Convoy Collateral v. Broad Idea et al.: Going Beyond Anton Piller Orders

The Court of Appeal of the Eastern Caribbean Supreme Court has recently issued a ruling expanding the power of the courts in the British Virgin Islands to issue injunctions in support of foreign proceedings, including injunctions directed at third parties who are not subject to any substantive claims (known as “Chabra” orders). Notably, this relief may be granted even if the claimant has not yet obtained a judgment in another jurisdiction and has not lodged any direct claim in the British Virgin Islands.

Prior to its ruling in Convoy Collateral, the Court of Appeal of the Eastern Caribbean Supreme Court declined to grant injunctions in the absence of domestic proceedings seeking substantive relief in the British Virgin Islands. In other words, the court had found that it did not have any “Black Swan” power to grant such an injunction.  Following this earlier ruling, the British Virgin Islands legislature passed the Eastern Caribbean Supreme Court (Virgin Islands) (Amendment) Act 2020, which expressly conveyed a “Black Swan” power to the court to grant such injunctions.

While the Privy Council unanimously ruled on several appellate issues in Convoy Collateral, a bare majority of the Privy Council (4 versus 3) also ruled in favor of a new, expanded view of the power of courts to grant injunctions:

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.

Convoy Collateral at 82. 

Endorsing the “enforcement principle,” the majority outlined a new three-part test for granting injunctions:

  1. The complainant has already been awarded a money judgment or has a good case for being granted a money judgment or payment order that is or will be enforceable through court process;
  2. The respondent holds assets against which such a judgment could be enforced or is prone to take steps other than in the ordinary course of business toreduce the value of assets; and
  3. There is a demonstrable risk that the respondent will deal with such assets (or take steps which make them less valuable) other than in the ordinary course of business, with the result that the availability or value of the assets is impaired and the judgment is left unsatisfied, absent an injunction to the contrary.

In discussing the court’s discretion to grant injunctive relief, the majority opinion concluded that the “judgment” referred to as the first condition of the three-part test does not need to be a judgment of a BVI court. A complainant may present a foreign judgment and go through the process of availing itself of relief in the BVI court. Moreover, the majority held that there is no requirement that the judgment be against the respondent, but may be a judgment against external parties.

The most interesting qualification of the majority opinion was their holding that a judgment need not have first been obtained in order for the complainant to request injunctive relief. The majority recognized the complainant’s present right to seek injunctive relief so long as the court could determine with a sufficient degree of certainty that the complainant would with time have the right to bring such proceedings and would likely prosecute such a claim. This is a particularly alarming development, given that relief could be granted even if conditions have not yet been met by which the complainant may begin judgment proceedings.

Importance for International Asset Protection

  1. The BVIs Are Not Appropriate for Asset Protection Planning

The British Virgin Islands enjoy substantial popularity among residents of Asian jurisdictions and in some parts of Europe. However, the legal climate in the British Virgin Islands has trended away from being hospitable toward asset protection clientele. The BVIs have gained notoriety for their lax regulation of international business companies, but anonymity is not effective asset protection.

We emphasize the use of legal structures in jurisdictions that offer protective legislation: privacy regulation, a narrow window for creditors to bring claims, and a substantial bar to pre-judgment injunctive relief. We have long lamented that the Cook Islands has fostered a false sense of comfort by promoting asset protection trusts while concealing (through privacy laws) that its court routinely issues injunctions to freeze the assets of its much heralded asset protection trusts.

2. The Growing Use of Injunctive Relief in International Debt Enforcement Cases

Many casual readers may dismiss this case as a ruling only pertinent to the British Virgin Islands. However, the statutory framework in support of the Privy Council’s ruling in Convoy Collateral also exists in England and Wales. This means that we are likely to see more cases in the future in which creditors seek injunctive relief before filing a substantive complaint on the debt itself.

Pre-judgment injunctive relief is a powerful weapon in the hands of a creditor. It tilts the scales in the creditor’s favor, disabling the debtor from financing an effective legal defense. This is the compelling reason why the United States Supreme Court disavowed pre-judgment injunctive relief in the U.S. Federal court system in Grupo Mexicano. As Justice Antonin Scalia explained:

To accord a type of relief that has never been available before— and especially (as here) a type of relief that has been specifically disclaimed by longstanding judicial precedent— is to invoke a “default rule” * * * not of flexibility but of omnipotence.

Grupo Mexicano, slip opinion at 13.

The Privy Council decision in Convoy Collateral is a troubling development in English jurisprudence that is likely to lead to the proliferation of injunctions in cases where substantive claims have not been – and which may never be – brought.

Please click here for a copy of the ruling.