A Modern Arbitration Framework for the British Virgin Islands

By Alistair Abbott, Partner, Litigation and Insolvency, Forbes Hare, British Virgin Islands (01/03/2015)

Arbitration has long been a favoured form of dispute resolution in the international community and arbitrations not infrequently involve companies registered in the British Virgin Islands (BVI).  It is also quite common for Articles of Association of BVI Companies to provide for disputes to be resolved by arbitration. 

The importance of arbitration is clear, but until recently, the BVI’s arbitration statute was the Arbitration Act 1976, which had become rather outdated, though it did provide for inwards enforcement of Convention awards.

The BVI also has a strong judicial system, including a dedicated Commercial Court, which has provided robust protection for arbitration rights, staying court proceedings in favour of arbitration where appropriate (eg, Artemis Trustees v KBV Partners LP (2013) BVIHC(Com) 137 of 2012) and recognising and enforcing Convention awards (eg, IPOC International Growth Fund v LV Finance Group (Civil Appeal 30 of 2006) and Belport Developments Ltd v Chimichanga Corporation (2014) BVIHC(Com) 102 of 2013).  The Court also had power to grant ancillary relief in favour of arbitration proceedings.

Nevertheless, there was general recognition that the BVI’s position on arbitration needed updating, and 2014 has seen two key steps taken to address that:  first, the New York Convention was extended to the BVI by the United Kingdom; secondly, the BVI Arbitration Act 2013 was brought into force on 1 October 2014 (the Act).

The Act provides the BVI with a modern legislative framework for arbitration matters, being based on the UNCITRAL Model Law (the Model Law) with only relatively minor modifications.  The Act also provides for the establishment of the BVI International Arbitration Centre to provide administrative support for arbitrations. 

The stated object of the Act is to facilitate the resolution of disputes by arbitration without unnecessary delay or expense.  At the foundation of the Act are three fundamental principles:

(a) party autonomy;

(b) non-interference by the Court, save as expressly provided in the Act; and

(c) where the Court does interfere in an arbitration, it should give due regard to the wishes of the parties and the provisions of the arbitration agreement.

Although the enactment of the Arbitration Act 2013 may gradually lead to more arbitrations conducted in the BVI, for the time being the BVI’s main interaction with arbitration is likely to continue to take the form of proceedings ancillary to an arbitration proceeding elsewhere.  Common situations include: (1) applications for stays of BVI Court proceedings; (2) applications relating to ancillary relief or measures; and (3) enforcement of awards.  Although not all provisions of the Act apply where the place of the arbitration is outside the BVI, the Act will impact on each of these three situations.

Stays of Court Proceedings

This was a familiar battleground under the old statute, as evidenced by cases such as Artemis (see above) and Anzen Ltd v Hermes One Ltd (BVIHCMAP2014/0013).  It is likely to remain so under the Act, which provides that the Court must stay any court proceedings and refer the parties to arbitration if the dispute falls within an arbitration agreement between the parties (section 18, giving effect to Article 18 of the Model Law).  Where it refers the parties to arbitration, the Court will also stay the court proceedings.  The party seeking the stay must take the point no later than when submitting his first statement on the substance of the dispute. 

There are, however, some new elements to bear in mind.  First, although there is still a requirement for the arbitration agreement to be “in writing”, the definition of that term has been significantly expanded by the adoption of Article 7 of the Model Law.  The content of the arbitration agreement must simply be recorded in any form, and the agreement itself may have been reached orally, by conduct, or by any other means.  For example, acceptance by conduct of an offer which incorporates (by reference) an arbitration clause in another document would therefore result in that arbitration clause being an arbitration agreement within the Act (by analogy with Londonderry Port and Harbour Commissioners v WS Atkins Consultants Ltd [2011] Arb LR 45, a decision concerning the English Arbitration Act 1996, which also enables arbitration agreements to be concluded by conduct or other non-written means).

Secondly, the Act provides that a decision of the Court to refer the parties to arbitration is not subject to appeal.  It is a theme running through the Act that, where appropriate, rights of appeal from decisions of the Court are restricted or removed so that the parties do not get mired in lengthy parallel court proceedings.

Ancillary Relief and Related Matters

The arbitral process sometimes needs support from courts in order to be fully effective.  There are two broad categories: (a) where a court is itself asked to grant interim relief or give directions concerning matters such as preservation or inspection of property; and (b) where a court is asked to enforce an order or direction made by a tribunal.

Direct court intervention

As indicated above, the Court can only intervene in an arbitration where allowed by the Act.  One instance is section 43 of the Act, which gives the Court power to grant interim measures in support of arbitrations, whether the seat is in the BVI or elsewhere.

Any such Court proceedings will normally be conducted in private, with reporting restrictions, subject to the Court’s power to direct otherwise. 

