extent to which the insolvency act applies to receiverships over shares in bvi companies owned by an individual or entity located elsewhere

the insolvency act has an entire part governing the appointment of receivers. however, there is ambiguity as to whether several key provisions, such as those setting out the duties of a receiver, apply to all receivers appointed in relation to assets in the bvi.

various provisions apply specifically to a receiver of a ‘company’, a company being defined as a company in respect of whose assets a receiver is appointed, unless the context requires otherwise. the overarching definition of a ‘company’ in the insolvency act is restricted to bvi registered companies. arguably, therefore, where a receiver is appointed over shares in a bvi company, but not the assets of a bvi company, these provisions do not apply.

this ambiguity can lead to disagreements over what steps should or should not be taken by receivers and provides fertile grounds for legal disputes.

3. balancing duties

the tripartite nature of receiverships (between mortgagee, mortgagor and receiver) has given rise to extensive authority on how receivers ought to balance the various duties that arise. but there is no one-size-fits all solution: a receiver must evaluate the competing interests according to the circumstances of their appointment. they cannot solely protect the interests of their appointer, particularly if there is likely to be substantial excess value in the secured assets after the debt has been repaid.

4. internal conflicts

a receiver appointed over shares may not have a readily saleable asset, as a share sale is often found not be a commercially viable option. as a result, receivers commonly look to obtain control of asset holding companies as soon as possible by exercising a shareholder’s voting power to reconstitute the board (and those of any subsidiaries). receivers therefore often simultaneously hold office as receiver and director. as director, a receiver will owe further duties; to whom those duties are owed will depend on the company’s solvency. while insolvency may be assumed in a receivership scenario, where appointments are taken at different levels within a group, or where there is likely to be significant equity after repayment of the secured debt, this may not be the case.

a receiver who is also a director must be mindful as to how the arising duties interact. where there is likely to be residual value in a company, a director may need to act in the interests of the company and/or its other creditors despite the purpose of their appointment as receiver being to repay the secured debt. if it occurs to the receiver/director that the company is insolvent, then a decision would need to be taken as to whether the company should be placed into liquidation. while this may appear absurd in the context of fixed charge receiverships, the bespoke issues created by offshore security structures means these are issues that receivers are increasingly having to grapple with.

section 86 of the bca empowers the court to make orders convening shareholder meetings on the application of members in certain circumstances. receivers can utilise this provision to convene a shareholder’s meeting as they are properly characterised as members given their status as equitable mortgagees of the shares (strong fort global ltd v solar achiever ltd bvihc (com) 137/2022). further, receivers may apply for such relief ex parte without notice if the debtor is taking steps to frustrate the appointment.

conclusion

as the number of receiverships, and by extension the number of related disputes, increase, it is only a matter of time before the bvi courts render a judgment that will provide guidance and shape how future bvi receiverships are to be approached.

the bvi has significantly developed and promoted its role in international arbitration in the last decade.

the bvi arbitration act 2013 (the act), which is modelled on the uncitral model law, came into force in 2014, shortly after the territory joined the new york convention on the recognition and enforcement of foreign arbitral awards (the convention). in 2016 the bvi international arbitration centre opened its doors with its rules based on 2010 uncitral arbitration rules. it is a modern and familiar framework that links the bvi to the global arbitration community.

this period has also seen a meteoric rise in the global use of digital assets, leading to an increase in disputes with a crypto angle. many such disputes are cross border and there are potential advantages to dealing with them through arbitration (although the bvi courts have also shown a progressive stance in this regard).

the bvi has been a popular jurisdiction for those providing services within the cryptosphere, having attracted a number of cryptocurrency exchanges, token issuers, crypto-linked funds, and other providers of defi and blockchain services. this has – and will – inevitably lead to disputes that involve or relate to bvi companies that operate within the cryptosphere.

digital asset disputes

disputes relating to blockchain or crypto can come in many shapes and sizes. broadly speaking, they can be split into two categories: those scenarios where a claimant seeks to recover digital assets, which tend to involve a blockchain tracing component; and those where there is some other form of dispute, be it contractual or corporate in nature and where the underlying contract or business relates to crypto or blockchain services.

given the popularity of the bvi for crypto-related business, it is likely that those dealing with digital asset disputes will encounter the jurisdiction.

in these circumstances, consideration should be given as to whether arbitration provides a more effective route to recovery. many exchanges have arbitration clauses within their terms of service which may force claimants to use this forum to determine certain types of disputes. but even those who have not previously agreed to use arbitration may elect to have disputes determined in this manner on an ad hoc basis.

advantages of arbitration in digital asset disputes

some of the advantages of arbitration include: confidentiality; flexibility; expertise of tribunal; bespoke relief; and finality and enforceability of the resulting award.

the confidentiality of arbitration may be particularly attractive in the context of crypto disputes bearing in mind that users of digital assets value its anonymity (or more accurately, its pseudonymity) and that projects providing crypto-related services generally prefer not to be seen as litigious within the relatively small community. it remains to be seen whether the confidentiality of arbitration could also accommodate participation in disputes by those wishing to remain unknown to other parties, such as those accused of hacking and/or misappropriating digital assets.

the ability to choose a tribunal with relevant expertise is also crucial when dealing with rapidly developing technology and the emergence of new products. the variety of digital assets and how they are acquired, stored, used, and traded is a universe with its own language, complex rules and customs. those adjudicating disputes in the cryptosphere must be knowledgeable about its intricacies and the potential for its misuse.

arbitration can also be quicker than court proceedings, especially when one considers the limited grounds of appeal in arbitration and the speed with which arbitral awards can be enforced. a final award issued by a convention member state enjoys enforceability in over 170 countries, with minimal grounds for refusal.

enforcement of new york convention awards in the bvi

convention awards can be recognised and enforced in the bvi either by commencing an action in the bvi court suing on the arbitral award or filing an application in the bvi court for leave to enforce the award. any convention award which is enforceable in accordance with the above procedures, will be treated as binding for all purposes on the persons between whom it is made. as such, it will be enforceable in the same manner as any other judgment or order of the bvi court.

the second of these options tends to be the quickest and most efficient route to recognition and such application may be made on an ex parte basis. further, the bvi courts have allowed awards recognised in this manner to be executed upon prior to the recognition order being served on the respondent.

importantly, the grounds upon which the bvi courts may refuse to enforce a convention award are very limited.

they are as follows:

1. incapacity of a party to the arbitration agreement
2. invalidity of the arbitration agreement
3. lack of proper notice of the arbitration or appointment of the arbitrator, or where a party was unable to present their case
4. the award deals with matters that do not fall properly within the scope of the arbitration
5. the composition of the arbitral tribunal or the procedure employed was not in accordance with the agreement of the parties or the law of the country where the arbitration took place
6. where the award is not yet binding on the parties, or it has been set aside or suspended in the jurisdiction in which it was made
7. if the court finds that the subject matter of the award is not capable of settlement by arbitration under bvi law or if the award contravenes the public policy of the bvi

this means that unless it would contravene bvi public policy to enforce an award granting a particular form of relief, the relief is irrelevant to the question of whether an award will be recognised in the bvi. taking the example given above – where an award directs a person to transfer specific digital assets – such an award would become enforceable as if it were a judgment of the bvi court provided that one of the grounds to refuse enforcement are not met. this is likely a far more straightforward route to enforcing such relief than if it were a foreign court order. generally speaking, non-monetary judgments would need to be enforced by suing upon the original decision and relying on issue estoppel, which can be a far more protracted process.

examples of remedies available on enforcement

an arbitration award creditor can typically expect to be able to: freeze digital assets, including with the help of the exchange that holds them; appoint a receiver over them, and charge the asset with the cooperation of the holder; obtain a proprietary injunction; obtain a disclosure order allowing digital assets to be traced; and, as we have already seen, to direct a third party to transfer digital assets to another.

conclusion

as a dispute resolution method, arbitration offers some distinct advantages to resolving disputes involving cryptocurrencies and other digital assets. the bvi, as a pro-arbitration jurisdiction that has made significant strides in being at the forefront of the digital asset space, is well-suited to both adjudicating such disputes and ensuring that foreign awards with a crypto angle are effectively enforced for the benefit of the wronged party.

the recent singapore court of appeal case of dem v del offers significant insights into the complexities surrounding arbitration awards, particularly concerning infra petita challenges (failure by a judge or arbitrator to consider a claim or essential issue) when the appellant is a non-participating party in the underlying arbitration.

the case involves a singapore company, which acquired a franchised enrichment centre from the eventual appellant and two other sellers. various agreements were entered into, and when the purchaser noticed lower-than-expected revenues, it initiated arbitration proceedings against all three sellers under the arbitration clauses in the agreements. the purchaser settled with the other two sellers, but the appellant did not participate, eventually leading to the arbitrator finding in favour of the purchaser.

two years later, when the purchaser sought to enforce the award, and the appellant applied to set it aside on four grounds: (1) lack of proper notice, (2) failure to consider an essential issue (infra petita), (3) breach of natural justice and (4) breach of public policy. the singapore high court dismissed these challenges, prompting the appellant to appeal on the first three grounds. the singapore’s highest appellate court dismissed the appeal and upheld the arbitral award.

key findings

1. notice of arbitration: the court of appeal emphasised, referencing singapore’s arbitration act 2001 and relevant hong kong authorities, that proper notice does not necessarily require formal service if the party is aware of the proceedings. the appellant had both actual and deemed notice of the arbitration, and the appellant had not availed himself of the opportunities to participate.
2. infra petita challenges: the court of appeal clarified that these challenges should be rationalised as natural justice challenges, and not under article 34(2)(a)(iii) of the model law as previously thought. crucially, the court held that a non-participating party cannot raise an infra petita challenge against an arbitral award. the court emphasised that allowing such challenges from non-participating parties would undermine the integrity and efficiency of the arbitration process.
3. lack of consideration argument: the court of appeal identified an error in the first instance judge’s conclusion that the arbitrator had implicitly considered the lack of consideration in the award. however, the appellant’s failure to raise the issue during arbitration meant that it could not be used as a basis for setting aside the award. the court of appeal stressed that allowing arbitrators to decide only on issues presented to them is crucial for maintaining the integrity of the arbitration process.
4. breach of natural justice: this ground was considered dependent on the other dismissed grounds, and it was held that the arbitrator had no further obligations beyond what had been done to provide the appellant notice of the proceedings.

although harneys does not advise on the laws of singapore, dem v del underscores critical aspects of all jurisdictions with developed arbitration laws, particularly the necessity for active participation in proceedings. parties cannot challenge awards on grounds they neglected to address during the arbitration, thus ensuring the efficiency and integrity of the arbitration process. this case serves as a vital reminder for parties involved in arbitration to remain engaged and pro-active in presenting their cases to avoid adverse outcomes. understanding the implications of the relevant arbitration legislation and precedents will be essential for stakeholders in arbitration.

in the case of canterbury securities ltd (in official liquidation) v wincura, the grand court of the cayman islands addressed the issue of granting declaratory relief upon an application for default judgment.

under order 19 rule 7 of the grand court rules, upon a defendant’s default in filing and serving a defence, the court shall grant judgment as the plaintiff appears entitled to on the statement of claim. with reference to the corresponding sections in both supreme court practice 1999 of england and the hong kong white book, justice doyle highlighted that the power to grant declaratory relief in a default judgment application is discretionary but requires the court’s careful consideration.

on the basis of the defendants’ default in filing their defence, the plaintiffs sought, inter alia, a declaration that the first defendant holds a residential property on trust for the first plaintiff, and an order for transfer of the property to the first plaintiff (together with an order for execution of the necessary paperwork for the transfer). justice doyle was not content to grant the declaratory relief on the basis that such declaration was never sought in the amended statement of claim. nevertheless, based on the evidence before the court establishing that the first defendant holds the property on trust for the first plaintiff, the court was willing to grant the order for transfer of the property as requested.

in his reasoning, justice doyle emphasised that the court must ensure that the relief granted does not result in injustice to the defendant, and such relief should only be granted if denying it would impose injustice on the plaintiff. in this case, the court’s refusal to grant the declaratory relief as sought on the basis that it was not explicitly sought in the amended statement of claim demonstrates the court's cautious approach in exercising its discretion.

judge doyle further noted that the court has a duty to exercise caution before committing itself to a sweeping declaration. the court must be satisfied that the relief sought is appropriate and justified, considering the justice to both the plaintiff and the defendant, and whether the declaration would serve a useful purpose.

companies registered in the bvi that have been dissolved will need to be restored before various steps can be taken concerning the company or assets that were held by it. accordingly, there are many reasons why a person may wish to restore a bvi company. in this guide we provide an overview of the steps involved in a court restoration.

1. determining whether restoration will provide or assist in delivering the desired outcome:

the restoration of a bvi company is only ever required where the person seeking the restoration needs the company to be placed back on the register of companies so that they can pursue their objective. therefore, the first question to be asked in the process will always be whether restoration is necessary to achieve the client’s desired objective. if yes, then a client will need to be onboarded.

2. onboarding the client:

for us to act as legal practitioners on any restoration application, we must first ensure that all customer due diligence is collected and approved by our compliance team.

3. identifying a registered agent:

all bvi companies are required to have a registered agent and registered office in the bvi. we will need to resolve the issue of who will serve as the company’s registered agent before an application is filed.

4. applying:

an application for a court restoration comprises many documents that must be drafted and filed to support the claim. in addition, evidence as to the applicant’s:

• qualification to make the application (standing)
• compliance with the limitation period
• compliance with service requirements
• an explanation for restoration
• the position of the persons on whom the application served,

are the essential items that must be addressed in the application bundle.

5. court approval and timeframe:

if the application is in order, the court may approve the order at the hearing or before the hearing on paper if the parties agree and the court has been given sufficient time to consider the papers filed supporting the application. once the court grants the order approving a company’s restoration, the company has 60 days from the date of the grant of the order to complete the restoration – this includes the sealing of the order and filing the order with the registrar of corporate affairs, through the designated portal (virrgin).

6. sealing and filing:

the order, once granted, perfected, and filed at court, must be sealed by a registrar of the court and filed through virrgin by either the prospective registered agent or the law firm handling the application. simultaneous payments of back fees and penalties must be submitted at this stage. proof of payment of the registrar’s counsel’s fees is also required.

7. restoration certificate:

once the registry of corporate affairs processes the restoration application, the company receives an e-certificate of restoration, dated from the date of submission on virrgin and payment of all outstanding fees and penalties.

8. appointment of registered agent:

once the company is restored, the registered agent must be provided with immediate notice of the restoration to enable it to file its appointment documentation. there is a 48-hour window for this filing where the company had no registered agent and a 5-day grace period where the company had a registered agent but is changing the agent upon its restoration.

the judgment in the recent english case of bugsby property llc and anor v omni bridgeway (fund 5) cayman invt. ltd serves as a useful reminder of the test for the exercise of the discretion of the court in appointing an arbitrator and the importance of taking care when drafting dispute resolution clauses.

in this case, the subject contract (a main contract as amended by a variation agreement) contained two separate dispute resolution clauses:

1. section 10 of the specific terms of the main contract provides that “…in the event of a dispute arising out of or relating to this agreement, including any question regarding its existence, validity or termination … the dispute shall be referred to and finally resolved by arbitration under the lcia rules, which rules are deemed to be incorporated by reference to this specific term 10.2 …”
2. clause 19.2 of the variation agreement provides that “if a dispute arises in relation to the interpretation, enforcement, or adjudication of this amendment agreement or the omni funding agreement, the parties agree that any party to that dispute shall be entitled to resolve the dispute by referring it to an independent king's counsel who will be instructed to provide the parties with a final and binding opinion …”

lcia arbitration had been commenced by omni pursuant to section 10. on the other hand, bugsby wished to invoke the dispute resolution mechanism under clause 19.2 but omni refused to agree to the appointment of a king’s counsel. bugsby therefore applied to the uk court to appoint an arbitrator under section 18 of the arbitration act.

citing males j in silver dry bulk company limited v homer hulbert maritime company limited, the court confirmed the test for the exercise of the section 18 discretion – namely that an applicant has to show a good arguable case (which is taken to mean “a case which is somewhat more than merely arguable but need not be one which appears more likely than not to succeed”) that there exists an arbitration agreement covering the dispute in question. if a good arguable case is established, the court then has a discretion as to whether it exercises any of the powers under section 18(3) of the arbitration act.

having considered at length relevant authorities and principles, as a matter of interpretation, the court held that the applicant failed to show a good arguable case that clause 19.2 is an arbitration agreement or that the relevant dispute fell within clause 19.2. in any event, the court took the view that if it were wrong to find that there was no good arguable case, the court would decline to exercise its discretion under section 18 in circumstances where an arbitration has been commenced under the main agreement.

this case highlights the importance of precise and accurate drafting, in particular, if it is envisaged that an agreement is to provide for separate and distinct dispute resolution mechanisms.

in the recent judgment of morris v elite motors bodyshop ltd, the high court of england and wales shed light on the intricacies of family business disputes and strike-out applications in the context of unfair prejudice petitions.

in morris v elite motors bodyshop ltd, two brothers were the directors of, and equal shareholders in, elite motors bodyshop ltd. robert morris issued a petition under section 994 of the companies act 2006 (uk), alleging that the affairs of the company were conducted in a manner unfairly prejudicial to him, naming his brother, julian morris, and the company as respondents. the petition claimed that the company was operated as a quasi-partnership, robert was excluded from management and received unequal dividends, and the mismanagement of company assets.

julian applied to strike out the petition on the grounds that the petition was delayed and he had made a fair offer to purchase robert’s shares.

the court, however, found that the offer did not adequately address the factual disputes affecting the company's value, such as unpaid dividends and alleged mismanagement, which required a fact-finding exercise beyond the scope of the proposed expert valuer. consequently, the court determined that the reasonableness of the offer was open to question and the petition should not be struck out on that basis. further, the delay in issuing the petition did not justify striking it out.

having rejected the strike out application in relation to the petition and points of claim as a whole, the court went on to consider the strike out application in relation to parts of the points of claim.
the court emphasised the draconian nature of striking out, stating:

“if it will not simplify the proceedings or save time or costs to any real degree, and is not otherwise necessary to the just and proportionate conduct of the proceedings, then striking out elements of the claim appears … to be unnecessary.”

it dismissed them all, except in relation to robert’s claim for a buy-out of his shares without a minority discount but including a premium to reflect the acquisition of control of the company by julian (i.e. a ‘marriage value’ premium). the court struck out the relevant paragraph and gave robert permission to replead it to make clear that marriage value was only sought as an alternative to a pro-rata valuation.

the judgment underscores the court's discretion in unfair prejudice cases, emphasising that remedies should address the unfairness suffered and that procedural delays without prejudice do not warrant dismissal. the outcome serves as a reminder to companies and shareholders alike that the court is vigilant in its oversight, ready to intervene when the conduct of company affairs deviates from the principles of fairness and legality.

in the recent hong kong case of friendship shipping and trading sa v ivl dhunseri polyester company sae, the plaintiff applied for an anti-suit injunction (asi) to restrain the defendant from continuing egyptian legal proceedings against it, contending that the parties had agreed to arbitrate any dispute in hong kong per the arbitration agreement contained in a charterparty that was incorporated by reference in the bills of lading.

one of the issues examined by the court was the threshold that had to be established by a party seeking an asi as to the existence of a valid and binding arbitration clause.

relying on a recent decision of the singapore court of appeal in asiana airlines inc v gate gourmet korea co ltd, the plaintiff submitted that it only needed to establish a prima facie case of a binding arbitration clause, and full argument on the issue could be left to the arbitral tribunal.

the defendant, on the other hand, argued on the basis of english and hong kong authorities that the party seeking an asi must establish a high degree of probability that there was an arbitration agreement that governed the relevant dispute. the rationale for the high probability test is that if an asi is granted it will likely be final because, in practice, it will end the foreign proceedings for at least sufficient time to enable the arbitration to take place.

the court agreed with the singapore appellate authority, holding that the plaintiff only needed to satisfy the court of a prima facie case of an arbitration agreement. the court took the view that where it is asked to order interim relief to facilitate the arbitral tribunal to determine both its competence and process, and to make decisions as the tribunal sees fit, the court is acting as a filter for the arbitral tribunal and the rationale for the higher standard falls away.

whilst the court in this case found that the plaintiff satisfied the prima facie threshold as to the existence of an arbitration agreement, on the facts – having regard to various circumstances including delay and lack of clean hands – the court refused to grant the asi.

harneys does not advise on hong kong law. practitioners should be aware of the lower threshold that might, going forward, be applied by the courts of hong kong in an asi application.

a decision looms for bvi law on the rules for determining the governing law as to the validity, scope and interpretation of arbitration agreements.

the bvi’s arbitration act 2013 (the act) is based on, and enacts multiple provisions of, the uncitral model law. it contains provisions concerned with arbitration agreements. for instance, section 32 of the act provides that the arbitral tribunal may rule on its own jurisdiction including any objections with respect to the validity of the arbitration agreement. section 32 further provides that for that purpose an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. it follows from provisions such as this that the governing law of an arbitration agreement is a distinct issue from the law which governs the wider contract within which arbitration agreements are commonly contained.

a question arises as to how to determine the law which governs an arbitration agreement. in english law this question was resolved in enka v chubb. that decision held that the law applicable to the arbitration agreement will be the law chosen by the parties to govern it or in the absence of such a choice, the system of law with which the arbitration agreement is most closely connected. where the law applicable to the arbitration agreement is not specified, a choice of governing law for the contract as a whole will generally apply as an implied choice to the arbitration clause. however, other factors may imply that the law of the seat of the arbitration is intended to be that which governs the law of the arbitration agreement. in the absence of choice, the law of the seat will generally be the law governing the arbitration agreement.

in england, the law commission has, however, proposed overturning enka v chubb as being overly complex. furthermore, parties may be surprised to find that having selected an arbitration-friendly jurisdiction such as england as the seat of the arbitration, questions such as the validity, scope and interpretation of arbitration agreements may be governed by the law of a less arbitration-friendly jurisdiction. consequently a bill currently passing through parliament proposes a new rule which provides, in summary, that the law that parties expressly agree applies to the arbitration agreement will govern – although a choice of law as to the main contract does not constitute an express agreement as to the law of the arbitration agreement. in the absence of express agreement the law of the seat will govern.

the bvi court will, therefore, likely have a choice if and when the arbitration bill becomes law. it will need to choose whether to follow enka v chubb or whether to follow the terms of the new english arbitration bill. given the differences between the english and bvi arbitration acts, there seems to be latitude for both approaches although this issue could usefully be resolved in the bvi by legislative intervention once the english arbitration bill is enacted.

the commercial court in england recently dismissed the claimant bank's claim of a transaction to defraud creditors because the bank had not properly pleaded the purpose for which it contended that the defendant businessman had transferred assets to his family: invest bank psc v el-husseini.

the trial largely focussed on a single question: whether the defendant transferred assets to and for the benefit of his family for the purpose of putting them beyond the reach of the bank as a potential creditor?

the defendant’s debt arose from judgments obtained by the bank in abu dhabi on his personal guarantees, with default judgment subsequently entered in england on common law debt actions based upon those abu dhabi judgments. no part of the debt had been paid. the bank sought to advance the case at trial that the defendant was concerned about potential claims by the bank on his personal guarantees as a result of the fact that one of his companies was balance sheet insolvent or had serious liquidity problems in late 2016/early 2017, and that was why he transferred his assets to his family members.

the court concluded that a clear pleading of a sufficiently cogent case is required in respect of a claim that a defendant has entered into a transaction to defraud creditors under section 423 of the insolvency act 1986 (uk). the contention in this case of disreputable conduct or serious wrongdoing must be properly pleaded and proved. quite apart from that, because the bank’s case was inferential, and where particular elements of a cause of action are said to be established by inference from primary facts, the primary facts must also be pleaded.

while the bank had pleaded that the defendant’s company had ultimately failed by may 2017, it did not plead the case it sought to run at trial that the company was in serious financial difficulties before that date. it was not therefore open to the bank to advance the unpleaded claim and its case was dismissed.

harneys does not advise on the law of england and wales, but this judgment will be persuasive in common law jurisdictions such as the bvi. the equivalent statutory provision in the bvi is section 81 of the conveyancing and law of property act, which provides that every conveyance of property with intent to defraud creditors is voidable.

this case is a salutary reminder of ensuring allegations are properly pleaded.

the high court in england has held that a defendant company may rely on public law defences in opposition to a petition seeking the winding up of the company on public interest grounds: the commissioners for his majesty’s revenue and customs v purity limited.

faced with a petition issued by his majesty’s revenue and customs (hmrc) to wind up the company on public interest grounds under the uk finance act 2022 (fa 2022), arising from an allegation that the company’s business activities comprised a tax avoidance scheme, the company sought judicial review of hmrc’s decisions in the administrative court on public law grounds: (1) a failure to consult; (2) an error of law; (3) failure to meet a requirement under the fa 2022; and (4) unreasonableness. the company requested a stay of the proceedings before the insolvency and companies court (ic court) pending determination of the judicial review.

grounds 2 and 3 for the judicial review were legal issues that the ic court had to resolve before it could be satisfied of its own jurisdiction to make the winding up order. as to the other public law defences, the ic court concluded that it would make no sense if hmrc would be unable to proceed to the hearing of a petition until any judicial review challenge had been dealt with. there was no express or implied restriction in the statutory language to prevent the company from raising public law defences either.

this case provides a welcome reassertion of the strong presumption that legislation does not prevent individuals affected by decisions of public bodies from having a fair opportunity to vindicate their rights in court proceedings. nonetheless there may be circumstances where the individual has had clear and ample opportunity to challenge an underlying administrative act but has failed to do so, and will therefore be prevented in enforcement proceedings from raising public law defences to the underlying administrative act.

in the absence of a stay because of parallel judicial review proceedings, the advantages to a defendant company in being able to raise public law defences are more limited, particularly where a public interest winding-up petition can, in any event, be opposed on the much more fact sensitive “just and equitable” test.

section 162(1)(c) of the bvi insolvency act 2003 provides that the bvi court may appoint a liquidator of a company if it is of the opinion that it is in in the public interest to do so. while harneys does not practise the law of england and wales, given that english authorities about the essential nature and effect of a winding-up petition are in principle fully applicable to the equivalent process in the bvi, the bvi court may well take the same approach as the english court in the commissioners for his majesty’s revenue and customs v purity limited.

in a recent ruling at the intersection of cybersecurity, human rights, and sovereign immunity, the english court of appeal has determined that bahrain cannot claim state immunity for remotely hacking the computers of pro-democracy activists in london, setting a precedent with implications far beyond espionage cases.

bahraini agents operating remotely from outside the uk infected the computers of pro-democracy activists in london. the activists (shehabi and mohammed) brought a claim in the tort of harassment alleging they suffered psychiatric injury upon learning they had been spied upon. bahrain alleged that its actions were protected under the english state immunity act 1978 (the act). shehabi and mohammed argued state immunity was disapplied by reason of section 5 of the act: “a state is not immune as respects proceedings in respect of (a) death or personal injury; or (b) damage to or loss of tangible property, caused by an act or omission in the united kingdom”. shehabi and mohammed succeeded in establishing that bahrain was not entitled to state immunity by reason of section 5 of the act.

the activists won because the english court of appeal held that a statute was “always speaking”, in other words that a statute is not frozen in time at the date of its enactment but – absent compelling reasons to the contrary – should be interpreted to take into account changes that have occurred since its enactment including in respect of technology and the law. consequently, even if in 1978 english law did not recognise standalone psychiatric injury as a form of personal injury, developments in english law post-1978 made it clear that standalone psychiatric injury fell within personal injury. section 5 should be interpreted consistent with those developments such that today standalone psychiatric injury fell within the phrase “personal injury” in section 5 of the act. the court of appeal also found as a fall-back that in any event in 1978 english law did recognise standalone psychiatric injury as a form of personal injury and rejected an attempt to rely on unpublished “notes on clauses” formulated by government officials and provided to ministers as an aid to statutory interpretation (albeit it was clear the court would have permitted reliance on official explanatory notes published on the passing of an act).

the court of appeal further rejected an argument that the acts of the bahraini agents were not acts “in the united kingdom”. the court held that infecting computers in the uk by agents outside the uk were acts committed both within the uk (albeit remotely) and abroad such that section 5 was engaged. the court noted ashton investments v rusal where claims in breach of confidence, unlawful means conspiracy and unlawful interference in business were held able in principle to fall within a service out gateway requiring an act to have taken place in the uk. in rusal the allegation was that the defendants in russia had hacked the claimant’s computer system in london to gain confidential and privileged information.

shehabi v bahrain is not simply a case for aficionados of 007 or john le carré – in its consideration of statutory interpretation and analysis of remote actions by malevolent cyber actors, the case provides useful authority for commercial claims, particularly in unlawful means conspiracy where cyber activity often spans multiple jurisdictions.

the rapid spread of the novel coronavirus (covid-19) and the measures put in place by national governments to contain it are having profound and swift global economic impact.

many businesses which appeared financially healthy just a few weeks ago now face severe stress and, while many will recover strongly, others will inevitably fail.

in that almost unprecedented context, it is critically important that directors of bvi companies understand their obligations under bvi law where a company is in financial difficulty, and are aware of the measures they can take to mitigate the risks.

one of the key lessons of past recessions has been that companies that make painful decisions decisively having taken expert advice sooner rather than later tend to have a greater range of options and a better chance at recovery.

key takeaways

• a bvi company may be insolvent on a cash flow or balance sheet basis.
• directors of an insolvent bvi company owe their duties to maximize value for the creditors, rather than the shareholders.
• insolvent trading concerns arise if a bvi company continues trading despite having no reasonable prospect of avoiding liquidation.
• in some circumstances, directors could face personal liability.
• there are sensible precautions and mitigating measures directors can take now to help protect themselves against future claims by creditors or liquidators.
• there are a range of insolvency and restructuring tools under bvi law, but there is no "debtor in possession" procedure under bvi law equivalent to chapter ii in the us and no equivalent to the administration process under uk law.

insolvency under bvi law

a bvi company is considered insolvent if it:

1. is unable to pay its debts as they fall due (cash flow insolvency); or
2. if the value of its liabilities exceeds the values of its assets (balance sheet insolvency); or
3. fails to comply with a valid statutory demand, or a judgement or order of a bvi court against the company is returned wholly or partly unsatisfied (technical or deemed insolvency).

cash flow insolvency is likely to be a particular issue for many companies right now, as they may have a relatively healthy balance sheet but have seen a significant decrease in cash in, whilst their obligations to their creditors remain unchanged.

director duties and misfeasance

directors of a bvi company owe various statutory and fiduciary duties to the company (summarised more fully here). the court has broad powers to order a director (or other officer) of a company in liquidation to pay compensation to the company where the director “has been guilty of any misfeasance or breach of any fiduciary or other duty in relation to the company”.

when a company is insolvent, or close to it, the directors must act in the best interests of the creditors of the company (rather than the company itself). case law has suggested different triggers for the point at which directors should start to consider the best interests of creditors, varying from (i) when the company is near to, or in the vicinity of, insolvency, (ii) when there is doubtful solvency, or a risk of insolvency, or (iii) wherever there is financial instability.

regardless of the exact point at which a director is strictly required to specifically consider the interests of creditors, a prudent director (taking into account their general duty to exercise reasonable care and skill) who faces financial difficulty should probably begin to consider at an early stage what actions can be taken to resolve or mitigate the issue, whether there is a prospect of recovery, whether there is a need to take legal advice, and whether or not formal insolvency proceedings are warranted.

insolvent trading

insolvent trading is, in essence, a means for allowing the courts to force directors to contribute to the company where their decision to try and keep the company running caused creditors a greater loss than if they had proceeded immediately with insolvency proceedings. in the current extraordinary circumstances, to encourage businesses to keep going where possible, some national governments have suspended insolvent trading rules or equivalent provisions, but the bvi is yet to do so.

under bvi law if a director “knew or ought to have concluded that there was no reasonable prospect that the company could avoid going into liquidation” then the court can order any person to make such contribution to the assets of the company as the court thinks proper.

there is a defence available - if the court is satisfied that after the director first knew, or ought to have concluded, that there was no reasonable prospect that the company would avoid going into insolvent liquidation, the director took “every step reasonably open to [it] to minimise the loss to the company’s creditors” then he is protected from liability.

voidable transactions

under bvi law a transaction may be potentially voidable as an unfair preference if:

1. the transaction puts a creditor of the company into a better position than they would have been in had the transaction not occurred;
2. at the time of the transaction the company was insolvent, or the transaction caused it to become insolvent; and
3. the company went into insolvent liquidation within the relevant vulnerability period (2 years for a transaction with a connected company, or 6 months in all other cases).

there is no requirement for an “intention to prefer” for a transaction to be viewed as a preference. as a result, a number of transactions which might not be thought of as preferences in other jurisdictions may constitute preferences under british virgin islands law. case law has made clear that a director who breaches their duty by causing an unfair preference may be held liable to the company, although such liability is likely to only be extended in serious cases (and if sums can be recovered from the party with the benefit of the preference, the liability of the director, if any, is likely to be limited to any shortfall). clearly, however, directors of companies at, or close to, insolvency should be very careful about entering into new transactions.

mitigation and next steps

the director’s position in any subsequent claims will always be far stronger if the decisions being made, and the reasons for those decisions, are properly documented. not every company needs to rush into insolvency, and there will be many once healthy companies that do have a reasonable prospect of recovering from sudden shocks. equally, it is not the purpose of the rules around either insolvent trading or misfeasance to punish directors who make commercially sound judgements that turn out to be wrong.

if, for example, the directors believe that the company has a reasonable prospect of staving off insolvency and decide to adopt a "wait and see" approach, it is sensible to record that they have considered the position and the reasons why they reached that determination. meeting early and often may show that the directors’ taking the position seriously. if the directors decide to take legal advice, and are following that advice (and reliance on expert advice can be a defence to a breach of duty claim), again, they should ensure that advice is documented and referred to in resolutions. there may well be a strong argument for directors taking independent advice rather than relying on counsel who have advised the shareholders or wider group.

if directors have the benefit of a d&o policy, they should consider whether (and at what point) they are required to notify their insurers of financial difficulty. failure to notify at the right point could result in a loss or reduction of coverage. if they have an indemnity or service agreement, they should consider any relevant terms in that document as well.

for those companies that do need to enter into a formal insolvency or restructuring process, there are a range of tools available under bvi law including various types of liquidation (and provisional liquidations), a creditor’s voluntary arrangement under the bvi’s insolvency act and schemes and plans of arrangement. there are also a range of corporate restructuring tools for streamlining group structures, including mergers and acquisitions.

it is worth noting however that there are no "debtor in possession" insolvency proceedings equivalent to chapter ii in the us. similarly, although the bvi legislature once passed provisions intended to introduce an administration process under english law, those rules were never brought into force. the bvi has always been a friendly jurisdiction for secured lenders, and has historically been sceptical of debtor led processes which emphasise recovery and rehabilitation over creditor’s rights.

the "right" restructuring process varies for each company and circumstance, and we would urge clients considering their options to seek bvi advice at an early stage.

final thoughts

of course, it is hoped that the coronavirus pandemic is brought to a swift end, and that the economic chaos it has wrought turns out to be temporary and contained. as with much at the moment, there is a possibility of rapid change – many jurisdictions have already suspended or altered their insolvency rules and it is possible the bvi may do the same (although at the time of writing we are unaware of any specific plans). however, we would advise directors of any bvi company in financial difficulty, or which could face financial difficulty soon if current conditions continue, to seek legal advice as soon as possible to ensure that they have both protected themselves and given their business the best prospect of survival.

jcpc holds that shareholders may have a personal action against the company in circumstances where their shares have been improperly diluted: tianrui (international) holding company ltd v china shanshui cement group ltd

in a long-waited judgment delivered on 14 november 2024, the jcpc has allowed an appeal from the cayman islands court of appeal and held that a shareholder has a personal right of action to challenge an allotment of shares made by the directors of a company, in circumstances where the allotment was made improperly and will cause detriment to the shareholder.

the appeal arose from a prolonged battle for control of china shanshui, one of the largest cement companies in china. tianrui, a 28.16 per cent shareholder in the company prior to the alleged dilution, brought proceedings to challenge the validity of the company’s issuance of convertible bonds and subsequent issuance of shares. it alleged that the issuance was made for the improper purpose of enabling other shareholders to gain control of the company and achieving a dilution of its shareholding to under 25 per cent (thereby removing tianrui’s “negative control”, whereby tianrui would no longer be able to block special resolutions).

china shanshui sought to have tianrui’s claim struck out on the ground that tianrui lacked standing to sue the company in respect of alleged breaches of director duties, which were owed to the company and not to tianrui. the grand court, departing from an earlier first instance decision of the grand court in gao v china biologic products holdings, inc, had held that tianrui did have standing. the court of appeal, agreeing with kawaley j in gao, held that it did not.

the jcpc, having considered a number of english and australian authorities, concluded that tianrui did indeed have standing to bring a personal claim against the company on the basis of an implied term contained in the statutory contract (i.e. articles of association) entered into between the company and its members and between its members amongst themselves. an intrinsic feature of that contract is that it is implicit that when exercising their powers on behalf of the company, the directors must exercise them in accordance with their fiduciary duties, including the duty to exercise powers only for a proper purpose.

in addition, the jcpc clarified that:

• the right of the shareholder to sue the company is not dependent upon the alteration in the balance of power adverse only to a minority (or a majority) of shareholders. the size of the shareholding is, in principle, irrelevant. what matters is that the claiming shareholder has suffered from an interference with its rights as shareholder brought about by the improper issue and allotment.
• it is also irrelevant whether or not the company itself has a cause of action against the directors for the breach of the fiduciary duty owed to it.
• in certain circumstances, a shareholder’s personal claim may be defeated by the ratification of the directors’ breach of duty in the exercise of their power. however, shareholders seeking to use their power to act by a majority are constrained by the equitable principle that they may not do so by way of oppression of the dissenting minority. that being the cases, there will be cases in which ratification is impossible (for example, a case in which the improper purpose for which the directors exercised their power to issue shares, was to assist an existing majority to oppress the minority).

this decision provides welcome clarification to this area of law. as a matter of cayman islands law, it is now settled that shareholders aggrieved by an improper issuance of shares will have a personal right to challenge that issuance directly, rather than indirectly (for example, by way of derivative action or a petition for the winding up of the company on just and equitable grounds).

on 23 october, hong kong’s arbitration community gathered for the annual hong kong arbitration charity ball. the ball is one of the highlights of hong kong’s legal calendar, and is attended by arbitration professionals from across the world. harneys hosted a table at the event, and an enjoyable evening was had by all.

more importantly, though, the ball is an opportunity for attendees to hear from the event’s charity partners and to learn more about their efforts to support the wider community in hong kong.

this year, one of those partners was equal justice 平義社. during the evening, attendees were fortunate enough to be addressed by kay mcardle (founder & director of equal justice 平義社) about the mission and work of equal justice 平義社. we are sharing this information with those of our blog readers who might wish to discover more about this work.

about equal justice 平義社

launched in 2020, equal justice 平義社 is a hong kong community legal access charity whose mission is to reduce the hardships experienced by people facing legal problems but who cannot afford, or otherwise access, legal information and support.

for a variety of reasons, many people in hong kong require access to legal services, but are unable to obtain the help they need. equal justice 平義社 believes that access to legal services is a key driver of social welfare, and that it enables inclusive societies and economic progress, much like healthcare, welfare and education.

although equal justice 平義社 does not itself provide legal advice, it is a critical resource for those in need of legal information and access to lawyers through its network of 100 partner law firms and chambers. this vital work is performed through three separate focus streams:

1. prevent

free community legal education: equal justice 平義社 provides free legal information and training to members of the community. by doing this, equal justice 平義社 aims to help people anticipate, prevent, and solve their legal problems through practical legal education, information and support into the community. this year, their services attracted ~1,000 attendees and culminated with community legal education month 2024 社區法律教育月.

