Privy Council clarifies jurisdiction of freezing orders in key BVI case

Out-Law News | 22 Oct 2021 | 12:39 pm | 3 min. read

The Privy Council has ruled that the BVI courts have the power to grant a freezing injunction against a party to help the enforcement of a prospective or existing foreign judgment.

The majority judgment was given by Lord Leggatt, who also ruled that “there is no principle or practice which prevents an injunction from being granted in appropriate circumstances against an entirely innocent party even when no substantive proceedings against anyone are taking place elsewhere”.

Such injunctions against third parties are known as ‘Chabra’ injunctions after a 1992 English case, and they block the third party from dissipating assets which are beneficially owned by a defendant or prospective defendant, or which otherwise should be preserved for the execution of a judgment debt after trial.

A seven-strong board of the Privy Council heard two conjoined appeals (78 page / 447KB PDF) from the Eastern Caribbean Court of Appeal in the British Virgin Islands (BVI) concerning a freezing injunction granted against BVI company Broad Idea.

The Court of Appeal had set aside the freezing injunction, overruling a landmark 2010 judgment known as ‘Black Swan’ which said litigants could bring applications for freezing injunctions before the BVI courts without the need for substantive litigation within the BVI.

Barns-Graham Andrew

Andrew Barns-Graham

Senior Associate

The judgment reminds us how and why the English common law on freezing and other injunctions has developed over the past few decades, with reference to the importance of international judicial cooperation and the need for the law to evolve and keep step with globalisation, new technologies, and other societal changes

In the wake of the Court of Appeal’s decision the BVI government enacted the Eastern Caribbean Supreme Court (Virgin Islands) (Amendment) Act 2020 to grant its courts that power.

The Court of Appeal’s decision was appealed to the Privy Council by financial services company Convoy Collateral. While the board dismissed both of Convoy’s appeals on the facts, it made several key rulings concerning courts’ abilities in the BVI and beyond to grant freezing or other interim injunctions.

The decision upholds the Black Swan precedent as well as confirming that the BVI courts are able to grant Chabra injunctions. In reaching the decision, the majority found that decades-old authorities that the power to grant injunctions is dependent on the presence of a pre-existing cause of action against the respondent in the local court should be abandoned and consigned to the history books.

Civil fraud expert Andrew Barns-Graham of Pinsent Masons, the law firm behind Out-Law, said the Privy Council board had largely explored existing case law on this issue in making its decision.

“Viewed from an English litigator’s perspective, the Convoy Collateral decision is not especially groundbreaking. It is essentially a history lesson,” Barns-Graham said.

“But history is important and the judgment reminds us how and why the English common law on freezing and other injunctions has developed over the past few decades, with reference to the importance of international judicial cooperation and the need for the law to evolve and keep step with globalisation, new technologies, and other societal changes,” Barns-Graham said. “The Privy Council’s decision to extend the same developments to BVI law is encouraging and hopefully other British Overseas Territories will follow suit.”

Pinsent Masons civil fraud expert Alan Sheeley said the introduction of the Eastern Caribbean Supreme Court (Virgin Islands) (Amendment) Act 2020 had limited the impact of the Privy Council’s judgment on BVI law.

“However, the value of the decision is that it opens up the Chabra jurisdiction in the BVI and more generally demonstrates that the direction of travel of BVI law is towards the flexibility of injunctive relief that is already favoured under English law,” Sheeley said.

In a minority decision three of the Privy Council judges – Master of the Rolls Sir Geoffrey Vos, together with Lords Reed and Hodge – said it was unnecessary to decide the legal position of the court’s power. Vos observed that Lord Leggatt’s majority judgment “will not, as a matter of precedent, be binding on lower courts, but will be powerful obiter dicta. That, in my judgment is an unsatisfactory way to change the law in such an important area.”

Vos also said he was concerned the approach taken in the majority judgment could have “unpredicted and unknown consequences” in jurisdictions that had changed their laws in the wake of previous decisions in this area, particularly the 1979 shipping case of The Siskina and a 1996 case involving Mercedes-Benz.

Barns-Graham said the decision as a whole would be a useful tool for practitioners handling freezing injunctions.

“Whatever views one has about its precedent value as a judgment, it is a highly thoughtful and erudite exposition of the law of injunctions and I would recommend it to all injunctions specialists working in jurisdictions which are influenced by English law,” Barns-Graham said.

Sheeley said the decision would be helpful, particularly to the BVI.

“Civil fraud and asset recovery litigators around the world will see the judgment as assisting to bring justice to the victims of fraud. It will help to avoid the BVI being used as a jurisdiction by parties who want to avoid the enforcement of foreign judgments,” Sheeley said.