Forum and governing law are typical matters of dispute when proceedings are brought in the British Virgin Islands (the BVI) against foreign defendants. Further argument may arise when a contract contains a choice of law clause other than the BVI. The factors at play in determining the appropriate forum and governing law were re-examined in the recent and long-awaited Privy Council decision of Livingston Properties Equities Inc and others (Respondents) v JSC MCC Eurochem and another (Appellants)1, which involved applications to (i) set aside leave to serve foreign defendants out of the jurisdiction and (ii) stay BVI proceedings on jurisdiction grounds arising from claims against 18 defendants for breach of duty, knowing receipt, dishonest assistance and unlawful means conspiracy.
Background
In 2015, the appellants, a Russian and Swiss company trading in mineral fertilisers (together Eurochem), commenced proceedings in the BVI to recover bribes alleged to have been paid to, or for the benefit of, the 8th and 9th defendants, Eurochem's former Russian senior executives (the Russian Defendants). Eurochem alleged that the Russian Defendants entered into contracts for sale at an undervalue with Eurochem's trading partners (the Contracts) in return for secret commission payments of over US$45 million (the Bribes). Eurochem alleged that the Bribes were channelled through other defendant companies established by the Russian Defendants in various jurisdictions around the world for the sole purpose of receiving, concealing and laundering the Bribes.
Of the 16 other defendants, nine were BVI-registered companies who were capable of being served there (the BVI Defendants), whilst the others comprised defendants in Panama, Switzerland, Singapore and Scotland (the Foreign Defendants). Although the Contracts contained Russian choice of law clauses, and the Russian Defendants were Russian nationals, Eurochem claimed that Russian law did not apply as the Russian Defendants were not in Russia at the material times and the deals were negotiated outside of Russia. By order of Farara J (Ag), permission was given to serve the Foreign Defendants out of the jurisdiction (the Service Out Order). The Russian Defendants did not enter an appearance and the 8th defendant raised a jurisdictional challenge in the BVI. Five of the Foreign Defendants applied to set aside the Service Out Order (the Set Aside Application) and six sought to stay the proceedings (the Stay Application) on the basis that Russia was the more appropriate forum.
General principles for service out and stay of proceedings
It is trite law in the BVI that an applicant for service out2 has to show (a) that there is a serious issue to be tried on the merits in relation to the foreign defendants, (b) a good arguable case that the claim falls within the classes of case for which permission to serve out may be given, and (c) that the BVI is clearly or distinctly the appropriate forum for the trial of the dispute and, in all the circumstances, the court ought to exercise its discretion to permit service out of the jurisdiction.
The Judicial Committee of the Privy Council (the Board) was satisfied that Eurochem had demonstrated the first two requirements such that the only outstanding issue concerned the doctrine of forum non conveniens. In considering the applicable principles, the Board referred to the seminal case of Spiliada Maritime Corpn v Cansulex Ltd3 , and subsequent related cases such as VTB Capital plc v Nutritek International Corpn4 (VTB Capital) and Altimo Holdings and Investment Ltd v Kyrgyz Mobil Tel Ltd.5 The Board held that in forum non conveniens applications, the court will exercise its discretion and have regard to the interests of all parties, and the ends of justice, in determining what is the more appropriate forum and where justice nevertheless requires that a case should be tried. Similarly, the applicant for a stay of proceedings on the basis that a particular jurisdiction is not appropriate bears the onus of showing that there is a more appropriate forum for the trial of the dispute. In its assessment, the court will consider the connecting factors in relation to that forum such as the place of the commission of the alleged wrongdoings and the governing law of the claims. The governing law plays a key role as it is generally preferable to have a claim tried in the country whose law applies.
Findings at different levels of court
- The High Court of Justice (Commercial Division) of the BVI
1.1. Concerning the issue of forum
There was conflicting expert evidence as to whether the Russian courts would assume jurisdiction over non-Russian defendants and whether the proceedings, if heard in two different Russian courts, could be consolidated. In the absence of cross-examination of the experts, Wallbank J declined to make any findings on Russian law and ruled that the BVI Defendants had failed to discharge the burden of proof of showing that there was some other available forum with competent jurisdiction to justify a stay in the BVI. Wallbank J recognised that it was not enough to show that there should be an alternative forum in Russia; it also had to be shown that Russia was clearly and distinctly the more appropriate forum.
Wallbank J took various factors into account, including (i) that Eurochem chose to litigate in the BVI (even though it had no real connection there), (ii) that the bribe-takers had deliberately made use of the BVI vehicles to perpetrate the alleged fraud and so should expect the BVI courts to hold their companies to account, (iii) the location of witnesses and language of documents, and (iv) that the remedies available in the BVI are more far-reaching than those in Russia. He was therefore satisfied that the BVI was clearly and distinctly the appropriate forum.