2. provide

community legal centre: equal justice 平義社 provides free, face-to-face legal information and support, as well as referrals to external lawyers and counsellors who are willing to help. typical legal problems include family matters, employment and discrimination, access to healthcare, education and housing, immigration, criminal matters and, sometimes, personal injury, healthcare, probate and online scams. those helped are 50% women, 30% children, 15% men and 4% impact organisations.

3. progress

no-one left behind 絕不遺漏一人 - community legal access in hong kong 香港社區法律服務: in 2024, equal justice 平義社 launched the annual no-one left behind 絕不遺漏一人 forum to foster more understanding and wider acceptance of the importance, status and social impact of having, and investing in, law as a social welfare service. attendees included foundations, ngos, the hong kong bar association, the law society of hong kong and pro bono singapore.

clix: launched by equal justice 平義社 in may 2023 in collaboration with two other ngos, clix is an online lawyer-ngo matching platform which connects lawyers willing to provide pro bono legal advice and help to community impact organisations and their client beneficiaries. clix has already matched hundreds of requests for legal advice to lawyers willing to help for free.

pat: or pregnant@work, launched by equal justice 平義社 this is hong kong’s first, free, public, digital legal platform to help employers, employees and families to better manage pregnancies at work through information provided in multiple languages. it won the 2022 alita legal tech for good award.

in the four years since it was launched, equal justice 平義社 has provided help to thousands of people in need of legal education and support. their community legal centre is overflowing, even without advertising. demand shot up by ~40% in 2022, a further 40% in 2023, and 33% in 2024 up to q3.

this demonstrates the desperate need for the services provided by equal justice 平義社 in hong kong. for those interested in finding out more about the work of equal justice 平義社, please visit the following links:

harneys does not practise or advise on matters of hong kong law.

in a recent hearing to obtain a power of sale before the bvi commercial court, as part of the enforcement of an arbitral award, a power of sale was granted to the applicant without the need for any receiver to be appointed.

the applicant took steps to enforce a bvi judgment recognising an arbitral award issued by the shiac arbitral tribunal in shanghai.

the judgment debt had remained outstanding for one and a half years despite the applicant having demanded repayment from the judgment debtor on numerous occasions, even on an instalment basis. in light of the failure to pay, the applicant filed a fixed date claim form seeking a power of sale over the charged assets, namely shares in a bvi company.

typically in such cases, a receiver, being an independent officer of the court, would be engaged by the judgment creditor and appointed by the court to take on the sale process. however, on this occasion no appointment was sought.

the applicant successfully negotiated with the judgment debtor that the power of sale be granted, subject to a further hearing to determine the detailed mechanism to be decided on the sale process, including whether all charged assets should be sold and the form and parameters of any sale. the court approved this proposal.

the case is continuing and harneys is acting for the applicant.

in the recent case of chow v tong [2024] hkcfi 2737, the hong kong court of first instance (the court) provides helpful guidance on the interpretation and enforcement of exclusive jurisdiction clauses. this approach will have a bearing on the circumstances in which the court will grant a stay of proceedings or find that the principle of forum non conveniens applies on the basis of arguments regarding jurisdiction.

the ruling also reaffirms the long-held position regarding strangers to a trust, as well as the rights of beneficiaries to obtain trust documents.

background

the case concerned the cw family trust (the trust), which was established in 2009 by ms ying and her former husband to protect and manage their family business assets for the benefit of their four children following their divorce. the primary aim of the trust was to secure the family business holdings for the children’s benefit while minimising disruption to its operations.

in 2021, the trustees of the trust, victor tong and ling on (the trustees), transferred 99.5% of the shares of a company held in the trust, lip hing holding ltd (the company), to a third party, antony chow (mr chow). consequently, ms ying and one of the child-beneficiaries, henry chow (together the plaintiffs), brought proceedings against the trustees and mr chow, arguing that the share transfer was for little or no value and without notice to the beneficiaries.

arguments before the court

before the court, the plaintiffs submitted that the share transfer constituted misappropriation of the assets of the trust, putting the trustees in breach of trust and in breach of their fiduciary duties. the plaintiffs also sought court intervention to compel the trustees to disclose documentation surrounding the transfer. as well as arguments regarding the trustees’ breach of duty, the plaintiffs’ allegations brought complex jurisdictional questions before the court concerning whether a clause regarding "proper law, forum, and place of administration" gave exclusive jurisdiction to determine the dispute to the courts of the british virgin islands. the plaintiffs challenged the jurisdiction clause, arguing that hong kong was the appropriate and most practical forum for the case given its close connection to the trust’s assets and the parties involved in the dispute.

the trustees and mr chow argued that the jurisdiction clause gave the bvi courts exclusive jurisdiction to determine the dispute and sought a stay of the hong kong proceedings in favour of the bvi. the trustees further argued that the plaintiffs’ allegations of breach of trust and breach of fiduciary duties lacked specific details and refuted the claim of misappropriation on the basis that it was unsubstantiated. in any event, the trustees argued that the share transfer fell within their discretion and was conducted in accordance with the trust’s terms, thereby opposing the plaintiffs’ demands for additional disclosure or the alleged need for administrative intervention in hong kong.

the court’s determination

construction of exclusive jurisdiction clauses

the court emphasised that even in the absence of the word "exclusive", the use of assertive language such as "shall", together with references to a court in a specific jurisdiction, can imply exclusivity. this is especially the case where these phrases are supported by a broader factual context. in this case, neither party could provide contextual evidence suggesting that the scope of the jurisdiction clause was intended to grant exclusivity to any jurisdiction.

by reference to lewin on trusts, the court considered three key indicators of exclusivity:

1. imperative language (such as "shall");
2. definite articles (for instance, noting "the court of the bvi" instead of a more generic reference to "a court"); and
3. specific country laws suggesting exclusivity unless the deed stated otherwise.

although the jurisdiction clause, in this case, did not include the word “exclusive”, the court concluded that it could still be interpreted as exclusive due to the use of imperative language, the definite article in terms of “court of the bvi”, and repeated references to the bvi throughout the jurisdiction clause. this decision emphasises the importance of using clear language and specific court references when drafting exclusive jurisdiction clauses to avoid disputes.

importantly, mr chow also sought to rely on the jurisdiction clause as a basis for seeking a stay of the proceedings in hong kong. as a non-party to the trust deed, the court decisively ruled that mr chow was a “stranger” to the trust with no right to enforce a clause under the deed.

jurisdiction arguments

in the above context and with consideration of the cases crociani v crociani [2014] ukpc 40 and a v b [2022] hkcfi 1031, the court rejected the plaintiffs’ forum non conveniens argument, finding that the convenience of a forum is not a sufficiently persuasive factor that would override an exclusive jurisdiction clause. instead, the court gave weight to the argument that there was a "sufficiently good reason" that it was the appropriate forum to hear the dispute based on the following factors:

1. the hong kong court's familiarity with common law trust principles and the availability of expert evidence on bvi law, which rendered the governing law clause a neutral factor.
2. the availability and access to key factual witnesses, who were primarily located in hong kong or new york, which further supported hong kong as the more convenient forum.
3. the company’s valuation, which involved significant assets in hong kong would necessitate local expert testimony.
4. the fact that most of the documents relevant to the trust's administration were likely to be situated in hong kong.

in terms of the plaintiffs’ application for the disclosure of trust documents, the court considered the case of schmidt v rosewood trust ltd [2003] ukpc 26, which confirms that beneficiaries have a right to request documents that are necessary to ensure the proper administration of a trust in order to hold the trustee to account for its stewardship of the trust. based on the principles in schmidt v rosewood, the court determined that the plaintiffs should be granted access to the trust documents so as to find out whether the trustees were in breach and to seek remedies accordingly.

comments from a cayman perspective

in contrast to this case, section 90 of the cayman islands trusts act (2021 revision) establishes firewall provisions that function as a statutory “governing law clause”, but do not confer exclusive jurisdiction to the cayman islands. this means that all questions regarding a cayman islands trust—including the disposition of trust property—must be determined under cayman law, without reference to the laws of other jurisdictions.

as determined in the case of geneva trust company (gtc) sa v idf (re stingray trust) [2021] (1) cilr 186 (stingray), these firewall provisions do not automatically require disputes concerning cayman trusts to be exclusively determined in the cayman islands, meaning foreign courts may apply cayman law if they are deemed the more appropriate forum for a dispute. together, section 90 and any forum for administration clause in a trust deed present substantial protection against foreign claims inconsistent with cayman law while permitting flexibility if it is more suitable for the court in another jurisdiction to hear a dispute.

while convenience was not considered a persuasive factor by the hong kong court in this case, the case of stingray suggests that convenience, though not a definitive factor, may be taken into account by the cayman court as one part of a broader forum non conveniens analysis, where various factors may determine the most suitable jurisdiction for the hearing of a dispute.

conclusion

the court’s decision in this case highlights the importance of precision in drafting exclusive jurisdiction clauses in trust deeds. these clauses provide certainty to trustees, fiduciaries, and beneficiaries of trusts, particularly in the absence of firewall provisions such as those found in the cayman islands trusts act (2021 revision). it also reinforces the longstanding principle that non-parties to a trust deed can expect to be treated as “strangers” to the trust arrangement and, on that basis, cannot enforce or be bound by the clauses in the deed.

finally, beneficiaries' rights to seek access to trust documents continue to be an important principle governing the administration of trusts, providing judicial discretion to protect confidentiality and acting as a safeguard to beneficiaries in circumstances where a degree of transparency is required and where transactions by a trustee may cause concern.

for more information, please consult with our private wealth team, henry mander, charles moore, majdi beji, or greg coburn.

the hong kong court of appeal has reminded litigants of the perils of delay. in dimitrov v lau [2024] hkca 1011, the court struck out a dilatory party’s appeal, and provided a succinct reminder of the basis on which it may strike out a case for want of prosecution amounting to an abuse of process.

facts

the plaintiff was the administrator of his brother’s estate. during his lifetime, the brother paid certain sums to the defendant, who agreed to invest them. in breach of their agreement, the defendant then failed to return this money. in october 2017, the plaintiff obtained summary judgment against the defendant for this breach in the sum of c.us$24m (judgment).

the defendant appealed the judgment by notices of appeal filed in november 2017 and february 2018 (appeal). thereafter the proceedings dragged on for several years:

• in february 2018, the defendant obtained a stay of execution of the judgment pending the appeal, conditional upon payment of us$12m into court (stay decision). this condition was not satisfied, and the judgment became effective.
• the defendant sought leave to appeal the stay decision (leave application). however, the leave application failed when the defendant failed to file submissions as directed by the court.
• no steps were then taken in the appeal by either party until february 2023, when the plaintiff’s solicitors wrote to the defendant’s asking if they were still instructed. no response was received.
• after further communications from the plaintiff to the court and defendant regarding the appeal, the plaintiff issued a summons to strike out the appeal in may 2024 (strike out summons).
• the defendant then missed the deadline to file evidence or submissions opposing the strike out summons. although he did belatedly file evidence seeking to justify his six year-plus delay in pursuing the appeal, this was deficient in several respects (e.g. it was unsworn). the defendant failed to remedy these defects despite repeated reminders by the court. this defective evidence raised several excuses for his failure to progress the appeal, including a financial crisis in 2018-2019 and the coronavirus.

the decision

on 1 november 2024, the court handed down its judgment in the strike out summons. in doing so, it summarised the principles underlying its jurisdiction to strike out a case (in this instance, the appeal) for want of prosecution, citing the leading hong kong court of final appeal case of wing fai construction v yip kwong robert (2011) 14 hkcfar 935.

the court highlighted that this jurisdiction is based on the abuse of the processes of the court by the party who has failed to progress its case. examples of this abusive conduct include “inordinate and inexcusable” delay causing prejudice, contempt of court orders, and ‘warehousing’ a claim.

the plaintiff relied on the first of these grounds in the strike out summons, requiring him to prove two elements: (i) inordinate delay; and (ii) prejudice.

the court found that there had been an inordinate multi-year period of inaction by the defendant in his appeal. it dismissed the various excuses that he raised for his delay.

as for prejudice, the court advocated taking “a broader view” of this topic and not to confine it merely to considering the prejudice to the party seeking to strike out the proceedings. in particular, this broader view required considering whether the relevant delay caused prejudice to the administration of justice and other court users.

applying these principles, the court held that:

1. whilst the delayed appeal may have caused the plaintiff prejudice, this was partly his own making. although the defendant had failed to advance the appeal, the plaintiff had been content to ‘let sleeping dogs lie’ contrary to the principles laid out in wing fai construction. any prejudice to him accordingly did not warrant the appeal’s strike out.
2. however, in failing to take any steps to advance the appeal, and in repeatedly ignoring court directions and deadlines, the defendant had “wasted and abused the court’s limited resources”. this had caused prejudice to the due administration of justice, and required that the strike out summons succeed.

although largely restating existing common law principles, this decision reinforces that the courts will take a tough stance when parties unjustifiably drag their feet. the decision is also an important reminder that the court, when faced with a strike out application alleging delay, will analyse the question of prejudice not only by reference to the interests of the parties to the case at hand, but also the interests of other court users and the administration of justice overall.

whilst harneys does not practise hong kong law, this decision is relevant to many of our jurisdictions. particularly, the cayman islands, pays close attention to hong kong procedural law developments, and the cayman court recently examined similar questions in its own judgment of burlington v butterfield bank.

in the recent english case of joyvio group ltd v moreno, the commercial court granted a stay of english proceedings on the grounds of forum non conveniens.

the dispute was between the claimant buyers and defendant sellers in respect of the sale of a chilean company, which was in the business of salmon farming, for breach of contract, damages and rescission in excess of us$1 billion. amongst others, arbitral and criminal proceedings were commenced in chile before proceedings were brought in england. the defendants disputed jurisdiction of the english proceedings in favour of the chilean court.

to determine whether the english court would decline to exercise its jurisdiction over the defendants, the english court relied on the two-stage test laid down in the landmark case of spiliada maritime corp v cansulex, namely:

1. stage 1 – the burden is on the defendant to establish that there is another forum which is “clearly or distinctly more appropriate than the english forum”.
2. stage 2 – if the defendant discharges the burden at stage 1, then the burden of proof shifts to the claimant to show by way of “cogent evidence” that justice requires that a stay should not be granted.

in considering and applying the spiliada principles and the factors to be considered under each stage, the proceedings were stayed for, inter alia, the following reasons:

1. chilean legislation did not prevent the chilean court from being an available forum simply because the english court was first seised and would not impede it from accepting jurisdiction.
2. a chilean court would find that it would have relative competence if the claims were brought before it on the grounds the claims relate to wrongful acts committed in chile and/or to a contract concluded in chile.
3. the cost and delay inherent in having proceedings in england due to the witnesses being both based in chile and spanish speaking, with the documents also mainly in spanish.
4. experience and knowledge of the dispute have already been accumulated by chilean counsel in arbitration proceedings commenced in chile.
5. the claims are governed by chilean law, and although the claimants sought to introduce claims that may be governed by chinese law, the english court can no more easily determine any issues of chinese law than a chilean court.
6. the claimants’ argument that their claim may be time-barred in chile can be addressed by having the defendants undertake to submit to the jurisdiction of the chilean court and waive any limitation defence to the relevant claims.
7. there is no factual connection between the events underlying the claims and england, but there is with chile.

this case is a useful reminder of the many considerations to bear in mind and the nuances when considering the application of the spiliada principles, as a claimant should not lightly be deprived of a jurisdiction they have established as of right.

when a contract lacks an express choice of governing law, determining the applicable legal framework can feel like navigating uncharted waters. case law underscores the need to carefully map the differing approaches across common law jurisdictions.

this first blog in a two-part series examines governing law in contractual claims.

determining the governing law

when assessing the governing law of a particular claim, the nature of the claim itself is crucial. broadly, claims can be classified into two categories:

1. contractual claims
2. non-contractual claims – such as tortious or proprietary claims

each category involves a different approach for determining the applicable law.

contractual claims

in the absence of specific legislation governing contractual claims in the cayman islands, the courts rely on english common law principles. when a contract does not contain an express governing law clause, a two-stage analysis is followed to ascertain the applicable law:

1. intention of the parties: the first step is to analyse whether the parties’ intentions regarding the governing law can be derived from the contract itself or other related circumstances. this could be done by looking at:
   
   • express provisions: any clauses in the contract that directly state the choice of law.
   • implied terms: factors such as the location of performance or the subject matter of the contract may indicate an implied choice of law.
     
     
2. closest and most real connection test: if the express or implied intention is not sufficiently clear, the court applies the "closest and most real connection" test to determine the appropriate governing law. this test considers which jurisdiction had the most substantial connection to the contract at the time it was made. relevant factors include:
   
   • the location where the contract was made;
   • the place of performance; and
   • the location of the parties or the subject matter of the contract.

in applying these factors, the cayman courts aim to ensure the contract is governed by the law most relevant to its formation and execution, while ensuring fairness in the application of legal principles.

in the cayman islands, the leading authority on this subject is the 1995 court of appeal judgment in insurco intl ltd v gowan co, which has been cited more recently by chief justice smellie (as he was then) sitting in the grand court in unilever v abc international. both insurco and unilever reference the privy council case of bonython v commonwealth of australia, which remains a key authority on the issue of determining the governing law where no explicit choice is made.

the question of how to determine the governing law of a contract without an explicit written term has not come before the cayman courts recently. this raises an interesting consideration: if such a case were to arise, would the courts take the opportunity to review the cayman position and ensure consistency with other commonwealth jurisdictions?

comparing the cayman and uk positions

a notable difference exists between cayman and the uk due to their respective approaches to international and cross-border contractual disputes.

uk position: the uk was a signatory to rome regulation (ec) no 593/2008 (rome i) and rome regulation (ec) no 864/2007 (rome ii), which govern the applicable law in cross-border disputes within the european union. following brexit, the uk incorporated these regulations into its domestic legislation, meaning that much of the uk case law now reflects principles derived from the rome regulations.

cayman position: the uk did not extend the rome regulations to the cayman islands so they do not apply in cayman. as a result, cayman continues to follow the common law position, relying on english cases that pre-date the rome regulations or recent cases unaffected by them. therefore, while english case law remains influential, it is crucial to distinguish between decisions based on the rome regulations and those based on common law principles. this distinction should be carefully considered when referencing english authorities in cayman cases.

this divergence highlights the importance of understanding the evolving landscape of governing law in cross-border contracts and ensuring clarity on how the applicable legal principles might differ between jurisdictions such as cayman and the uk.

the recent cayman islands case of in the matter of tfkt true holdings provides valuable insight to the factors considered by the grand court when determining whether to grant a stay of a winding up petition pending the determination of parallel proceedings in hong kong.

the petitioner, a minority shareholder, had sought to wind up the company in question on just and equitable grounds. the majority shareholder opposed this and sought to strike out and dismiss the petition as an abuse of process on the ground of there being parallel proceedings in hong kong between the same parties and on the same issues. alternatively, the majority shareholder requested that the claims in the petition be stayed pending the determination of the hong kong proceedings.

the grand court declined to strike out or dismiss the petition but instead granted a temporary case management stay of the proceedings pending determination of the hong kong proceedings.

the court’s considerations included:

1. taking into account the overriding objective of the grand court rules, namely “to deal with every cause or matter in a just, expeditious and economical way” bearing in mind the complexity of the issues, advancement of proceedings, cost, allocation of court resources and ensuring the substantive law is rendered effective.
2. most of the factual matrix and many issues in the petition overlapped those in the hong kong proceedings.
3. justice would be better served by the grand court waiting for determination of the common issues in hong kong before proceeding further.
4. the applicable test is whether, in the circumstances of the case, it was in the interests of justice for a stay to be granted, having regard to the benefits and disadvantages of imposing a stay.
5. the test is not whether the hong kong proceedings would be determinative of the cayman islands proceedings; but rather, a stay may be granted if the outcome of the hong kong proceedings may have “an important effect” on the cayman islands proceedings.
6. the petitioner had not pursued the proceedings expeditiously in hong kong, which were commenced in 2019.
7. the petitioner had not elaborated on the prejudice and disadvantages it would suffer if the cayman islands proceedings were stayed.

this decision is a helpful reminder to practitioners that determining if a stay is “in the interests of justice” requires balancing various non-exhaustive factors, assessed on a case by case basis.

in ikang healthcare group inc, the grand court of the cayman islands has released its judgment on the issues of the fair rate of interest under section 238(11) of the companies act and the costs of the proceedings. the court’s fair value judgment was released back in june 2023.

the court has a broad discretion to determine what is a fair rate of interest, balancing any disadvantages suffered by the dissenters against any benefits received by the company. the court’s preferred methodology in section 238 cases is the ‘mid-point approach’, derived from pre-2007 delaware law, which takes the mid-point between the company’s borrowing rate and the ‘prudent investor rate’.

in ikang, the main contested issue in relation to interest concerned the ‘prudent investor rate’. the dispute concerned whether the hypothetical prudent investor is purely objective in nature or should adopt subjective characteristics of the dissenters themselves. the company favoured objectivity, while the dissenters preferred a subjective approach incorporating higher rates of return available to them as hedge funds.

the court held that the correct approach is to start from a presumption that the ‘prudent investor rate’ should be assessed objectively on the basis of returns available to an average retail or professional investor. however, the presumption can be rebutted if the dissenters show that this would be unfair to them having regard to their position.

justice segal observed that the evidence filed by the ikang dissenters regarding their own investment strategies was “sketchy and too limited”, and so the presumption of objectivity was not displaced. he further held that the dissenters’ expert’s approach – based on hedge fund returns – was inconsistent with a prudent investment strategy, which he characterised as a conservative investment strategy with low to moderate risk. on this basis, the court adopted an asset allocation of 45 per cent equities, 45 per cent bonds and 10 per cent cash, preferring the company's expert’s data and methodology.

as summarised by justice segal, the core objective is to compensate the dissenters for the loss of the use of their money during the relatively short section 238 proceedings, and the court retains the discretion to treat as unfair returns assumed to be generated by a very long term investment strategy.

harneys acts for the company.

on 1 october 2024, our cyprus office will celebrate cyprus’ independence from british colonial rule. this is a national holiday, observed with various ceremonies, including parades, speeches, and cultural events. military parades are held in major cities across the island, with participation from units of the national guard, the police, the fire services, and civil defence.

cyprus became a british colony in 1878. in 1955, eoka (ethniki organosis kyprion agoniston), meaning the national organisation of cypriot fighters, was formed to fight for the end of british colonial rule in cyprus. after four years of struggle, the treaty of zurich was signed between greece, turkey, britain, and representatives of cyprus, establishing the framework for cyprus as an independent state.

on 16 august 1960, pursuant to the treaty of establishment, cyprus was officially declared an independent state, with full sovereignty.

cyprus independence day symbolises the birth of cyprus as a sovereign nation. its historical significance reminds cypriots of their national sovereignty, independence, and the challenges faced in achieving it. cyprus has been a member of the eu since 1 may 2004.

in a significant development, the bvi financial services commission has expanded the list of "relevant foreign countries" under part xix of the insolvency act 2003.

part xix allows the bvi court to provide assistance in relation to foreign insolvency proceedings from designated countries. a foreign proceeding being a collective judicial or administrative proceeding, including an interim proceeding, where the affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of reorganisation, liquidation or bankruptcy.

until recently, the designated countries were limited to only nine jurisdictions: australia, canada, finland, hong kong, japan, jersey, new zealand, united kingdom, and united states of america.

the fsc has now added over 20 additional countries to the list, including several major offshore and onshore jurisdictions. the newly added jurisdictions are:

1. bahamas
2. barbados
3. belize
4. bermuda
5. cayman islands
6. guernsey
7. guyana
8. ireland
9. isle of man
10. jamaica
11. member states and territories within the organisation of eastern caribbean states (the oecs, comprising anguilla, antigua and barbuda, dominica, grenada, guadeloupe, martinique, montserrat, saint kitts and nevis, saint lucia, and saint vincent and the grenadines)
12. nigeria
13. singapore
14. trinidad and tobago
15. turks and caicos islands

this designation means that personal bankruptcies, judicial managements and foreign liquidations from these countries can now access streamlined assistance from the bvi court, which has the jurisdiction to grant a wide range of orders including the power to deal with the foreign company's bvi assets, exercise functions in relation to the company, and examine individuals connected to the company.

given that the bvi court of appeal has previously held that part xix provides a complete code for foreign representatives from designated countries to apply to the bvi court for assistance, the expansion of the list of countries is significant.

for foreign officeholders from non-designated countries, the common law right of recognition survives and the bvi court will recognise a foreign office holder as having status in the bvi in accordance with their appointment by the foreign court. however, it is a more convoluted process and without the jurisdiction to grant assistance there is often limited benefit in obtaining recognition from the bvi court on its own.

given the common economic and legal ties between the bvi and many of the newly added countries – in particular bermuda, cayman, the oecs and singapore – these changes will significantly improve outcomes for cross-border restructurings and insolvencies involving the bvi.

by expanding cooperation under part xix, complex multi-jurisdictional proceedings involving offshore jurisdictions and beyond will benefit from easier coordination between local courts and officeholders.

the grand court of the cayman islands delivered an unusual judgment in section 238 proceedings to determine the fair value of merger dissenters’ shares in an unlisted company, xingxuan technology ltd. unlike typical management buy-outs where the majority shareholders acquire the shares of the minority, xingxuan was acquired by a competitor. the trial was uncontested as xingxuan neither appeared nor had legal representation. the dissenter’s valuation expert gave oral evidence without being cross-examined – described by justice kawaley as a “black swan” event.

the dissenter’s expert opined that the merger price was unreliable and a discounted cash flow impracticable. therefore, the primary valuation methodology should be based on the valuation investors had placed on xingxuan in financing rounds, a methodology not previously considered in any section 238 proceedings. the dissenter contended that the fair value of its shares was us$354.1 million compared to the value derived from the merger price of us$42 million, more than eight times the merger price.

justice kawaley found that the merger process supported the dissenter’s position that xingxuan was sold at an undervalue, with xingxuan having abandoned any effort to justify the merger price during the proceedings. further, the expert’s valuation of xingxuan (us$2.5 billion) fell within the range of values implicitly assigned to xingxuan and its competitors by those who participated in various financing rounds pre- and post-merger.

even where there is only one expert, the court must critically evaluate the expert valuation evidence and determine whether and to what extent it accepts that expert’s evidence and substitute its own view if it is found to be unsatisfactory.

an analogy can be drawn between a joint expert and a single expert whose evidence is uncontested: fairness dictates the trial judge should only accept expert evidence which can withstand scrutiny and be slow to reject the unchallenged evidence of an expert witness. the function of an expert in fair value proceedings is to assist the court in assessing complex financial information; not to deliver a definitive fair value calculation. like general civil litigation, the court’s determination involves factual findings applied to determine liability or quantum of loss and evaluative findings to measure general damages. the court’s statutory adjudicative function is not extinguished merely because only one party presents expert evidence. however, unchallenged expert evidence should not be rejected unless it is unsustainable on its face or having regard to the underlying facts, or it relates to an issue the expert has been given an opportunity to address before or at the trial. the court must consider the commercial rationality of the appraisal result contended by the expert as a whole.

in these proceedings, justice kawaley held the evidence of the dissenter’s expert, whom he questioned at length, was neither unsustainable on its face or inherently improbable, when viewed commercially. he accepted the methodology adopted by the dissenter’s expert, being the ev/gmv (multiple enterprise value to gross merchandise value viz the total number of transactions on the company’s platform) – notably a methodology not previously considered in any fair value case. justice kawaley considered it appropriate to apply a five per cent minority discount plus a five per cent share rights discount, reducing the fair value contended for by the dissenter to us$318.69 million.

while this uncontested fair value hearing was characterised as a ‘black swan’ event, it is still a helpful reminder to legal practitioners of the principles and duties of an expert valuer and that the valuation process in any given case will depend on the particular facts and circumstances.

this guide sets out answers to frequently asked questions on obtaining injunctive relief in the british virgin islands.

what is an injunction?

an injunction is a court order prohibiting a person from doing something (a prohibitory injunction) or requiring a person to do something (a mandatory injunction). specific injunctions include search orders, norwich pharmacal (third party disclosure) orders and freezing orders (or mareva injunctions).

injunctions can be final (permanent), interlocutory (until the final hearing or trial) or interim (until further order, which may be before the final hearing).

injunction applications are frequently sought in the bvi, with the bvi courts readily granting them in appropriate circumstances.

do i have a right to an injunction?

an injunction is granted at the court’s discretion: it is not available as a remedy as of right. an injunction will usually be granted where it appears to be just and convenient to the court. the bvi court derives its power to grant injunctions from section 24 of the eastern caribbean supreme court (virgin islands) act (sca).

whether the court will exercise its discretion to grant an injunction will depend on several factors, including delay, whether the injunction can be appropriately monitored, and whether the applicant has “clean hands”, ie, no misconduct or illegality is linked to the relief sought. there must also be an actual or threatened breach of the applicant’s rights.

when considering the grant of an interim injunction, the court must exercise its discretion under guidelines set down in the seminal case of american cyanamid co v ethicon limited.

what are the american cyanamid guidelines?

the court’s primary objective is to follow the course which presents the lowest risk of irreparable prejudice if, after a trial, the decision to grant an interim injunction is subsequently found to be incorrect. in american cyanamid, the house of lords set out a three-stage test for granting an interim injunction.

• serious question to be tried: the court must be satisfied that there is a serious question to be tried; ie the underlying claim itself must not be frivolous or vexatious.
• adequacy of damages: the court must consider the adequacy of damages. this involves two steps:
  • if the claimant were to succeed at trial, from the claimant’s point of view, would damages be an adequate remedy? if so, and the defendant would be financially able to pay them, no interim injunction would typically be granted.
  • if the defendant were to succeed at trial, would they be adequately compensated by the claimant’s undertaking in damages for the loss caused by applying the interim injunction? if they would be adequately compensated, then an interim injunction should be granted.
• balance of convenience: if there is doubt about the adequacy of damages to the claimant or the defendant, the court must consider the “balance of convenience”. this involves the court assessing all factors and taking the course of action which presents the lowest risk of injustice; ie whether it would do more significant damage to the applicant if the injunction were wrongly refused than it would do to the respondent if the injunction were improperly granted. in performing this exercise, the court will consider any factors relevant to the facts of the case, which will necessarily be case-specific. if the factors are evenly balanced, then the court should act to preserve the status quo.

the courts typically exercise the discretion to grant an interim mandatory injunction more sparingly than an interim prohibitory injunction since, given that it is an order which requires a party to do something, there is generally a higher risk of injustice and irredeemable harm to the respondent if the decision is subsequently found to be incorrect.

when can i apply for an interim injunction?

part 17 of the eastern caribbean supreme court civil procedure rules (revised edition) 2023 (ec cpr) sets out the procedure for interim remedies, including injunctions.

an application for an interim injunction can be made at any time, including before proceedings are started and after judgment has been given (ec cpr 17.2(1)). the court may only grant an interim remedy before a claim has been issued if the matter is urgent or it is otherwise in the interests of justice to do so (ec cpr 17.2(3)). if the application is heard before proceedings are issued, the applicant will be required to give an undertaking to issue a claim form as soon as possible after that (ec cpr 17.2(5)).

do i have to notify the respondent about the injunction i am seeking?

the general rule is that applications for interim injunctions are made “on notice” to the respondent. in these cases, the applicant provides the respondent with a copy of the application documents before the hearing. a copy of the application notice must be served on the respondent as soon as practicable after it is filed at court and, in any event, at least three clear days before the hearing at which the court will deal with the application (ec cpr 17.4(3)). where there is insufficient time to give three clear days’ notice, the court will still expect the applicant to provide the respondent with some, albeit reduced, informal notification.

in practice, however, many applications are made without notice to the respondent. applications may be made without notice (also called ex parte). the court will grant without notice injunctions where there appears to be good reason for not giving notice, such as where giving notice would enable the respondent to take steps to defeat the purpose of the interim order or there has been literally no time to give notice before the injunction is required to prevent the threatened wrongful act (ec cpr 17.3(3) and ec practice direction 17 no 4 of 2023 procedure for applying to the court for an interim order). if an interim injunction is granted, the court will set a return date within 28 days for the parties to return before the court to allow the respondent to defend its position.

without notice applications impose additional onerous obligations on the applicant. foremost of these is the duty to make full and frank disclosure; in other words, to disclose to the court all relevant facts and points of law concerning the application, whether they support the applicant’s case or are adverse to it. the duty extends to information that the applicant would have known if they had made reasonable and proper enquiries before applying.

do i have to give an undertaking in damages?

it is standard practice to require a successful applicant for an interim injunction to give an undertaking in damages to the respondent against whom the injunction has been granted. the cross-undertaking will usually be included within the draft order provided by the applicant. the purpose of the undertaking is to require the claimant to pay for any loss the respondent sustains because of the injunction if the court concludes later that the injunction should not have been granted or should not have been granted for that length of time.

what is a freezing order?

a freezing order (also known as a mareva injunction) is a special interlocutory injunction that restrains a defendant from disposing of, dealing with, or diminishing their assets up to a specific value. its primary purpose is to prevent the dissipation or concealment of assets that would otherwise be available to satisfy a judgment or award.

a freezing injunction may also be granted against a “non-cause of action defendant” – that is to say, a person against whom the application has no right to claim substantive relief. the basis for granting the injunction is that the person injuncted holds or controls assets against which a judgment against the primary defendant could potentially be enforced. the jurisdiction to make such orders is known as the chabra jurisdiction after the eponymous case.

a freezing order often contains ancillary orders requiring disclosure of the respondent’s assets. the purpose of the ancillary asset disclosure order is to ensure the effectiveness of the freezing order or to aid in the enforcement of any judgment when obtained. such orders will usually require the respondent to disclose all of their worldwide assets above a specific value within a short time of service of the order and to provide an affidavit verifying the asset disclosure.

what is the bvi court’s jurisdiction to grant freezing orders?

the jurisdiction to grant domestic freezing orders derives from section 24 of the sca and ec cpr 17.1(1)(j). in early 2021, section 24a was enacted, amending the sca, to give the bvi courts statutory jurisdiction to grant freestanding freezing orders and other interim relief in support of foreign proceedings. the wording of section 24a of the sca and section 25 of the english civil jurisdiction and judgments act 1982 is substantially similar, with both provisions giving their respective courts a discretion to refuse an application if that court has "no jurisdiction apart from this section" and the relief sought is "inexpedient".

in claimant x v a tvi company bvihc (com) 37/2021, the bvi court adopted the following two-stage approach used in england and wales when deciding whether to exercise its discretion to grant a freezing order in aid of foreign proceedings:

• whether the facts would justify the relief sought if the substantive proceedings had been brought in the bvi.
• if yes, would it be unwise to grant the relief sought? in determining whether it is “inexpedient”, the court will consider whether there are connecting factors to the jurisdiction and other factors, including whether the making of the order will interfere with the management of the case in the primary court, whether there is a risk of conflicting inconsistent or overlapping orders in other jurisdictions, and whether the court will be making an order which it cannot enforce.

new section 24a was swiftly followed by the majority judgment of lord leggatt in the privy council appeal of broad international ltd v convoy collateral ltd [2021] ukpc 24 (bvi), which confirmed the continued existence of the common law equitable power to grant a freezing injunction against a defendant when no substantive claim is made against the defendant in proceedings before the domestic court. such freestanding injunctions are based on an “enforcement principle” for the purpose of assisting enforcement of a prospective (or existing) foreign judgment rather than to support an existing cause of action.

what is the test for a freezing order?

the convoy collateral judgment contained a detailed rationalisation of the court’s powers to grant freezing orders generally. lord leggatt stated that an applicant for a freezing order must establish that:

