BVI court issues pivotal guidance on exclusive jurisdiction clause
By Richard Brown and Phillip Kite from Harneys
In what is likely to be considered a landmark decision, the BVI Commercial Court has held that winding up proceedings brought on just and equitable grounds relating to BVI companies will not be caught by an exclusive jurisdiction clause contained in a shareholders agreement, unless the agreement expressly precludes the shareholders from relying on their statutory right to apply to wind the company up.
While there have been several decisions of the BVI court considering the ability of parties to refer winding up proceedings and other corporate disputes to arbitration, this is the first reported decision concerning the application of exclusive jurisdiction clauses to such disputes.
Kea Investments Limited v Novatrust Limited concerns a joint venture company incorporated in the BVI. Although the joint venture company was incorporated in the BVI, the shareholders’ agreement regulating the parties’ rights and responsibilities relating to the joint venture included an exclusive English law and jurisdiction clause. The joint venturers fell out, resulting in deadlock, and one of them, Kea, applied in the BVI for the appointment of liquidators on just and equitable grounds. The other shareholder, Novatrust, subsequently filed proceedings in the Chancery Division in England against Kea (and others) to enforce certain terms of the shareholders’ agreement, and then applied in the BVI for the liquidation application to be dismissed on jurisdictional grounds, relying principally on the existence of the exclusive jurisdiction clause in the shareholders’ agreement.
Novatrust argued that the well-known House of Lords decision in Fiona Trust v Privalov [2007] 4 All ER 951 applied equally to jurisdiction clauses as to arbitration clauses, meaning that such clauses were to be interpreted broadly to encompass any conceivable dispute which may arise between parties to the relevant contract, including liquidation proceedings. As a result, Novatrust argued that Kea was precluded from applying to appoint liquidators anywhere other than England, and in support of this it was argued that the English Courts would have jurisdiction to wind the company up. Kea raised a number of arguments in opposition, including that the exclusive jurisdiction clause cannot have been intended to apply to liquidation proceedings. Bannister J held that Kea’s right to apply to wind the company up arose not out of the shareholders’ agreement but under the company’s memorandum and articles of association, holding that it “would be extraordinary if it could have been deprived of that right by contractual arrangements entered into subsequently, unless of course the subsequent contract express wording precluding Kea from relying upon its rights under the [Business Companies] Act, which are distinct from its rights as a party to the SHA.” Bannister J went on to hold that the BVI application should not be dismissed on forum non conveniens grounds, because he was not satisfied that there were sufficient connections between the company and England so as to engage the English court’s exorbitant jurisdiction to wind up a foreign company, and because he was not satisfied in any event that England was clearly or distinctly the more appropriate forum for the determination of the proceedings.
Whilst it is likely that this decision will be appealed, the ruling confirms that the prevailing view of the BVI Commercial Court is that disputes relating to BVI companies are best litigated in the BVI courts. If another forum is to be preferred for disputes, whether the courts of another country or arbitration, parties must seek appropriate advice in order to ensure that their choice of forum will be upheld.
Harneys acts for Kea Investments Limited, the successful party in the decision referred to above. For further information, please speak to Phillip Kite or Richard Brown.
IMAGE: realbusiness.co.uk