An order from the Court granting interim relief is another which is not subject to appeal, again helping to avoid lengthy diversions in court proceedings.

The Court can also make orders for the preservation and inspection of property, but where the seat of the arbitration is outside the BVI, it can only do so if the arbitration may give rise to an award capable of being enforced in the BVI.

Enforcement of orders and directions by a tribunal

Steps may need to be taken to enforce compliance with orders and directions of a tribunal, including interim measures granted by the tribunal.

Section 59 of the Act makes orders and directions of a tribunal enforceable, but only with leave of the Court.  In this regard the BVI legislature has departed from the Model Law and has not applied Articles 17H and 17I (which would have provided for mandatory enforcement subject to certain limited grounds for refusal).  An applicant for enforcement of a tribunal order will need to satisfy two requirements: (i) it must show that the order or direction made is of a type or description that could be made in the BVI by an arbitral tribunal; and (ii) it must persuade the Court to exercise its discretion.

As to the first point, the Act confers on a tribunal wide powers regarding the conduct of an arbitration proceeding in the BVI (in some cases subject to any contrary agreement by the parties), and section 33 of the Act (adopting the majority of Article 17 of the Model Law) enables arbitral tribunals to order a range of interim measures of protection, including mandatory and prohibitory injunctions, orders for the preservation of assets, and orders for the preservation of evidence.  Following the Model Law, although interim measures can be sought without notice to the other side, leading to a “preliminary order”, such ex parte orders cannot be enforced by the Court.

As to the second point, the Act provides no guidance on how the discretion is to be exercised.  However, the Court may be persuaded to follow English authorities on section 42 of the English Arbitration Act 1996.  That provision confers a discretion to enforce certain orders of an arbitral tribunal (known as peremptory orders), but similarly provides no express guidance on how the discretion is to be exercised. 

In Emmott v Michael Wilson & Partners Ltd [2009] EWHC 1 (Comm), the English court had regard to the general principles set out in the English statute – including the promotion of fair resolution of disputes by arbitration and the non-intervention by the court except where provided for by the statute – and considered that the proper role of the court was to support, rather than frustrate, the order or direction of the tribunal.  Accordingly, although the court would not simply “rubber stamp” enforcement of a tribunal’s order, it was not appropriate for the court to rehear or review the decision of the tribunal to grant the order or direction in question. 

The court might refuse enforcement where it was not required in the interests of justice to assist the proper functioning of the arbitral process, where there has been a material change in circumstances or where the tribunal has not acted fairly and impartially between the parties.  However, on the facts of Emmott itself, the court enforced the peremptory order, and rejected the following arguments that enforcement was not appropriate because: (i) the order was not needed; (ii) the balance of convenience favoured not enforcing the tribunal’s order; (iii) the prospects of success of the applicant’s claim were low; and (iv) alleged misconduct on the part of the applicant.  Emmott was followed in Patley Wood Farm LLP v Brake [2013] EWHC 4035 (Ch), which also stated that where the tribunal’s order is currently under appeal, that might be a factor in favour of refusing enforcement, but was not conclusive.

The party seeking enforcement may be able to ask the tribunal to make an award in the terms of an interim measure.  This is often possible, particularly in countries which have adopted the Model Law, and would bring into play the regime governing enforcement of awards (see below), thereby avoiding the discretionary element under section 59.

A decision to grant or refuse leave to enforce is not subject to appeal. 

Enforcement of Awards

As stated above, inwards enforcement of Convention awards has long been possible in the BVI.  Following the entry into force of the Act, the process is now even more straightforward: section 85 of the Act provides for enforcement prima facie to follow automatically on production of certain documentation (the duly authenticated original award or a certified copy, the original arbitration agreement or a certified copy, and an official translation of such documents where appropriate).  Enforcement may only be refused if the person against whom it is sought to be invoked proves one of the grounds set out in section 86, which broadly follow those contained in the Model Law.

Non-Convention awards are enforceable with the leave of the Court.  The grounds for declining to enforce a non-Convention award are essentially the same as those relating to a Convention award, save that there is a residual discretion for the Court to refuse to enforce a non-Convention award if the Court considers it just to do so.  The circumstances in which that discretion might be exercised are not the subject of any guidance in the Act, but given the rarity of circumstances in which enforcement in the BVI is sought of a non-Convention award, the practical significance of this residual discretion is likely to be limited.

The new Act provides a welcome update to the BVI’s position on arbitration.  In those key areas that tend to be the focus of the interaction between the BVI and international arbitration, the new Act contains some positive changes, improving enforceability and removing rights of appeal where appropriate so that parties can focus on the arbitration rather than be diverted into lengthy and expensive court proceedings.