• the applicant has a good arguable case. this has been held to mean a case that is more than barely capable of serious argument but not necessarily one with a greater than 50 per cent chance of success at trial and a plausible evidential basis.
• the respondent holds assets (or is liable to take steps to reduce the value of assets outside the ordinary course of business) against which such judgment could be enforced.
• there is a real risk without an injunction, the respondent will deal with the assets (or reduce their value) outside the ordinary course of business, which would impair the availability or value of assets so the judgment would be left unsatisfied. in practice, the risk of dissipation can often be shown in a claim for fraud by the nature of the claim.

how do i apply for a freezing order in the bvi?

applications for freezing injunctions will almost always be made without notice to the respondent because giving notice of the application might precipitate the dissipation feared. the applicant will, therefore, be under the duty to make full and frank disclosure to the court of all material facts and will usually be required to provide an undertaking to the court to pay any damages which the court considers the applicant should pay should it turn out that the order should not have been made (ec cpr 17.4(2)).

the documents which must be filed with the court are the application notice, an affidavit setting out the factual background and gives complete and frank disclosure, a draft order including a penal notice which sets out the consequences of non-compliance, a certificate of urgency (if the matter is urgent), a skeleton argument (and authorities bundle if authorities are cited), and a listing request form for the court to list the without notice hearing in front of a judge. if no existing claim has been filed, a claim form must also be issued or an undertaking given to issue one as soon as possible. the applicant must also pay the court filing fees.

the ec cpr now provides for service of court process out of the jurisdiction without permission from the court if an application is made for interim relief where proceedings have been or are about to be commenced in a foreign jurisdiction (ec cpr 7.3(11)). a certificate confirming the provisions of the ec cpr have been regarding service must be filed.

the ec cpr now provides for service of court process out of the jurisdiction without permission from the court if an application is made for interim relief where proceedings have been or are about to be commenced in a foreign jurisdiction (ec cpr 7.3(11)). the claimant must file a certificate confirming that they have complied with the ec cpr service provisions.

what happens if the respondent does not comply with the freezing order?

failure to comply with the terms of a freezing order, including any ancillary asset disclosure orders, is contempt of court, which may be punishable by imprisonment in the case of individuals or by sequestration of assets in the case of a company. the court has inherent jurisdiction to make a committal order with extraterritorial effect against a contemnor who resides outside the bvi.

conclusion

we hope this quide helps you understand how to get an injunction in the bvi. if you have any further questions, please get in contact with claire goldstein or christopher pease.

in the world of trust law, the principle that "equity will not assist a volunteer by completing an imperfect gift" has endured for over a century. this principle was established in the historical case of milroy v lord (1862) 2 gf & j 264 and continues to be instructive in trust and estate disputes to this day.

this principle was recently brought before the cayman islands court of appeal (cica) in the case of frederick and smith v smith and anor, cica no. 10 of 2023, in which the court was tasked with considering land transfers in a probate and trust context, specifically addressing the question of when a gift of property is considered “complete” when the transfer has not been effected.

first instance decision

the main proceedings concerned a dispute involving the transfer of property once owned by the deceased, olice estermae smith (mrs smith). the property, known as west bay northwest, block 4b, parcel 322 (the property) was intended to be transferred from her sole name to the names of herself and her granddaughter, hilary shenika frederick (ms fredrick) by way of form rl1 – a cayman islands statutory form for land transfer. the form was executed in 2012 by both mrs smith and ms fredrick but was never registered with the land registry, as required by the registered land act (2018 revision) (the act).

upon mrs smith’s death in 2015, her estate (including the property) passed to her two daughters. ms fredrick, who had lived in the property her entire life, claimed ownership through the unregistered transfer and sought a declaration from the grand court that the transfer was valid despite the failure to register form rl1. in april 2023, justice walters applied the principle that equity will not perfect an imperfect gift at first instance, finding that the purported transfer was legally ineffective on the basis that (i) the relevant transfer form was incomplete as it did not specify whether the property was to be held as joint tenants or tenants in common and (ii) in any event, the transfer was not perfected as it was not registered in accordance with the act.

decision on appeal

on appeal, ms frederick argued that (i) mrs smith had done all that was required to effect the transfer and the lack of registration should not invalidate the transfer, which should be registered by rectification of the land register, (ii) equity should intervene to recognise the transfer, as mrs smith clearly intended to gift ms frederick the property, (iii) the defendant, mrs smith’s daughter, was estopped from denying the validity of the transfer as she had allowed ms frederick to rely on it, (iv) the beneficial interest in the property had passed to ms frederick, despite the lack of registration, (v) the transfer should be construed as a declaration of trust, with mrs smith holding the property in trust for herself and ms frederick, and (vi) the failure to specify whether the property was to be held as joint tenants or tenants in common should not affect the validity of the transfer.

in considering the appellants’ arguments, the cica considered the development of the principle set out in millroy¸ which had softened following the english case of rose v inland revenue commissioners [1952] ch. 499 such that an exception can be made if a party can demonstrate that they “have done all that was necessary to complete the gift, short of registration of the transfer.” in rose, the transferor had done all in his power to register the transfer (in this case, the transfer of shares), meaning that the failure for the transfer to be affected was no longer within his power. the cica distinguished the present appeal from rose on the basis that mrs smith and ms frederick had not completed nor registered the transfer forms.

in further considering the milroy principle, the cica found the canadian case of macleod v montgomery estate [1979] a.j. no. 857 analogous as it involved the failure to deliver the necessary documents (a duplicate title) required to register a land transfer. in macleod, the alberta court of appeal held that the transfer was incomplete without registration, even though the transferor had signed the transfer documents. the cica considered macleod persuasive and that the outcome aligns with the cayman islands' requirements under the act.

in terms of ms frederick’s argument that a trust has been declared in lieu of the transfer of the property, the court considered the need for there to be certainty of intention when establishing a trust. in this case, ms frederick argued that the purported transfer should be construed as a declaration of trust, however the cica found that (i) there had been no indication that there was any intention of mrs smith to create a trust and (ii) legal and beneficial title to property may be held both by way of joint proprietorship and proprietorship in common, but no question of a trust necessarily arises under the act.

the cica expressed considerable sympathy for ms frederick, but held that it was unable to bring the case within the milroy principle. the decision, which will be of interest in other common law jurisdictions, is an example of the principle that equity, whilst it is a flexible and developing doctrine, has parameters. sympathy alone has never been a ground for court intervention.

comment

this case affirms the strict principle set out in milroy and highlights the need for a transferor to perfect and affect a transfer of property to another, without room for doubt.

importantly, the cica noted the conflict that arises between the (now-softened) principle in milroy, which suggests that a transfer may be perfected if the transferor has “done all that was necessary to complete” the transfer, as against section 37(1) of the act, which confirms that it is not possible to attempt to dispose of land otherwise in accordance with the act.

on this occasion, the cica was not asked to determine which would prevail as between the principle or the act, meaning that this remains an open question. on that basis, it was open to the cica to assume that “if a donor has done all in his power to divest himself of the land, and the only missing element is registration in the land register by the donee, the gift may be regarded as complete and the court may grant any necessary relief.” this question therefore remains left for another day, and will no doubt be addressed at a later stage in future proceedings.

conclusion

this case confirms the importance of ensuring that all formalities are completed in the transfer of property, particularly in land transfers. even minor omissions can render a gift incomplete and the test to overcome these omissions and give effect to such a transfer presents a high bar for any person seeking to benefit from an imperfect or incomplete transfer.

for more information, please consult with our private wealth team, henry mander, charlie moore, majdi beji, greg coburn, or samantha conolly who can provide personalised advice.

the general court of the european union in its recent judgment delivered on 21 february 2024 dismissed the request of several dairy companies to annul the registration of “halloumi”, the cypriot cheese delicacy, as a protected designations of origin (pdo) and a protected geographical indication (pgi).

a pdo and a pgi recognition protects the name of a specific product providing consumers with clear and concise information on their origin. a pdo recognition provides stronger links to the product’s manufacturing place, whereas a pgi recognition underlines the connection between the product's name and its unique geographical location. as a result, the intellectual property rights of a product are attributed to the european country where the product’s reputation can be traced.

on 5 april 2012 a number of cypriot companies involved in the cheese industry filed an application with the cypriot authorities to register the name “halloumi” as a pdo, specifying the milk composition required for a product to be labelled with this name.

the cypriot authorities then filed an application with the european commission requesting the registration of the name at issue as a pdo. on 12 april 2021 the european commission, after considering numerous oppositions, adopted regulation (eu) 2021/59, entering the name “halloumi” in the pdo and pgi register.

various dairy companies that applied to the general court contested the adoption of the regulation alleging, inter alia, that (a) the regulation was adopted based on an irregular procedure, as far as it concerns the examination of the oppositions at national level, (b) the procedure for the adoption of the regulation was excessively lengthy, and (c) the commission failed to scrutinise properly the application for registration.

the general court, while rejecting all the pleas put forward against the adoption of the regulation, clarified that the eu courts do not have the jurisdiction to rule on the lawfulness of the procedures followed by national authorities and particularly the time granted by the cypriot authorities for the filling of the oppositions.

furthermore, the general court pointed out that the applicants failed to adduce any specific evidence to prove that the time taken by the commission to adopt the regulation impacted in any way their decision or those persons who produce or market the products concerned.

finally, the general court clarified that, the commission is not required to confirm that the method of production specified in the application for the registration of a name as a pdo complies with prior national production standards.

the general court dismissed the applicant’s request and “halloumi” remains registered as a pdo and pgi.

halloumi can be seen through its traditions, art and mediterranean kitchen, sufficiently justifying the link between the quality and characteristics of the product with its geopolitical environment of origin and thus the attribution of its intellectual property rights to cyprus.

in performance insurance spc the grand court recently considered the approach that official liquidators should take when valuing contingent claims. the court held that the right approach is to estimate a figure for the contingent liability on a full indemnity basis. the liquidator is not entitled to fix the contingent property rights of creditors at any less than the maximum sum that might reasonably be incurred.

the creditor in this case applied for an order setting aside the official liquidator’s partial admission and partial rejection of its proof of debt. the claim related to proceedings in new york arising out of injuries allegedly sustained by a third party insured in a boxing match. the new york proceedings had been stayed as a result of the chapter 15 recognition of the cayman liquidation. the official liquidator admitted the proof of debt (which was submitted in an unquantified amount), but only in the sum of us$15,800 and without providing reasons for its decision.

the court held that the official liquidator was wrong to treat the contingent claim in the way that he did, treating it as a fixed amount to satisfy the creditor’s claim, to allow the company to then distribute the remaining assets to shareholders. as held by the court in re sphinx, because of the inherent uncertainties in predicting the ultimate value of contingent claims, the court needs to be highly sensitive to the risk of irremediable prejudice to claimants who are to be viewed as ranking in priority to others. the court should set a reserve which it is satisfied, to a high degree and not just on a balance on probabilities, would be sufficient to satisfy the maximum sum that might reasonably be incurred by the creditors. the court was satisfied the position remains as set out in re sphinx.

the court noted that this is different to the approach in england and wales where liquidators are vested with the power to disclaim onerous property, such that they may proceed with distributions without recourse from creditors even where contingent liabilities which were not fully provided for have been compromised.

the court held that the proof of debt should be admitted and the liquidator should estimate and fully reserve against it. the court directed the appointment of an independent assessor in the us to recommend an appropriate reserve to reflect the full potential liability arising from the proceedings.

this decision provides useful practical guidance to liquidators and creditors with contingent claims as to how such claims should be valued on adjudication in cayman islands liquidations.

it is an established principle of insolvency law that the passage of time does not prevent claims which were not statute-barred at the date of insolvency from being proved later during the insolvency, even though the limitation period has in the meantime expired. this principle derives from the english decision of general rolling stock.

in ritchie capital v lancelot investors fund the cayman islands court of appeal recently clarified that this principle applies for the purposes of proceedings and the proof of debt process.

the plaintiff obtained leave, after a winding up order was made, to commence claims involving deceit and unlawful means conspiracy. at first instance, the defendants successfully applied to strike out the claim on the basis it was statute-barred. the judge held that it made no sense for the limitation act not to apply to actions brought by way of court proceedings simply because a defendant company had been wound up. nothing in the limitation act or companies act provided for the suspension of the running of time for claims in tort upon the entry of a defendant company into liquidation.

the court of appeal overturned the decision. the rationale of the general rolling stock principle is that upon winding up a statutory trust arises under which the assets of the company are to be applied in satisfaction of all liabilities existing at the commencement of the liquidation. the position is the same as a matter of cayman islands law. there is no reason why the method of establishing liabilities should be relevant, it is the liabilities themselves which are important.

the apparent conflict between the policy of the limitation act and the policy of insolvency legislation should be resolved in favour of the insolvency legislation for the following reasons:

1. the relevant provisions of the limitation act for actions in tort impose a procedural bar on the promotion of proceedings without affecting the underlying causes of action. however, the insolvency regime imposes a system of rateable distribution that has a practical effect on the substance of the underlying claim through limiting recovery.
2. the policy of insolvency legislation already prevails in relation to proofs of debt and it is a small stretch to extent it to general actions. allowing a proof after the expiry of a limitation period is no more or less consistent than allowing a conventional cause of action.
3. it is necessary for the proper operation of the statutory trust resulting from the insolvency legislation that liabilities existing at the relevant date should be included in the statutory scheme whatever the method used to establish them.

this decision resolves the inconsistency that had arisen from the decision below as to how to reconcile the suspension of limitation periods for proofs of debt with the continuation of limitation periods for claims in tort (which could theoretically be included in a proof of debt). the court of appeal has confirmed that no such distinction is appropriate.

the recent decision of in the matter of china index provides a further reminder of the principles determining the quantification of an interim payment in fair value appraisal matters in the cayman islands. the grand court also considered the utility of publishing interim payment judgments in the context of section 238 litigation on the grounds of public interest.

in china index, the dissenters acknowledged that the merger consideration is generally considered the starting point for assessing an interim payment ahead of trial. however, the dissenters sought a higher amount on the basis that they claimed china index (and its valuation experts) made certain errors and omissions in the valuation of its shares at the time of the merger that, if corrected, would have resulted in a significantly higher merger consideration. the dissenters contended that an interim payment should reflect this higher valuation. china index argued that in light of a number of factors including revised financials and minority discount, the court should quantify the interim payment at 60 per cent of the merger consideration.

in rejecting both positions, justice doyle reiterated the underlying principles of an interim payment, the key issue being what sum it can safely be assumed the dissenters will recover at trial. justice doyle confirmed that he could “safely and justly” order an interim payment based on the merger consideration and not the higher amount sought by the dissenters (or the lower amount sought by china index).

in his judgment, justice doyle emphasised two key points in the assessment of an interim payment:

1. the determination of interim payment applications in fair value appraisal matters should not be allowed to be turned into mini-trials but rather should be a “somewhat pragmatic high level broad brush assessment of the evidence and arguments”.
2. factual evidence submitted in support of an interim payment assessment should stick to the facts, and should not descend into inappropriate comment, argument or opinions.

the court also made noteworthy remarks as to the circumstances in which an interim payment judgment (as an interlocutory decision in advance of trial) can and should be published. it held that given section 238 litigation is not concerned with liability to pay fair value of the shares following a merger (but rather a valuation exercise of those shares), the usual principle that a trial judge should not be made aware that an interim payment has been made, does not apply. that distinction, along with the principle of open justice in the cayman islands, allowed the court to determine that it had good reasons (ie on public interest grounds), to order publication of the judgment.

china index therefore provides several useful reminders and indeed warnings as to the conduct of interim payment applications: parties should not treat applications for an interim payment as a form of mini-trial or potentially face adverse costs consequences; and the court will likely be unwilling to stray from the now well-established principle that merger consideration is the appropriate yardstick for quantifying an interim payment absent “positive evidence” or “cogent legal argument” in support of another position. additionally, parties should be alive to the court’s willingness, in the face of opposition, to publish interim payment judgments given the degree of public interest that section 238 proceedings tend to attract.

the title of this article might accurately describe the alien encounter and possibly out-of-body experience that some have faced when trying to understand digital assets, particularly cryptocurrency, and whether they are considered property.

the law commission of england and wales has been actively attempting to address this question, taking into account the quick and ever-changing social, economic and commercial landscapes which increasingly involve things like electronic signatures, cryptography, smart contracts, distributed ledgers and tokenisation. as a result, common law legal systems must adapt to consider these changes. in the landmark case, aa v persons unknown, the english court stated that cryptocurrencies "are neither [things] in possession nor are they [things] in action" but nonetheless concluded that they were a form of property, leading to the commission publishing a final report in june 2023 recommending that digital assets be recognised as property.

we previously blogged on how, in turn, jurisdictions like the bvi and hong kong have adopted the english position.

in july 2024, the commission published a supplemental report and draft bill proposing to recognise a “third category” of personal property capable of accommodating unique digital assets like cryptocurrency and digital tokens. the commission previously concluded that certain digital assets should be considered a distinct category of personal property, separate from the two traditionally recognised categories of “things in possession” (ie tangible objects) and “things in action (ie enforceable legal claims). recent english and common law cases have moved towards recognising a third category better suited to classify digital assets.

the draft bill aims to confirm the existence of this third category, allowing courts to develop parameters for determining when a digital asset qualifies as personal property. this would provide legal clarity and recognition for cryptocurrencies, digital tokens and potentially other digital assets.

key expected benefits include:

• enabling courts to readily exercise remedies for stolen or destroyed digital assets, including granting interim relief like proprietary injunctions over digital assets where there is an imminent risk of dissipation;
• further clarifying property rights of digital assets in insolvency situations; and
• aligning the law with the market treatment of digital assets as property.

the commission recognises that the advancement of the law, as it has proposed, carries a potential cost and risk of uncertainty during the common law development period, which may have unintended consequences. however, tis report explains the intended narrow scope of the draft bill: focusing on private law aspects of digital assets and its limited territorial extent to the jurisdiction of england and wales.

the report recommends that the uk government creates a panel of industry experts who can advise and guide on technical and legal issues relating to digital assets. moreover, the commission recommends that market participants be provided with legal tools that do not yet exist in england and wales, such as new ways to take security over digital tokens and tokenised securities. the commission’s recommendations for reform and common law development seek to create a clear and consistent framework for digital assets leading to greater clarity and security for users and market participants.

although harneys does not advise on the law of england and wales, the commission’s supplemental report and draft bill seeking statutory confirmation of a new and emergent category of property will undoubtedly be analysed and scrutinised by english and common law legal practitioners, including those of the bvi, bermuda and cayman islands, whose practices involve digital assets in both corporate and contentious settings.

you can see the supplemental report and draft bill on the law commission’s webpage.

in mex group worldwide ltd v ford (mex group) the english court of appeal considered an appeal against a decision to set aside a worldwide freezing order, originally granted under section 25 of the civil jurisdiction and judgments act 1982 (section 25), sought in aid of proceedings before the scottish court relating to conspiracy claims.

key takeaways from mex group include:

1. additional evidence can be adduced at appeal in accordance with ladd v marshall principles. the court of appeal was of the view that the new evidence adduced was relevant to the issues of (1) dissipation of assets and (2) establishing an arguable case. the court of first instance was correct to decide on the evidence available to it that there was no risk of dissipation of assets, however, the new evidence adduced before the court of appeal led it to conclude that there was a risk of dissipation of assets.
2. where there is a failure to provide “full and frank disclosure” at the ex parte hearing this provides a court with an independent basis for refusing to continue a freezing order, even where risk of dissipation of assets is established.
3. a judgment of the scottish court was admissible before the courts of england and wales for the purposes of interlocutory remedies. in mex group, the court of appeal was of the view that the scottish court’s judgment, in particular its treatment of the concept of an “arguable case”, did not carry significant weight, and proceeded to consider the matter afresh taking account of all the evidence before it.
4. the defendants to the original action were not resident within england and wales, nor had they any assets within that jurisdiction. in the circumstances, the court of appeal considered it “inexpedient” to grant a freezing order pursuant to section 25 in aid of the scottish proceedings. the court of appeal set a high bar of “exceptional circumstances” to justify granting a freezing order where no appropriate connection with the jurisdiction of england and wales is established.
5. section 25 survived brexit as it constitutes “assimilated domestic case law” as defined in section 6(7) of the retained eu law act which continues to form part of the law of england and wales.

mex group is persuasive authority before the bvi court and would likely be followed if a similar factual scenario were to arise in this jurisdiction. a bvi lawyer seeking to obtain a freezing order in support of foreign proceedings will have to consider the nexus between the foreign defendant(s) and the jurisdiction.

in the recent decision of in the matter of madera technology fund (ci), ltd, the cayman islands grand court considered the principles and authorities in relation to the determination of the valuation date for a buy-out order as an alternative remedy to a just and equitable winding-up petition.

the petitioner was the largest investor in the company. its main complaints were that, to prevent it from convening an egm to appoint new directors of the company, the company (i) partially redeemed the petitioner’s shares, and (ii) issued a notice converting the petitioner’s remaining shares to non-voting shares. the court found that these actions were taken for an improper purpose but considered that an order to buy out the petitioner’s shares would be an appropriate alternative remedy to a winding up order.

in determining the valuation date for the buy-out order, the court reviewed the relevant principles and authorities at length and acknowledged the overarching principle that the court’s discretion is to be exercised judicially and on rational principles in such a way that the order is fair and equitable in all the circumstances of the particular case.

the court concluded that the valuation date should be the first business day of the month following the date of the order, being the date that the company would strike its net asset value in the ordinary course of business. in reaching this conclusion, the court specifically explained that the date of the petition would have been the fairest date in the circumstances were it not for two offers to redeem made by the company. the court then went on to consider those offers and provided valuable insights as to how buy-out offers would be evaluated and what would constitute a reasonable offer:

1. the company is a going concern so its shares should prima facie be valued as at the date on which they are ordered to be purchased.
2. the significant fluctuation in share prices is due to market forces and there is no direct nexus between the prejudicial conduct and the share price.
3. the petitioner’s first offer was made in tandem with the conversion notice which the court found to be prejudicial. it would be difficult as a practical matter to separate the two. as such, the petitioner could hardly be faulted for refusing the first offer which came in together with the removal of its rights.
4. however, the petitioner’s second offer was clear and unequivocal and was made at a time when the share price was at its height. it was for a calculation at net asset value and was reasonable.
5. the petitioner rejected that order out of hand not because of deficiencies with it but because it wanted a winding-up order. in doing so, the petitioner made a choice for a specific reason, ie a one-way bet. in a winding up, the sale would be at current prices, so the historic higher price would not be available.
6. it is not unfair to the petitioner to value the shares at the market value because of its rejection of the second offer. it is however unfair to the company which made the second offer to now have the share price fixed retrospectively at a historical price that was three times higher than the market value.
7. the second offer also constitutes special circumstances which justify an order that the petitioner be entitled to its costs of the petition on the standard basis only.

the decision provides a useful reminder that serious consideration has to be given to any buy-out offer made and the potential implications of rejecting a reasonable offer.

in the recent decision of re mega gold holdings ltd, the hong kong court of first instance declined to follow the privy council’s bvi decision sian participation corp (in liquidation) v halimeda international ltd which clarified the approach to winding-up petitions in the context of agreements to arbitrate. this is even with the privy council issuing a willers v joyce direction to the courts of england and wales to also be bound.

in re mega gold, recorder khaw sc considered the effect of an arbitration clause on winding up and bankruptcy proceedings and, as a matter of stare decisis, applied the hong kong court of appeal’s decisions in guy kwok-hung lam v tor asia credit master fund lp and re simplicity & vogue retailing (hk) co ltd which were not applied by the privy council.

in guy lam, the court of appeal held that, where there is an expressed jurisdictional clause, the court should generally stay or dismiss winding-up petitions, absent countervailing factors such as the risk of insolvency affecting third parties and where the debt dispute borders on being frivolous or abusive. guy lam was subsequently applied in re simplicity, where kwan vp held that the approach in guy lam is equally applicable to arbitration clauses and that the debtor is required to demonstrate a genuine intention to arbitrate.

this latest decision by the hong kong court shows a stark difference between the approach taken by the hong kong and the bvi court. as a matter of bvi law, the correct test for the court to apply in exercising its discretion to make a liquidation order in circumstances where there is an arbitration agreement between the parties is whether the debt is disputed on genuine and substantial grounds.

this divergence between the two decision is a timely reminder of the principles of stare decisis and the autonomy of a country’s domestic court.

it is well established that the main purpose of an asset disclosure order is to police a freezing injunction or, in other words, to ensure the continued effectiveness of the freezing order. in a recent decision concerning a summons for disclosure of information, the cayman islands court provided a helpful summary on the applicable law that governs asset disclosure orders within the context of a worldwide freezing order, as well as the nature and justifiable extent to which disclosure of relevant assets can be sought.

having considered a number of authorities, the grand court in in the matter of perry v lopag summarised the legal position as follows:

1. the purpose of an asset disclosure order is to police the freezing injunction; ie to make the freezing order effective.
2. not only is an asset disclosure order important to enable the party in whose favour it has been granted to identify the nature and extent of the respondent’s interest in assets, it is also essential for that party to decide whether to take steps in relation to the respondent’s undertaking in damages.
3. only information necessary to police the injunction order must be provided and nothing more.
4. the court has the power to order disclosure of documents to support an asset disclosure order, and the power carries with it the power to make whatever ancillary orders are necessary to make the freezing injunction effective.
5. when exercising the power to order disclosure, the court must be satisfied that the information sought is for a proper purpose. an example of proper purpose is when the information requested is to identify and preserve assets that may otherwise be dissipated notwithstanding the injunction. this will include obtaining information so that notice of the injunction can be given to third parties who will then become bound not to commit a contempt of court.
6. the usual practice is to order the disclosure of all the respondent’s assets so that the respondent is not entitled to pick and choose what assets to disclose. there is no rule or practice that disclosure should be limited to assets having sufficient value to meet the maximum sum in the freezing order.
7. the fact that the information sought is confidential does not on its own entitle the respondent to withhold disclosure. although it is an invasion of privacy to force a party to disclose such information, a freezing order in normal circumstances cannot be effective without such disclosure.
8. when a worldwide freezing order requires a party to disclose the value, location and details of assets, the meaning of “details” is considered to mean disclosure of sufficient information that will allow the claimant and the court to know the nature and extent of the respondent’s interest in the relevant assets. the court could order disclosure of a document if necessary for this purpose.
9. a party who is subject to a disclosure order must take reasonable steps to investigate the truth or otherwise of any answer they give regarding assets they have or had an interest in, but they are not required to make inquiries of persons in relation to assets in respect of which they no longer have any interest or right to information.

in this case, while the respondents had filed affirmations making various disclosures of their assets in purported compliance with an earlier disclosure order granted in conjunction with a worldwide freezing order, the applicant successfully persuaded the grand court that clarification of the initial disclosure made by the respondents was necessary to make the freezing order effective. while the above summary is not an exhaustive list of factors that must be considered before a party seeks to apply for asset disclosure orders ancillary to a worldwide freezing order, it nevertheless provides practical guidance on important factors that the court will consider when granting (or rejecting) disclosure orders.

although decisions from the cayman islands courts do not directly apply in the british virgin islands or bermuda, they are persuasive in these offshore jurisdictions where freezing injunctions and ancillary disclosure orders are frequently sought in support of both domestic and foreign proceedings.

legal professional privilege between lawyer and client is sacrosanct and has been described as a fundamental human right. when can this fundamental right be curtailed?

in east-west united bank sa v gusinski, an application was brought by the claimant to determine whether lawyers were able to fully plead their defence to a conspiracy claim they had allegedly become mixed up in or whether legal professional privilege applied. it was alleged that the lawyers had become mixed up in a conspiracy perpetrated by the ultimate beneficial owner and controller (mr gusinski) of a group of companies they had represented, the effect of which was to avoid repayment of a debt owed by a group company.

deputy master scher held that there was no legal professional privilege as the ‘iniquity exception’ applied to documents and communications brought into existence as part of or in furtherance of the alleged conspiracy.

the court considered the following principles, citing the leading case of al sadeq v dechert llp:

1. where legal professional privilege exists, it is inviolate … and has been described as a fundamental human right.
2. privilege does not exist if the ’iniquity exception’ applies. this exception applies where a document comes into existence in relation to a fraud, crime or other iniquity and is not limited to criminal or fraudulent purposes but extends to equivalent underhand conduct which is in breach of a duty of good faith, or contrary to public policy or the interest of justice.
3. the iniquity exception is not confined to cases in which the lawyer is party to or aware of the iniquity.
4. the basis for the iniquity exception is that a necessary ingredient of legal professional privilege is that the communication should be confidential. the exception applies where and because the iniquity deprives the communication of that necessary quality of confidence.
5. the iniquity exception does not apply merely because a solicitor is engaged to conduct litigation by putting forward an account of events which the client knows to be untrue, even when this involves a deliberate strategy to mislead the other party and the court, and to commit perjury. rather, the touchstone is whether the iniquity puts the conduct outside the normal scope of such professional engagement, or is an abuse of the relationship which falls within the ordinary course of such engagement.
6. the merits threshold for the existence of an iniquity which prevents legal privilege arising is whether there is a prima facie case that it appears more likely than not on a balance of probabilities that an iniquity exists on an assessment of the evidence available.
7. where there is a prima facie case of iniquity which engages the exception, there is no privilege in documents and communications brought into existence as part of or in furtherance of the iniquity.

in finding that the alleged wrongdoing gave rise to the iniquity exception, deputy master scher considered that on the evidence before the court, it was more likely than not that mr gusinski and the companies he controlled (a) misled the swiss court; (b) misled the arbitral tribunal; and (c) diverted funds which could have been seized by the claimant to other companies within the group which intentionally prejudiced the claimant’s ability to recover the sums owed.

importantly, the arbitral tribunal relied on certain statements made by the lawyers for mr gusinski and his companies which turned out to be false. the lawyers denied knowing that they were false. whilst it was not determined in the application, the court considered that if their denial was made out at trial, it would mean the lawyers had been misled by mr gusinski about his intentions and that would be an abuse of the normal solicitor/client relationship, and a hallmark of the kind of iniquity which negates legal professional privilege.

the decision provides a useful reminder of the importance of clients being honest and transparent with their lawyers to ensure that legal professional privilege is maintained. whilst this is a decision of the english high court, the principles applied would likely be observed in the bvi and cayman islands if an analogous scenario arose in fraud proceedings.

on 21 august 2024, the high court of hong kong, court of first instance delivered its decision in the latest proceedings concerning convoy global holdings limited and its indirectly wholly owned subsidiary, forthwise international limited incorporated in the bvi.

the plaintiff sought leave to commence a statutory derivative action (sda) on behalf of forthwise against a director of convoy who is also a director of forthwise, concerning certain loans advanced by forthwise which the plaintiff claims were not arm’s length commercial transactions and contrary to forthwise’s interests.

the defendants argued that the plaintiff’s application amounted to an abuse of process due to similar proceedings that madam wang had commenced as a common law derivative action against convoy, forthwise and the director, which were struck out. the court considered this issue first and concluded that there were differences between a common law derivative action and an sda, so went on to consider the other issues in dispute.

the court considered the defendants’ argument that the plaintiff did not have standing as a registered member of convoy. mr justice coleman agreed and refused to grant a stay or adjournment of the application so as to seek to address the issue of standing, which the plaintiff had failed to address during the proceedings.

the court noted that the plaintiff’s claim to being a registered member of convoy was still disputed and that there was no bar to convoy maintaining that he had no rights in respect of the shares he claimed an interest in notwithstanding the discontinuance of related proceedings against him.

mr justice coleman also had to resolve whether leave to bring the sda was required from the bvi court as a pre-requisite. although not determinative, the court preferred the defendants’ position, that the plaintiff had failed to establish that he had relevant standing in the absence of obtaining leave from the bvi court to bring the sda.

upon weighing the merits of whether there was a serious issue to be tried, the court also agreed with the defendants that the hurdle to establishing a serious issue to be tried had not been overcome by the plaintiff and the available evidence fell short of what was required.

the court also had to consider if the proposed sda was statute barred. the court considered an announcement that had been published by convoy on 18 october 2016, to the hong kong stock exchange disclosing the transaction challenged. the court considered that the limitation period applied from when the plaintiff had public knowledge in 2016 by virtue of the announcement and/or from when he claimed to become a shareholder in 2017.

finally, the court held that even if there was a serious issue to be tried (despite having held otherwise), it was not of the view that it was necessary or appropriate for the court to grant the plaintiff leave to pursue the proposed sda and did not accept that the sda would be in the interests of forthwise or convoy.

as a result, the defendants were successful in having the plaintiff’s application dismissed. the decision highlights the significance of establishing jurisdiction, standing, and the prospects of success in any intended derivative action when pursuing an sda in hong kong. similar issues also apply when considering a statutory derivative action in the bvi.

when a creditor with standing presents a winding up petition and the court is satisfied that the respondent company is unable to pay its debts, the starting position is that the petitioning creditor is entitled to a winding up order as of right (or ex debito justitiae). the burden then falls on the respondent company to show the court that a winding up order should not be made.

in the cayman islands grand court’s recent decision of credit suisse london nominees ltd v floreat principal investment management limited, winding up petitions were presented against three floreat entities. one of those entities, “lv2im”, opposed the petition on the ground that it had a cross claim.

notably, the cross claim in question was not against the petitioner itself (credit suisse, which held the shares as a nominee) but against an individual, mr wang, who was the beneficial owner of the shares. lv2im argued that mr wang was in effect the “real party” to the proceedings and that the court accordingly had a discretion either to stay or dismiss the petition.

justice kawaley held that although the petitioner had a prima facie right to seek a winding up order, the court could in its discretion decline to grant such relief if it was satisfied that:

• the petitioner was subject to a cross claim asserted by one of the respondents and that the “identity and/or mutuality requirements” were met. this means that the petitioner in its capacity as (i) creditor and (ii) debtor in respect of the cross claim, must be one and the same;
• the cross claim was substantial (ie greater than the petition debt) and genuine in the sense that it had a realistic prospect of success; and
• it was reasonable to permit the respondent company to litigate the cross claim rather than be wound-up.

justice kawaley found that lv2im failed the first limb of the test due to the absence of any authority supporting the propositions that:

• a cross claim against the ultimate beneficial owner of the shares held by the petitioning company could be relied upon to defeat a winding up petition; or
• the court had a general discretion to ignore the identity of the parties requirement, as it saw fit.

lv2im’s application also failed the second limb of the test as it had no realistic prospect of success as justice kawaley had already determined that mr wang is not liable for the petition debt (see our earlier blog here). the cross claim was “the stuff that dreams made of” and “wholly detached from reality”.

the decision provides useful guidance as to the principles that apply in circumstances where there is a cross claim that may potentially be deployed in order to prevent or delay a winding up order from being made.

separately, the decision is also helpful authority on the legal distinction between disputed debt cases (in which, assuming the debt is disputed on bona fide substantial grounds, the petitioner will lack standing to present or pursue a winding up petition) and cross claim cases (in which the creditor petitioner may have a prima facie right to a winding up order, but is subject to a cross claim which the respondent company ought to be permitted to litigate). in practical terms, in both cases, the outcome is similar: the respondent company will have demonstrated that it is inappropriate for a winding up order to be made.

in a recent matter our firm obtained norwich pharmacal relief against a centralised digital asset exchange, marking an important first step in the effort to recover misappropriated digital assets. while the grand court did not issue a formal judgment, it made several noteworthy observations that may influence the future handling of similar cases.

case overview

the norwich pharmacal order, named after the landmark 1974 house of lords case, is a powerful legal tool that compels third parties involved in wrongdoing to disclose information necessary for the claimant to identify wrongdoers or recover stolen property. in the context of digital assets, obtaining such an order against a centralised exchange is crucial, as these platforms often hold key information about the transactions and individuals involved.

in this case, seal and gag orders were also sought to prevent the third-party digital asset exchange from tipping off the ultimate wrongdoers of the plaintiff’s efforts to recover the misappropriated digital assets.

judicial observations on procedure: the two-step process

during the proceedings, the judge raised an interesting question regarding the procedural appropriateness of issuing "wrap up" orders (ie simultaneous orders for a seal and gag order with a norwich pharmacal order). the judge queried whether it would be more suitable to adopt a two-step process, wherein the seal and gag orders are first obtained on an ex parte basis (without notifying the defendant), followed by a separate on notice application for the norwich pharmacal order.

this two-step process is already gaining traction in other jurisdictions, notably in the british virgin islands, where it is becoming common practice (see here). the rationale behind the two-step approach is to ensure that sensitive information is protected from the outset, thereby preventing any potential interference with the ongoing investigation or recovery efforts whilst also protecting the principle of natural justice by providing notice to the defendant of the norwich pharmacal application.

however, in this case, the judge concluded that hearing the applications together was appropriate, and that this was the established practice in the cayman islands. the decision to maintain the current procedural approach suggests a preference for expediency and efficiency, ensuring that plaintiffs can swiftly obtain the necessary relief to recover misappropriated assets.

implications for future cases

the judge's observations, although not formalised in a judgment, may signal a potential shift towards the adoption of the two-step process in future cases. if this trend continues, it could lead to a more structured approach in handling such applications, providing greater clarity and protection for claimants seeking to recover digital assets.

for legal practitioners, this development underscores the importance of staying attuned to evolving judicial practices, particularly in jurisdictions like the cayman islands, which are at the forefront of digital asset litigation. while the current practice remains to hear seal and gag applications together with norwich pharmacal applications, the possibility of a procedural shift should not be overlooked, especially as other jurisdictions begin to adopt the two-step process.

in conclusion, obtaining a norwich pharmacal order against a centralised digital asset exchange is a critical milestone in the recovery of misappropriated assets. the judge's remarks in this recent case highlight the dynamic nature of procedural law in this area, with potential implications for how such cases may be handled in the future. as digital asset-related litigation continues to evolve, it will be essential to monitor these developments closely and adapt legal strategies accordingly.

in two recent decisions of the hong kong court of first instance handed down on the same date, the hong kong court provided practical guidance as to when it would be justified for the court to exercise its statutory power to call a general meeting of a company.