1.2. Concerning the issue of governing law
Wallbank J held that there was no satisfactory evidence of foreign law. Applying Rule 25 of Dicey6, he held that BVI law should apply to the claim. Wallbank J was also of the view that there was no evidence showing which country the claims had their closest and most real connection to.
- The Eastern Caribbean Court of Appeal (the "ECCA")
2.1. Concerning the issue of forum
Whilst acknowledging Wallbank J's approach in not making findings on foreign law without crossexamination, which was in line with VTB Capital, the ECCA reversed the decision and stayed the proceedings on the basis that Russia was the more appropriate forum.
2.2. Concerning the issue of governing law
The ECCA considered that Eurochem was under a positive obligation to plead and prove any applicable foreign law and that Wallbank J should have found that Russian law governed the dispute. The ECCA was of the view that Wallbank J was wrong in relation to his inability to identify the place of the commission of the torts. In determining the governing law, the ECCA applied the exception to the common law 'double actionability rule',7 i.e. the law which applies is the law which has the most significant relationship with the occurrence of the torts and the parties. Accordingly, the ECCA concluded that the most significant relationship was with Russian law because (i) the source of the disputes was the employment relationship between Eurochem and the Russian Defendants, and (ii) the Contracts contained choice of law clauses which expressly provided that the mutual relations arising from contract not regulated by the contract itself would be governed by Russian law.
- The Privy Council
3.1. Concerning the issue of forum
The Board reversed the ruling of the ECCA and found that Wallbank J had not erred in rejecting the Stay Application. Furthermore, the Board held that Wallbank J, in treating the Stay Application and the Set Aside Application separately, had assumed, rather than made a finding or conclusion, in favour of the Foreign Defendants, which he was entitled to do. That is, Wallbank J made no error in concluding that Russia was not an alternative available forum.
3.2. Concerning the issue of governing law
The Board concurred with the ECCA that Wallbank J had erred in relying on Rule 25(2) of Dicey but noted that no harm was occasioned by this. It shared Wallbank J's view that the governing law was not ascertainable in relation to the numerous claims. The Board refuted the applicability of the exception to the 'double actionability rule' and found that there was no factual material available to conclude which law had the most real and closest connection with the torts. In addition, the existence of the choice of law clauses in the Contracts could not mandate Russian law as the governing law with regards to the other defendants, who were not parties to the Contracts.
- Other remarks made by the Board
Upon resolving the issues of forum and governing law, the Board did not consider it necessary to examine other issues such as limitation periods in Russia, the language and availability of witnesses, and the extent of remedies available in different jurisdictions. However, the Board's comments relating to place of incorporation are worth noting; the place of incorporation should not be accorded too much weight, as Wallbank J had done in respect of the BVI Defendants. Whilst place of incorporation is a connecting factor, it is not a strong one because, as in this case, there was no evidence that the BVI Defendants had conducted any activities in the BVI. In addition, Wallbank J should not have attached any importance to Eurochem choosing the BVI as a jurisdiction within which to commence proceedings.
The implications of the Board's decision
The Board allowed the appeal and overturned the decision of ECCA and Wallbank J's orders granting service out and the refusal of the stay were restored. It is an important decision in the context of litigants choosing forum for cross-border disputes. First, in the absence of cross-examination on conflicting expert evidence (and actual evidence pointing towards which law bears the closest and most real connection to the torts committed), courts are entitled to decline to rule on foreign law. Defendants who therefore challenge the jurisdiction of the BVI courts in such circumstances risk failing to establish that there is an alternative forum which is not only available for trying the dispute, but is also clearly and distinctly a more appropriate forum than the BVI. Second, notwithstanding the presence of choice of law clauses in contracts which form the origin of disputes, it is not conclusive that the governing law ought to be identical to that stipulated in the choice of law clauses. Finally, litigants should be aware that just because an entity is registered in the BVI does not mean that the BVI will be the appropriate forum. Whilst some weight will b e given to this, it should not be substantial.
Footnotes
1 [2020] UKPC 3.
2 The rules relating to the service of claim forms out of the jurisdiction are contained in Rule 7.3 of the Eastern Caribbean Supreme Court Civil Procedure Rules (the C PR).
3 [1987] AC 460.
4 [2013] 2 AC 337.
5 [2012] 1 WLR 1804, PC.
6 Rule 25 of Dicey, Morris & Collins on The Conflict of Laws, 15th ed. provides that (1) foreign law must be pleaded and proved as a fact to the satisfaction of the judge by expert evidence in any case to which foreign law applies, and (2) English law will apply in the absence of satisfactory evidence of foreign law.
7 A tort committed outside the jurisdiction is not actionable within it unless it is actionable under both the law of the forum and the law where the tort was committed.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
