Full charge!

One of the most popular and effective means of enforcing a foreign or domestic judgment or arbitral award in the British Virgin Islands has been to obtain a charging order under Part 48 of the Eastern Caribbean Civil Procedure Rules (the CPR) over shares beneficially owned by a judgment debtor in a BVI company.

The effect of the making of a charging order is that a transfer of shares subject of the order will not be valid against the judgment creditor. In addition, any person on whom the order is served is prohibited from transferring the shares or paying any dividends in respect of the shares while the order remains in force. Finally, a judgment creditor may enforce its judgment by applying to the court for an order for the sale of the shares.

However, the jurisdictional basis for the making of charging orders under Part 48 of the CPR was thrown into doubt on 19 December 2018, when the BVI court delivered its judgment in Stichting Nems v Gitlin (Claim No. BVIHC (COM) 0001 of 2018). In that case, the court applied undoubted Privy Council authority which held that court rules relating to the making of charging orders could regulate the exercise of an existing jurisdiction, but could not themselves confer jurisdiction. No legislation, statutory provision, or common law authority which conferred jurisdiction on the BVI court to make charging orders was drawn to the court's attention. In addition, although section 7 of the Eastern Caribbean Supreme Court (Virgin Islands) Act (the Supreme Court Act) allowed the importation of legislation conferring jurisdiction on the High Court of England and Wales as at 1 January 1940, no pre-1940 English statute conferring jurisdiction for the making of charging orders on the English High Court was drawn to the court's attention. Accordingly, the court held that it was constrained to find that the BVI court had no jurisdiction to make charging orders. On the basis that the court's decision would likely effect a large number of pending claims, the decision was stayed for a period of 4 months to enable the BVI legislature to remedy the situation if it deemed necessary, and the claimants were granted leave to appeal the decision.

The question of the court's jurisdiction to make charging orders came before the court again shortly thereafter in Commercial Bank of Dubai v Al-Sari (Claim No. BVIHC (COM) 114 of 2017). The claimants in that case had the opportunity to address the court in respect of its decision in Stichting Nems. On 19 February 2019, the court declined to follow its earlier judgment in Stichting Nems on the basis that it was satisfied that it did, in fact, have jurisdiction to grant charging orders.

In the interim, Stichting Nems had appealed the court's earlier decision. In its judgment delivered on 29 March 2019, the Eastern Caribbean Court of Appeal held that the court had correctly found that the BVI had not enacted its own domestic law conferring jurisdiction on the court to grant charging orders in aid of enforcement proceedings, and that Part 48 of the CPR did not confer jurisdiction but merely provided for how the jurisdiction, once conferred, must be exercised. However, the Court of Appeal noted that the court had not been referred to the Judgments Act of England of 1838 and 1840 which remained in force as at 1 January 1940. Section XIV of that Act allowed a judgment creditor to apply for and obtain an order charging 'the Stock, Funds, Annuities, or Shares' of a judgment debtor with the payment of the amount of the judgment together with interest. It was therefore held that the jurisdiction conferred on the High Court of England was similarly conferred on the BVI court by virtue of section 7 of the Supreme Court Act. The Court of Appeal accordingly held that the BVI court has, and has had the jurisdiction, to grant charging orders since the enactment of the Supreme Court Act.

Although the jurisdictional position has now been remedied by virtue of the Court of Appeal's decision in Stichting Nems, the BVI Parliament is now seeking to put the question beyond all doubt by the passing of the Charging Orders Act, 2019. That Act, once enacted, will expressly confer jurisdiction on the BVI court to make a charging order in aid of enforcement of judgments such that it will no longer be necessary to rely on the importation of pre-1940 English statute. The Charging Orders Act will also retrospectively validate any orders made under CPR Part 48 prior to the coming into force of the Act.

The decision of the Court of Appeal and the actions of the BVI legislature ensure that judgment creditors will continue to have available to them one of the most important enforcement tools for the enforcement of judgments in the BVI.