a company’s constitutional documents often include concrete provisions to regulate and control the company’s affairs and functions. there can, however, be situations where strict compliance with the company’s constitution will render it impossible for the company to properly function and simply leave the company paralysed. fortunately, company law statutes in many common law jurisdictions, such as the united kingdom, australia, hong kong, the british virgin islands and bermuda, include provisions that allow intervention of the court when it is no longer possible to carry out certain functions under the company’s own articles or memorandum. one common example is a statutory provision that confers on the courts a power to convene general meetings in circumstances where it is otherwise “impracticable” for the meeting to be called pursuant to the company’s constitutions.

in the matter of fuma international limited, the plaintiff filed an application for an order under section 570 of the hong kong companies ordinance, cap 622 (co) that a general meeting of the defendant company be convened on the ground that it is impracticable to call the meeting in the manner prescribed by the defendant’s articles. despite the plaintiff being a majority shareholder holding 62.68% of shares in the company, the plaintiff had not been successful in convening a general meeting because the articles require a quorum of two members holding at least 51% of shares and the other shareholders refused to attend the general meeting leaving it inquorate.

similarly in northern light group sa v hansen, an application was made pursuant to section 570 of the co for an order allowing a general meeting to proceed with a quorum of one member, rather than two members as required by the company’s articles. the plaintiff in that case was one of the two members of the company. notwithstanding his various attempts to call a general meeting, the plaintiff had not been successful again because of the other member’s refusal to attend the general meeting.

in both cases, the hong kong court noted that for section 570 of the co to apply, it should first be shown that it would be impracticable to call a meeting of the company; then it is a matter of discretion whether the court would order a meeting.

the court in fuma further emphasised that “impracticable” does not simply mean impossible. instead, the court must examine the individual circumstances of a particular case to answer whether, as a practical matter, the desired meeting can be convened and/or held as appropriate.

as for when the court should exercise its discretion, the court helpfully identified certain non-exhaustive circumstances where it will be justified for the court to do so including, for example, where there is (1) a refusal of another shareholder to form a quorum for the meeting and (2) refusal of an individual to call an extraordinary general meeting in their capacity as a director, rendering it impracticable for the company to convene a meeting.

the bvi business companies act 2004 contains a similarly worded provision as section 570 of the co which allows the court to order a meeting of members if certain circumstances, including when it is impracticable to call or conduct a meeting in the manner specified in the bvi act or the articles or memorandum of the company. a similar provision can also be found in bermuda’s companies act 1981.

while decisions from hong kong courts are not binding in the bvi or bermuda courts, as a common law jurisdiction, hong kong decisions remain persuasive and are often considered by judges of offshore courts. the above hong kong decisions will therefore serve as a practical guideline and reference point for the interpretation of the equivalent statutory provisions in the bvi and bermuda.

in all cases, when exercising the discretion to compulsorily require that a meeting be held contrary to the requirements set out in the company’s constitutions, the courts must balance the desire to overcome practical difficulties in carrying out a company’s functions against an unjustified interference of judicial power in internal corporate affairs.

the cayman islands grand court has recently dismissed an application to (i) discharge service and (ii) set aside a worldwide freezing order (wfo) in the case of the family (global godfathers) spc et al -v- ammar et al (unrep, grand court, 6 august 2024). this blog will focus on why parker j dismissed the set aside application.

the plaintiff obtained the wfo against the three defendants on 15 march 2022. following a hiatus of two years, the defendants unexpectedly brought the aforementioned application. judgment had already been entered against the defendants on 5 december 2023 (no application to set aside the judgment was made). it is only after the plaintiff took steps to enforce the judgment in delaware that the defendants submitted to the jurisdiction and began taking steps in the cayman islands. in support of the defendants’ application, they put forward a list of alleged factual inaccuracies and defects in the material available at the time which they submitted had led to the court being misled when the wfo was granted.

in assessing the defendants’ evidence of allegedly material inaccuracies and defects, parker j noted (at [20]) that – in the context of the duty to provide full and frank disclosure - “materiality is to be assessed by the court, not by an applicant or his legal advisers, and not all facts which might or should have been disclosed are sufficiently material to justify or require immediate discharge of the order without examination of the merits. in complex cases and bearing in mind time pressures there is scope for a limited margin of error.” [emphasis added]. having considered the matters raised by the defendants, the judge was not persuaded that the wfo should be discharged.

a key factor which stood against the defendants in the overall consideration of their application was their having previously taken no steps in the cayman islands proceedings: “[the defendants] had been aware of and were content to simply ignore the cayman proceedings” (at [42]). on an analysis of the evidence before him, parker j also noted that “[the defendants] have adopted contradictory positions in the cayman, english and french proceedings which have not been explained” (at [73]) [emphasis added]. no doubt contrary to the defendants’ intended outcome, parker j held that they had gone to great lengths to “avoid justice … by saying whatever it suits them to say at the relevant time and place” (at [134]).

this judgment serves as a reminder to practitioners that, notwithstanding the extensive nature of the duty of full and frank disclosure, it is a high bar to set aside a wfo on the basis of material non-disclosure. prejudice should arise from the defect: further, disingenuous conduct on the part of an applicant will be highly influential on the prospects of a set aside application in such circumstances.

the two-year delay in seeking set-aside relief was almost certainly terminal to the application, having been described as “unreasonable and improper” (at [139]).

from "nine-to-five"*, joey wong is known as the human resources manager for harneys hong kong and singapore offices. however, amidst the piles of hr files, meetings and running a department, joey has a passion simmering within her: baking. the moment an email from joey appears, the hong kong office knows that it will be the bearer of sweet news: the perfect treat to accompany those cups of ambition. all concerns about the waistline are put to bed as there is always a scramble to snare the last piece of joey’s pastry creations before they run out – banoffee pie, cheesecake, tiramisu, carrot cake – just to name a few!

apron off, we sat down with joey to learn more about the journey behind her culinary talent.

1. where and how did you learn how to bake/make pastries?

i have been baking up a storm ever since i started taking classes in hong kong. at first, it was just about following the recipes my instructors showed us. but i soon realised there was so much more to master: the science, the techniques and the endless flavor possibilities.

that was when i set my sights on studying where the best pastry schools are in the world: paris. my family was not too thrilled about it, but my love of baking was stronger than any reservations. after intensive training, i went to southern italy the following year to learn the mediterranean style of baking.

i returned to paris the next year to train in alain ducasse’s program. experiencing the new techniques and trends in michelin-starred restaurants was incredibly enriching. working alongside all the creative culinary minds, turning the impossible into reality, was such an enjoyable experience.

2. where do you gain inspiration for your pastry creations for the office?

diversity & inclusion: drawing inspiration from global baking traditions, like french patisserie, italian tiramisu, and japanese mochi, allows me to create a diverse array of flavours to cater to our colleagues’ varied cultural backgrounds.

caring for working parents: i also focus on portable, family-friendly pastry options that busy working moms and dads can easily bring home, demonstrating our support for their family.

listening to feedback: i solicit direct input from all colleagues on their favourite desserts and healthier preferences. this is the interpersonal approach to communicate with colleagues and open dialogue in the workplace.

3. how do you juggle the time to bake between being a mother and running the hr department?

when my son was just six months old, i baked a full wedding cake spread for 200 guests for my best friend. i was breastfeeding while those cakes were in the oven and whilst my son napped, i whipped up the fillings and buttercream.

i am so lucky to have such a great hr and management team at harneys supporting me at work as well. our team provides timely services for the hong kong and singapore offices, keeping everything running smoothly on the work front.

efficiency is key to juggling the time between being a mother and running the hr department. being resilient means i do not put limits on myself!

4. what is your favourite pastry creation that you have baked?

it has to be the incredible french apple tart i learned to make when i was part of the support team for a triathlon event in normandy! the owner was pretty tight-lipped about sharing his recipe, but i kept politely asking him over and over again. i may have been a bit too persistent to the point of annoying him, but eventually he took pity on me and let me come into the kitchen to bake it with him. that hands-on learning experience was just so special - getting to work side-by-side with the master pastry chef himself and pick up all his tricks and techniques.

5. what is the hardest creation that you have baked?

macarons can indeed be a challenging baked good, especially when trying to make them in a humid environment like hong kong.

the finicky nature of macarons, with their delicate shells and smooth, uniform appearance, makes them difficult to master. getting the proper consistency of the batter, achieving the right drying time before baking, and controlling the temperature and humidity during the process – all of these factors have to come together perfectly to produce a successful macaron.

6. what is your biggest tip for anyone who wants to learn how to bake?

it is all about keeping that sense of wonder and imagination alive! baking is an art that allows for both precision and playfulness. 😊

* for the avoidance of doubt, the official business hours in the hong kong office are 9am to 6pm.

in the long running litigation concerning the port fund (the partnership), a cayman islands exempted limited partnership, the cayman grand court recently clarified the principles concerning applications for approval of court appointed receivers’ remuneration and expenses in the absence of any formal rules or process.

two of the partnership’s limited partners (the lps) applied for the appointment of receivers in respect of the partnership’s own assets and those of its general partner (the gp) for the purpose of ensuring the gp defended other cayman proceedings commenced by the lps.

in summary, the appointment order provided that the receivers shall be indemnified for their remuneration and expenses out of the assets of the gp and the partnership, subject to periodic approval by the court.

post-appointment, the lps agreed to fund the receivership, with the funding agreement limiting the lps’ liability to pay the receivers’ remuneration discounted by 10 per cent.

subsequently, the receivers sought the court’s approval for their remuneration. the court, in considering the application, approved the principles as laid down by justice segal in perry v lopag trust reg.

the court summarised those principles as being:

1. the rules and practice relating to approving liquidators’ remuneration should generally be followed in relation to receivers as they will generally serve as a useful guide;
2. the approach to what is fair and reasonable should balance the need to attract competent persons to professional receivership work with the need to ensure efficiency and economy in receiverships;
3. what is fair and reasonable remuneration will be informed by, inter alia, the level of complexity of the work performed, the appropriate assignment of tasks to staff of different seniority levels and the proportionality of the fees relative to the value of the assets under management; and
4. it is appropriate to demonstrate an entitlement to the remuneration in relation to which approval is sought.

whilst there was no obligation to consult with and seek approval from a committee (because one did not exist given the non-application of the companies winding up rules, unlike the usual position for a liquidation), the court still expected the underlying information concerning the receivers’ remuneration to be provided to the stakeholders and afforded an opportunity to “identify eyebrow-raising billing trends…”. this was done and no eyebrows were raised.

ultimately, the court held that the material provided by the receivers demonstrated that the fees and expenses incurred were fair and reasonable and proportionate “viewed in light of the complexity and monetary scale of the receivership overall” and approved the receivers’ remuneration. this included a declaration that the receivers could look to the gp’s assets to recover the discounted 10 per cent of its remuneration.

the privy council recently handed down an important judgment in nolan (nee jude) v jude, a case concerning the law of undue influence and resulting trusts on appeal from the st lucia court of appeal.

the case involved a dispute between siblings over substantial land transfers made by their late father. the father, austin jude, owned significant property in st lucia. before his death, austin transferred various parcels of land to one of his children, vandyke, through two deeds. vandyke acted as austin’s lawyer for these transactions alongside his sister, diane, who acted as austin’s power of attorney.

austin’s other children, della and beverley, sought to impugn the deeds by claiming their father executed them due to vandyke and diane’s undue influence.

undue influence is defined as a situation where a relationship between two parties causes one (a) to exert influence on the other (b), preventing b from exercising free and independent judgment in a transaction between them. the privy council stressed that while undue influence is a singular concept, it can be proved in two ways: actual or presumed undue influence.

in this case, the privy council went through both methods to determine whether vandyke or diane exerted undue influence:

• on actual undue influence, the board found no proof vandyke or diane did anything to direct austin's mind to influence the transfers. the trial judge had accepted vandyke and diane as credible and honest witnesses.
• on presumed influence, this required both (1) a relationship of influence and (2) for the transaction not to be readily explicable on ordinary motives. upon meeting both requirements, the burden of proof shifts to the party seeking to uphold the transaction to prove that the party making the transaction was exercising free and independent judgment.

first, the privy council agreed that the lawyer-client relationship between vandyke and austin satisfied the necessary relationship of influence. second, on balance, the privy council agreed that the transfers were readily explainable by ordinary motives. despite the previous terrible relationship and trust issues between austin and vandyke, this was outweighed by factors including austin’s terminal illness, vandyke’s competence, and della’s personal issues and disinterest in her father’s business.

the privy council further confirmed that in any event, the presumption was rebutted by vandyke as austin exercised free and independent judgment by consistently wanting to “call the shots” and make his own decisions.

therefore, the privy council failed to find actual or presumed undue influence impacting the deeds and allowed the appeal. this judgment clarifies the law of undue influence regarding fiduciary relationships, like lawyer and client, and, as highly persuasive authority across common law jurisdictions including the bvi, the cayman islands and bermuda, will guide practitioners on the evidential requirements for cases of presumed influence.

the long running litigation concerning the lakatamia shipping company (lakatamia) took a significant twist following the judgment of simon colton kc sitting as a deputy high court judge.

lakatamia has pursued the notorious fraudster nobu su, (su), his associates ms tseng and his daughter ms morimoto for debts due under judgments and breaching a worldwide freezing order. mr su had been committed to prison for 21 months by sir michael burton gbe for his many breaches of the order.

at a further hearing bryan j decided that a group of individuals and companies associated with (but not including) su had conspired to breach the freezing order by failing to disclose his interest in two monegasque properties owned by cresta overseas ltd (cresta). the properties were sold and the proceeds sent to up shipping corporation (up shipping).

none of the defendants in this trial, su, chang tai-chou, (chang), and arnauld zabaldano (zabaldano), were defendants in the trial before bryan j. the claim was largely undefended owing to the failure of su to comply with orders for disclosure and chang and zabaldano’s refusal to acknowledge service.

the claimant claimed that all three defendants were involved in an unlawful means conspiracy to dissipate the proceeds of the property sales by sending them from cresta to up shipping, and that chang and zabaldano were liable under the marex tort, of inducing a breach of a judgment by doing so.

an unlawful means conspiracy is an arrangement between two or more people with the intended or inevitable consequence of injuring another by taking concerted action using unlawful means. the marex tort involves proving the entry of a judgement in the claimant’s favour, a breach of the rights under the judgment, the procurement of the breach by the defendant who had knowledge of the judgment’s existence and a realisaton by the defendant that he was procuring a breach.

zabaldano was instructed by chang (on the order of su) to transfer the funds, which were subject to the freezing order, from cresta to up shipping. the judge concluded that chang, acting as a lowly functionary, could not be shown to have had the requisite knowledge of either the freezing order or other judgments against su, and therefore was not liable under either the unlawful means conspiracy or the marex tort.

zabaldano however knew of the freezing orders and judgments although none of them were successfully registered in monaco until a year after the transfer took place. the judge felt himself bound by the decision in racing partnership ltd v done bros to find zabaldano liable for unlawful means conspiracy despite his honest belief that he was under a duty as su’s lawyer to transfer the funds as the judgment remained unregistered in monaco.

the judge then went on to examine the so-called babanaft clause on the face of the freezing injunction, a statement to persons outside england and wales which is in standard form and begins; “the terms of this order do not affect or concern anyone outside the jurisdiction of this court.”

the claimant argued that this clause should be interpreted to mean that it excused anyone outside the jurisdiction from criminal penalties such as imprisonment only, and that supreme court precedent in ablyazov (no.14) [2017] ewca civ 40 (ablyazov) definitively stated at paragraph 56 that civil liability was not excluded by the babanaft clause.

however, the judge held that the end of the relevant paragraph, which reads “i consider that it is strongly arguable that justice is in favour of the imposition of civil liability on the co-conspirator”, did not decide the point, and that the supreme court was discussing whether the issues in ablyazov (no. 14) qualified as unlawful means conspiracy. he then analysed the relevant case law in great detail.

the judge concluded that zabaldano was entitled to rely on the babanaft clause to avoid liability for both unlawful means conspiracy and marex tort. he cited the failure to register the judgment in monaco prior to the transfer of funds as a justification defence, that zabaldano had an equal or higher duty to his client to follow his clear instructions in the absence of any recognised prohibition on doing so. when worldwide freezing orders were created it was clear that the courts had been consistent in avoiding the temptation to usurp the jurisdiction of a foreign court.

the judge’s decision to allow a justification defence to the marex tort seems at odds with bryan j’s conclusion in a previous case in this litigation that held at first instance that there can be no defence of justification to the tort of breaching a judgment right.

harneys does not advise on matters of english law; however, the two competing judgments at first instance are likely to be closely studied in the courts of the overseas territories. the question of whether the babanaft clause confers a defence in tort outside the jurisdiction of the courts of england and wales will be closely studied and practitioners will no doubt note the enhanced need to quickly register judgments in any jurisdiction in which assets may exist against the risk of worldwide freezing orders being avoided.

the united kingdom recently ratified the recognition and enforcement of foreign judgments in civil or commercial matters (the hague-19 convention). it will enter into force on 1 july 2025.

as stated in its preamble, the hague-19 convention is to create “a uniform set of core rules on recognition and enforcement of foreign judgments in civil or commercial matters, to facilitate the effective recognition and enforcement of such judgments”. pursuant to the hague-19 convention, a judgment given by a court of a contracting state shall be recognised and enforced in another contracting state in accordance with the relevant provisions of the convention, and recognition or enforcement may be refused only on the grounds specified in the convention.

with the conditions for recognition and enforcement as well as the grounds for refusal set out expressly and clearly in the hague-19 convention, applications for recognition and enforcement of foreign judgments become much more straightforward, with more predictable outcomes, making cross-border dispute resolution less costly.

it is noteworthy that the united kingdom declared that the hague-19 convention shall extend to england and wales only, hence it will not apply in any british overseas territories. having said that, some british overseas territories have enacted their own dedicated legislation dealing with recognition and enforcement. for example, the british virgin islands has enacted the reciprocal enforcement of judgments act (cap 65), the cayman islands has the foreign judgments reciprocal enforcement act 1996 and bermuda has the judgments (reciprocal enforcement) act 1958. there are limits to these statutory schemes, however, with the bvi and bermuda legislation applying only to monetary judgments from a limited number of jurisdictions, and the cayman legislation applying only to australian judgments. while common law enforcement can be used where the legislation does not apply, there is still benefit to be had by these and other british overseas territories should the united kingdom choose to extend the hague-19 convention.

the decision in credit suisse london nominees limited v principal investing fund i limited and chia hsing wang v lv ii investment management limited addressed an application seeking declarations that: 1) the company, blue water ltd, of which the plaintiff, chia hsing wang (mr wang), is the ultimate beneficial owner, has a separate legal personality to him and; 2) mr wang is not liable for the obligations of blue water ltd under the london court of international arbitration (lcia) awards against it in favour of the defendant, lv ii investment management limited (lv2im).

in addition, the court considered the application of lv2im and two other respondents in the petition proceedings, floreat principal investment management ltd and floreat investment management ltd, seeking a stay of the proceedings until the lcia awards had been settled, or an extension of the period for lv2im to make payment on account of costs in the proceedings until the lcia awards had been paid.

kawaley j granted the declarations sought by mr wang and dismissed the application for a stay. he considered that:

1. the court had jurisdiction to grant the declarations given the minimal concern about interference with foreign proceedings in circumstances where the foreign proceedings were not substantive and merely interlocutory attachment proceedings.
2. piercing the veil of incorporation was generally applicable where a company was created as a means of avoiding an existing liability as opposed to establishing a company to avoid personal liability which may be incurred in future, relying upon uk supreme court and privy council authority.
3. in assessing the appropriate forum for a claim against a cayman company, there is a heavy burden to demonstrate that where a defendant is sued in the jurisdiction as of right, another forum is clearly or distinctly more appropriate.
4. it was appropriate to grant the declaratory relief sought, taking into account its practical utility and the interests of justice was in favour of granting the declarations.
5. the focus under the grand court rules o.45 r.11, pursuant to where a stay may be ordered due to a change of circumstances after the judgment, and the inherent jurisdiction to order a stay, should be on whether the judgment creditor is seriously misusing the right to enforce the judgment in the ordinary way. it was also accepted that the court has exceptional jurisdiction to have regard to the parties behind the cross claims asserted by a company in the stay context. lastly, the court has inherent jurisdiction to grant a stay of execution based on circumstances that pre-date the judgment, notwithstanding the provisions of o.45 r.11, to prevent some serious form of injustice or abuse of the processes of the court.

the decision once again demonstrates the pragmatic approach of the grand court when considering the interplay between foreign proceedings and proceedings before the grand court.

legislative provisions which govern leave to appeal to the jcpc generally provide for an appeal as of right from a final (as opposed to an interlocutory) decision in certain categories of civil proceeding. but how do you determine if a decision is final?

the board answered that question in chhina v nazir^[1], confirming when a decision will be considered final, and assessing whether an appeal to the jcpc arises as of right.

the case itself concerned a decision of the bvi court of appeal which dismissed the appellant’s application for an extension of time to file a record of appeal and struck-out the appellant’s notice of appeal for want of prosecution. the appellant applied to the jcpc for leave to appeal the strike out decision but was refused. undeterred, the appellant then applied to the jcpc for permission to appeal on the grounds that the strike out decision was final, and as such she was entitled to appeal as of right.

as to whether the strike out decision was final, the board recognised that the courts of the eastern caribbean use the application test (as opposed to the order test) to determine finality. under the application test, an order is final if it was made on an application which would have determined the matter for whichever side the decision was given. in contrast under the order test, an order is final if it determines finally the issue in litigation.

the board determined that where the relevant jurisdiction (in this case, the bvi) has established rules as to how the finality of decisions is to be determined for the purpose of appeals as of right, the same approach should be followed in relation to appeals to the board.

applying the application test to the strike out decision, the board determined that the decision of the coa was not “final”. accordingly, permission to appeal was required, as there is no appeal as of right.

it is worth noting that under the old english procedural rules, in 1988, the supreme court rules committee set out examples of orders that shall be treated as final, and those that shall be treated as interlocutory – including, in the latter case, orders dismissing or striking out an action or other proceedings for want of prosecution (see here). the ecsc has yet to do the same.

^[1] inderjit kaur chhina v muhammad nazir muhammad ismail and another (british virgin islands) [2024] ukpc 10

the bvi business companies act 2004 (the bca) provides a remedy for members who dissent from proposed actions by the company in the form of a statutory right to have their shares bought out by the company for fair value.

section 179 of the bca sets out a member’s right to dissent from the following corporate transactions or restructurings:

• a merger, if the company is a constituent company, unless the company is the surviving company and the member continues to hold the same or similar shares;
• a consolidation, if the company is a constituent company;
• any sale, transfer, lease, exchange or other disposition of more than fifty per cent in value of the assets or business of the company, if not made in the usual or regular course of the business carried on by the company (ie a section 175 of the bca disposal) and if not otherwise provided in the memorandum and articles of association of the company, but excluding:
  
  • a disposition pursuant to an order of the court having jurisdiction in the matter;
  • a disposition for money on terms requiring all or substantially all net proceeds to be distributed to the members in accordance with their respective interests within one year after the date of disposition; or
  • a transfer pursuant to the power described in section 28(2) of the bca (ie the flight provision);
• a compulsory redemption of the minority shareholding by the company pursuant to the statutory power under section 176 of the bca (ie a minority squeeze out); and
• an arrangement, if permitted by the court.

statutory procedure for exercising dissenter rights in the bvi

both the member and the company are bound by the procedure and time limits prescribed by the legislation, but the onus is on the member to exercise its statutory rights. the legislation does not explicitly provide for variations or derogations from these, but the court has been reluctant to apply time limits strictly where the parties have been seeking to negotiate in good faith, particularly where this would deprive a member of its statutory rights (brantley inc v antarctic asset management ltd bvihcv 227/2007 (9 may 2007)).

the full procedure is as follows and applies all dissenting members (except in the case of redemption of minority shareholders where only steps (6) to (8) below in relation to appraisers will apply (bca, s179(12))):

(1) dissenter gives written objection to proposed action

a dissenting member must give the company written objection to the proposed action before the members’ meeting or at the meeting but before the vote, except where the company did not give proper notice of the meeting or where the proposed action is to be authorised by members’ written consent (bca, s179(2)).

the objection must include a statement that the member proposes to demand payment for its shares if such action is taken (bca, s179(3)).

the objection does not prevent a member from taking part in the vote.

(2) company gives written notice the action is approved

within 20 days of the approval, the company must give written notice to each member who gave written objection, or from whom written objection is not required, that the proposed action has been approved (bca, s179(4)).

(3) dissenter gives written notice of election to dissent

the member has 20 days to give the company a notice in writing electing to dissent (bca, s179(5)). in the case of a merger between a parent and subsidiary, the 20 days runs from when the member receives a copy or outline of the plan of merger (bca, s179(5)).

the notice must specify the member’s name, address, number and classes of shares, and contain a demand for payment of the fair value of its shares.

on giving such notice, the member ceases to have any of the rights of a member of the company except for the right to be paid the fair value of its shares (bca, s179(7)).

(4) company makes written offer to purchase dissenting member’s shares

assuming the member has validly exercised its dissenter rights, then within seven days immediately following the (i) expiry of the period within which the member gives its notice of election to dissent or (ii) date on which the proposed action is put into effect (whichever is later), the company (or surviving or consolidated company) must then make a written offer to each dissenting member to purchase its shares at a specified price that the company determines to be their fair value (bca, s179(8)).

there is no obligation to offer the same price to each member.

(5) share purchase price agreed

the company and the member then have 30 days to agree the price. if they do, the company must pay that price in money (and not in property or other consideration) when the member surrenders its share certificate (bca, s179(8)).

if they fail to agree the price within 30 days, then the following procedure for determining fair value of the shares will apply.

(6) appraisers appointed

within 20 days following the end of the 30-day period, the company and the dissenting member must each appoint an appraiser, and the two appraisers together must appoint a third appraiser (bca, s179(9)(a) and (b)).

(7) appraisers determine fair value

the three appraisers must fix the fair value as at the close of business on the day prior to the date on which members’ approval was obtained (bca, s179(9)(c)).

the value is binding on the company and the dissenting member for all purposes.

(8) company pays fair value

the company must pay the amount in money on the surrender by the member of its share certificate (bca, s179(9)(d)).

the shares that are acquired must be cancelled, except if they are shares in a surviving company in which case they are available for reissue (bca, s179(10)).

once a shareholder elects to exercises its rights under these provisions, it cannot enforce any rights to which it might otherwise be entitled by virtue of its shareholding, save that it is not prevented from instituting proceedings for relief on the grounds that the action is illegal (bca, s179(11)).

certain aspects of the procedure do not mesh precisely with all types of corporate transactions or restructuring and so some pragmatic application is necessary. in particular, section 179 is drafted solely with references to shareholders and contemplates that the relevant dissent would be made at a shareholder’s meeting.

however, neither compulsory share redemptions under section 176 nor plans of arrangement require a members’ meeting so it is unclear when the dissenter must notify the company.

further, the provisions generally appear only to apply to shareholder members and not to either guarantee members or unlimited members; nor are there provisions dealing with dissenting creditors or other securities holders to proposed arrangements despite the bca providing that both may be permitted by the court to dissent under the section 179 procedure. however, given the requirement of a court order for arrangements, the court has wide powers to structure the methods by which dissenters can make their objections known and be bought out for fair value. the expectation would be that the valuation mechanisms in section 179(9) of the bca would apply to both shareholders as well as the holders of debt and other securities.

in relation to an intended merger, the bvi commercial court has confirmed that dissenter rights only apply to existing, registered membership in a company: they do not extend to shares which are not yet held such as where a promissory note gives a contractual entitlement to a member to convert sums due to it into further shares upon a merger (nettar group inc v hannover holdings sa bvihc (com) 177/2021 (15 december 2021)).

fair value

there is no statutory guidance on what constitutes fair value or the basis on which it is to be calculated save that any appreciation or depreciation directly or indirectly induced by the action or its proposal is to be left out of account (bca, s179(9)(c)). nor does the legislation specify any procedure for carrying out the appraisal or require the disclosure of any information (even financial information) from the company to the appraisers.

however, the court has given the following guidance in relation to ascertaining fair value:

1. if the company and the dissenting shareholder fail to agree a fair valuation, they remain free to agree the basis upon which fair is to be determined rather than applying the statutory procedure set out in section 179(9).
2. the words “fair value of the shares” are to be given their plain english meaning, and a valuer is not required to undertake legal analysis (the bvi court electing not to follow the english decision in national grid company plc v m25 group ltd [1998] ewca civ 1968 on this point).
3. determination of fair value potentially applies in five different situations under section 179 and what may be appropriate to determine fair value in one situation may not be appropriate in another. in some cases an assets-based approach may be appropriate, whilst in others a valuation based upon earnings would be more apt.
4. “fair” means fair to both parties, and not just the dissenting member.
5. it is not necessarily unfair to discount the valuation of the shares on the basis that it is a minority shareholding.
6. there is no requirement for the company to discount any earning received by a member on the shares held by him between seeking to exercise his right to have his shares purchased for fair value, and that process being completed.
7. while the court has jurisdiction to declare that a minority discount can apply to a section 179(9) valuation, whether a minority discount should apply to the valuation of the respondent’s minority shareholding falls within the scope of the appraisers’ mandate and the court therefore has no jurisdiction to intervene.
8. the parties are free to dictate the principles and procedures for carrying out the valuation in the appraisers’ terms of engagement. if they fail to do so, the appraisers are free to determine how to proceed and the court will not intervene in the valuation process.

the recent decision of the england and wales court of appeal in king crude carriers sa & ors v ridgebury november llc & ors confirms the acceptance of the “mackay v dick” principle as a matter of english law.

named after the scottish case of mackay v dick (1881) 6 app cas 251 (and also known as the “abacha principle” (after compagnie noga d’importation et d’exportation sa v abacha [2002] clc 207)), the principle is that where the obligation to pay a debt is subject to a condition and the debtor wrongfully prevents the condition from being fulfilled, the condition is to be treated as dispensed with or fulfilled.

in this case, the three appellants (the sellers) agreed to sell to each of the three respondents (the buyers) vessels pursuant to three amended 2012 norwegian saleforms (the moas) which had materially identical terms. clause 2 of the moas obliged the buyers (among other things) to lodge a 10% deposit for the purchase price with an escrow holder within three days after notification had been received that the escrow account was open and to provide all necessary documentation to open and maintain the escrow account “without delay”. whilst the moas were signed, the escrow holder was unable to confirm that escrow accounts were open and ready to receive the buyers’ deposits because the buyers had failed to provide the necessary documents to the escrow holder “without delay”. this included in two cases, the buyers’ failure to provide the escrow holder with the necessary ‘know your client’ documents and in the third case, a failure to sign the escrow agreement.

subsequently, the deposits were not paid to the sellers. the sellers terminated the moas and claimed the deposits as a debt, as opposed to damages.

it was held at first instance in the commercial court that there is no such mackay v dick principle as a matter of english law, and that the remedy of a party where a liability under a debt is conditional and the other party wrongfully prevents fulfilment of the condition is in damages for breach of contract. this, unlike a claim in debt, involves elements of causation, remoteness and the duty to mitigate.

the court of appeal overturned the commercial court’s decision, confirming that the mackay v dick principle does exist as a matter of english law, and that its underlying rationale is that a party should not be allowed to benefit from their own wrong.

popplewell lj (with whom nugee lj, who gives a short concurring judgment, and falk lj agree), analyses in detail the principles and authorities relating to claims in debt and claims for damages and the mackay v dick principle, holding that a debtor is not entitled to rely on the non-fulfilment of a condition precedent to its debt obligation where it has caused the non-fulfilment by its own breach of contract, at least where the condition is not the performance of a principal obligation of the other party, nor one which it is necessary for the other party to plead and prove as an ingredient of its cause of action (see [85]).

while harneys does not advise on the laws of england and wales, the confirmation of the mackay v dick principle as a part of english law will likely have persuasive effect in other common law jurisdictions, such as the bvi, bermuda and the cayman islands.

in the recent decision of in the matter of tyr capital partners spc ltd, the grand court of the cayman islands considered an application by tyr capital partners spc ltd (the fund) seeking an order that a winding up petition issued by tgt gp (the petitioner) against the fund be struck out pursuant to section 95(2) of the companies act (2023 revision) which provides that where a petitioner is contractually bound not to present a winding-up petition, the court shall dismiss or adjourn the hearing of the petition.

the petitioner had subscribed for different classes of shares in the fund by way of two separate agreements. both agreements contained an identical "non petition" clause providing that the petitioner “shall not, under any circumstances… institute against the fund… any liquidation proceedings under any cayman islands law.” there was no suggestion that the petitioner and the fund, as two sophisticated commercial legal entities, entered into the corporate relationship together without their eyes wide open.

justice doyle first considered the law of section 95(2), citing re rhone holdings lp and familymart china holding company v ting chuan (cayman islands) holding corporation: section 95(2) is in mandatory terms, and requires the court to dismiss the petition or adjourn the hearing of the petition. the court will only adjourn a hearing of the petition, rather than dismiss it, if there is some useful purpose to be served (eg if another creditor, not bound by a non-petition covenant, could be substituted as petitioner). an express agreement not to present a winding up petition is lawful and cannot possibly be contrary to public policy.

his lordship then analysed in detail the general legal principles to be applied when construing a contract, including that clear and express language is required in order to reach the conclusion that a party intended to give up a valuable right or remedy, but also that a court should not reject the natural meaning of a provision simply because it appears to have been a bad or “uncommercial” bargain for one of the parties. justice doyle also noted that these general principles are also applicable subject to any necessary modifications to corporate documents such as articles of association. the clear and detailed analysis by justice doyle is likely to result in this case being often cited in the future where parties need to construe contracts and articles of association under cayman islands law.

having regard to the natural and ordinary meaning of the words used in the “non petition” clause and construe them against the agreements and its background, the grand court had little difficulty in holding that the express and unambiguous language of the “non petition” clause makes it clear that the petitioner is contractually bound not to present a winding up petition against the fund. accordingly, the grant court dismissed the petition under section 95(2).

this case provides a timely reminder to all parties and especially to sophisticated commercial legal entities that they must carefully consider contractual clauses such as any non-petition covenants as the courts will give effect to these agreements even if they turn out to be bad commercial decisions.

in a welcome decision of the bvi commercial court in its recent decision in the case of ieremeieva v estera corporate services (bvi) limited, the court considered and clarified the positions as a matter of bvi law on (i) the requirements for establishing a person as a trustee de son tort and (ii) the reference date in determining whether an invalidated trust instrument is to be treated as invalidated ex tunc (from the date that it was executed) or ex nunc (from the date on which it was invalidated).

ruling in favour of estera on its application for the strike out of certain aspects of the claimants’ claim against it, the court chronicled the authorities on each of the trustee de son tort and ex tunc points.

summary of claim

estera was the trustee of the r&s trust which was purportedly initially established in august 2014 (the trust). when estera was approached to take on the trusteeship, mr lagur, the second defendant, was the trustee of the trust but the trust instrument provided for the appointment of a new trustee. estera agreed to take on the appointment as trustee but only on the basis that the trust be converted into a trust under the regime set out in the virgin islands special trusts act (vista). the trust was therefore converted into a vista trust by way of a deed of amendment dated 31 may 2016 (the amendment deed). the amendment deed was, however, set aside by order of the court dated 2 may 2018.

the claimants’ claim is that mr lagur, along with the third defendant, mr ivakhiv, effectively forged the trust instrument. mr lagur and mr ivakhoiv were the owners, along with the late mr ieremiev, through a number of offshore companies, of a large private enterprise in ukraine known as the continuum group. the claimants are the widow and son of mr ieremiev and they claim that mr lagur and mr ivakhiv fabricated the trust in order to shift value from mr ieremiev’s portion of the continuum group to themselves. in the alternative, the claimants claim that even if the trust was valid, various acts of value shifting occurred. estera, as the replacement trustee was accused of acting in breach of trust and assisting with the alleged value shifting.

the claimants alleged that if the trust was fabricated (their primary case) then estera was liable as a trustee de son tort. in the alternative they alleged that if the trust was valid then estera was liable under the provisions of the vista legislation.

estera filed an application for strike out and summary judgment on the bases that:

1. it could not possibly be a trustee de son tort, inter alia, because the claimants were arguing that the trust was invalid and in order for obligations to arise as a trustee de son tort there needs to have been an underlying valid trust or other fiduciary relationship; and
2. if the trust is valid then estera could not be liable under the provisions of the vista legislation because the amendment deed had been set aside and when voluntary dispositions are set aside the set aside operates ex tunc.

the ‘ex tunc’ point

in considering the point at which an order setting aside a trust operates, justice wallbank considered the jersey case of re strathmullen trust, which is authority for the proposition that an order setting aside a trust operates ex tunc. this judgment relied upon numerous extracts in lewin on trusts including the following:

this approach was also followed by the jesey court in in re ontario settlement where it was also noted that this conclusion was in line with english law as explained in pitt v holt and the earlier case of ac v dc.

justice wallbank then having gone on to find that estera had been operating under an operative mistake (in that it thought that the beneficiaries knew and approved of the conversion of the trust to a vista trust) and that the trust was a voluntary disposition, went on to find that the 2 may 2018 order had the effect of setting aside the amendment deed as if it had never been made. accordingly, estera could not be liable under the provisions of the vista legislation. the claim made on the basis that the trust was valid was therefore “incurably hopeless and ought to be struck out”.

trustee de son tort

with regard to the situation if the trust is invalid, estera argued that it could not possibly be a trustee de son tort because a number of key conditions for the imposition of obligations as a trustee de son tort had not been met.

in summarising the position with regard to the concept of trustees de son tort, justice wallbank (with reference to lewin and after having reviewed a number of cases in this area) stated that:

