British Virgin Islands: Too Late To Arbitrate

On 11 November 2022 the Court of Appeal of the Eastern Caribbean Supreme Court (the Court of Appeal) delivered an important – and in the context of the looming recession – a timely, decision on the relevance of arbitration clauses to disputed debt petitions: Sian Participation Corp v. Halimeda International BVIHCMAP 2021/0017.

The approach which the BVI Court takes to disputed debt petitions has been well established, at least since the seminal decision of Sparkasse Bregenz Bank v. Associated Capital Corporation BVIHCVAP 2002/0010. The Court must decide whether or not the debt is disputed on "genuine and substantial grounds." If it is, then it is an abuse of the process of the Court for the creditor to begin (or at any rate, to continue) with its application for the appointment of liquidators. In those circumstances, the Court must then dismiss the application, leaving the creditor to bring proceedings on the debt if it wishes. In all of this, the Court follows longstanding English authority.

However, the English and BVI Courts have diverged in cases where the parties have a contractually agreed mechanism to resolve their disputes. In Jinpeng v. Peak Hotels & Resorts Limited BVIHCMAP 2014/0025, the Court of Appeal refused to follow a decision of the English Court of Appeal in Salford Estates (No 2) v. Altomart (No 2) [2015] 3 WLR 491, instead holding that save in exceptional circumstances the existence of an arbitral agreement will not (as Salford Estates suggests) lead to the dismissal of the application. It considered that the test in Sparkasse was too firmly rooted in BVI law be departed from.

The key points which arise from the decision in Sian are that:

• The Company had initially argued that the existence of the arbitration agreement meant that the Court was bound to dismiss the liquidation application. However, by the time that the appeal was heard, the Company had "retreated from that position", arguing instead – by reference to a trilogy of BVI first instance decisions (namely Rangecroft v. Lenox International Holdings BVIHCM 2020/0037, IS Investment Fund SPC v. Fair Cheerful BVIHCM 2020/0034 and A Creditor v. An Anonymous Company (no citation available)) – that the existence of the arbitration clause was relevant to the exercise of the Court's discretion under Section 162 Insolvency Act 2003. The Court of Appeal regarded it as "self-evident that an arbitration agreement would be relevant to a court's consideration of a liquidation application."
• The Respondent Creditor argued that it was oxymoronic that the Company should assert a right to arbitrate whilst having (on the facts) already sought to litigate, and that it had (additionally) lost its right to rely upon the arbitration agreement by having engaged with the petition without taking the arbitration point. The Court of Appeal agreed, and went further, holding that the fact that the Company had failed to take the arbitration point in its original Notice of Opposition was itself fatal to any attempt to rely upon Section 18(1) of the Arbitration Act 2013 (which in any event does not apply to winding up proceedings: see Jinpeng at [45]). The Court of Appeal held that "a company faced with an application to wind it up, in a matter that is the subject of a valid and operative arbitration agreement, must file and serve a request for referral to arbitration not later than when submitting its first statement on the substance of the dispute in order to secure an automatic arbitration referral order from the Court."
• The decision thus represents a re-affirmation of the Court's willingness to consider whether or not a petition is disputed on "genuine and substantial grounds" rather than to dismiss the petition and require disputes to be arbitrated. In doing so, it has taken a robust approach to late or strategic attempts to invoke arbitration agreements in an effort to avoid liquidation.
• The Court of Appeal also refused to interfere with the finding of the Judge that there was no evidence to support any one of the limbs of a conspiracy claim which Sian and others had brought before the BVI Courts against the Company and others in an apparent attempt to demonstrate that the debt was disputed on "genuine and substantial grounds".
• Since there was no referral to arbitration, no evidence that the Company had a viable claim for damages cased by a conspiracy amounting to a dispute on "genuine and substantial grounds" and no other legitimate criticism of the judgment below, the Company's appeal was dismissed with costs and the liquidation order left in place.

The Judgment may also be of interest to arbitration practitioners for its treatment of an application under Ladd v. Marshall principles. The Company had sought permission to adduce in evidence an arbitral award between parties other than the Company and the Creditor. In doing so, the Court of Appeal defended the confidence of those proceedings noting that:

"Sian's application for admission of the Award is predicated upon a presumption that a court order founded upon the contents of [the Company's] witness statement would without more automatically activate the lifting of the confidentiality stipulation in the LCIA Rules. This Court would be presumptuous to so conclude and by making such an order would effectively signal its disregard for the established protocols and rules by which LCIA arbitration is conducted. Such an approach is to be resisted as being unconventional and discourteous to the LICA..."

Andrew Willins and Tamara Cameron of Appleby acted on behalf of the successful creditors Sian Participation, instructing Paul Lowenstein KC and Rupert Hamilton of Twenty Essex. Appleby also acted for the successful creditor in A Company and for the successful Company in Rangecroft.