- in United States
The Commercial Court of the BVI has discharged a worldwide freezing order (WFO) obtained ex parte by Eletson Corporation and Eletson Gas LLC (together, Eletson) against Levona Holdings Ltd and Tropical Island International Ltd (together, Levona) 1. The WFO was not re-granted.
The case is an illustration that the requirement of urgency and notice are not a mere formality but jurisdictional pre-conditions for invoking the Court's powers to hear a matter filed without notice and must be treated with care in the supporting sworn evidence. This is also an example when the BVI Court will not allow forum-shopping if similar relief was denied in the foreign court or could have been obtained overseas. The judgment is a timely reminder that, in the BVI as in England, the court's indulgence in granting draconian relief ex parte is conditioned on stringent standards and procedural compliance.
Key Background Facts
The underlying arbitration dispute between the parties (and related entities) concerned the ownership and control of corporate interests in LPG carrier vessels. On 8 March 2024 Eletson filed a without notice application seeking to freeze assets of Levona worldwide. The application was supported by a certificate of urgency.
The BVI application was made in support of a future enforcement of an arbitral award obtained by Eletson v Levona in New York under the JAMS Arbitration Rules (the JAMS Award). At the time, the JAMS Award was a subject matter of the US confirmation and vacatur proceedings. The opposing parties were also involved in the US Bankruptcy proceeding of Eletson Holdings Inc, the parent company of Eletson Corporation. The enforcement of the JAMS Award was stayed pending the outcome of the US Bankruptcy proceedings (the Lift Stay Order). The case raised a number of curious points; this article will discuss the breach of procedural pre-conditions and substantive breach of the duty of full and frank disclosure and fair presentation.
Failure to Provide Reasons For Ex-Parte Application
The BVI Court found that Eletson did not explain in their evidence, or in the certificate of urgency, or at the ex-parte hearing (i) why the application was made without notice to Levona, (ii) why no notice was possible, (iii) why three days' notice, or some other short notice, was not possible and (iv) why notice would defeat the purpose of the application. Although Eletson did submit that they were concerned not to tip off Levona, the facts of the case when presented at the inter partes substantive return hearing suggested that Eletson, in the context of the US confirmation proceedings, had applied for similar relief and had openly informed Levona and the Court that should the relief be refused Eletson would apply to the BVI Court to obtain the same. The US Court denied the injunctive relief sought and left it open to Eletson to return to the Court. Furthermore, just two weeks before the BVI ex-parte hearing, Eletson applied to the US Bankruptcy Court to clarify whether or not the terms of the Lift Stay Order prohibited Levona from dealing with the two vessels. In the context of that application Eletson repeated its unequivocal indication to apply for an order restraining Levona's assets should the Lift Stay Order be construed not to cover the two vessels.
The BVI Court found that Levona was tipped off a long time ago, and that the latest occasion before the US Bankruptcy Court was the tipping off of Levona "in the clearest terms". Eletson did not bring the above discussed exchanges with the US courts to the attention of the BVI Court. The Judge concluded that the Court was "misled" by Eletson's tipping off submission into thinking that this was a sound basis for acceding to a WFO on a 'without notice' basis.
Artificial Construct of Urgency
Eletson claimed that the BVI application was urgent due to market intelligence received via an email relating to financing of vessels which was described in very similar terms to the vessel operated by Levona. Hence it was not possible to give notice to Levona. The email that allegedly created urgency came to the attention of Eletson two days before Eletson filed their application with the BVI Court.
The Judge described this construct of urgency as a "gymnastic attempt" and as a "pretext" in order to proceed ex parte. The evidence showed that Eletson was working on the BVI application for at least a month before it was filed. The length of the supporting affidavit, the detail and volume of documents suggested the application was carefully planned. The contents of the email were neutral and did not suggest that Levona intended to dispose of its assets otherwise than in the ordinary course of business.
Inconsistent Presentation of the Case in New York and the BVI
The Judge criticised Eletson for forum-shopping and pitching its case of urgency to get "illegitimate advantage" from the BVI Court in the shape of the ex parte WFO in circumstances where two US judges were unlikely to grant the relief sought that it otherwise obtained in the BVI. This became possible due to a failure to present the case fully, frankly and fairly, and by not giving any notice to Levona thereby depriving the Court of a more balanced consideration of the complex matters. The Judge observed that it was open to Eletson to return to the New York courts for relief in terms similar to the one obtained in the BVI, and it was a tactical decision not to do so. Instead Eletson presented the matters to the BVI Court as if it would be deprived of status quo relief granted by the JAMS arbitrator pending the outcome of the US confirmation proceedings which everyone agreed was vacated by the US Court. Furthermore, the BVI application was inconsistent with Eletson's own case argued before the US Bankruptcy Court that the Lift Stay Order prohibited Levona from dealing with the vessels. The BVI Court concluded that Eletson took the dramatically opposite position before the BVI Court to play down the inconvenient fact that Levona did not dispose of the vessels despite Levona's own case that it was free to do so; that fact reduced the risk of dissipation and the need for urgency.
Consequences of Breach of the Duty of Full and Frank Disclosure and Fair Presentation
The BVI Court reinstated the well-settled legal principles governing the duty of full and frank disclosure and fair presentation2. The Judge considered whether the Court should deviate from the standard position that the breach of the WFO should result in discharge of the WFO without a re-grant.
The Judge found that Eletson failed to bring to the Court's attention the argument that could be taken against Eletson regarding the inconsistency as to its approach in the New York courts. It was "not an innocent oversight", but not a "deliberate" failure. The Court found that failure to provide reasons for proceeding on an ex parte basis was misleading; the Court was not given any explanation as to how the failure occurred. The criticism was extended to Eletson rather than its legal representatives.
The Judge observed that consideration should have been given to the fact that Levona has not disposed of the vessels although on its own case it was free to do so. This material fact was not presented in a balanced manner.
Footnotes
1. BVIHCOM 2024/0111 Eletson & Ors v Levona & Ors.
2. Tugushev v Orlov [2019] EWHC 2031 (Comm); Fundo Soberano de Angola v Jose Filomeno dos Santos [2018] EWHC 2199 (Comm); Les Ambassadeurs Club Ltd v Albluewi [2020] EWHC 1313 (QB); Alliance Bank JSC v Zhunus [2015] EWHC 714 (Comm).
3. Chia Hsing Wang v HY BVIHCAP 2022/0055 [219]-[221].
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