1. a trusteeship de son tort is not an express trusteeship but one that arises by operation of law;
2. trusts that arise by operation of law include constructive trusts;
3. constructive trusts are of two kinds – ‘institutional trusts’ and a ‘formula for equitable relief’;
4. in the case of ‘institutional trusts’, relief is granted by reference to a pre-existing trust or other fiduciary relationship; and
5. trusteeships de son tort are a kind of institutional trust.

following from this, justice wallbank found that although for a trustee de son tort to arise there was no requirement for there to have been an “express trust” (ie a formally created trust) there does need to be some “pre-existing trust or fiduciary relationship”. in this case, if the trust was invalid there was no pre-existing trust.

the claimants had asserted that there was a pre-existing trust in that there was a constructive trust because they alleged that mr lagur had assumed the purported trusteeship fraudulently. the problem with this, however, is that this would constitute a constructive trusteeship of the ‘second kind’ namely “nothing more than a formula for equitable relief imposed where no fiduciary relationship previously existed”. lewin at [8-011] refers to two classes of constructive trust, namely (1) constructive trusts which arise by operation of law (the ‘first kind’); and (2) “the imposition by the court of the liability to ‘account as constrictive trustee’ by way of remedy” (the ‘second kind’).

in short justice wallbank noted that the claimants’ error had been:

accordingly, justice wallbank found that the “claimants have no reasonably arguable case that estera assumed liability as a trustee de son tort if the r&s trust was invalid”. the parts of the claim based on the allegation that estera was a trustee de son tort were therefore also to be struck out.

this decision is important because there are relatively few decisions in the bvi or elsewhere in relation to trustees de son tort or the point at which orders operate when trusts are set aside. justice wallbank, in his well-reasoned decision, however, sets out succinctly the reasoning in the main cases and practitioner textbooks in these areas. it will therefore be a useful decision whenever issues concerning the setting aside of voluntary dispositions or whether or not a trusteeship de son tort has arisen come up.

claire goldstein, victoria lissack, kimberly crabbe-adams and julia iarmukhametova from harneys acted for estera in these proceedings, alongside robert weekes kc of blackstone chambers and james walmsley of wilberforce chambers

in a recent decision of the financial services division of the grand court of the cayman islands (in the matter of a trust in favour of lorenz and lorenz), justice kawaley directed pursuant to section 48 of the trusts act (2021 revision) that the applicant law firm could pay funds it had been holding on trust into court under section 69 of the act, after indemnifying itself for its costs.

in this case, the applicant law firm was holding money in connection with a conveyancing transaction on trust for over five years pursuant to an undertaking which it gave to its client and her spouse, both of whom were then divorcing. the terms of the undertaking created an express trust to hold the funds until specific instructions were received from each party. despite repeated requests for a joint instruction signed by both parties as to the disbursement of the funds, no such instruction was received and with no clear end in sight the law firm invoked the court’s supervisory jurisdiction.

justice kawaley noted that, unlike a typical trustee appointed on the terms of a trust instrument (with all of the express powers that this would normally afford), a law firm acting in relation to a conveyancing transaction and agreeing to hold the proceeds of sale for an interim period assumes none of those benefits in return for accepting ill-defined burdens, such that it is in effect “between the devil and the deep blue sea”. in those circumstances, justice kawaley applied the court’s supervisory jurisdiction over trusts to relieve the law firm, who merely acted for a party who was also a party to matrimonial proceedings in relation to the sale of matrimonial property, from the burden of continuing to hold and manage the proceeds of sale and from being bound by the undertaking.

this case is a good example of the grand court exercising its jurisdiction under section 48 of the act in different circumstances to which the prescient dicta from 2005 by the former chief justice smellie in a v rothschild trust cayman limited envisioned, and is worth keeping in mind:

as justice kawaley observed, at first blush it seemed somewhat odd for a section 48 application typically invoked by professional trustees to be relied on by a law firm holding money pursuant to a mere undertaking. however, this is an important decision, which serves as reminder of when a person or firm may be acting as a trustee (in this case an express trust was created but it could also extend to implied and constructive trusts) and the circumstances in which the court may exercise its supervisory jurisdiction to grant relief in appropriate circumstances.

in a recent decision of the hong kong court of first instance in in the matter of dexin china holdings company ltd, the court considered an application for a validation order in respect of the transfer of shares in a cayman company listed on the hong kong stock exchange facing a winding up petition (the petition) in hong kong based on an unsatisfied statutory demand.

pursuant to section 182 of the companies (winding up and miscellaneous provisions) ordinance (cap 32), upon the making of a winding up order by the hong kong court, any transfer of shares of a company made after the presentation of the winding up petition would be void unless the court otherwise orders. the company’s application sought an order that notwithstanding the presentation of the petition, all transfers of issued and fully paid-up shares of the company since the date of the presentation of the petition shall not be void, ie a validation order.

the court held that a transfer of fully paid-up shares would generally be unobjectionable since the object of section 182 was to prevent a shareholder from evading liability to contribute by transferring their shares to an impecunious party, which can have no application to shares that are fully paid-up. the court further held that it would be appropriate to grant a validation order where the evidence shows that all the issued shares of the company are fully paid-up such that transfers of these shares would not prejudice the creditors of the company in the event of a winding up order.

while a decision of the hong kong court of first instance is not binding on offshore jurisdictions such as the bvi and the cayman islands, given the existence of a similar statutory provisions , namely section 175 of the bvi insolvency act 2003 and section 99 of the cayman companies act (2023 revision), it will be interesting to see whether the bvi and cayman courts will adopt similar reasoning in a similar context.

the privy council has reversed years of settled law on the interplay between insolvency and arbitration proceedings.

after ten years of following the english court of appeal’s decision in salford estates (no.2) limited v altomart limited , the privy council has directed courts in england & wales to consider, before entertaining winding-up proceedings, whether the petitioning debt is disputed on genuine and substantial grounds.

the decision overturns the landmark 2014 judgment; that a winding-up petition should be dismissed in favour of arbitration (as long as the debt is not admitted). this position would only shift in “wholly exceptional circumstances.”

the decision

the privy council on 19 june 2024 in sian participation corp (in liquidation) v halimeda international ltd (on appeal from the british virgin islands) found that salford estates had been wrongly decided. the english court of appeal was wrong to have introduced “a discretionary stay of winding up petitions “where an insubstantial dispute about the creditor’s debt was raised by parties to an arbitration agreement”. in doing so, the privy council held that there was “an impermissible and unexplained leap in the reasoning of the court of appeal as to the extent of the legislative policy behind the [arbitration legislation]”.

in arriving at its decision, the privy council carefully examined the policy behind the legislation and held, that “none of the general objectives of arbitration legislation…are offended by allowing a winding up to be ordered where the creditor’s unpaid debt is not genuinely disputed on substantial grounds.”

further, and pragmatically, it was found that a creditor should not be required “to go through an arbitration where there is no genuine or substantial dispute as the prelude to seeking a liquidation just adds delay, trouble and expense for no good purpose”.

the correct test for the court to apply where the disputed debt on which the application is based is subject to an arbitration agreement or an exclusive jurisdiction clause, is whether it “is disputed on genuine and substantial grounds”.

commentary

much of the common law world has gravitated towards the pro-arbitration stance of salford estates. it was seen as a means of protecting companies from overtly zealous creditors leveraging their position by issuing winding up proceedings without first establishing their debt.

whilst the privy-council was keen to stress that the decision was not “anti-arbitration”, the reinstatement of the need to show a “genuine and substantial dispute,” will certainly be seen as a bonus to creditors, who will now see a quicker and more direct route to recourse.

the importance of the decision was underlined by the unanimous decision of the board to extend the bvi position to england & wales under a willers v joyce direction. importantly, the decision was also deemed applicable to exclusive jurisdiction clauses.

undoubtedly, the decision will receive a lot of attention in other common law jurisdictions. it will also have a considerable impact on creditor strategy and the future drafting of disputes clauses.

a link to the full judgment can be found here.

it is widely accepted in the bvi, cayman islands and bermuda courts, as well as other common law jurisdictions, that an asset disclosure order is an ancillary order which gives a freezing injunction “its teeth” and the purpose for which they are made is to police that freezing order. but how is the court persuaded to bite?

the commercial court of england and wales in the case of al saud v gibbs considered this point when it ruled on the claimant's application for variation and ancillary disclosure orders in support of an existing worldwide freezing order (wfo) against the defendant’s assets. the wfo included provisions preventing the defendant from removing any of his or the non‑cause of action respondent's assets in england and wales up to the specified value, and from disposing or dealing with or diminishing the value of their assets worldwide up to the same value.

the claimant sought disclosure of the defendant's bank statements, bank statements of his group of companies, and bank statements of the account to which the proceeds of sale of the defendant's apartment were paid, in order to assist in the enforcement, and prevent breaches, of the wfo.

mr justice culver opined that the test in granting an ancillary disclosure order to police a freezing order is whether the further disclosure is necessary to make the freezing order effective. therefore, before granting such an order the court must be persuaded that there is a practical utility in requiring such evidence; that it is for a proper purpose and that the order is proportionate.

the application was granted on the basis that identification of the bank accounts and the disclosure of the bank statements were necessary to make the wfo effective. that would enable the claimant to investigate the nature and extent of the defendant's breaches of the wfo to date as they were the only way of seeing where monies had been paid. the court also found that the further disclosure order would enable the claimant to identify further hidden assets which needed to be frozen, which was important in circumstances where the defendant had successfully disposed of some of his assets already despite the wfo being in force and where he had mostly failed or refused to provide details of where the proceeds had gone.

english decisions are persuasive in the offshore courts and are therefore of interest in the bvi, cayman islands and bermuda where freezing orders and ancillary disclosure orders are frequently sought in support of both domestic and foreign proceedings.

in the recent case of re ukcloud ltd (in liquidation), the english high court examined whether the effect of a debenture granted by the company gave the benefit of a fixed or floating charge over its internet protocol (ip) addresses. the distinction was important, impacting recoveries for the company’s unsecured creditors.

in deciding whether a charge is fixed or floating, the court will:

1. construe the charge instrument to ascertain the nature of the rights and obligations the parties intended to grant; and
2. categorise the charge to determine whether the character of the charge is consistent with a fixed or floating charge.

here, the debenture specified that certain assets were subject to a fixed charge, including “all licences, consents and authorisations…held or required in connection with the company’s business…” deputy icc judge baister found that the language used in the debenture (in particular “authorisations”) indicated the parties’ intention to create a fixed charge over the ip addresses. that was not the end of the matter, however, as a critical issue in determining the nature of a debenture is whether the debenture holder has sufficient control over the charged assets.

crucially, there was no evidence that the debenture holder had exercised control over the ip addresses, as the company freely allocated ip addresses to customers without oversight, despite control terms being provided for in the debenture. if a stipulation in the charging documents is not adhered to in practice, the agreement may be held to be a sham and characterised as a floating charge. the judge concluded that there was no exercise of control and accordingly the control provisions in the debenture were a “sham”.

applying an “all or nothing” analysis of the charging clause – that all assets that fall within the clause must be subject to either a fixed charge or a floating charge – the judge held it created a floating charge across all covered assets since the lender lacked practical control. consistent with the court’s analysis in re avanti, an inability to prohibit ordinary dealings over the asset is a key factor in determining whether a charge is fixed or floating.

the judge noted that determining whether the ip addresses were an asset subject to a fixed or floating charge was challenging, not least due to the imprecise nature of digital assets. however, this judgment (along with helpful industry-led guidance provides welcome guidance on the examination of security over digital assets.

while harneys does not provide legal advice on the laws of england and wales, it is important to note that this decision will likely have persuasive effect in other common law jurisdictions, such as the bvi, bermuda and the cayman islands, where cases dealing with digital assets in insolvency settings are increasingly prevalent.

in the recent decision of magomedov & others v pjsc transneft & others, the english high court provided guidance on the circumstances in which the court may grant anti-anti suit injunctive ancillary relief restraining parties from proceeding with foreign anti-suit proceedings, in the absence of any contractual agreement conferring exclusive jurisdiction on the english court.

mr magomedov (a russian national) and port petrovsk (a bvi company holding an interest in certain russian commercial ports) commenced proceedings in england against transneft (a russian state-owned enterprise) and a number of other defendants for non-contractual claims in unlawful means conspiracy. transneft commenced proceedings in the arbitrazh (commercial) court in moscow seeking anti-suit injunctions (the russian asi proceedings) against magomedov and port petrovsk and subsequently issued an application in the english proceedings challenging the jurisdiction of the english high court.

the english court granted the claimants an interim anti-anti-suit injunction (the english aasi) restraining transneft from proceeding with the russian asi proceedings until the return date of the english aasi, and requiring transneft to stay and/or adjourn the russian asi proceedings pending the determination of its jurisdictional challenge by the english court. the moscow court refused to adjourn the russian asi proceedings and granted a permanent anti-suit injunction (the russian asis) against magomedov and port petrovsk, and an order of damages of us$7.5 billion in favour of transneft in the event that magomedov and port petrovsk failed to comply with the russian asis.

in seeking the continuation of the english aasi notwithstanding the russian asis, the claimants sought a ruling that they were in principle entitled to an anti-anti-suit injunction, which would allow them to obtain ancillary relief such as an anti-enforcement injunction to prevent transneft from enforcing the russian asis, or an anti-reliance injunction to prevent transneft from relying in the russian proceedings on any actions by the claimants in the english proceedings.

distinguishing cases concerning anti-suit injunctions where there is generally a need to show that england is the natural or more appropriate forum, in particular where there is no express contractual agreement conferring exclusive jurisdiction on the english court, mr justice bright held that in considering whether to grant an anti-anti-suit injunction or other related relief on an interim basis, it was not necessary for the grant of such injunction or associated relief that the english court should have first concluded that england is the natural forum of the dispute. the judge held that:

1. the english court must have the power to decide any challenge to its jurisdiction.
2. pursuant to section 24 of the civil and jurisdiction judgments act 1982, the court has the power to grant interim relief pending the determination of the jurisdiction of the court.
3. where a jurisdictional challenge is afoot, a foreign anti-suit injunction would prevent the english court from ever deciding on the issue of jurisdiction or forum. in an appropriate case, the court must be able to grant an interim anti-anti-suit injunction, to last until the court is able to decide on any jurisdictional challenge. this is particularly important where not to do so would expose the claimants to an anti-suit injunction granted in a foreign jurisdiction with penal consequences, which is intended to impede the proper determination of the jurisdictional challenge in the english court.
4. the court has the power to grant an anti-anti-suit injunction of a limited duration, the purpose of which is to ensure that parallel anti-suit proceedings in a foreign court does not get an advantage over the english proceedings, and to ensure that any challenge to the jurisdiction of the english court is not used unconscionably as a way of delaying matters and obtaining an unfair advantage.

this case is one of the few english authorities involving anti-anti-suit injunctions and provides useful guidance to courts in other common law jurisdictions on the appropriate circumstances where the court may exercise its discretion to grant such relief in a non-contractual claim and where the relevant claimants are not resident or domiciled in its jurisdiction.

in another major success for a harneys team run out of its london office, justice mangatal’s judgment is the first to clarify the proper interpretation of s49 of the bvi business companies act 2004 (bca). the judgment resolves a longstanding question as to the necessary formalities for a person to become a shareholder in a bvi company.

on 30 may 2024, the bvi commercial court handed down its decision in icm spc on behalf of ancile special opportunity and recovery fund segregated portfolio (asor) v jarvis dismissing the cayman segregated portfolio company’s originating application against the joint liquidators (jls) to remove it from the settled list of members of phoenix bvi. the bvi court found that asor remained a shareholder right up to the date of commencement of the liquidation.

asor argued that it did not enter into a written agreement with phoenix bvi and therefore did not “agree in writing” to becoming a shareholder within the mearing of s49 of the bca. further, even if it did agree, its shareholding was subject to conditions precedent in a memorandum of understanding which were not satisfied, thus the shares were temporary or provisionally issued and had now lapsed.

the trial which took place over two weeks in september 2023 was vigorously contested with the jls arguing that agreement could be evidenced by a sequence of emails or other industry specific documents and that the court is entitled to look at all documents (which do not need to be condensed into one document) to determine the potential shareholder’s agreement. the jls further argued that the requirement that a shareholder agree “in writing” does not require dating or for other ‘execution’ to take place.

justice mangatal agreed with the jls that the words used in s49 of the bca do not require a shareholder’s agreement (in the sense of a written contract) between a company and shareholder but only the agreement in writing of the prospective shareholder. the court agreed that it is entitled to look at all the relevant documents to see whether asor agreed in writing. the court also found that there is no state of provisional or temporary ownership of the shares or being a partial member known to bvi law. therefore, asor’s shareholding could not lapse on the non-fulfilment of the alleged conditions precedent.

david chivers kc of erskine chambers, jeremy child and jhneil stewart of harneys acted for the joint liquidators.

the judicial and legal services commission announced on 27 may 2024 new judicial appointments to the eastern caribbean supreme court which take effect from 1 september 2024.

his honour judge abbas mithani kc has been appointed to act as high court judge, commercial division of the eastern caribbean supreme court for a period of three years with effect from 1 september 2024, and is assigned to sit in the bvi commercial court.

hhj mithani kc is a circuit judge of the courts of england and wales. he is authorised to sit as a judge of the high court in the chancery and queen's bench divisions of the courts of england and wales, including the administrative court.

a graduate of the university of newcastle and the university of keele, judge mithani has been closely involved with several uk universities reflecting his position as the leading authority on company and insolvency law in the uk. he is an honorary professor of law at birmingham university and visiting professor of law at newcastle and kingston universities.

in recognition of his substantial contribution to the development of insolvency, company and succession law in england and wales and for his other academic work, including with uk universities, judge mithani was made qc, honoris causa in march 2009. he is the author of a number of published works, with a particular emphasis on company, insolvency and succession law. notably, these include mithani: directors' disqualification, the leading authority on directors’ disqualification as well as atkin’s court forms and the encyclopaedia of forms and precedents.

in the recent decision of re c-retail ltd, the english high court ordered the disclosure of documents to assist a creditor to decide whether to support or oppose a part 26a restructuring plan.

the landlord of superdry plc's flagship store successfully accessed certain documents related to the struggling british fashion retailer’s part 26a restructuring plan. superdry's subsidiary, c-retail ltd is proposing a restructuring plan that includes extending borrowing maturity dates, rent reductions, guarantee releases, and settling arrears and dilapidation claims.

prudential assurance co ltd, the landlord, informally requested the disclosure of 10 categories of documents. prudential asserted that it required this additional information to decide whether to support or oppose the restructuring plan.
on 16 may, sir alastair norris of the english high court allowed c-retail to convene 13 meetings for creditors to vote on its restructuring plan. later that day, after considering prudential’s disclosure application, the court ordered c-retail to disclose certain documents to prudential, including:

• cash flow forecasts on a group basis, recognising no need for a separate forecast for c-retail, as superdry and c-retail clearly ‘stand and fall’ together as a group; and
• an unredacted report of the group’s calculation of estimated recoveries for creditors, under confidentiality restrictions.

however, the court refused disclosure of underlying calculations, assumptions, and details of the 'target operating model', deeming them irrelevant.

key takeaways from this english decision include:

• that the english court's power to order document inspection is exercised with discretion and in accordance with the "overriding objective".
• in schemes of arrangements and restructuring plans, the court considers other factors at play such as:
  • providing necessary information to enable creditors to make informed decisions about whether the scheme or plan is in their interests, whether losses are allocated appropriately, and whether the value created by the plan is fairly apportioned;
  • focusing the sanction hearing on the proposed plan in the explanatory statement, not on considering alternatives;
  • determining at a sanction hearing whether an honest creditor looking after its own interests as such creditor might reasonably approve the proposed plan (as opposed to whether the proposed plan is the best or the fairest); and
  • ensuring disclosure and inspection requests are not so burdensome as to distract from the restructuring process.

in summary, the court’s approach underscores the importance of providing sufficient information to creditors while maintaining confidentiality, and the practicality and efficiency of the restructuring process. where seeking to obtain underlying granular data would be burdensome and disproportionate, the court is unlikely to grant such disclosure.
harneys does not advise on the law of england and wales, but this judgment will be persuasive in common law jurisdictions such as the british virgin islands, cayman, and bermuda.

in the recent and important decision of re shandong chenming paper holdings ltd, the hong kong court of appeal confirmed that an arbitrable cross-claim against the petitioner can be a ground for dismissal of a winding-up petition.

the respondent company was incorporated in the prc. in 2005, the petitioner (a hong kong company) and the company entered into a prc-law governed joint venture agreement, which contained an arbitration clause providing for all disputes in connection with the agreement to be resolved by hkiac arbitration in hong kong.

disputes between the parties arose in 2012, leading the petitioner to commence an arbitration against the company in accordance with the joint venture agreement. the arbitral tribunal rendered an award in 2015, ordering the company to pay damages of cn¥167.86 million to the petitioner. after the company’s attempt to set aside the award in the hong kong court failed, the petitioner served a statutory demand on the company in 2016.

the company applied for an injunction to prevent the petitioner from presenting a petition to wind it up on the grounds that, inter alia, (a) there was no sufficient connection with hong kong, (b) there was no reasonable possibility that a winding up order would benefit the petitioner, and (c) the court was not able to exercise jurisdiction over one or more persons in the distribution of the company’s assets. this application went all the way to the court of final appeal, where it was finally dismissed, resulting in the petitioner proceeding with its winding-up petition.

subsequently in 2022, the company commenced another arbitration against the petitioner, seeking damages in relation to some funds transferred out of the joint venture company. the company said this amounted to a cross-claim against the petitioner in an amount exceeding the petition debt. in october 2022, the company applied to the hong kong court for the dismissal or adjournment of the winding-up proceedings pending the determination of the new arbitration on its cross-claim. the hong kong high court granted the stay in 2023, with leave to appeal.

when will the hong kong court stay or dismiss a winding up petition?

the court of final appeal, in re guy kwok-hung lam, had earlier confirmed that where a winding up petition is based on a debt under a contract with an exclusive foreign jurisdiction clause, the court will tend to dismiss or stay the petition for the issue in dispute to be determined by the agreed forum. the court of appeal confirmed the guy lam approach also applies to arbitrable disputes in re simplicity & vogue retailing (hk) co ltd.

in the present case, the court of appeal considered the applicability of the guy lam approach to disputed petition debts, set-off claims and cross-claims in the context of winding up petitions. in particular, while a cross-claim by the respondent company against the petitioner technically does not affect the petitioner’s standing to petition for winding up as a creditor since the petition debt exists independently of the cross-claim, the settled approach of the hong kong court is to treat such cross-claims in the same way as disputes to the petition debt. the key question is whether the petitioner is a net creditor having an interest in the winding up: if there is any set-off claim or cross-claim exceeding the petition debt, the set-off or cross-claim should first be determined at the agreed forum (whether that is a foreign court or arbitration), and the winding up proceedings should generally be dismissed or stayed.

in dismissing the petitioner’s appeal, the court of appeal was not persuaded by the petitioner’s argument that the guy lam approach would create a “debt dodger’s charter” because of the “built-in safety valve that allows the [approach] to be displaced where the dispute ‘borders on the frivolous or abuse of process’”.

to achieve a stay or dismissal, a respondent company will need to adduce proper evidence to demonstrate that there is a bona fide dispute and a genuine intention to arbitrate (as opposed to a delay tactic). timing will also be an important factor: the longer the respondent takes to commence arbitration, the less likely the court will find a genuine intention to arbitrate.

this decision helpfully clarifies that the hong kong court will stay or dismiss a winding up petition if there is a dispute that falls within the scope of an exclusive forum agreement, whether it has been raised by a dispute of the petition debt, a claim of set-off, or a cross-claim that does not give rise to set-off.

by comparison, in the bvi a creditor’s application for the appointment of liquidators will typically not attract an automatic stay just because there is an arbitration agreement between the applicant creditor and debtor company on the basis that the appointment of liquidators is viewed as a collective remedy undertaken for the benefit of all the debtor company’s creditors (and therefore not caught by the arbitration agreement). however, the bvi court will consider the existence of the arbitration agreement in the exercise of its discretion in deciding whether to appoint liquidators and whether the debtor disputes the debt on bona fide on substantial grounds. the cayman courts will apply the same bona fide substantial ground test when a debtor company disputes the petition debt or the debtor company has a genuine cross-claim in deciding whether to stay the winding up petition pending arbitration.

mr ahmed and his sister, (the ahmeds) were directors of hornby street ltd (hornby) which manufactured clothing. in the high court, lifestyle equities, (lifestyle) successfully claimed that hornby had infringed their trademarks. lifestyle also successfully sued the ahmeds personally, alleging they were jointly liable by sharing a common design with hornby. trademark infringement uses strict liability, which meant that there was no need for lifestyle to prove that the ahmeds knew of or intended the infringement.

hornby was dissolved, and lifestyle claimed an account of profits from the ahmeds. the judge apportioned 10 per cent of their salaries over the period and a loan made by hornby to mr ahmed as profits for which they must account.

both parties appealed. the court of appeal upheld the decision except in respect of the loan to mr ahmed. both parties then appealed to the supreme court.

counsel for the ahmeds contended that directors acting in good faith and within the scope of their statutory duties could not be liable for acts of hornby. their conduct fell within the rule in said v butt[1], a servant acting in good faith within his authority causing a breach of his master’s contract with a third person is not liable to the third person.

lifestyle argued, relying on dicta of lord justice slade in c evans & sons ltd v spritebrand ltd[2] that where liability is strict, there is no need for the claimant to prove knowledge or intent by the accessories. for example, a director who instructs an employee to trespass on another’s land would escape liability while the employee would be liable despite both being unaware that they were trespassing.

the supreme court unanimously rejected both approaches. the ahmed’s contention would create the injustice of a shop assistant being jointly and severally liable for the company’s actions while the director escaped liability, while the lifestyle approach would make both liable despite the accessory having no knowledge of the wrong.

the court instead created a new test for accessory liability, which is that;

a person who causes another person to do a wrongful act will only be jointly liable as an accessory for the wrong done if they have knowledge of the essential facts which make the act done wrongful.

this will provide definitive authority for practitioners concerned with accessory liability.

[1] [1920] 3 kb 497

[2] [1985] 1 wlr 317

the increasing adoption of digital assets like cryptocurrencies has highlighted the need for clarity on how insolvency laws apply in this new sector.

a recent consultation published last month from the uk jurisdiction taskforce looked at these issues in the context of english insolvency law. we previously reported on how jurisdictions like the bvi and hong kong have applied english authorities recognising digital assets as property, which relied on earlier guidance by the ukjt.

the consultation noted several high-profile exchange collapses that demonstrate the value of established insolvency frameworks for digital assets. while english courts have not directly addressed this area, the ukjt believes english insolvency concepts can sensibly apply to a wide range of asset types. the ukjt’s proposed 'legal statement on digital assets and english insolvency law' aims to provide guidance by answering stakeholder questions. representatives from law, insolvency and the crypto sector were invited to submit questions for consideration.

the key issues explored included whether digital assets constitute 'property' under insolvency law and form part of an insolvent estate. the statement clarifies that digital assets fall under the insolvency act's broad definition and so qualify as property. however, digital assets are yet to be treated as money in the uk, with the effect therefore that a statutory demand cannot be served in respect of a digital asset debt.

international jurisdiction rules determining an insolvent entity's 'centre of main interests' (comi) location were also examined. while the location of digital assets poses challenges, the ukjt has said the focus should be on assessing commercial activities objectively seen to centre around the digital assets in questions. the ukjt noted that established principles of comi have already been applied by the singapore high court over a crypto insolvency in the context of singapore-based digital asset exchange, zipmex.

the statement addressed the question of whether claims to digital assets held by insolvent companies or individuals represent recoverable property rights. proprietary claims entitle priority recovery against unsecured creditors, so resolving this distinction matters greatly. furthermore, the interlocutory, investigatory and enforcement powers generally available to insolvency office-holders under english law are available in relation to the preservation, recovery and distribution of digital assets.

the statement promises much-needed clarification of how long-established insolvency principles apply to the novel world of decentralised technologies. its conclusions should boost confidence that english and common law insolvency regimes can accommodate new frontier assets coherently and fairly.

although harneys does not advise on the law of england and wales, the ukjt’s statement will undoubtedly be highly influential and heavily cited in english cases dealing with digital assets in insolvency settings, which in turn are persuasive in other common law jurisdictions, including the bvi, bermuda and the cayman islands.

the five months’ march of preparing for my wedding day is finally coming to an end in may. from the booking of wedding banquets to searching for service providers (photographer, videographer, beautician, host, banquet decoration, etc), to finding cute puppets for children and gifts for the guests, my husband and i spend almost every weekend comparing the different options and bargaining for a better price.

i am excited to mark my diary and the first thing that i do is to prepare a timetable for what will happen on my big day. usually:

• the bride needs to get up very early – a 5am – to spend three hours in make-up and prepare her xiuhe dress, a traditional chinese outfit.
• the bridegroom also needs to rise early to get properly dressed.
• at a time considered to be of great fortune, the bridegroom will head to the bride’s home to pick up the bride. the bridesmaids will block the room door and request the bridegroom to complete several tasks, for example, to say love in ten different languages to the bride or to do 10 push-ups. if the bridegroom and his groomsmen fail to perform to the bridesmaids’ satisfaction, they need to give hong bao (a red packet filled with money) to the bridesmaids.
• following the games, the young couple serve tea to the bride’s parents to show gratefulness and respect.
• the couple then heads to the wedding home to serve tea to the bridegroom’s parents. the whole process is called jie qin (pick up your wife).
• during the process, professional photographers and videographers record the special moments and prepare short videos to be played later that day at the wedding ceremony.
• thereafter, the couple, their family, and friends will head to the wedding banquet for a formal wedding ceremony hosted by the moderator, during which lunch or dinner will be served.

this is what a popular traditional wedding looks like now in china. it is quite costly and very time-consuming in terms of preparation. hence, many people, including some of my close friends, opt to celebrate with their close family and friends in a nice, tiny, sweet bistro or by travelling. either way, i hope everyone enjoys their wedding day and every day, whether or not they are getting married.

on 15 may 2024, the supreme court unanimously allowed the appeal in rti ltd (respondent) v mur shipping bv (appellant) [2024] uksc 18, addressing a number of fundamental points, including whether payment in alternative currency could get around sanctions for the purpose of a force majeure clause.

the appeal concerned the interpretation of a force majeure clause in a shipping contract between mur shipping bv and rti ltd. pursuant to that contract, rti was required to make monthly payments to mur in us dollars. the contract included a force majeure clause with a “reasonable endeavours” proviso, stating that the specified event would only be a force majeure event if “it cannot be overcome by reasonable endeavours from the party affected”.

the subsequent imposition of us sanctions on rti’s parent company made it difficult for rti to make payments in us dollars. mur argued that the imposition of sanctions constituted a force majeure event and suspended shipments under the contract. rti disputed this and offered (i) to make payments to mur in euros, which mur’s bank could convert into us dollars on receipt; and (ii) to indemnify mur for any resulting loss. mur rejected rti’s offer.

the central issue on appeal was whether the exercise of reasonable endeavours may require the affected party, if it is to be entitled to rely on the force majeure clause, to accept an offer of non-contractual performance from the other contracting party in order to overcome the effects of the specified event. as noted in the supreme court’s press summary, “[a]lthough this question arises in relation to a specific force majeure clause, it has significant implications for the interpretation of reasonable endeavours provisos and force majeure clauses more generally”.

supreme court findings

the supreme court agreed with mur and held that, absent express wording, a reasonable endeavours proviso does not require acceptance of an offer for non-contractual performance, and therefore, mur was entitled to rely on the force majeure clause. the court, in summary, provided the following reasons for its judgment:

• contractual performance: contractual performance means performance of the contract according to its terms. failure to perform means failing to perform in accordance with those terms. the purpose of a reasonable endeavours proviso is to maintain, not alter, that contractual performance.
• freedom of contact: this principle includes the freedom not to contract and extends to the freedom not to accept non-contractual performance.
• clear words are needed to forgo valuable contractual rights: mur had a right to insist on payment in us dollars and to refuse payment in any other currency. this is consistent with the general principle that contractual parties do not forego their valuable contractual rights without clear indication that this was their intention.
• contractual certainty: there was no justification for creating needless additional uncertainty by departing from the standard of performance provided by the contract’s terms.

this decision will be of significant interest to legal practitioners across various practice areas, including sanctions, for its consideration and clarification of fundamental concepts of contract law.

so, here i am, benjamin bronzon, an aussie lawyer from sydney diving headfirst into the bustling metropolis of hong kong. crikey, what a change! but let me tell you, it has been a ripper of a ride so far.

since arriving in "honkers" in october 2023, i’ve come to appreciate the city’s allure beyond its impressive skyline and rooftop bars. as an australian, you’ll appreciate the multicultural blend of western and eastern influences. hong kong is a gateway to asia (and not too far from home), making it an ideal base for expats seeking new adventures, career progression, and international connections. before you know it, you’ll swap “no worries” for “add oil!”— a hong kong battle cry that means “keep going!”

so why did i make the move? aside from the obvious tax benefit, i saw an exciting opportunity to challenge myself with new cultures and people. of course, having an incredibly supportive workplace at harneys helps too. from a professional standpoint, many institutional restructuring matters are conducted in the offshore market, so i knew i wanted to be part of these globally recognised transactions dealing with stakeholders all over the globe.

so what are my quick tips for those considering making a move offshore:

• be ready to learn: while the cayman islands, bvi, and bermuda are common law jurisdictions similar to australia, the learning curve is still steep. there are also things to get used to, such as collaborating with onshore counsel and being aware of time-zone differences. you’ll need to familiarise yourself with different legislation and rules. i had to go back to basics, doing research and reading the law again, which gives you a big healthy dose of humility. just remember, add oil!
• find a neighborhood that suits you: take your time to explore neighborhoods that tick your boxes. central, mid-levels, kennedy town, happy valley, and wan chai are popular among expats.
• networking: many aussies have made hong kong their home away from home. find networks, clubs, and associations that will help you connect with others. for australians, popular picks are austcham, the cricket club, and the rugby club. do not be afraid to put yourself out there.

so, here is the verdict: life in hong kong is like a tim tam — you take a bite, and suddenly you’re hooked. the pace, the people, the pulse — it’s electric. and as i sign off from my new digs, i raise my glass (of bundy rum, of course) to my new life in hong kong.

in the recent decision of white v o n drilling ltd, the singapore court of appeal upheld the grant of a permanent injunction restraining a former director of the respondent companies from purporting to act on the respondents’ behalf in maintaining mexican restructuring proceedings on the basis that the comity doctrine did not apply because the interim injunctions were not anti-suit injunctions and the court would prioritise protecting its own jurisdiction and orders.

the respondents were singapore companies who each owned a drilling rig deployed in mexican waters. the respondents’ directors granted a power of attorney to mexican lawyers to commence restructuring proceedings in mexico in the respondents’ names (such proceedings referred to as the oro concursos). however, the relevant provision in the respondents’ articles prohibited the companies and their directors from initiating the oro concursos without a vote on behalf of a bond trustee which had not been obtained. the singapore high court granted interim injunctions in respect of continuing the oro concursos. nonetheless, the oro concursos continued in mexico in breach of the singapore court’s interim injunctions. the singapore high court then granted a permanent injunction. one of the former directors, mr white, appealed on the ground that the permanent injunction conflicted with mexican court decisions citing judicial comity. that argument failed.

although the submissions were wide ranging, what is most likely to be of interest for international practitioners is the court of appeal’s reasoning of when the doctrine of comity will not apply.

the court of appeal affirmed previous singaporean authority that “not all injunctions which [restrain] the pursuit of … foreign proceedings can be classified as anti-suit injunctions”. in this case, the permanent injunction was not an anti-suit because it did not restrain the respondents from continuing the oro concursos, but rather restrained a former director of the respondents (mr white) from purporting to act on the respondents’ behalf in maintaining the oro concursos. in other words, the injunction did not enjoin mr white from commencing or continuing proceedings in a foreign court in his own name.

the court of appeal also considered the relevance of comity in situations where an allegedly inconsistent foreign judgment post-dates a local decision and where the foreign judgment had allegedly been obtained in breach of the local decision. here, there was no dispute that the breach of the articles was continuing and that the mexican decisions were procured in breach of the singapore interim injunctions. to deny the permanent injunction would have been tantamount to not giving effect to the earlier interim injunctions, which in turn would effectively have extended recognition to the mexican decisions procured in breach of the injunctions. the singapore court of appeal gave priority to its own interim injunctions over comity considerations: “judicial comity could not be applied at the expense of the court’s role to protect its jurisdiction and orders.”

the decision is important because it showcases the limits of the comity doctrine where an injunction can be framed not as a restraint against a party continuing proceedings in their own name but rather on behalf of another. the decision also suggests that courts will be unwilling to apply the comity doctrine where this would lead to the undermining of their own orders. ultimately, considerations of comity must be balanced against the concerns of the local forum in upholding its constitutional role to oversee the administration of justice and safeguarding the rule of law within its jurisdiction.

in the recent decision of aa v jtc (cayman) limited, the grand court of the cayman islands sets out for the first time the principles applicable to an application by an enforcer of a star trust for the court’s approval of a ‘momentous’ decision in relation to the proposed exercise of the enforcer’s fiduciary powers.

the ‘momentous’ decision for which the approval of the court was sought was the enforcer’s decision to instruct the trustee to exercise certain rights attached to shares held by the trustee for the benefit of the trust. the exercise of these share rights was central to the purpose of the trust.

the court was satisfied that an enforcer has standing to apply for the court’s blessing of a ‘momentous’ decision on the same legal basis as a trustee, having had regard to sections 48 and 102 of the trusts act and the inclusion of “enforcer” in the relevant grand court rule (order 85, rule 7(1)) relating to applications under section 48 of the trusts act. accordingly, the court would apply the principles established in public trustee v cooper [2001] wtlr 901 in relation to ‘category 2’ cases where a trustee seeks the court’s blessing for a momentous decision.

in such cases, the court will consider the following questions:

