Holding court

The issue of where the forum for a case should take place holds particular importance in the BVI because of the number of offshore companies located there. Phillip Kite reports

Forum non conveniens

is a familiar concept in many jurisdictions, although in some, particularly in EU countries, the concept is now less important. In the British Virgin Islands (BVI), though, it is very much alive and kicking. The BVI is home to more than 500,000 offshore companies and, especially in recent years, is also home to some of the largest, most complex and high-profile international disputes.

Two-stage process

The general principles of such applications are well established and the BVI courts follow the familiar two-stage process set out in Spiliada Maritime v Cansulex (1987).

At the first stage the defendant bears the onus of satisfying the court that the BVI is not the natural or appropriate forum and that a foreign jurisdiction is clearly and distinctly the more appropriate one. When considering whether or not to grant a stay, the court will look to what is the ‘natural forum’, as described by Lord Keith in The Abidin Daver (1984) as “that with which the action has the most real and substantial connection”. If the defendant passes this test then the onus shifts to the claimant to prove any special circumstances in which justice requires that the trial should remain in the BVI.

Forum issues are vital to BVI cases because of the nature of BVI proceedings. Very commonly BVI actions have a number of features. First, it is a battle between Western investors and Eastern European big-interest groups. Second, BVI companies hold assets, are themselves the contracting parties, or are accused of wrongdoing. Third, quite staggering amounts are at stake – for example, two of the larger claims decided in the last six months were for $1bn (£530m) and $2bn (£1.05bn) respectively.

Commercial disputes

Going back to the 1990s, the BVI courts seemed keen to keep the larger commercial cases, for example in the dispute concerning the Reuben Brothers’ enormous mining joint venture in Kazakhstan, which raged for years in the courts of the UK, the Netherlands, the US and the BVI.

Again in 2004, when a claim was brought by Western shareholders against Sibneft Oil Company, one of the largest oil companies in Russia, for alleged transfer pricing, a stay was refused, despite the existence of parallel proceedings in Russia, which the court accepted as being merely “protective”.

One reason for this was public policy, as it was commonly argued that there was an important public interest that the BVI court deals with serious allegation made against BVI companies. That argument also found some favour in other offshore jurisdictions such as the Cayman Islands (Telesystem International v CVC & Ors (2002) in the Cayman Court of Appeal) and Jersey (Solvalub Ltd v Match Investments Ltd (1996)).

In Sibneft the judge seemed particularly swayed by the public policy dicta of Lord Justice Bingham in Banco Atlantico SA v The British Bank of the Middle East (1990), saying: “It must be rare that the corporation resists suit in its domiciliary forum. Rarely would this court refuse jurisdiction in such a case.”

This argument also found favour in the BVI court’s decision in Bitech Downstream Ltd v Rinex Capital (2003), where another stay was refused, this time concerning the disputed ownership of a $200m (£105.14m) debt, where the defendant argued that England was the more appropriate forum.

A new twist

This trend changed with the pivotal decision in Astian v TNK/Alfa (2003). TNK is another large Russian oil company, part-owned by BP, and Alfa is one of the largest business conglomerates in the region. In this case it was alleged that three BVI defendants procured a Russian company which they controlled to sell oil to related third parties at prices that were substantially below market prices, to the tune of around $400m (£210.28m).

The claimant opposed a forum challenge, largely on the rather extraordinary allegation that the Russian court system was not properly “available” to the claimant, as Russian courts were endemically corrupt against Western interests. Mr Justice Rawlins applied the usual Spiliada principles and went on to say that, while the court might take into account highly cogent and specific evidence of corruption, the standard was very high for such serious allegations and the claimant had fallen far short of this required standard.

The Court of Appeal upheld the stay and added that the court should not entertain such general allegations of corruption at all.

A case that ran alongside TNK was the highly publicised and politically charged IPOC v Alfa (2004) claim, the $1bn (£530m) battle over the ownership of shares in one of Russia’s largest mobile telephone operators, MegaFon. In IPOC the court granted a stay in favour of Russia and this was upheld in the Court of Appeal. IPOC finally lost the BVI litigation in the Privy Council this year.

The trend continued with the largest claim to be seen in the BVI, where Sibir’s $2bn (£1.05bn) claim against Sibneft was dismissed in one of the largest-ever reverse summary judgments. The court made it clear that, had it not dismissed the claim, it would have granted a stay in favour of, again, Russia.

The court also restated that equitable claims brought in the BVI must be civilly actionable in the place of the proper law of the action – ie the double actionability test as set out by the English Court of Appeal in Kuwait Oil Tanker Co SAK v Al Bader (2002).

In these recent cases the court declined to follow the argument that public policy had any significant part to play in the Spiliada test and so followed the more traditional approach contained in the speech of Lord Bingham in Lubbe et al v Cape Plc (2000), that public interest considerations are not related to the private interests of parties.

This is a welcome restatement of established principles, which tend to deter forum shopping and ensure that disputes are resolved in the most convenient and cost-effective forums. As the court of appeal found in the TNK and IPOC cases, incorporation in a tax-efficient jurisdiction is merely one of the factors to be taken into account in the exercise of a discretion. Parties that incorporate offshore vehicles are then not forced to litigate in a less convenient forum.

Phillip Kite is head of the litigation department at Harney Westwood & Riegels