• does the trustee or enforcer have the power to enter into the proposed transaction?
• is the court satisfied that the trustee or enforcer has genuinely concluded that the proposed transaction is in the interests of the trust and the beneficiaries and/or in furtherance of its purposes?
• is the court satisfied that a reasonable trustee or enforcer would arrive at the relevant conclusion?
• does the trustee or enforcer have any conflict of interests which prevents the court form granting the approval sought?

in this case, the court approved the enforcer’s decision, it being satisfied that:

• the enforcer clearly had the power to give the relevant instruction;
• the enforcer had genuinely decided that the proposed instruction to the trustee was in the best interests of the trust and in furtherance of the purposes for which it was established;
• a reasonable enforcer could have reached the same decision, which had not been entered into precipitously, but following careful deliberation and the receipt of appropriate legal advice; and
• the enforcer was not impeded by conflicts of interest. importantly, the court noted that what might be considered as potential conflicts of interest were properly identified in discharge of the duty to give full and frank disclosure of such matters when making such an application.

this case provides much welcomed confirmation of an enforcer’s standing to invoke the court’s advisory jurisdiction and sets out clearly the questions the court will consider in determining an application for the court’s approval of a ‘momentous’ decision under the star trust regime.

in the recent hong kong case of in the matter of sino oil and gas holdings ltd, madam justice chan of the hong kong high court handed down a judgment, refusing to sanction a scheme of arrangement that was approved at a scheme meeting held in december 2023.

in this case, the judge noted that the scheme document had very dense description that was “hard to grapple even for lawyers and the court” and the company made no attempt to describe in a succinct or intelligible manner the key commercial terms and the effect of the restructuring. the judge highlighted a number of unusual and questionable features of the restructuring that were not drawn to the attention of the court sufficiently or at all in the skeleton arguments for the hearing. the judge concluded that the creditors were not given sufficient information about the scheme to enable them to make an informed decision at the scheme meeting and therefore refused to sanction the scheme.

in the course of giving the judgment, the judge reminded practitioners of their duty to make full and frank disclosure to the court at the convening hearing which is almost invariably heard on a ex parte basis. to properly discharge their duty, legal representatives are expected to:

1. provide in the skeleton arguments lodged for the convening hearing, a fair and full summary of the key terms of the restructuring and the scheme and their effect on the creditors. the summary should illustrate the changes on the financial position and the corporate and shareholding structure of the company before and after the restructuring in a way which can be readily understood by the creditors; and
2. draw to the attention of the court, at the convening hearing, whether there are terms which are novel, unusual or potentially objectionable, and whether there are issues which have been or may be raised by the creditors.

where a restructuring is conditional upon a scheme becoming effective or where the terms of the restructuring would have an impact on the return to the creditors under the scheme, the company itself should likewise, provide a full and fair summary on the key commercial terms and effect of the restructuring in the scheme document.

this case provides helpful guidance to companies and their legal representatives who are dealing with restructuring and schemes of arrangement which require sanction of the court. as a matter of good practice, companies and practitioners in jurisdictions other than hong kong should also note and follow these guidelines.

in the recent decision of justice webster in oscar trustee limited v mbs software solutions limited, a non-party costs order and the permission for service of such application out of jurisdiction have been set aside on the ground that rule 7.14 of the bvi civil procedure rules 2000 (now rule 7.17 of civil procedure rules (revised edition) 2023) cannot be a free-standing gateway for service of an application out of jurisdiction.

the claimant (otl) is a new zealand company, who commenced the proceedings against the defendant (mbs) claiming for its return on its investment in a mining project in turkey under a hong kong-law governed contract. mbs successfully sought a stay of the proceedings in favour of parallel proceedings in hong kong on the ground of forum non conveniens. otl sought leave to appeal against that stay but the application was dismissed by the court of appeal. costs orders were made in favour of mbs against otl for, inter alia, both the stay application and the leave application.

as the costs orders were not paid, mbs sought a non-party costs order against the two respondents in this application, namely a solicitor in new zealand and an accountant in australia, and the application, together with permission for service out thereof, was granted on an ex parte basis in november 2022. shortly thereafter the respondents filed this application to set aside the order.

the first issue which the court had to decide on was whether the civil procedure rules 2000 (the old rules) or civil procedure rules (revised edition) 2023 (the new rules) apply to the setting aside application as the hearing date had been fixed prior to the commencement date of the new rules (i.e. 31 july 2023) but the hearing date itself was after the new rules took effect. with reference to the transitional provisions of the new rules, the court took the view that the old rules should be applied.

the court went on to consider rule 7.14 of the old rules, which provides that "…an application… order or notice issued, made or given in any proceedings may be served out of the jurisdiction without the court’s permission if it is served in proceedings in which court process has been served out of jurisdiction pursuant to rule 7.2…". mbs relied on the court of appeal’s decision in halliwel assets inc v hornbeam corporation, and contended that as long as the main claim itself qualifies for service out under cpr part 7, an application in such proceedings can be served out of jurisdiction without leave pursuant to rule 7.14.

justice webster refused to follow the interpretation of rule 7.14 in the halliwel case, noting that its interpretation was not necessary to the decision in that case and, thus being dicta, had no binding authority on another court. based on a plain reading of rule 7.14, he concluded the rule can only be relied upon in proceedings where prior permission to serve the claim form out of jurisdiction has been given (instead of just being qualified for), and it cannot form a free-standing gateway for service out of the non-party costs order application. in this case, the proceedings had already been stayed before the respondents were joined as parties solely for costs purposes, and no prior permission of service out had been sought or granted for the claim form, and accordingly the service out had to be set aside.

this decision serves as guidance as to whether a claim for a non-party costs order can be served out of jurisdiction –

1. for proceedings under the old rules, there is no leeway for service of claim for costs against non-parties out of jurisdiction unless prior permission has been given for service out of the claim form under such proceedings.
2. for proceedings under the new rules, rules 7.2(1) and 7.3 (12) applies – such claim against a non-party may be served out of jurisdiction without leave of the court.

after years of having the luxury of endless choices of takeouts, and the abundance of high-end and budget shopping, dining and bars at my doorstep, i finally decided to say goodbye to hong kong and moved to harneys’ cayman islands office in 2022. looking back now, i cannot believe how much my life has changed.

without all the late-night temptations, i became an early riser. the best thing about living in the cayman islands, other than not having to file any tax return, is to walk my dog around the north sound golf club early in the morning and watch the most breathtaking sunrise.

though not as connected as hong kong, grand cayman is just a short flight away from miami, and there are direct flights to many major cities in the us including new york, chicago, houston, dallas, denver and los angeles. from there, one can easily travel to central and south america and the rest of the world. since i moved to the cayman islands, i have ticked off many of my bucket list experiences, camping in the grand canyon, diving in galapagos, surviving on the survivor island in panama and cave diving in bahamas. there will be more to come.

there are many community events in the cayman islands. even the introverted me gets to be a part. from puppy rodeo organised by the local animal shelter to theatre performance organised by local dance studios. there is never a dull weekend.

last but not the least, cayman islands is warm all year long. it is a dream for all the outdoor lovers. if you cannot find me in the office, you can spot me flying through the monkey bars at the calisthenics park or dangling on gymnastics rings in one of the cabanas at public beach.

while occasionally missing the convenience that hong kong offers, now i cannot see myself living anywhere else. i would highly recommend anyone considering a move to the cayman islands to come and experience the amazing island life.

the recent decision of the cayman islands court of appeal (cica) in minsheng vocational education company limited (minsheng) v leed education holding limited (the education group) serves as a pertinent reminder of the cayman islands' commitment to upholding arbitration agreements and facilitating the arbitral process. the judgments of both the grand court and cica highlight the jurisdiction's supportive stance towards arbitration and reinforces the enforceability of interim arbitration measures in cayman islands law, consistent with the principles of the united nations commission on international trade law (uncitral) model law on international commercial arbitration (the model law).

background

minsheng is a cayman islands company, listed on the hong kong stock exchange. the education group consists of three investment holding companies incorporated in the british virgin islands, which hold various investments in education-related projects in the peoples republic of china (prc).

minsheng, as purchaser, and the education group as seller, entered into a sale and purchase agreement for shares (the spa) in leed international education group inc, (lieg) a cayman company. the spa was governed by hong kong law and contained a hong kong international arbitration centre (hkiac) arbitration clause. in order to facilitate the sale of shares, minsheng and the education group, along with other affiliates, entered into various loan agreements which were governed by prc law and subject to a china international economic and trade arbitration commission (cietac) arbitration clause. after the transfer of the first tranche of shares (51 per cent of the lieg shares), a dispute arose between the parties in respect of the remaining shares, triggering the initiation of arbitrations in both the hkiac (in respect of the spa) and cietac (in respect of the loan agreements).

minsheng had enforcement rights under a series of share charges granted by the education group over the remaining 49 per cent of the shares in lieg (the share charges), which if the education group was successful in the arbitrations would be discharged. the education group was concerned that before the outcome of the arbitration would be determined, minsheng would seek to enforce the share charges and sell the lieg shares to a third party, putting the shares beyond the education group’s reach should it be successful in the arbitration. to prevent this, the education group sought an interim injunction from the grand court.

the grand court decision

the grand court granted the interim injunction restraining minsheng from exercising the share charges until the cietac arbitration had concluded (the injunction). the injunction was granted subject to two conditions: first, that it was confirmed that cietac was unable to grant the injunction sought; and second, that permission was obtained from cietac to continue to rely on the injunction in accordance with the applicable arbitration rules.

the injunction in this case was regarded as “not an ordinary injunction” but one needed as a matter of urgency to preserve assets and protect the integrity of the pending arbitration. justice segal in the grand court considered, on the balance, “the risk of grave and irreparable harm” would result if the injunction was not granted (and the shares were sold), which outweighed the risk of any prejudice to the restrained party.

the appeal

minsheng appealed and sought to have the injunction discharged on the following four grounds:

• the education group was obliged to first seek relief in either of the foreign arbitrations from the supervisory courts at the seat of the arbitrations;
• the injunction was unavailable because of the competing jurisdiction cause in the share charge calling for judicial resolution;
• no preservation of property order could (properly) be made in the case; and
• there can be no injunction to restrain enforcement of security.

all four grounds of appeal were dismissed. taking a closer look at first ground of appeal, the cica helpfully sets out a useful summary of principles outlining the framework and considerations involved in international arbitration, as summarised below.

principles of international arbitration in the context of interim remedies

• open textured jurisdiction: the international arbitration jurisdiction, as per article 17j of the model law, is flexible and not specifically categorised. it allows for the issuance of interim measures to support arbitrations in other jurisdictions, adapting to modern arbitration needs.

in the cayman islands, section 54 of the arbitration act (which mirrors article 17j) expressly allows the courts to act in aid of foreign proceedings. it provides:

“(1) a court shall have the same power of issuing an interim measure in relation to arbitration proceedings, irrespective of whether their seat is in the islands, as it has in relation to the proceedings in court.

(2) the court shall exercise those powers in accordance with its own procedures and in consideration of the specific principles of international arbitration”.

• exercise of ancillary powers with caution: the powers granted must be exercised cautiously, understanding their ancillary nature. the principle of limited court intervention, as established by the act and recognised in international arbitration, emphasises that courts should not readily interfere with arbitral proceedings. interim measures should only be sought to assist arbitration and not bypass the arbitral tribunal's authority.
• no mandatory prior application requirement: there is not a strict requirement for parties first to seek interim measures from the arbitral tribunal or the court at the arbitration's seat before applying under section 54.
• exercise of powers in appropriate circumstances: even if access to the arbitral tribunal or the courts at the seat of arbitration is available, section 54 powers may be exercised under certain conditions, like urgency or when the tribunal or foreign court lacks authority to grant necessary interim measures.
• connection requirement: interim measures sought under section 54 must have a sufficient connection to the foreign arbitration they aim to assist.
• international enforcement as justification for foreign court application: seeking relief from a foreign court may be justified if international enforcement is needed, especially if the court sits where assets are located, facilitating enforcement without additional procedural hurdles.
• refusal of orders against third parties: orders against third parties in arbitral proceedings are likely to be refused if the tribunal is properly constituted, and the application has not been brought before it or has been rejected. the cayman court exercises discretion in such matters.
• emergency arbitrator versus court application: parties may choose between applying to an emergency arbitrator or the court for interim measures, unless emergency arbitration rules mandate otherwise. this decision is based on circumstances and preferences regarding the timing of relief before the tribunal is constituted.

conclusion

these principles demonstrate how the arbitration process and the courts co-exist by each having distinct but complementary powers. while arbitration provides a forum for dispute resolution, the courts uphold and enforce arbitration agreements and awards, ensuring coherence and compliance with legal principles.

the grand court and cica judgments are significant as the first interpretation of statutory rules governing the granting of injunctions in support of foreign arbitrations. these rulings offer valuable insights into the fundamental principles guiding court involvement in the support of foreign arbitration proceedings.

justice parker’s decision of in north sound pharmaceuticals inc concerns an appeal against the rejection of a proof of debt in a liquidation. the judgment highlights a number of procedural and practical considerations for would-be appellants and their advisors alike.

the appellant was the former and sole director and a substantial shareholder of north sound pharmaceuticals inc (the company). following a failure by the company to satisfy a statutory demand, the appellant entered into an employment agreement with the company that conferred him with a substantial salary in addition to a severance payment of us$6 million. on the same day that the winding up petition was filed, the appellant signed the employment agreement in his capacity as director on behalf of the company and countersigned in his personal capacity as employee.

the liquidators rejected the vast majority of sums contained in the appellant’s proof of debt for a variety of stated reasons, including that the employment agreement was invalid, was entered into in breach of fiduciary duty and constituted a voidable preference. the liquidators also argued that the employment agreement was void pursuant to s 99 of the companies act (2023 revision) as it was entered into after the commencement of the winding up and was not sanctioned by the court.

on appeal, the court determined that the employment agreement was valid, noting it was supported by consideration and that the appellant was acting as an employee at all material times. the court recorded at paragraph 98 that: "the fact that the appellant was a director with a significant, but not majority or sole shareholding, does not prevent a claim succeeding against an insolvent company on the basis that he was an employee of that company."

the liquidators also argued that the appellant acted in breach of his fiduciary duties in that he entered into the employment agreement at a time when he knew the company would not be able to settle the statutory demand.

further, the liquidators asserted that it was not in the company’s best interests to enter into the employment agreement. however, a properly particularised claim for breach of fiduciary duty was not brought against the appellant. the court noted that had a properly formulated claim been brought, the proof of debt appeal was not the appropriate forum to do so, given that it is “… a summary process which examines the affidavit evidence and the documents, without cross examination and disclosure, and is not the proper forum to determine any claims that involve contested factual questions.” the court similarly held that the liquidators’ claim that the employment agreement constituted a voidable preference had not been properly particularised and that, again, the appeal was not the appropriate forum to adjudicate such a fact-dependant claim.

justice parker also rejected the liquidators’ argument that the employment agreement was entered into after the filing of the winding up petition. his lordship observed that the petition was uploaded to the court’s online filing system after close of business. accordingly, the petition was deemed to have been filed the following day under the relevant practice direction, rather than on the same day the employment agreement was entered into.

the court ultimately allowed the appeal and held that the debt was preferential for the purposes of s141 of the companies act, as it was a debt owed to an employee. the judgment serves to highlight that the summary nature of the proof of debt appeals process is not appropriate for strongly contested disputes as to fact. it also provides a useful reminder of the importance of timing when filing documents with the court.

in the recent decision of in the matter of bo run spc, the grand court of the cayman islands considered whether it was permissible to file a composite petition to appoint receivers to a number of segregated portfolios within a single segregated portfolio company (spc) as opposed to filing separate petitions for each segregated portfolio. the grand court held that there is no mandatory requirement to make separate applications for each segregated portfolio but a petitioner may elect to file separate petitions where it was commercially and legally appropriate to do so.

the petitioner had sought to file a composite petition to appoint receivers to nine segregated portfolios within the spc, but at the time of filing was informed that separate petitions were needed. this resulted in total filing fees of ci$45,000 for nine petitions. the nine petitions were later directed to be heard concurrently and consolidated. the court was asked to grant a refund of the filing fees for the additional eight petitions.

after considering the relevant legislation applicable to spcs and grand court rules, the grand court held that there is no statutory requirement to file multiple petitions to appoint receivers to multiple segregated portfolios within the same spc:

• it is clear from the companies act (2023 revision) (the act) that a separate petition must be filed for each entity that has its own legal personality and the act provides that a segregated portfolio can be wound up even if the spc is not.
• although a segregated portfolio has no separate legal personality, it is akin to a segment of a business carried on under the ownership of a single company or individual. a receivership order may be made in respect of one or more segregated portfolios, the implication being that the order would be made on one petition.
• the court was instructed by the provisions in the act that deal with dissolution of a segregated portfolio following its winding up. although the act does not expressly address winding up of a segregated portfolio, the court’s recent decision in in the matter of holt fund spc required a separate petition to be filed to wind up each segregated portfolio, but this is to be contrasted with a petition to appoint receivers.
• there may be cases where, because of conflicts of interest or cross-claims between portfolios, that a petitioner may properly elect to file separate petitions in respect of different segregated portfolios.
• the petitioner was therefore entitled to a refund to the filing fees of the additional petitions.

where a petitioner seeks the appointment of a receiver to multiple segregated portfolios within the same spc, the petitioner will need to assess on a case-by-case basis whether any commercial and/or legal issues justify separate petitions for each segregated portfolio within the spc. cost considerations are not the determining factor.

a spotlight has been shone in recent years on the wellbeing and mental health of legal professionals, and rightfully so. being a legal professional is a stressful job that is often a delicate dance between managing a plethora of different aspects in order to minimise the inherent stress that comes with the job. it is encouraging to see many law firms stepping up their mental health and wellness initiatives to facilitate and assist legal professionals in this very personal journey.

as wellbeing may mean different things to different people, so too will the list of challenges that keep us from realising our wellness goals. that being said, there are some common challenges that nearly all legal professionals encounter:

1. work hours – industry expectations and client demands often require long hours of work or work to be done to a very tight schedule.
2. lack of exercise and poor eating habits – we spend a long time each day at a desk. due to the sedentary nature of legal work, it’s easy to neglect important aspects of health such as exercising, posture and succumbing more easily to unhealthy foods due to convenience or stress.
3. lack of sleep – a familiar consequence of juggling work with personal obligations and trying to find time for interests outside of work is placing sleep lower on our priority list than it ought to be. as a working parent this may resonate strongly with you in which case we recommend you also read the piece here.
4. prioritising tasks – legal professionals frequently have multiple tasks to get through at any given time; not prioritising them properly may lead to work bottlenecks and an illusion of there being more work than there really is, which increases stress.

while the fixes for these challenges may vary depending on the individual, here are some suggestions that i employ to help me manage the challenges i face:

1. identify the stressors – identifying the main work challenges that are preventing you from attaining your optimal wellbeing, will aid in becoming more mindful of them and help in actively formulating an action plan to minimise their impact.
2. communication – communication with your stakeholders is key; they need to know your plans and schedule so adjustments can be made to accommodate without negatively impacting work, or worst still, leaving anyone in the lurch. this may require flexibility (and compassion) at all levels to ensure that work is completed on time and expectations are managed, allowing wellbeing targets to be met.
3. discipline – if your personal plan to achieve wellbeing – whether it be going to the gym a certain number of times a week, eat healthier or finding time for a hobby that helps you unwind - treat it as any other task on your agenda. the firm and your teammates can help facilitate, but you are the one that needs to execute and make time to do these things to ensure that you are on track, which in turn improves your overall wellbeing (it was never going to be easy!).
4. time management – an important part to achieving wellbeing and managing a busy work life is being the master of your time. this ties in with communication with your team. be loud about when you are planning on being unavailable due to wellbeing commitments, so you can focus on the things you need to do. remember, the schedule is still busy and flexibility is key, but with good time management you can still hit all your wellbeing goals.

harneys has a number of initiatives that aim to bolster its support for employee wellbeing such as remote working, flexible work schedules, encouraging physical exercise and recognising the importance of personal commitments, such as being present for your child’s middle-of-the-day school performance. these practical wellbeing initiatives are buttressed by an internal platform dedicated to wellbeing with relevant articles on various issues as well as a dedicated wellbeing consultant to promote awareness within the firm.

wellbeing for legal professionals is an important aspect of work that permeates well beyond the confines of the office. wellbeing is living, and as the saying goes, the art of living is more like wrestling than dancing.

in the case of in the matter of orient tm parent ltd (unrep, grand court, 27 july 2022), the grand court of the cayman islands dismissed with indemnity costs the petitioners’ application for the appointment of joint provisional liquidators (the jpls) and alternative injunctive relief relating to the company’s assets.

the winding up petition was issued in october 2021 by two minority shareholders of a cayman islands company. in what had the appearance of an attempt to neutralise the effect of a prc arbitration award (to which neither the company nor the petitioners were a party) relating to the transfer of shares in the company, the petitioners issued the jpls appointment application, with a hearing date the following week. notice of the application and hearing date was not, however, given until the day before the hearing, for which those acting for the petitioners were unable to provide any explanation.

justice doyle was critical of the conduct regarding the application and the lack of supporting evidence.

even on proper notice, he was not convinced that the application had merit. he also held that there was no satisfactory evidence as to why notice was not given at the time that the application was lodged the week before the hearing. notice could have been given without formal service and any difficulties with the hague service convention did not excuse a failure to give notice or serve formally those within the jurisdiction. the petitioners’ separate application for substituted service of the winding up petition on shareholders in the prc was also dismissed (see blog).

on reading the papers, justice doyle was left with the impression that the petitioners “were trying inappropriately to bounce the court into granting unjustifiable relief and to ambush other interested parties”. he awarded indemnity costs against the petitioners based on their failure to give interested parties notice.

he added: “i want to discourage tactical games and proceeding with lack of notice where such is not justified. without proper notice applications for the appointment of jpls should be truly exceptional and only be made if solid grounds exist to proceed without proper notice. no such grounds existed in this case as should have been plain to the petitioners from the outset. they were wrong to proceed in the way they did and much time, including court hearing and preparation time, has been wasted.”

harneys acted for one of the successful majority shareholders.

in the recent decision of cf v dlg, the bvi commercial court held that a two-step process is to be preferred over the use of “wrap up orders” in norwich pharmacal proceedings. the applicant, a judgment creditor, sought norwich pharmacal relief against registered agency service providers to the judgment debtor, for information to assist with considering its enforcement options.

the bvi court observed that “avid debate” had arisen over whether an application for a seal and gag order and for norwich pharmacal relief should be determined at a single ex parte “wrap up” hearing or whether a two-step approach should be preferred. the two-step approach involves first determining the seal and gag part of the application ex parte (which can often be done on the papers), and then, if the seal and gag is granted, the norwich pharmacal part of the application proceeds on notice.

it is a fundamental principle of natural justice to hear the other side. the circumstances in which that principle may be departed from in ex parte applications are carefully circumscribed. the ecsc cpr envisage that proceeding on an ex parte basis is an exception to a general rule that applications are to be determined on an inter partes basis. seal and gag orders are also themselves an exceptional and draconian order because they interfere with open justice and prevent the respondent from fulfilling reporting obligations to its client.

justice wallbank held that the two-step approach is generally to be preferred. seeking norwich pharmacal relief without notice to the respondent is appropriate in cases of urgency, in the sense of there being literally no time to give notice of the norwich pharmacal application (for example, when there is a genuine need for urgent disclosure). such cases would be rare and exceptional. if the applicant seeks a wrap up order in absence of urgency, they can expect the court to use its case management discretion to direct that the application proceeds on notice.

the cayman islands grand court took a similar approach in the earlier decision of cathay capital holdings v osiris international. justice doyle held that it is a basic principle of justice and fairness that an order should not normally be made against a party without giving such party an opportunity to be heard. exceptions include where the genuine and exceptional urgency of the situation requires the matter to proceed immediately and without notice, or where it appears likely that steps would be taken to defeat the purpose of the application if notice were given. in that case, justice doyle declined to deal with an application for norwich pharmacal relief on an ex parte basis but granted on an ex parte basis an order that the respondent must take steps to preserve certain documents pending an inter partes hearing.

the two-step process endorsed by justice wallbank is consistent with the existing practice in the bvi and that the usual target of norwich pharmacal relief in offshore jurisdictions is the registered agent.

offshore jurisdictions remain important centres for the establishment and administration of trusts. what should an offshore trustee do when facing the prospect of litigation with a hostile foreign party? this article will examine how a trustee can seek the court’s approval of its participation in any such litigation by ordering that the trustee be indemnified in respect of costs from the trust funds.

this article was originally published with thoughtleaders4 private client magazine.

the recent decision of kawaley j of in the matter of s.5 of the foreign arbitral awards enforcement act (the judgment) serves as both a practical guide to the regime for obtaining leave to enforce foreign arbitral awards and also as a reminder that the cayman islands is readily accessible as a jurisdiction for those looking to do so.

more specifically, the judgment concerns an application for leave to enforce a final award of the swiss chambers’ arbitration institution made under the foreign arbitral awards enforcement act (1997 revision) (the faaea). the faaea permits recognition in the cayman islands of arbitral awards issued pursuant to an arbitration agreement made in a state that is a party to the new york convention (arbitral awards issued pursuant to an arbitration agreement made in a state that is not a party to the new york convention are enforceable in the cayman islands under the arbitration act (act 3 of 2012)).

in the judgment, justice kawaley notes the procedural steps to enforce an arbitral award under the faaea require the applicant to produce the arbitral award and the arbitration agreement (originals or duly certified copies). where either document is in a foreign language, a certified translation must also be adduced. the grand court rules also require that leave applications of this nature must be made ex parte. the policy principles underpinning the rationale for mandating this approach were observed by kawaley j in his earlier decision of lam global management, cited in the judgment, being that “the pro-enforcement policy of the new york convention is well recognised by this court and understood” and that “the grounds for refusing enforcement are limited, should be construed narrowly and the respondent will bear the burden at any inter partes hearing of demonstrating that such grounds are made out”.

as the application must be made ex parte, the common law requirements of fair presentation and to give full and frank disclosure are superimposed over the statutory requirements detailed above. however, kawaley j observes that the duty will be easier to discharge in this context as once a prima facie case for granting leave is made out, there is effectively a presumption in favour of enforcement. further, only eligible grounds which are obviously strong at the stage leave is sought are likely to undermine the merits of the application. as set out by his lordship at paragraph 10, in most cases the duty of full and frank disclosure will be discharged by informing the court:

1. whether any application has been made to the curial court or any other competent court, to set aside the award (and, if so, the result or other status of the proceedings); and
2. what grounds for refusal, if any, have been or could be raised by the respondent.

on the facts in this case as presented, kawaley j granted the applicant leave to enforce the final award. the judgment underscores the grand court’s experience of and receptive approach to applications for leave to enforce foreign arbitral awards in the cayman islands where the relevant requirements are met.

a recent decision the supreme court of the state of new york has determined that the beneficial owners of bonds have standing to bring claims against the bond issuer and guarantors.

in april 2023, hong kong based hedge fund, bfam asian opportunities master fund, lp, and several other investors filed proceedings in new york against deeply indebted chinese property developer, glory health industry limited and its guarantors. the investors sought to recover over us$200 million in missed payments on notes issued by glory health.

glory health filed a motion to dismiss the proceedings arguing that the investors, as neither the trustees nor registered holders of the notes, lacked legal capacity or standing to maintain the suit.

in response the investors argued that euroclear bank sa/nv, the clearing system for the notes, had authorised them to bring the suit or alternatively that they had standing under the terms of the indenture pursuant to which the notes were issued.

glory health’s motion to dismiss was denied. the judge held that a beneficial owner who lacks standing may receive authorisation from a registered holder, even after filing of suit. moreover authorisation may be sought even where it is not specifically anticipated by the terms of the underlying contract: as a matter of new york law, contracts are freely assignable absent language prohibiting it.

this decision will provide welcome clarity to beneficial owners of bonds on their standing to pursue issuers and guarantors for non-payment of new york law governed notes in the face of international judicial divergence on the issue.

in april 2023, the grand court of the cayman islands determined that a beneficial owner of notes did not have standing to present a winding up petition against the note issuer. the petitioner had failed to establish that it was a “contingent creditor” absent an existing contractual obligation owed to it by the issuer which may or will result in a liability (see re shinsun holdings (group) co., ltd (unreported, 21 april 2023)). the reasoning in shinsun was subsequently adopted by the hong kong court of first instance in leading holdings, which similarly held that beneficial holders of notes do not have standing to petition to wind up the issuing company as a contingent creditor.

one day following delivery of the judgment in leading holdings, the bvi commercial court in cithara global declined to follow shinsun and determined that a contractual relationship is not necessary for a party to be a contingent creditor. rather, the debtor must take steps that may make it liable to a creditor, subject to a contingency. in cithara the contingent liability owed to it pursuant to its notes was determined to be sufficient to make it a creditor of the issuer with standing to commence liquidation proceedings.

the development of this area of law will be of great interest to all players in global notes, from financial institutions, clearing house, issuing companies, insolvency and restructuring professionals to investors. it will be interesting to see whether the jurisdictions will maintain their differing approaches, and how these authorities may influence future wording of indentures and note documentation.

in a decision made on 15 march 2024, the dutch supreme court denied the reinstatement of a us$116 million netherlands arbitration institute award to dutch developer geosolutions against sina hong kong, an affiliate of chinese social media platform weibo. this decision was reached three months earlier than expected, following the determination that no valid arbitration agreement was in place.

about the case

the conflict centred on an arbitration award of us$116 million plus interest in favour of geosolutions. this award, however, was challenged in the dutch courts, with the amsterdam court of appeal annulling the award against sina hk in 2021.

this decision was later contested by geosolutions at the dutch supreme court, emphasising the appellate court's alleged misinterpretation and disregard for the arbitration tribunal's jurisdictional assessment.

in january, supreme court advocate general wissink recommended that the 2022 ruling by the amsterdam court of appeal setting aside the award be upheld. his opinion underscored the necessity of independent court assessment on the validity of arbitration agreements.

this case spread beyond the netherlands, with enforcement actions pursued in hong kong and the british virgin islands, alongside related litigation in the united states, alluding to the global ramifications of the dispute. each jurisdiction offered a unique lens through which the case was examined, from adjourned enforcement actions in hong kong to stayed proceedings in the bvi, and dismissal of related fraud complaints in the us due to jurisdictional and substantial issues.

this case underscores the complexities and challenges of navigating international legal disputes, especially in intellectual property and technology transfer. it also highlights the strategic considerations companies must weigh in enforcing arbitration awards across borders and the intricacies between arbitration and court proceedings in different legal systems.

our shanghai managing partner, vicky lord, acted as bvi counsel to sina hk.

in an earlier case of in the matter of orient tm parent ltd (unrep, grand court, 27 july 2022), the grand court of cayman islands dismissed the application of the petitioners for substituted service of the winding up petition in the prc, and was critical of the evidence filed in support, noting a distinct lack of it

the petitioners, who are two minority shareholders of a cayman islands company, relied on alleged difficulties with service in the prc under the hague service convention (the convention).

justice doyle held that the evidence in support of the application was unsatisfactory. the necessary formal request for service under the convention was not made until five months after the petition was issued, and there was no formal evidence as to how long it may take to effect service. the judge held that five months could not be described as a delay of exceptional length of time incompatible with the due administration of justice, and mere delay or a desire for speed is not sufficient to justify substituted service.

additionally, there was no expert evidence confirming that substituted service by the means suggested did not contravene prc law, or any up-to-date expert evidence in respect of the prc and the convention service, or in respect of the potential impact of the covid pandemic.

he was also critical of the evidence of asserted “litigation prejudice”, which amounts to no more than an assertion.

harneys acted for one of the successful majority shareholders.

in the recent hong kong decision of re primlaks (h.k.) ltd (in liquidation), the high court confirmed the liquidators’ decision to reject the applicant’s proof of debt (pod) on the grounds that: (1) the liquidators were entitled to go behind the default judgment, which formed the basis of the pod, on the ground of a miscarriage of justice; and (2) the applicant had not discharged its burden of proving the loans underlying the default judgment were genuine debts owed by the company.

the pod submitted by the applicant to the liquidators was based on, inter alia, a default judgment obtained against the company in separate proceedings. the applicant appealed against the liquidators’ decision not to admit the sums under the pod based on the default judgment. in dismissing the application, the high court revisited the applicable principles when challenging rejections of proofs of debt as follows:

1. an appeal against a liquidator’s adjudication is a hearing de novo, at which the court may confirm, reverse or vary the liquidator’s decision.
2. the court is bound to decide the rights of the applicant in light of all the evidence and not merely express a view as to whether the liquidator was right or wrong in rejecting the proof based on the then-available evidence.
3. a liquidator who defends their decision to reject a proof is no longer acting in a quasi-judicial capacity, but is cast in the role of an adversary.
4. the onus of proof is on the applicant to show on a balance of probabilities that a real debt is due to them.
5. to admit a proof, a liquidator must be satisfied on the evidence that the proof is founded on a real debt, which is a relatively low threshold. however, a liquidator is entitled to go behind mere form to ascertain the truth.
6. on an appeal against the rejection of a proof, the burden is on the applicant to prove a real debt, to be established by credible evidence.
7. an applicant cannot say that their claim should be admitted but insufficient evidence is available because it has been lost or destroyed; the burden remains with the applicant to establish proof of the claim on the balance of probabilities on the evidence produced.
8. the court is not bound to accept at face value any previous accounts of a company and is entitled to go behind them to form its own conclusions.

applying the above, the court held that liquidators are entitled to go behind a judgment to ascertain whether a debt is owed. the usual grounds for doing so include fraud, collusion or a miscarriage of justice. in this case, the court accepted that the miscarriage of justice ground applied. a default judgment, by its nature, involves a one-sided presentation of facts, the objectivity and accuracy of which may be subject to challenge or further scrutiny. the court took the view that had the company properly defended the proceedings, it would have succeeded.

this case is a timely reminder that creditors should be aware that a proof of debt based on a judgment or company records may be subject to independent assessment by liquidators in determining the legitimacy of the debt and the extent to which the applicant should be allowed to rank as a proving creditor.

how do litigants mitigate the risk of their confidential information becoming public during proceedings in the british virgin islands? the eastern caribbean supreme court civil procedure rules (revised edition) 2023 (ec cpr) apply to proceedings before the bvi supreme court. the ec cpr is the primary source of the tools for preserving confidentiality in bvi proceedings.

are all hearings held in public in the bvi?

ec cpr part 2 sets out the court’s discretion as to where, when and how it deals with cases. it provides that the court may direct a hearing, or any part of a hearing, to take place in private or in public. the default position is that a hearing in the bvi court will proceed in public under principles of open justice and transparency.

hearings that take place “in chambers” (ie without members of the public present) will be treated as a hearing that took place in public, unless the court orders otherwise.

which hearings can be held in private?

unless the court otherwise orders, a hearing will be deemed to have taken place in private where it:

• concerns the welfare of a minor or a person under disability
• is an application by a trustee or a court appointed officer concerning the administration of a trust, asset or an estate
• concerns arbitration

in addition to these specific circumstances, the court may also direct a private hearing where:

• publicity would defeat the object of the hearing
• it relates to matters of national security
• it involves confidential information where publicity would damage that confidentiality
• it is for a without notice (ie ex parte) application
• it considers it necessary in the interests of justice

an applicant seeking to have a matter heard in private bears the burden of displacing the general principle of open justice.

ex parte hearings

in situations where interim relief is being sought, particularly in cases where there is a risk of dissipation of assets, it is possible to make an application on an ex parte basis. the respondent will receive no notice of the application and an application can be granted without hearing from the other side. there is a consequential duty to give full and frank disclosure, essentially presenting the other side’s case for them, failing which any order obtained can be set aside.

does the bvi have a practice of hearing proceedings in chambers?

in chambers hearing are common in the bvi. the default position, noted above, is that hearings in chambers will be treated as public. however, the ec cpr also provides that where a hearing takes place in public, the court is not required to make any special arrangements to enable the public to enter the hearing.

an order made in chambers shall have the same effect as an order made in open court, and a court sitting in chambers shall have the same power to enforce, vary or deal with any such order, as if sitting in open court.

when do hearings generally take place in chambers in the bvi?

directions hearings or case management hearings typically proceed in chambers, but no categories of hearings must proceed in chambers by default.

what documents filed in court in the bvi are publicly available?

ec cpr 3.13(1) provides that any person has the right, upon payment of the prescribed fee, to inspect and copy the following documents:

• statements of case, being claim forms, statements of claim, defences, counterclaims, ancillary claim forms and defences, replies and any part 34 further information responses (but not documents filed with or attached to the statement of case)
• notices of appeal
• judgments and orders
• notices of application seeking a remedy (i) before proceedings started, (ii) relating to proceedings in another jurisdiction, (iii) a norwich pharmacal order, or (iv) enforcement of an arbitration award

this rule applies to documents filed after 31 july 2023, when the current ec cpr came into force. the prior rules will apply to documents filed before then (which was limited to claim forms, notices of appeal, and judgments and orders).

the ec cpr excludes the following from public inspection:

• documents in proceedings relating to a minor’s welfare, a patient or any other person for whose benefit an order has been made protecting them or their identity
• settlement agreements
• documents protected by statute from disclosure or inspection
• documents where an application has been filed to restrict access to the court file is pending

is it possible to obtain access to any other court documents?

the court may grant leave to inspect and copy any other document upon an application made without notice to the parties. an applicant may ask for the application to be considered on the papers, without a hearing.

applicants must identify with reasonable precision the documents they seek permission to inspect and lay before the court the grounds upon which inspection is sought. the applicant must establish that it has a legitimate interest in inspecting the documents and must identify the document or class of documents that they wish to inspect. a general request to inspect is not sufficient.

“sealing” proceedings

if confidentiality needs to be preserved, a party should apply to the court to seal the relevant court document or file, as the situation requires. a “sealing order” prevents court staff from giving the public access to the proceedings. any person identified in a statement case may similarly apply to restrict access to the court file or documents within it.

practice direction no 1 of 2022 - directions for effective use of the electronic litigation portal sets out how sealed cases are to be dealt with on the e-litigation portal. prior to filing a sealed statement of case or application, the party must contact the registrar to determine the acronyms to be used in place of the parties' names. once the case has been created on the portal, the party must contact the registrar to ask for the entire case to be sealed.

the grant of a sealing application is at the court’s discretion. it requires that the court be satisfied that the (i) sensitivity and (ii) confidentiality of the matter merits such sealing. the court may order that a non-party may not inspect any document on the court file, restrict the persons or classes of persons that may inspect the court file, or order that a person or classes of persons may only inspect the court file that have been edited in accordance with the directions of the court (ie redacted).

all hearings in sealed bvi proceedings are held in private.

seal and gag orders

the court may also grant seal and gag orders where there are confidentiality and/or privacy concerns. the "seal" part of the order refers to sealing court proceedings, ensuring confidentiality by prohibiting public access to the court records. the "gag" aspect of the order restrains parties involved from disclosing the existence or details of the proceedings to prevent “tipping off” any third party. essentially, a seal and gag order is designed to maintain the confidentiality of legal proceedings and sensitive information related to a case, particularly in situations involving investigations, fraud, or the discovery of hidden assets.

although gagging orders can be difficult to police, they offer comfort in that any breach of the order has serious consequences. the party breaching the order may be held in contempt of court and may be held liable for any loss it causes by tipping off the third party.

accessing documents in a sealed court file

the test when considering an application to access documents in a sealed court file is whether it is in the interests of justice for the seal to be maintained without a higher requirement for “necessity”. for example, the court will maintain the seal where the documents were expressly provided on a confidential basis (ieremeieva v estera corporate services bvi limited bvihcm 118/2017 (4 april 2019)).

what if the parties want to keep a settlement secret?

settlement agreements are now expressly excluded from documents available for inspection by non-parties under the ec cpr. generally, parties will use a “tomlin” order, by consent, to keep the terms of a court-ordered settlement confidential. tomlin orders typically refer to the existence of a confidential settlement agreement but do not exhibit the agreement itself. it should be noted that the fact of the settlement itself would still be publicly accessible information indicated in the court order.

if parties want to avoid public court proceedings, are there other dispute resolution mechanisms that can be used?

proceedings started according to the bvi arbitration act 2013 will proceed confidentially. whether the parties have an automatic recourse to arbitration and the preferred (i) seat and (ii) law of the arbitration are likely to be determined by the underlying document that governs their legal relationship.

privilege

privilege attaches to certain documents in bvi proceedings. the following two types of privilege may be relied upon to preserve confidentiality:

• legal advice privilege. this covers confidential communications between a litigant and their legal practitioners made to give and receive legal advice.
• litigation privilege. this privilege is broader in practice and covers confidential communications between a litigant and their legal practitioners, professional advisers and other third parties when the dominant purpose of such communications is actual or reasonably contemplated litigation.

disclosed documents

once a document has been read to or by the court, or referred to in open court, the generally rule is that any party may use it outside of the proceedings in which it was disclosed. for confidential documents, a party may apply for an order restricting or prohibiting the use of any disclosed document.

conclusion

there are several ways in which a bvi litigant can preserve confidentiality during bvi proceedings. one of the most effective ways to preserve confidentiality is to apply to “seal” the court file to prevent public inspection of the court file and attendance at court hearings.

clients seeking to commence bvi litigation proceedings discreetly and confidentially should seek urgent advice on how to issue such proceedings in line with this objective. reach out to us if you have a specific question you would like answered.

in the recent decision of g trust, the cayman islands grand court had little hesitation in directing that the trustee could apply to restrain certain beneficiaries from pursuing an application in hong kong to appoint receivers over shares. the substantive dispute concerned the validity of a purported transfer of shares in certain claimed companies to the trust. that dispute will be determined in hong kong.

the trustee had previously obtained beddoe relief from the grand court directing that it could participate in the hong kong proceedings and to issue a summons seeking to clarify the identity of the beneficiaries of the trust. those applications proceeded on the explicit understanding that the trustees would be continuing to administer the disputed assets through their control of the shares in the claimed companies. the trustee had also given undertakings not to deal with the shares without notice to the respondents. the effect was that the trustees were in control of the companies in the interim.

the day after the beddoe relief was perfected, certain beneficiaries applied to the court in hong kong for an injunction restraining the trustees from disposing of any assets of the claimed companies and for the appointment of a receiver over the shares of the claimed companies.

the trustees applied for and obtained an anti-suit injunction restraining the beneficiaries who had issued this application in hong kong. in granting that injunction, the grand court accepted that those proceedings amounted to a collateral attack on the beddoe order and involved a breach of confidentiality provisions in that order. the relevant beneficiaries withdrew their application in hong kong. however, only seven days after withdrawing one set of proceedings, the beneficiaries filed another application in hong kong to appoint receivers over the shares of the claimed companies.

the power to grant an anti-suit injunction requires either an agreement for exclusive jurisdiction of the court, or that the relevant court is the natural forum for the resolution of the dispute, and the conduct of the party to be injuncted is unconscionable. justice kawaley referred to the decision of the english court of appeal in star reefers pool v jcf group. rix lj had held that the unconscionability of the foreign claimant is often found in the very reason that they first submitted to the jurisdiction and then sought to extract themselves or oppressively to prolong the litigation by commencing further proceedings overseas. justice kawaley found the proposition that the relevant beneficiaries’ conduct was abusive uncomplicated on the facts of the case. the relevant beneficiaries had already been restrained once from seeking to undermine the beddoe order. the concerns which appeared to form the basis of the new application were matters which were or could have been raised in the beddoe proceedings.

the case demonstrates that the grand court will, in appropriate circumstances, grant relief in respect of proceedings designed to undermine the effect of its own orders.

the recent english case of grosskopf v grosskopf concerned an application by trustees for a stay of claims brought against them by a beneficiary. the beneficiary alleged misconduct by the trustees and sought the appointment of a judicial trustee pursuant to the judicial trustees act 1896.

there was an arbitration agreement between the parties that provided for arbitration of “any and all disputes…arising in connection" with issues regarding disclosure of the late settlor's estate and assets. the english high court had previously ruled that these issues include whether a full financial investigation of the trust was needed.

one question before the court was whether the fact that the claim sought appointment of a judicial trustee, which the arbitral tribunal could not grant, made the matter incapable of arbitration. the beneficiary argued that this meant arbitration could not provide an effective remedy and argued against a stay.

the court considered the recent privy council case of familymart china holding co ltd v ting chaun (please see our earlier blog on this landmark case here). that case concerned whether disputes relating to a winding up petition could be resolved by arbitration, even though only a court could make a winding up order.

in familymart, lord hodge held that matters relating to whether parties have breached agreements or flouted equitable rights arising out of a relationship between the parties are arbitrable in the context of a winding up application. this is because the tribunal could make findings and directions with a comparable effect to relief that a court can grant.

applying familymart, the court found that there was no material difference where the relationship between the parties was one of beneficiary and trustee (analogous to the relationship between shareholders in familymart) and that the grounds for appointing a judicial trustee, such as breaches of duties, were suitable for resolution by arbitration. the tribunal could make directions as to the trustees' position, and if needed these could be enforced by the court.

as in familymart, the fact that one remedy sought in court was unavailable in arbitration did not preclude a stay. the consequence was simply that parties faced different procedures and remedies due to their agreement to arbitrate.

the court therefore granted the stay, finding the disputes raised in the claims fell within the scope of the arbitration agreement between the parties.

although harneys does not advise on the law of england and wales, this decision displays the influential nature of the privy council’s decision in familymart, which is binding in the cayman islands and highly persuasive in other common law jurisdictions, including the bvi and bermuda.

the cyprus legal system has been subject to recent reforms which seek to streamline its processes and offer efficient recourse to the courts in dispute resolution.

the new civil procedure rules introduced in september 2023 and the amendment of section 32 of the courts of justice law, l. 14/1960, effected in december 2023 form part of these reforms.

prior to the above reforms, the cyprus courts lacked jurisdiction to offer interim redress to an applicant before the filing of a substantial claim in cyprus or in aid of judicial proceedings initiated in countries beyond the eu.

now, the civil courts in cyprus have jurisdiction to hear and decide on any application for interim orders filed at any time, including the time prior to the filing of a claim or after the issuance of a judgment, in relation to judicial or arbitration proceedings that took place, are taking place or will take place within or outside the jurisdiction of cyprus.

the power of the cyprus courts to issue such orders in judicial or arbitration proceedings extents to situations where:

• the respondent is situated within the jurisdiction of cyprus, or
• the property or subject matter of the remedy sought is located within the jurisdiction of courts, or
• there is such other connecting link with cyprus that the local courts are rendered appropriate to hear and decide on such application

the cyprus courts retain the power to issue any prohibitory, interim, perpetual or mandatory order, or appoint a receiver, if it appears that it is just and convenient to do so.

the jurisdiction of the cyprus courts to issue such orders has been now broadened.

we welcome these reforms which offer flexibility and promise quicker recourse and will doubtless make the cyprus courts a more attractive forum to litigants.

on 29 february 2024, the bvi commercial court handed down its much-anticipated decision in joint stock company “alfa-bank” v kipford ventures limited discharging the sanctioned bank’s second application for an interim injunction against kipford (the second injunction application) and stayed its claim pending further order.

this decision follows justice jack’s discharge of the bank’s first application for injunctive relief which was subsequently upheld by the court of appeal. in summary, justice jack’s found that alfa bank (the bank) had no good arguable case and was in breach of its duty of full and frank disclosure.

following the discharge of the first injunction, the bank issued a fresh claim and the second injunction application against kipford arguing that it was deceived, inter alia, by the provision of allegedly false financial statements into financing the acquisition of a coal mine in siberia. kipford was alleged to be the recipient of some of the allegedly fraudulently obtained loan monies. kipford denies all of the allegations and offered to provide undertakings until the return date of the second injunction application could be listed.

following russia’s invasion of ukraine, the bank became subject to various international sanctions. as a result of the sanctions legislation kipford was and is concerned that if it succeeds at trial then it is unlikely to be able to recover any of its costs from alfa. indeed, as a result of the discharge of the first injunction kipford already has several outstanding costs’ orders in its favour which the bank contends that it is unable to pay. as a result of this kipford applied for a stay of the claim until such a time as the bank ceases to be designated under the relevant sanctions legislation and/or for security for costs.

following numerous adjournments which were necessitated as a result of the bank being designated as a sanctioned entity, the hearing of the second injunction application along with kipford’s application for a stay or security for costs was heard in mid-2023. justice mangatal has now handed down judgment in which she has dismissed the bank’s second injunction application and has held that the claim should be stayed until such a time as the sanctions legislation is revoked or the bank ceases to be designated.

the judgment is important as it is one of the few bvi judgments to really consider the impact of the sanctions legislation in the bvi. central to justice mangatal’s decision was the fact that as a result of the sanctions regime any judgment that the bank may obtain would be unenforceable. she also considered that there is ongoing uncertainty as to whether any costs awards in kipford’s favour will ever be able to be paid either as a result of the licensing regime or for the practical reason that it is difficult to find a bank willing to process funds from a sanctioned entity.

justice mangatal could have ordered the bank to have paid security for kipford’s costs as opposed to staying the claim but she decided against this course as in reality it was clear that the bank would not be able to pay and therefore risked having its claim struck out. she therefore did not consider that this would be a just order.

separately, like justice jack, justice mangatal did not consider that the bank had a good arguable case against kipford.

claire goldstein, victoria lissack, robert maxwell marsh and jhneil stewart of harneys acted for kipford.

in the recent decision of taiping trustees limited v valley stone industry fund ltd, the cayman islands grand court provided a timely reminder that public policy factors should not be taken into account when determining the appropriate forum for a dispute.

the court recognised that its primary task is to identify the forum in which the case can be suitably tried for the interests of all parties and for the ends of justice. the “natural” or appropriate forum is that which the case has the most real and substantial connection. in doing so, the court must consider and weigh up the connecting factors (or, the spiliada principles) to determine where the balance lies.

one argument raised was whether it would be appropriate for policy reasons for all disputes relating to fiduciaries of cayman islands investment vehicles to be determined in the cayman islands. in considering the principles applicable to forum non conveniens, justice doyle reviewed a number of earlier decisions where public policy factors had been canvassed; and concluded that it was bound by the court of appeal’s judgment in brasil telecom sa v opportunity fund where motley ja held that “[t]o take account of the public policy considerations…would…be another way of placing additional weight to the factor that jurisdiction to institute proceeding in the cayman islands has been founded as of right, because the respondent is incorporated and is domiciled in the cayman islands. to do so would make more onerous the burden on the respondent… [and give] undue weight to one factor… such public policy considerations cannot co-exist, in this case, with the interest of the parties and the ends of justice, or fall within the spiliada principles.”

while justice doyle noted that the court of appeal or the judicial committee of the privy council might revisit this issue in the future, he held that his decision to grant the plaintiff leave to serve the defendants out of jurisdiction could not be based on public policy grounds. as matters stand at present, public policy factors should not be taken into account by the court when determining the question of where the natural forum is located.

justice doyle held that hong kong, in whose favour the connecting factors in this case were “overwhelming”, is the appropriate forum. the grand court stayed the proceedings against the cayman islands defendant, discharged the ex parte service out order against the overseas defendants and declared that the cayman islands court has no jurisdiction over the overseas defendants in respect of this claim.

harneys acted for the successful defendants in this application.

how to enforce security in the bvi out of court will depend on your security type. for this guide, we focus on the out-of-court enforcement of security granted over shares in a company.

how do you create security over shares in a bvi company?

the bvi business companies act 2004 (as amended) (the act) allows security to be created over shares in a bvi company. this can be done by either a legal mortgage, equitable mortgage, or charge.

section 66(1) of the act provides for the mortgage or charge to be in writing signed by, or with the authority of, the registered holder of the shares to which the mortgage or charge relates (the chargor).

section 66(5) of the act sets out the remedies that can be used by the secured party in the event of a default on the debt over which the security is given. specifically, subject to the terms of the security documents itself:

• the power of sale under section 66(5)(a)
• the power to appoint a receiver under section 66(5)(b)

both remedies can be exercised without a court order, per the terms of the security document, as explained further below.

in some rare cases, the security holder may have valid reasons to retain control of the shares rather than sell the shares or appoint a receiver. bvi law does not prohibit such retention of the shares, though the security holder must be aware that the shares will be subject to redemption by the mortgagor upon the settlement of the debt should it be paid.

what is the timing for enforcement of security?

section 66(7a) of the act provides that where bvi law is the governing law of the mortgage or charge, if the instrument creating the mortgage or charge specifically provides the remedies referred to in section 66(5) of the act will be exercisable immediately upon default occurring.

however, if the security document is silent on the power of sale or power to appoint a receiver being exercisable immediately on default, then section 66(7) of the act specifies that the remedies in section 66(5) of the act are not exercisable until an event of default has (i) been ongoing for not less than 30 days, or (ii) not been rectified within 14 days of the security holder giving notice of the default and requiring it to be remedied.

how can a security holder take possession of the shares?

to exercise the remedies above, the security holder must own the shares. usually, where security has been granted by way of a legal mortgage over shares, the security holder will already be the legal owner and, therefore, in possession of the shares.

this is not usually the case regarding a security holder who has been granted security through an equitable mortgage or charge. however, a security holder who has been granted security over shares by equitable mortgage or charge can be registered as the legal holder of the shares at any time, and this does not expressly have to be after a default occurs. usually, when an equitable mortgage or charge over the shares is provided, the security holder will be provided with a pack of documents along with the security document, which allows for the transfer of shares to take place by those documents being completed and dated, and delivered to the registered agent.

these documents include:

• undated share transfer form(s) signed by the chargor
• original share certificates (if any – bvi law does not require share certificates to be issued)
• a proxy to allow the security holder to vote the shares following an enforcement event
• signed and undated resignation letters from the company's directors, with a letter from each director authorising the security holder to date the resignation letters upon an enforcement event
• an irrevocable undertaking from the company whose shares are charged to register transfers of shares to the secured creditor or its nominee upon enforcement
• an undertaking from the company’s registered agent to, among other things, keep the original register of members until the security is released and to update the same following the instructions of the secured creditor upon enforcement of the security
• if not already part of the security document itself, a power of attorney granted by the chargor to enable the security holder to execute and complete documents on the chargor's behalf upon enforcement

how does the power of sale arise?

the power of sale may arise in the following circumstances, none of which necessitate an application to court for an order allowing the sale:

• under the statutory right of sale under section 66(5)(a) of the act
• by an implied statutory right of sale under the conveyancing and law of property act (cap 220), where the security document is made by way of deed
• a power of sale arising under common law
• an express contractual right of sale set out in the security document

commonly, a security document will have an express provision providing for the power of sale. this contractual provision is relied upon when enforcing security in most cases. this power of sale is subject to any limitations or conditions in the security document. still, if expressly provided for, the security holder can sell the shares.

following section 66(5)(a), the right to sell the shares is available to the security holder as and when it chooses, subject to an obligation to the chargor to act in good faith and obtain the best price reasonably obtainable on the day. the security holder must not merely aim to recover the amount of the debt due. any surplus proceeds must be remitted to the chargor. in the event of a breach of the duty of good faith, the chargor can apply to the court to prevent or reverse the sale. however, this duty of good faith does not require the sale to be carried out by any particular method or within a set time frame.

when would a security holder appoint an out of court receiver?

the most common method of enforcing security over shares is to appoint an out of court receiver. this power can arise

• under the statutory right to appoint a receiver under section 66(5)(b) of the act, where the security document is governed by bvi law
• an implied statutory right under cap 220, where the security document is executed as a deed
• an express contractual right in the security document

a receiver may only be appointed out of court under an express contractual right to do so; a court order is required to appoint a receiver under a statutory power. however, virtually all properly drafted security documents provide an express right and this out of court contractual route is the most typical. it is usually also quicker and cheaper than a court appointment.

the insolvency act 2003 (the ia 2003) requires an out of court appointment of a receiver to be in writing. the appointment takes effect upon receipt of written notice of the appointment by the receiver, provided they accept it before the end of the next business day.

once appointed, a receiver can vote and sell the shares, receive any dividends or redemption proceeds, and exercise other rights attached to the shares. where the company holds assets, typically the receiver will vote the shares to replace the board of directors (usually putting a nominee corporate director in place). the new director then sells the company’s underlying assets and distributes the proceeds by dividends or repays the debt.

a receiver exercising a power of sale of shares owes a duty to obtain the best price reasonably obtainable at the time of sale (ia 2003, s129)

conclusion

we hope this guide helps you understand out of court enforcement of security in the bvi. if you have any further questions, please get in contact with claire goldstein or christopher pease.

in the recent english decision of shovlin v careless and ors, concerned the enforcement in the english high court of a default judgment granted against defendant companies by a superior court of the state of california.

in 2013, the claimant brought proceedings against the defendants in california relating to alleged fraud and defamation. after a request by the claimant for judgment to be entered in default of filing a defence, in 2019, at a hearing to assess damages, the defendants' lawyer made a special appearance and raised the issue that the case should be dismissed due to failure to prosecute within five years (californian law requires a civil action to be brought to trial within five years after the action is commenced). the claimant argued because of the defendants’ lawyer’s special appearance, it would be inappropriate for him to make submissions on this issue.

the californian court eventually made an order granting default judgment in favour of the claimant for us$10,066,353. in october 2021, the claimant issued a claim in the english court to enforce the judgment.

both sides accepted that the default judgment met the common law requirements of being (a) for a definite sum of money; and (b) final and conclusive. the dispute was over whether the claimant met the additional requirement that the californian court had jurisdiction over the defendants, as determined by the english conflict of law rules of international jurisdiction. the critical issue was whether the defendants voluntarily submitted to the californian court’s jurisdiction by making a special appearance at the hearing. expert evidence presented to the english court agreed that a general appearance operated as a submission to the personal jurisdiction of the californian court. in contrast, a special appearance is typically entered to preserve a jurisdictional defence. the experts accepted that the issue discussed at the hearing on failure to comply with the five-year rule was a non-jurisdictional issue, and they differed in opinion on whether raising a non-jurisdictional issue when in default amounted to submission under californian law.

applying english law, the english court concluded submission required unambiguously waiving objection to jurisdiction. here, the lawyer stated he made a special appearance, raised the dismissal issue but did not make a formal or informal motion on it, and did not oppose the assessment. therefore, the defendants’ attendance at the hearing did not unequivocally represent submission to jurisdiction. the english court consequently dismissed the claim.

this is a valuable reminder of the jurisdictional issues clients and practitioners face when seeking to recognise and enforce foreign judgments and awards through the common law route. harneys does not advise on the law of england and wales, but this judgment will be persuasive in common law jurisdictions such as the bvi, cayman and bermuda.

in a recent decision of the king’s bench division of england and wales the court set aside an order (o2) that extended time for compliance with an earlier disclosure order (o1). o2, having been endorsed with a penal notice, was set aside as offending the principle that such an order should be expressed in unambiguous language so that a defendant knows what is forbidden or required.

in the matter of wintermute trading limited -v- terraform labs pte limited, o1 was made under the evidence (proceedings in jurisdictions) act 1975 following a request from a judge in proceedings brought by the securities and exchange commission, in the united states district court for the southern district of new york, in which terraform is a defendant.

there arose a dispute concerning wintermute’s compliance with o1 and terraform requested that the senior master make o2, in which wintermute were ordered to comply with o1 on pain of a penal notice.

wintermute appealed, asserting o2 to be abusive or oppressive in that it failed to specify what, if any, further documents were required. mr justice lavender, hearing the matter, agreed, noting that, had wintermute asked the court on o2 being granted: "what have you just ordered me to do by 4 pm tomorrow?" the court would have had to reply, "i don't know. possibly nothing. possibly to produce a document or documents, but i don't know which document or documents, because that remains to be determined."
mr justice lavender found o2 offended the general principles requiring clarity in orders endorsed with penal notices, and so set it aside.

despite being english law, this decision is of interest in that it provides further clarity to potential applicants wishing to enforce compliance with their orders; english law decisions are persuasive in offshore courts and mr justice lavender neatly summarised the principles applicable to the granting of penal orders.

in the recent decision of moody technology holdings ltd^[1], the hong kong court of first instance (the “hong kong court”) provides useful commentary on the jurisdiction to modify a scheme of arrangement after court sanction – a matter on which there is no previous hong kong law authority.

background

moody technology holdings ltd (provisional liquidators appointed for restructuring purposes) (the “company”)^[2] and its subsidiaries (the “group”) are primarily engaged in the design, manufacturing and sales of fabrics, and the trading of shoes and clothes in the people’s republic of china, hong kong, and korea.

between 2014 and 2019, the company issued bonds for the purposes of funding the construction of factories, developing the group’s fabrics business and for working capital. due to financial issues which ultimately caused the company’s bonds to be accelerated^[3], in november 2020, the company together with provisional liquidators^[4] formulated a scheme comprising a debt for equity swap whereby the company would issue shares to bondholders (i.e. scheme creditors) to discharge and release the claims owing by the company to the scheme creditors in full.^[5]

harris j of the hong kong court ultimately sanctioned the scheme on 28 june 2022 following the relevant scheme meeting approval.^[6] however, following issues arising out of the proposed implementation of the scheme,^[7] the company agreed with the initial scheme administrators that they should be replaced. as a result, the company made an application to the hong kong court to modify the scheme.^[8]

modification of scheme of arrangement already sanctioned by court

having considered the hong kong authorities on modifications of a scheme at the time of the scheme meeting in re hong kong building and loan agency limited^[9] and re mongolian mining corp^[10], and the english authorities on modification at a later stage in re aon plc^[11] and re equitable life assurance society^[12], the hong kong court determined that it had jurisdiction to properly modify a scheme after it has been sanctioned if:

1. the scheme provides for an application for an amendment to make the court; and
2. where the modifications are minor and not such as might reasonably be thought would have caused a scheme creditor to have decided to vote against the scheme.

in this matter, given that the scheme expressly provided an application for amendment and the proposed modifications were plainly intended simply to ensure that the scheme is administered as was originally intended, the hong kong court ordered the amendments to the scheme sought by the company.^[13]

takeaways

modification clauses are quite standard in offshore schemes to allow flexibility for the company to modify the scheme. depending on how the clause is drafted, a scheme company’s right to modify a scheme’s terms can be made subject to the approval of the relevant court. generally, this type of provision is included to essentially address an immaterial error, oversight, or change of circumstances that needs to be corrected (as opposed foisting on a class of creditors something substantially different to what was approved at the relevant scheme meeting).

in assessing whether a modification may have caused a scheme creditor to vote against the scheme, as a general rule, a company will need to satisfy itself that what is proposed to be modified will not cause any reasonable scheme creditor to take a different view on the scheme had it been put before them.

harneys does not advise on matters of hong kong law. having said that, the judgment is likely to be of persuasive value in the courts of the british virgin islands, cayman islands and bermuda.

^[1][2024] hkcfi 452.
^[2]incorporated in the cayman islands with limited liability and continued in bermuda with limited liability.
^[3]the maturity dates of the majority of these bonds were accelerated by bondholders such that all bonds became due and payable as a result of the company’s solvency issues.
^[4]on 10 october 2019, the company filed a winding up petition in the supreme court of bermuda (bermuda court) together with an application for the appointment of ‘light touch’ provisional liquidators to facilitate a restructuring of the company’s indebtedness. on 24 october 2019, the bermuda court ordered that the appointment of provisional liquidators to the company. this appointment was recognised by the hong court on 24 january 2020 – which is in itself significant given soft-touch provisional liquidation being impermissible in hong kong.
^[5]by 31 december 2020, the company’s indebtedness largely comprised 230 unsecured bonds issued by the company totalling approximately us$163 million (crmb781.70 million), which amounted to approximately 97% of the company’s liabilities.
^[6]on 20 april 2022, the hong kong court ordered that the scheme meeting be convened on 8 june 2022, at which the resolution to approve the scheme was duly passed. the scheme became effective on 5 september 2022 following completion of conditions precedent.
^[7]these issues were: (i) that the initial scheme administrations had calculated that the number of scheme shares that needed to be issued by reference to the total value of the claims that has been submitted (rather than calculating them after it has been determined what the total value of the admitted claims were); and (ii) during the change of scheme administrator, all these scheme shares were allotted to scheme creditors, even though not all the claims had been assessed and admitted. accordingly, it is intended that new scheme administrators would run a determination process to confirm scheme share entitlements of scheme creditors and cancel any scheme shares which may have already been issued in excess of that to which a scheme creditor is entitled, if required.
^[8]also, the time periods for the assessment of scheme claims needed to be adjusted from the periods specified in the original approved scheme.
^[9]hcmp 2268/2018, 20 august 2019; [2019] hklrd 373.
^[10][2018] 5 hklrd 48.
^[11][2020] ewhc 1003.
^[12][2002] bcc 319.
^[13]on 25 january 2024, the hong kong court had made an order in modifying the scheme with the following effect: (i) the identity of the scheme administrators be changed from mr. tang chung wah (alan) and mr. kan lap kee (terry) of shinewing specialist advisory services limited to mr. lai wing lun and mr. osman mohammed arab of acclime advisory services limited (the “new scheme administrator; and (ii) the new scheme administrators will continue to complete all the outstanding procedures of the scheme of arrangements as mentioned in the scheme documents. it is expected that the company will take necessary procedures to apply to discharge the provisional liquidators and dismiss the winding up petition in the bermuda court following the determination process undertaken by the new scheme administrators.

this guide covers frequently asked questions on the enforcement of foreign judgements and arbitration awards in the british virgin islands.

can foreign judgments and arbitration awards be enforced in the bvi?

foreign judgments and arbitration awards can and are regularly enforced in the bvi.

the enforceability and registration of foreign judgments in the bvi is governed by the reciprocal enforcement of judgments act (cap 65) (the reciprocal enforcement act) and the common law. only monetary judgments from specified jurisdictions can be enforced under the reciprocal enforcement act; common law enforcement must be used in respect of judgments from any other jurisdictions.

the arbitration act 2013 (the arbitration act) governs the enforcement of arbitral awards in the bvi. it does not differentiate between domestic and foreign awards, but it does between ‘convention awards’ under the un convention on the recognition and enforcement of foreign arbitral awards 1958 and ‘non-convention awards’.

what are the conditions for enforcing a foreign monetary judgment?

reciprocal enforcement act

for a foreign monetary judgment to be recognised, the claimant must present a judgment from a foreign court of competent jurisdiction that is for a specified sum of money and final and conclusive on the merits. the court will not investigate the loss underpinning the judgment nor whether the obligation to pay remains outstanding.

the bvi court must also be satisfied that the original court had jurisdiction over the judgment debtor, and the judgment debtor was duly served. other factors that will bar registration include if:

• the judgment was obtained by fraud
• the judgment debtor can demonstrate it has a pending appeal or intends to appeal the judgment
• it would be against public policy, including enforcement of public laws, such as taxes, penalties or fines, of another state

a monetary judgment from a jurisdiction covered by the reciprocal enforcement act can be registered in the bvi for enforcement as if it were a bvi judgment. an application for registration of a foreign judgment under the act is made according to part 74 of the eastern caribbean civil procedure rules (revised edition) 2023 (the ec cpr). the application may be made without notice and must be supported by affidavit evidence, including the necessary statements regarding the judgment (such as the amount of interest that has become due), along with a certified copy of the foreign judgment and a certified translation into english, if necessary.

a judgment is registrable within 12 months of the date of the judgment (or such longer period as may be allowed by the court) if in all the circumstances of the case the court thinks it is just and convenient to enforce the judgment in the bvi.

common law debt claim

judgments from jurisdictions not subject to the reciprocal enforcement act cannot be registered. instead, the bvi court will generally allow the judgment creditor to make a common law claim for the judgment sum as a cause of action for debt in itself so that no retrial of the issues is necessary.

the original judgment must not be impeachable, and must also be:

• for a debt or definite sum of money (not being a sum payable in respect of taxes, penalties or fines)
• final and conclusive (at common law a judgment is still final and conclusive even if it is subject to appeal or an appeal is actually pending)
• from a foreign court which had jurisdiction to give the judgment

further, a debt claim on a foreign judgment must be brought within 12 years of the judgment becoming enforceable and arrears of interest on a judgment debt cannot be recovered after six years from the date on which the interest was due.

a common law claim is commenced under ec cpr part 8 via a claim form and statement of claim. an affidavit must also be included, exhibiting a certified copy of the foreign judgment and, if relevant, a certified english translation. once the claim has been served, the judgment debtor will have 14 or 35 days to acknowledge service and 28 or 56 days to file a defence, dependent on whether they are in or outside of the jurisdiction, respectively. following service, the judgment creditor will generally be able to file an application either for default judgment – if no acknowledgement of service or defence is filed – or for summary judgment, on the basis of the doctrine of obligation by action or estoppel. an affidavit supporting the summary judgment application claim will need to set out the steps taken to secure the judgment in the foreign jurisdiction and the judgment debtor’s involvement in those proceedings.

the fact that, save for the limited circumstances identified above, the bvi court will not look again at the merits of the foreign judgment means that even when enforcement needs to take place by bringing a common law debt claim, it is generally not a lengthy process.

once a judgment is registered or granted on a common law debt claim, it can be enforced like any other bvi judgment.

can foreign non-monetary judgments be enforced in the bvi?

there is no statutory mechanism for the direct enforcement of non-monetary judgments in the bvi. nevertheless, if the judgment creditor has a foreign judgment based on a cause of action recognised under bvi law, and can establish that the bvi court has jurisdiction over the judgment debtor (ie, whether the court has jurisdiction to serve the defendant out of the jurisdiction), then that cause of action may be brought in the bvi afresh. the judgment creditor uses the foreign judgment and the principles of estoppel to prevent either the cause of action or the issue(s) from being re-litigated.

the bvi claim must seek to determine an identical issue or question to that determined in the original foreign proceedings and be given in proceedings between identical parties.

although indirect enforcement is not as straightforward and cost-effective as direct enforcement, it can nevertheless save substantial time and costs for the claimant since not all of the issues will have to be re-tried.

how are foreign arbitral awards enforced in the bvi?

recognition and enforcement of arbitral awards are governed by part x of the arbitration act. under the arbitration act, a convention award can be enforced either by instituting an action in court or applying to seek leave of the court; a non-convention award can only be enforced by seeking leave of the court. once leave has been granted, the award has the same effect as a judgment or order of the bvi court and can be enforced using the remedies under ec cpr part 45 (outlined below).

applications for recognition and enforcement of a foreign arbitral award is made under ec cpr 43.12, by way of a fixed date claim form supported by affidavit evidence. the evidence must:

• exhibit the original or certified copy of the award, and, if relevant, a certified english translation
• where applicable, exhibit the original or certified copy of the arbitration agreement
• specify the date and place of the arbitration proceedings
• specify the amount of the interest, if any, which under the law of the country of the award has become due under the award up to the time of the application
• state to the best of the information or belief of the deponent that the claimant is entitled to enforce the award, at the time of the application the award has not been satisfied, and the amount of the award which remains unsatisfied.

if leave to enforce is granted, the order must be served on the judgment debtor, who can apply to appeal set aside the decision. if the party against whom enforcement is sought is a foreign defendant, the claim must be served out of the jurisdiction under ec cpr 7.3(5).

convention awards

pursuant to section 86 of the arbitration act, enforcement of convention awards may only be refused if the person against whom enforcement is sought proves one of the following convention defences:

• a party to the agreement was, under the law applicable to them, under some incapacity
• the arbitration agreement was invalid under the applicable, or if there was no indication of the applicable law, under the law of the country where the award was made
• the party was not given proper notice of the appointment of the arbitrator or of the proceedings, or was otherwise unable to present their case
• subject to the award containing severable decisions, the award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration or contains decisions on matters beyond the scope of the submission to arbitration
• the composition of the tribunal was not in accordance with the agreement of the parties or, failing such agreement, with the law of the country where the arbitration took place
• the award has not yet become binding or has been set aside or suspended by a competent authority of the country in which, or under the law of which, it was made
• the award is in respect of a matter which is not capable of settlement by arbitration under the laws of the british virgin islands or if enforcement would be contrary to public policy

non-convention awards

under section 83 of the arbitration act, the grounds for refusal of enforcement of a non-convention award are the same as for convention awards with an additional ground of any other reason the court considers just.

how are judgments generally enforced in the bvi?

once a foreign judgment or arbitration award has been domesticated and has become a bvi judgment, ec cpr part 45 provides for the following methods of enforcement:

• a charging order under ec cpr part 48
• garnishee order under ec cpr part 50
• judgment summons under ec cpr part 52
• an order for the seizure and sale of goods under ec cpr part 46
• an order for the appointment of a receiver under ec cpr part 51

generally, when judgment creditors seek to enforce foreign judgments or arbitration awards in the bvi, they have reason to believe that the judgment debtor owns assets in the bvi, usually in the form of shares in a bvi company. therefore, the most common method of enforcement used when seeking to enforce a foreign judgment is to seek a charging order over the shares in the relevant bvi company owned by the judgment debtor.

this is done by joining the company to the proceedings and seeking a provisional charging order, which can then be converted into a final one. there is no requirement to serve the application for an interim charging order on the judgment debtor, and the order granting the relief is simply served once it has been made. the judgment debtor will, however, then have the opportunity to object to the provisional charging order being made final. once a final charging order has been granted, a judgment debtor will usually apply for the appointment of a receiver and an order for sale. the receiver will typically vote themselves or a nominee on to the company’s board of directors, to then sell underlying assets.

is it also possible to appoint liquidators to enforce a foreign judgment or arbitral award?

instead of seeking to enforce the claim against the assets of a judgment debtor directly, a judgment creditor can seek to appoint a liquidator over the debtor to wind-up the debtor on the basis of the unpaid judgment or award, and apply the proceeds of liquidation to the satisfaction of the debtor’s debts, including the relevant judgment or award. generally, a statutory demand will be served on the company first, but this is not strictly required under bvi law.

what if there is a risk of dissipation once enforcement proceedings are commenced?

it is common for judgment creditors who may have discovered that the judgment debtor has assets in the bvi to fear that once the enforcement proceedings are brought, the debtor will dissipate assets. for this reason, a freezing order may be sought and granted at the same time as the claim is issued. this means that the order granting the freezing injunction can be served simultaneously with the order registering the judgment or award.

if the matter needs to proceed by common law enforcement, then the injunction can also be sought and obtained at the time of filing so that when the claim is served, it is served with the freezing injunction. to obtain a freezing order, however, it is necessary to have tangible evidence (not simply a suspicion) of a risk of dissipation.

conclusion

we hope this guide helps you understand how to enforce foreign judgments and arbitration awards in the bvi. if you have any further questions, please contact claire goldstein or christopher pease.

in the recent decision of re sare public company limited, petition 554/2017, 19/05/2023 the district court of nicosia, cyprus issued an involuntary winding-up order against a cyprus company on “just and equitable” grounds, due to the fraud committed by the persons controlling the company.

the petition was filed by the company’s minority shareholders, holding less than 7% of the company’s issued share capital.

the petitioners alleged that the affairs of the company were carried out in an oppressive manner against them, the funds of the company had significantly reduced and unsecured loans had been granted to one of the shareholders of the company. this resulted in the alienation of gbp325million that the petitioners, and others, had invested into the company and, consequently, the company did not meet its investment expectations and became insolvent. in essence, the minority shareholders alleged that the persons controlling the company used it to conduct fraud, leading to its financial ruin.

the winding-up order was requested pursuant to section 211(f) of the companies law, cap. 113, as amended, which provides that, a cyprus company may be wound-up by the court, among other circumstances, if the court is of the opinion that it is just and equitable that the company should be wound-up.

with reference to english case law, the judge determined that the conduct of fraud by persons controlling a company gave its minority shareholders locus standi to promote a winding-up petition against it since this may be the only way in which the alienated funds may be recovered.

notwithstanding that the fraud had, in fact, succeeded and the company lacked assets, the issuance of the winding-up order would allow for a thorough investigation to be carried out, which would increase the possibility of unveiling the fraud and recovering the alienated gbp325million.

the court therefore granted the petition and ordered the winding-up of the company on just and equitable grounds.

this marks the first time in cyprus that the court has acknowledged that fraud constitutes grounds for involuntary winding-up, and the impact of the decision bolsters minority shareholder protection.

this decision, together with the establishment of the new commercial court in cyprus and the option to use the english language in those proceedings, as well as the new reforms to the judicial system, including the new civil procedure rules, are evidence of cyprus’ continued commitment to cement itself as a reliable and attractive business hub.

in a significant ruling, his honour justice johns kc determined that when calculating equitable compensation, proprietary claims and recoveries made from third parties should be taken into account.

mercy global consult ltd (mercy) provided payroll services to healthcare workers but failed to pass on vat charged on supplies to hmrc. following an investigation by hmrc, a petition for the compulsory winding up of mercy was granted, and liquidators appointed. the liquidators of mercy alleged that the former director and his associates had committed vat fraud on a large scale between 2015 and 2020 and made claims in knowing receipt and dishonest assistance against them, which were upheld at a previous hearing. the purpose of this hearing was to establish the quantum of the equitable compensation sought from each defendant.

when deciding the issue of the quantum of equitable compensation mercy were entitled to receive, the judge found that credit should be given for the assets to which a proprietary claim was established. the assets that had been traced into were still available to mercy. therefore, the sums were not losses, nor were they reflective of losses for all of the assets to which a proprietary claim was established.

further, the liquidators had traced the sums owed into assets held by other director defendants but had given no credit for that in their calculation of the equitable compensation owed by the first defendant. justice johns found that this was wrong, as any sum which the beneficiary recovered had the effect of compensating him for the primary breach of trust he had suffered.

the defendants sought an adjournment to adduce evidence of the current value of the assets recovered rather than their purchase price. justice johns had, however, issued debarring orders against the defendants at an earlier stage and found that there was no authority to suggest that this debarring did not also apply to questions of quantum.

justice johns also ruled that a sum of £2m that was still held by mercy in its account could not be deducted from the total compensation owed. while the sum was available to the liquidators, it could not be determined whether it derived from the fraud. the liquidation was also incomplete and therefore might eventually be unavailable to the liquidators as equitable compensation.

the draft order should contain a cap for a specific amount, which represented the ceiling for any recovery to prevent double recovery.

this is an important case for insolvency practitioners and legal practitioners when deciding their asset recovery strategy. harneys does not advise on the law of england and wales, but this judgment will be of persuasive in common law jurisdictions such as the bvi, cayman and bermuda.

this guide covers frequently asked questions on how to deal with insolvent british virgin islands companies.

what can i do if a bvi company is insolvent?

in the bvi, where a company is insolvent, a creditor may apply to the court to appoint a liquidator over the company. insolvency law in the bvi is almost entirely codified in the insolvency act 2003 (ia) and supplemented by the insolvency rules 2005.

an insolvent company may seek to reorganise or restructure its capital or debts through a plan of arrangement, scheme of arrangement or creditors’ arrangement. plans and schemes of arrangement are governed by the bvi business companies act 2004 (as amended) (bca); the ia governs creditors’ arrangements.

when is a bvi company insolvent?

under bvi law, a company will be deemed to be insolvent if it is:

• cash flow insolvent: cash flow insolvency occurs when the company is unable to pay its debts as they fall due
• balance sheet insolvent: balance sheet insolvency occurs when the value of the company’s liabilities exceeds its assets
• unpaid statutory demand: the company is presumed insolvent if a statutory demand has not been paid or set aside

how do i make an application to appoint liquidators over an insolvent bvi company?

an application to appoint liquidators over an insolvent company is made through an originating application supported by affidavit evidence. an application may be made by, inter alia, (a) the company, (b) a creditor, (c) a member, and (d) the supervisor of a creditors’ arrangement in respect of the company. liquidation is a class right under bvi law, and any application must be advertised so that class members are given notice and may support or oppose the making of an order.

although there is no strict requirement for a creditor to issue and serve a statutory demand on an insolvent company before making an application to appoint liquidators, it is customary for a creditor to serve a statutory demand on the debtor company before issuing the application as a simple way of establishing insolvency.

what can a debtor company do if it wishes to oppose an application to appoint liquidators over it?

a debtor company which has been served with an application to appoint liquidators over it on the basis that it is insolvent can oppose the application if (a) there is a genuine and substantial dispute as to the debt on which the application is made or (b) the agreement giving rise to the debt is the subject of an arbitration agreement. the debtor company must, not later than seven days before the date fixed for the application hearing, file and serve a notice setting out the grounds on which it opposes the application.

in determining whether the debt is disputed on substantial grounds, the court will apply the well-known test in sparkasse bregenz bank ag v associated capital corporation bvihcvap 10/2002 (18 june 2003), which is that the dispute must be genuine in both a subjective and objective sense. that means that the reason for not paying the debt must be honestly believed to exist and must be based on substantial or reasonable grounds. substantial means having substance and not frivolous, which disputes the court should ignore. if the dispute is simply as to the amount of the debt and there is evidence of insolvency, the company should be wound up. the onus is on the company to show sufficient doubt as to its liability to pay the debt to satisfy the court there is an issue to be tried.

if the agreement giving rise to the debt contained an arbitration agreement, the debtor company may request that the court stay the liquidation application and that the matter be referred to arbitration in accordance with section 18 of the arbitration act 2013. a debtor company must file and serve a request for referral to arbitration not later than when submitting its first statement on the substance of the dispute (that is, the same time it submits its notice setting out the grounds on which it opposes the application) to secure an automatic referral order from the court, provided that the agreement is capable of performance. in such a case, the court will refer the parties to arbitration unless it finds that the agreement is null and void, inoperative (the dispute falls outside of the scope of the arbitration agreement) or incapable of being performed.

what can a debtor company do if it accepts that the debt is due and owing but cannot pay it?

suppose the debtor company accepts that the debt is due and owing but cannot pay the debt at that particular time. in that case, the company may consider reorganising or restructuring its capital or debts through a plan of arrangement, scheme of arrangement or creditors’ arrangement. these arrangements are designed to provide a route where the company can be rescued and avoid liquidation.

to secure a moratorium to prevent creditors from bringing applications to liquidate the company while it is trying to restructure, a debtor company may also seek the appointment so called “light touch” provisional liquidators to assist with and/or facilitate the restructuring.

what happens if the debtor company cannot oppose the liquidation application or restructure or reorganise its debts?

if the company cannot oppose the liquidation application or restructure or reorganise its debts, and the court finds it insolvent, then the court will appoint liquidators over the company. liquidation commences on the date the order appoints liquidators over the company is made; it does not relate back to the time of presentation of the originating application to liquidate the company.

what happens when a liquidator is appointed over an insolvent bvi company?

once a liquidator is appointed, unsecured creditors cannot start legal proceedings against the company without leave of the court, and any rights of action against the company are converted into claims in the liquidation process. when a company enters insolvent liquidation, any mutual debts between the company and a creditor intending to prove in the liquidation will be set off.

upon the appointment of a liquidator, the liquidator’s primary duty is to collect all of the company’s assets and then distribute them pari passu to the company’s creditors. the assets of a company in liquidation shall be applied in the following order of priority:

• the costs and expenses properly incurred in the liquidation
• preferential claims admitted by the liquidator
• all other claims admitted by the liquidator
• any interest payable after commencement of the liquidation

a liquidator may challenge transactions entered into in the twilight period before insolvency, where such transactions constitute either unfair preferences, undervalue transactions, voidable floating charges or extortionate credit transactions. in each case (except for extortionate credit transactions), the company must have been insolvent (excluding balance sheet insolvency) at the relevant time or the transaction must have caused it to become insolvent.

the applicable vulnerability period is two years for connected persons or six months in all other cases. the statute contains relevant "safe harbours" to protect bona fide arm's length transactions in each case. a liquidator can also pursue former directors (including shadow or de facto directors) and company officers for misfeasance or insolvent trading and any person involved where the company has been engaged in fraudulent trading.

conclusion

we hope this guide helps you understand how to deal with insolvent bvi companies. if you have any further questions, please contact claire goldstein or christopher pease.

chinese new year (also referred to as lunar new year outside of china) is not only the biggest holiday in china but also in many other asian countries and communities worldwide.

it is commonly accepted that the year of the dragon (or the “year of the loong”) started this year on 10 february 2024. the holiday period lasts about two weeks. the dragon replaces the rabbit, which was last year’s zodiac animal. the year of the dragon is considered an especially auspicious year in chinese and asian culture for several reasons:

• the dragon is viewed as a powerful symbol of strength, energy, and good luck in asian mythology and folklore. dragons are associated with authority, prosperity, and protection.
• historical figures and great emperors of china were often associated with the dragon, like the legendary chinese king known for his upright moral character and who established chinese dynastic rule, yu the great. chinese people refer to themselves as descendants of the dragon because the first chinese imperial dynasty was said to have originated from dragons.
• more recent famous figures born in the year of the dragon include j robert oppenheimer, martin luther king jr, bruce lee, and rihanna. therefore, a dragon year is thought to usher in strong personality and leadership.
• dragons are depicted as bringing rain which ends droughts and nourishes the land, so they also represent prosperity and financial harvests.

some customs in the business and work context to observe include sending clients and business associates impressive gift baskets before chinese new year known as "year-end gifts." it is also good to send new year greeting cards or emails to chinese and asian clients and business partners who celebrate, to wish them prosperity and success in the coming lunar new year. you may want to avoid planning important business meetings or conferences during the first week of the new year when families are celebrating.

at the workplace, many companies will arrange for a traditional lion dance to be performed on the premises on an auspicious day in the new year period to bring good luck, prosperity, and further business. it is also customary for companies and employers to give “start work” lucky envelopes containing money (also known as “hong bao” in mandarin and “laisee” in cantonese) to their employees, which flows from the tradition of adults giving the red envelopes to children. getting in on the festive spirit, the harneys hong kong office produced and distributed limited edition lucky envelopes, and wallets to clients and business associates and partners.

following these cultural tips for businesses can ensure a smooth and productive relationship with chinese and asian business contacts over the new year period. being mindful of holiday etiquette and traditions shows respect for cultural differences and allows relationships to continue strengthening in the lunar new year. approaching chinese new year with patience, care and goodwill can pay off in the long run.

harneys wishes everyone a prosperous and healthy year of the dragon!

in the recent decision of in the matter of holt fund spc, the cayman islands grand court confirmed for the first time that it has jurisdiction to wind up a segregated portfolio company (spc) based on the insolvency of one or more (but not all) of its segregated portfolios, and accordingly restructuring officers could be appointed in relation to those segregated portfolios.

the decision concerns an unopposed application to appoint joint restructuring officers under the cayman islands dedicated restructuring regime in relation to two segregated portfolios of a spc. despite his initial concern, justice kawaley reviewed the relevant statutory provisions and case law and concluded that the court does have jurisdiction to wind up a spc where some but not all of its segregated portfolios are insolvent:

1. whilst it is unclear from the statutory provisions whether a spc could be viewed as unable to pay its debts if one or more of its segregated portfolios was insolvent, the legislation contained no express modification of the standard insolvency test for spcs (in contrast, the bermudian legislation does provide that assets and liabilities linked to segregated accounts shall not be taken into account).
2. also, there are express statutory provisions stipulating that when a spc is wound up, the liquidator must respect the statutory separation of the assets and liabilities of the segregated portfolios.
3. further, the recent decisions of re coinful and performance insurance company spc (in official liquidation) support the propositions that:
   1. the insolvency of one or more of segregated portfolios could be attributed to a spc for the purpose of exercising the court’s winding-up jurisdiction; and
   2. official liquidators could be appointed to deal with assets and liabilities of specific segregated portfolios.
4. lastly, the court agrees with the contention that a spc as the sole entity with legal personality was liable for the debts of its segregated portfolios was consistent with the commercial reality in the circumstances of this particular case.

in view of the above, the court appointed joint restructuring officers to the two segregated portfolios of the spc.

as noted by the grand court, this decision highlights the flexibility of the spc regime in the cayman islands compared with both traditional companies and corresponding segregated portfolio regimes elsewhere.

we recently had a chat with natalie lee, our newly promoted counsel, during which she talked about her career in law, her journey with harneys and more.

can you tell us a bit about your background and what and/or who has inspired you to pursue a career in law?

i am from sydney, australia and took the traditional path of studying a combined arts/law degree which has led me to my life as a lawyer. to be frank, as an 18-year-old straight out of high school, i did not know what career i wanted to pursue so it was a matter of what my strengths were at school. i found myself quite enjoying english, literature and debating so law was a natural choice for me.

could you share a bit about what you do and your practice areas?

i have been with the disputes and insolvency team at harneys for over 8 years. i consider myself lucky and am grateful for the wide exposure which has been offered to me with my work – my main body of work at the moment is valuation disputes but i have been involved in shareholder/director disputes, listed company disputes, contentious insolvency matters, funds disputes, trusts disputes, probate, restoration, capital reorganisation. this list goes on so basically anything contentious. i’ve also dabbled in a bit of corporate work with some of my existing clients from disputes.

you have been with harneys for over 8 years now. how has your experience been so far? what was the most memorable for you?

it’s been an enjoyable and rewarding ride working with peers of such high calibre here – many of them turned friends. there’s a reason it has been 8 years and counting! my most memorable experience would have to be attending a trial in the cayman islands and a 3-month secondment in the bvi. as a litigator, attending a trial is an eye-opening and exhilarating experience because you get involved with all aspects of the case and see the product of years of hard work and preparation. it is intense for the duration of the trial but a huge achievement once complete. outside of the court room, swimming with stingrays at a sand bar in the cayman islands and jumping off the infamous bar “willy-t” after a few painkiller cocktails are my top memories.

how is it different to be a counsel as compared with being a senior associate?

it’s only been a little over a month since i have been counsel so i am still growing into the role. i hope to take on more initiatives to build our team and work more closely with our team of partners.

if you had not pursued a career in law, what do you think you would be doing?

i think i would be a teacher. fun fact: i actually took a one-year sabbatical in hong kong before harneys to teach english at a local high school through a charity. i love educating others and working with kids. i am grateful for all the teachers who inspired me throughout school and university and hope to pass on that same motivation and knowledge to others.

who do you admire most and why?

can i pick two? my mum and dad. they immigrated to sydney from china and hong kong with no english skills and little money. they worked very hard to provide my siblings and me with the best future they could and they succeeded.

what is your favourite movie and why?

i love any disney movie as i grew up watching them but in cantonese so it’s always a bit odd now watching them now in english.

what’s on the top of your bucket list?

northern lights – apparently they’re the best and brightest this year.

if you could live the life of someone for a day, who would that person be?

i think my sister’s pomeranian dog, butters, has a pretty sweet life. i wouldn’t mind a day in the life of butters.

what is the best piece of advice you have received?

it’s a saying i’ve only really heard in cantonese but translated it would go something like: enjoy the journey, don’t ask about the destination.

what is the one skill that you would like to master?

cooking. i’m a terrible cook but i love to eat.

what is your worst nightmare?

anything which involves insects or creepy-crawlies. i know i’m australian but it doesn’t mean i’m not afraid of them!

insolvency law in the cayman islands is principally regulated by the companies act (2023 revision) (the companies act) and the companies winding up rules (2023 consolidation), and they are supplemented by a wide body of case law.

the following guidance is a summary only.

under cayman islands law a company may be wound up on the basis of insolvency if it is unable to pay its debts. a company is treated as unable to pay its debts if it fails to satisfy a valid statutory demand, execution on a judgment is returned wholly or partly unsatisfied, or it is otherwise proved to the satisfaction of the court that the company is unable to pay its debt. the courts are also prepared to wind up a company on the just and equitable ground if it is shown that there is a break down in trust and confidence between the company and its creditors and shareholders.

upon making an order for the appointment of a liquidator, the commencement of the winding up is deemed to relate back to the time of the presentation of the petition, and all dispositions of the company's property between the date of the petition and order are void unless the court otherwise orders.

establishing insolvency will enable a creditor to petition the court for the appointment of a liquidator, and may also have other consequences (for example, when a company is insolvent, directors must exercise their powers in the best interests of the company having primary regard to the interests of its creditors). the members of a company can also voluntarily appoint a liquidator by passing a special resolution (or an ordinary resolution if the company is insolvent), and if the company is unable to pay its debts then the voluntary winding up will be conducted subject to the supervision of the court. "non-petition" clauses have statutory force in the cayman islands.

liquidation is a class right under cayman islands law. once appointed, the liquidator's primary duty is to collect in all of the company's assets and then distribute them pari passu to the company's creditors in accordance with the statutory scheme of distribution, and the legislation confers wide powers upon the liquidator to do so. once a liquidator is appointed, unsecured creditors cannot commence legal proceedings against the company in the cayman islands without the permission of the court; rights of action against the company are converted into claims in the liquidation process. secured creditors generally do not participate in the liquidation process, and may continue to proceed with any enforcement action directly against their collateral, pursuant to a valid security interest. cayman islands law only provides for a very small class of preferential creditors and these are rarely commercially significant in insolvent liquidations.

the court will look at the purpose of the petition. in the case of tianrui (international) holding company limited v china shanshui cement group limited [2019] (1) cilr 481, applying section 92(e) of the companies act, the court of appeal confirmed that a shareholder’s just and equitable winding-up petition does not need to advance a class remedy for the benefit of all shareholders as was previously held in ctrip investment holding ltd v ehi car services limited [2018] (1) cilr 641. the court of appeal held that a lack of a class remedy, at most, may support an argument that the petition is brought for an improper purpose. while a shareholder’s petition will likely include complaints particular to that shareholder, which may not be relevant to other shareholders. a shareholder must be able to petition against acts of the company promoted by other shareholders, the remedy to which will clearly not seek to benefit those very shareholders behind those acts.

a liquidator has no right to disclaim either onerous property or unprofitable contracts under cayman islands law.

when a company goes into liquidation, any mutual debts between the company and a creditor will be set-off. any creditor who extended credit to the company at a time when it had notice of the winding-up petition cannot apply setoff. the companies act also includes provisions which provide that any netting agreement relating to financial contracts (including multi-lateral netting) will prevail over the statutory insolvency set-off provisions.

a liquidator may challenge transactions entered into in the twilight period prior to insolvency where such transactions constitute either a preference or a disposition at an undervalue. there is no separate avoidance regime for floating charges. in each case the company must have been unable to pay its debts at the relevant time or the transaction caused it to become unable to pay its debts. the relevant vulnerability period is six months prior to the commencement of the winding up in the case of preferences, and six years in the case of dispositions at an undervalue. in relation to preferences it is necessary to show an "intention to prefer" on the part of the insolvent company to challenge a transaction as a preference, but if the preferred party is a related party there is presumed to be an intention to prefer.

a liquidator can also pursue former directors (including shadow or de facto directors) and officers of the company for either misfeasance or fraudulent trading. if it appears that any person has been carrying on the business of the company to defraud creditors or for any fraudulent purpose the liquidator may apply to the court for an order that such persons make a contribution to the company's assets.

the companies act provides a broadly equivalent separate regime in the court appointment of a receiver over a segregated portfolio (which unlike a segregated portfolio company (spc) itself does not constitute a legal entity and is not subject to the company winding up process), whose task is to manage the orderly closing down of the business of the portfolio and the distribution of its assets to those entitled to them. a creditor, shareholder or the company itself can apply for the appointment of a receiver where the assets of the portfolio are or are likely to be insufficient to discharge the claims of creditors in respect of that portfolio on a cash flow test of insolvency.

it is also possible for an insolvent company to enter into a scheme of arrangement to try to restructure its debts. any scheme of arrangement must be approved by each class of creditors by a majority in number representing 75 per cent in value of the creditors or members present. it should be noted that for a members’ scheme, as of 31 august 2022, the headcount test does not apply.

as of 31 august 2022, a new restructuring office regime came into effect, a legislative rescue regime allowing for the restructuring of a company under the supervision of a restructuring officer and providing for an automatic stay of creditors actions when a company is undergoing a restructuring.

in order to act as a liquidator of an insolvent company or a restructuring officer a person must be a licensed insolvency practitioner. a practitioner must be resident in the cayman islands to obtain a licence. however, it is possible for a foreign insolvency practitioner to be appointed jointly with the cayman islands resident licensed insolvency practitioner. the governing provisions are contained in the insolvency practitioners’ regulations 2018.

the companies winding up rules (2023 consolidation) makes provision for the liquidator of a company to enter into protocols with a foreign officeholder appointed by a foreign court in another jurisdiction to promote the orderly winding up of the company's affairs and to avoid conflict between the winding-up proceedings in the cayman islands and the foreign jurisdiction.

for more information, please reach out to the authors.

this guide to covers frequently asked questions on how claims work and the claims process in the british virgin islands.

how do you start a claim in the bvi?

• in the bvi, a claim is commenced by filing a claim form along with a statement of claim at the court office or, for specific types of claims, a fixed-date claim form with an affidavit in support.
• a fixed claim form states the date, time and place for the first hearing.
• a claim may be commenced in the civil division or commercial division of the high court. ordinally, a claim should include all claims which can be conveniently disposed of in the same proceedings. a claimant bringing a commercial claim (ie, a claim related to companies, contracts, banking, insurance, arbitration, etc) is required to file a certificate of suitability which specifies the commercial nature of the claim and certifies that the claim is valued at us$500,000 or more.
• there are associated filing fees for bringing a claim, which vary depending on the nature of the dispute and the claim’s value.
• a claim is issued on the date the court office receives it. the court registry’s opening hours are between 8:30am and 4pm from monday to friday, excluding weekends and public holidays. if a claim form is filed electronically outside of the registry's hours, it will be deemed filed on the date the court reopens.

who can start a claim?

a claim can be commenced by a person over the age of 18 years, a company or body corporate, a representative, beneficiary, trustee, administrator of an estate or a next friend (ie an appointed person for a minor or patient).

what claims can be commenced by way of a fixed-date claim form?

• the eastern caribbean supreme court rules (revised edition) 2023 (the ec cpr) provides that a fixed date claim form must be used: (1) in claims between landlord and tenant; (2) where required by an enactment, rule or practice direction; (3) where an enactment, requires proceedings to be commenced by originating summons or motion; (4) matters involving questions of law only and (5) where an enactment provides for an application to be made to the court where the effect of application commences proceedings in the court. for example, ec cpr 43.12 requires use of a fixed date claim form for recognition of a foreign arbitral award.
• one distinction between filing a claim and a fixed-date claim concerns the timing of the first hearing. when issuing a fixed date claim form the court must set a date for the first hearing of the claim. the court may treat that first hearing of the claim as a case management conference or a trial of the claim (if it is not defended or if it considers that it can be dealt with summarily).

once a claim has been filed, when must it be served?

a claim issued against local defendants must be served within six months of being issued (ie, the date entered on the claim form by the court office). however, claims issued against foreign defendants must be served within 12 months. if there are difficulties with effecting service, the claimant can apply to the court to extend the life of the claim form.

how do you serve a claim within the jurisdiction?

• the general rule is that a statement of claim and claim form must be served personally on each defendant by either handing it to or leaving it with the person served. however, if a claimant has difficulty effecting personal service - eg. where a defendant is evading personal service - a claimant can seek permission to serve the claim via an alternate method specified by the court. the claimant must file evidence which proves that personal service “cannot be effected on the defendant for good reason.
• a claimant may also serve its claim on a defendant’s legal practitioner, provided the legal practitioner is authorised to accept service and has confirmed its authorisation in writing.
• where the defendant is not a person, the ec cpr guides how service may be affected by limited companies, firms or partnerships, body corporates, minors and patients.
• a claim can be served without a statement of claim if: (1) it contains the information required to be included in a statement of the case, (2) the court gives permission, or (3) it is a matter of emergency and the claimant certifies that it would be impracticable to obtain permission.

how do you serve a claim on a defendant outside the jurisdiction?

claims brought in the bvi can also be brought against people or companies not resident or located within the bvi.

it is no longer necessary to obtain permission from the court to serve a claim outside the jurisdiction. still, it must comply with three criteria, and the claimant must file a certificate confirming compliance.

according to ec cpr 7.2, the three criteria are:

• service must be affected in compliance with ec cpr 7.9 or according to rule ec cpr 7.17. ec cpr 7.9 lists the modes of service available to a claimant. these include service per the country’s laws where it is to be served, service through foreign governments or personal service by the claimant or agent. where a party has complied with ec cpr 7.2 to serve its originating claim, ec cpr 7.17 states that the court’s permission is not required to serve an application, notice or order issued in those proceedings, provided it is served in compliance with the ec cpr.
• the claim must fall within one of the service-out gateways listed in ec cpr 7.3.
• the claimant must comply with ec cpr 7.6 by filing a certificate at the same time as filing the claim. the certificate must state that (i) the claimant has a good cause of action, (ii) the claim falls within a category listed in ec cpr 7.3, and (iii) the person signing the certificate believes that the bvi court is the appropriate forum and the proposed method of service does not infringe the law of the foreign state.

the relevant service-out gateways that a claim must fall into are as follows:

• features which may arise in any type of claim: the claim, the claim is (1) made against a local defendant, and there is a real issue which is reasonable for the court to try, and the claimant needs to serve someone who is outside the bvi, who is a necessary and proper party; (2) for an injunction ordering the defendant to do or refrain from doing some act within the bvi; (3) for a remedy against the defendant a person domiciled or ordinarily resident in the bvi.
• claims about contracts: (1) the claim concerns a breach of contract committed within the bvi. (2) the contact (i) expresses or implies that the bvi court has jurisdiction, (ii) was made by or through an agent residing in the bvi or (iii) was made within the bvi. (3) the claim is for a declaration that no contact exists provided that if it did, it complied with (i), (ii) and (iii).
• claims in tort: the claim concerns tort and the act of causing the damage committed in the bvi or the damage sustained in the bvi.
• enforcement: the claim is made to enforce a judgment or arbitral award made by a foreign court or a tribunal and is amendable to be enforced in the bvi.
• claims about bvi property: the claim concerns property within the bvi.
• claims about companies: the claim is made concerning the (1) constitution, administration, management or conduct of the affairs, (2) ownership or control, or (3) insolvency of a bvi-incorporated company.
• claims about trusts: the claim is made for a trust remedy and (i) the defendant as constructive trustee and the defendant’s alleged liability arises out of acts committed within the jurisdiction, (ii) the claim concerns the administration of an estate or probate proceedings relating to a person who died domiciled within the jurisdiction, or (iii) the governing law of the trust instrument is in the bvi.
• claims of restitution: the claim is a restitution claim where the defendant’s alleged liability arises out of acts committed within the bvi or out of acts which, wherever committed, were to the detriment of a person domiciled within the bvi.
• claims under an enactment conferring jurisdiction on the court: the claim is made pursuant to an enactment that provides the court the power to hear and determine the claim.
• relief in aid of foreign proceedings: an application is made for interim relief, and proceedings have commenced or are about to be started in a foreign jurisdiction.
• claims for costs orders against a non-party: the claim is made by a party to proceedings for a cost order against a non-party.

what if a defendant evades service or cannot be found?

if a defendant cannot be located or evades service and, therefore, cannot be served by one of the ordinary methods of service outlined in ec cpr 7.9, the claimant can apply for an order for service by alternative means. before seeking such an order, the claimant must provide a good reason and show why service cannot be reasonably effected on the defendant by ordinary means. in granting an order for alternative service, the court will then allow service to be affected by any method likely to bring the claim to the defendant’s attention.

what documents should be served with a claim form?

the following documents must be served with the claim form and statement of claim, failing which, service will not be validly affected:

• a copy of any order required by the ec cpr
• a defence form
• an acknowledgement of service form
• prescribed notes for the defendant(s)
• an application to pay in instalments (provided that the claim is a monetary claim)
• an authorisation code (as new matters are likely to be filed electronically on the e-litigation portal)

what if urgent interim relief is also needed?

a claimant seeking an urgent remedy before commencing proceedings (for example, injunctive relief where asset dissipation may otherwise occur) can obtain such relief by applying even before proceedings have been initiated. in the application, the claimant must satisfy the court that the relief is being sought concerning anticipated proceedings, which will be commenced in short order. such an application can also be brought on an ex parte basis to avoid tipping off the respondent.

are there any particular rules on pleadings?

when bringing a claim, a claimant must properly establish its case and identify or annex relevant and corroborative documents supporting the claim. the importance of an adequately pleaded case cannot be overstated. a claimant may not rely on any allegation or fact that is not set out in the claim unless the court gives permission or the parties agree.

a claimant will, therefore, be required to set out its case, describe the nature of the claim, provide an address for service and specify the remedy, damages and/or interest sought.

a claimant who seeks interest, aggravated and or exemplary damages must say so in the claim form. to plead interest, the claimant must set the basis for entitlement, rate and period for which interest is claimed. where the claim is for a specified sum, the claimant must also state the amount of interest and the daily rate at which interest should accrue.

a statement of claim must be as short as practicable and include all the facts or allegations the claimant relies on. it must also have a certificate of truth and estimate the property’s value where relevant.

a statement of claim must be pleaded appropriately and state a cause of action(s). in the recent decision of ao alfa bank v kipford ventures ltd v kipford ventures limited bvihc (com) 219/2020 (14 december 2021), the court opined that the claimant’s pleadings were “too vague to be actionable”. therefore, a statement of claim must provide the defendant(s) with sufficient details to enable them to respond to the claim appropriately. failure to do so can result in a claim being struck out.

conclusion

we hope this guide helps you understand how claims work in the bvi. if you have any further questions, please get in contact with claire goldstein or christopher pease.

on 6 february 2024, the governor of bermuda, ms rena lalgie, announced the appointment of mr larry mussenden as the next chief justice of the supreme court of bermuda. mr justice mussenden has officially commenced his role on 8 february 2024.

mr justice mussenden was called to the bar of england and wales in 1995 and the bermuda bar in 1996 and has over 27 years of professional legal experience in both public service and private practice. prior to his appointment as the chief justice of the supreme court of bermuda, mr justice mussenden has served various roles including crown counsel between 1996 and 2001 and the attorney-general and minister of justice in 2004 under the then progressive labour party government after he was made government senate leader the year before. after working in private practice from 2007 to 2016, mr justice mussenden became the director of public prosecutions from 2016 to 2020 and on 3 december 2020, he was appointed as a puisne judge of the supreme court of bermuda. in addition, mr justice mussenden also served in the royal bermuda regiment and retired as a major and second-in-command.

the appointment of mr justice mussenden is widely praised and supported. in confirming the appointment, the governor stated:

“mr mussenden is a highly regarded lawyer both within bermuda and internationally. i am confident that his legal expertise and leadership experience will serve the supreme court well, helping to maintain the island’s standing as a legal jurisdiction of the highest order.”

the shadow minister of legal affairs, scott pearman, said:

“the one bermuda alliance offers its congratulations to chief justice mussenden on his appointment to lead our island’s court system. bermuda is fortunate to have a talented judiciary at all levels. the elevation of mr justice mussenden to become our next bermudian chief justice will continue this tradition. it is important for bermuda to maintain a strong and independent judicial system. the chief justice has our support to ensure this vital separation of powers and to promote the rule of law.”

mr justice mussenden is the 43^rd chief justice of the supreme court of bermuda, succeeding mr narinder hargun who served from july 2018 until his retirement in december 2023.

bvi, cayman islands or bermuda companies listed or with underlying operations in mainland china or hong kong can now take advantage of an improved regime for the reciprocal enforcement of judgments between the two jurisdictions.

the mainland judgments in civil and commercial matters (reciprocal enforcement) ordinance (cap 645) (reo) has just come into force (29 january 2024) and will now apply to judgments obtained in either mainland china or hong kong, replacing the old regime. for companies who pursue cross-border litigation involving counter-parties based in china or hong kong, this improved avenue for the enforcement of judgments is of great interest.

clients should be aware of the following three significant changes brought about by the new regime:

• increased scope: the under old regime, reciprocal enforcement was only possible in contractual disputes. the reo covers almost all civil and commercial matters, save for those excluded by section 5 (matrimonial cases, for example). the reo specifically excludes reciprocal enforcement of liquidation orders [s.5(1)(e)].
• more relief: under the old regime, reciprocal enforcement was only available to seek monetary relief. non-monetary relief may now also be applied for, including, for example: (i) specific performance or (ii) declaratory relief.
• enforcement without exclusive jurisdiction: under the old regime, judgments could only be reciprocally enforced if the underlying contract contained an exclusive jurisdiction clause. the reo has jettisoned this.

a party only has 14 days to apply to set aside a judgment registered in hong kong [s.21(1)], beginning from the date that a notice of registration is served: this 14-day deadline can be extended upon application [s.21(2)]. the offshore community will be familiar with the care required to successfully serve out of the jurisdiction.

there are also a number of grounds upon which a court may set aside the registered judgment [section 22(1)), many of which will be familiar to litigants seeking to enforce in cross-border offshore disputes, but some of the more noteworthy grounds are:

• the deciding court did not have jurisdiction to decide the underlying dispute [s.22(1)(b)];
• the case was accepted by a mainland chinese court after concurrent proceedings had already been started in hong kong [s.22(1)(e)];
• that enforcement would be contrary to hong kong public policy [s.22(1)(j)].

these grounds, in particular, are likely to be fiercely contested and will require early input from legal advisers to judgment creditors.

in summary, the reo can be used to enforce hong kong judgments in china without having to re-litigate an underlying dispute, saving clients not only time and money but setting the conditions to prevent further loss. this will be of particular interest in fraud and asset tracing cases: offshore claimants seeking to recover dissipated assets from a counterparty listed or with underlying operations in mainland china now have greater flexibility when seeking relief in the hong kong courts following judgment.

in our previous articles, we considered several fund issues in the context of open-ended funds (such as redemptions, redemption runs and gateway provisions). in the cayman islands, the most common vehicle for the use of close-ended funds is an exempted limited partnership (elp) registered under and governed by the exempted limited partnership act, 2021 revision (the elp act).

the key features of an elp, in the context of fund disputes, are: (a) the elp itself has no separate legal personality (akin to a trust); (b) all management responsibility vests in the general partner(s) (gp); (c) limited liability for the limited partners (lps), except in narrow circumstances; and (d) inviolable duty of the general partner to act in good faith. like a fund’s articles of association, the elp’s limited partnership agreement (lpa) sets out the respective rights and obligations of the gp and the lps and will be construed in a manner consistent with the parties’ intention and business common sense.

whilst it is outside the scope of this brief note to identify and discuss the wide range of disputes that can arise in the context of an elp, we summarise the main kinds we are currently seeing.

replacement of the gp

noting that all management responsibility vests in the gp, a gp is frequently the target for disgruntled investors of an underperforming, financially mismanaged or distressed elp. we are often approached to review an lp’s rights under the lpa and elp act to replace the gp. most commonly, this can be achieved by: (i) the utilisation of their rights under the lpa to effect such a change (albeit such a right may not be included in the terms of the lpa) whilst avoiding unintended adverse consequences; (ii) appointing an independent liquidator to displace the incumbent gp (we consider this further below); or (iii) negotiate a consensual withdrawal and replacement. the elp act requires that the incumbent gp files a statement with the registrar of exempted limited partnerships to give effect to the replacement and failure to do so permits any other partner to petition to the court to direct another party to file it on behalf of the incumbent gp.

information gathering

to assist disgruntled investors ascertain if there has been mismanagement, an lp has a statutory right to compel the gp to provide it with "true and full information" about the business, affairs and financial condition of the elp pursuant to section 22 of the elp act (assuming such a right has not been curtailed or removed by the lpa). importantly, it has been held that the motives of the lp seeking partnership information pursuant to this statutory right are irrelevant (see dorsey ventures 2019 (1) cilr 249, and in the matter of gulf investment corporation et al v the port fund lp et al (unreported 16 june 2020). failure to comply with section 22 is grounds to issue proceedings against the gp to compel it to disclose such information.

liquidation proceedings

it was traditionally the view that, notwithstanding that an elp has no legal personality, the correct respondent to a winding up petition for the appointment of liquidators was the elp itself (and not the gp). this view was upturned by a decision of the court in 2021, re padma fund lp (fsd 201 of 2021 (rpj), 8 october 2021), where it was held that the court had no jurisdiction under the companies act to wind up an elp on a creditor’s petition (rather it was the gp that must be wound up). the court then held in a later decision, re formation group (cayman) fund i, l.p. (fsd 366 of 2021 (ikj), 21 april 2022)), that a just and equitable petition issued by the elp’s lps could be brought against the elp itself. given these conflicting decisions and that an appellate court has yet to resolve the issue, re padma remains authority that the correct respondent for a creditor’s petition is the elp. it is therefore imperative to consider in what capacity and upon what grounds the investor may petition and what the consequences of the same may be. there may also be grounds available under the lpa itself to appoint a voluntary liquidator such that an independent liquidator (albeit not court supervised) is appointed to displace the incumbent gp and manage the affairs of the elp.

derivative and direct claims

it has been recently held that lps are permitted to take direct action against the gp (rather than a derivative action on behalf of the elp itself) and are not restricted to the taking of a partnership account (as would be the case in respect of an ordinary partnership) (see kuwait ports authority & ors v. port link gp ltd & ors (cica (civil) appeal nos. 002 & 003 of 2022, 20 january 2023 (port link)). furthermore, the court of appeal held in port link that a derivative action is available to lps only if the gp has refused to or failed to do so without good cause (which is the statutory test). it is sufficient for the lps to show a "good arguable case" in this regard. it will therefore be important to assess as early as possible what causes of action may exist, against whom and whether such claims can be framed as direct or derivative actions.