The BVI Court of Appeal (Michel, Carrington, and Armour JJA) has handed down its much anticipated judgment in Paraskevaides v Citco Trust Corporation and ors BVIHCMAP2018/0046.
Vernon Flynn QC (Essex Court Chambers), Daniel Warents (XXIV Old Buildings), and Christopher Pease (Harneys) acted for the successful appellants.
In a wide-ranging and detailed judgment, Carrington JA confirmed (at  – ) that the BVI Court has the power to order to service out of an injunction which has been obtained on an urgent basis before a claim form has been issued. In the instant case, the urgent injunction had been obtained by claimants who asserted that they were beneficiaries of a trust who sought to restrain a third party from dealing with shares in BVI companies that were said to be held on the terms of that trust.
Carrington JA reasoned that since CPR 17.2(3) provides that the court may grant an interim remedy before a claim has been made if the matter is urgent or it is otherwise necessary to do so in the interests of justice “it would be contrary to the spirit and intendment of the rule…to say that the order granting the remedy cannot be served on the respondent until the claim form is issued”.
This is a welcome and helpful clarification of the position which confirms that the BVI Court has the necessary powers to grant effective interim relief on an urgent basis in disputes with an international dimension.
The dispute in Paraskevaides concerned an application for injunctive relief by the claimants who are the widow and elder daughter of a well-known Cypriot businessman and philanthropist, George Paraskevaides.
The claimants’ case was that Mr Paraskevaides had declared an oral trust over bearer shares in four BVI companies through which his family’s interest in a once very valuable construction business had been held.
Following Mr Paraskevaides’ death, the bearer shares had been deposited with a BVI custodian, Citco, in accordance with regulatory changes to BVI company law requiring the “immobilisation” of bearer shares.
There was subsequently a dispute between the claimants and Mr Paraskevaides’ two younger children as to the ownership of the bearer shares, with the younger children arguing that ownership of the bearer shares had in fact been transferred to a Liechtenstein foundation before Mr Paraskevaides’ death.
A personal representative appointed by the Cypriot Court over Mr Paraskevaides’ estate, Mr Iacovides, then began asserting that he had the right to deal with the bearer sharers although he stopped short of formally laying claim to the bearer shares on behalf of Mr Paraskevaides’ estate.
When the dispute over the ownership and control of the bearer shares first arose, Citco stated in correspondence that it would not deal with the bearer shares until the underlying dispute as to beneficial ownership of the shares was resolved. However, Citco subsequently decided to deal with the shares in accordance with the instructions of Mr Iacovides.
When the claimants discovered that Mr Iacovides had begun to take steps to change the boards of the BVI companies, they sought and obtained from the BVI Commercial Court urgent ex parte interim injunctive relief against Citco and Mr Iacovides to prevent them from relying on the corporate steps that had purportedly already taken place and to restrain any further dealing with the bearer shares.
Following the inter partes return date, Wallbank J discharged the injunction on grounds of material non-disclosure, holding that certain correspondence from Mr Iacovides in which he had asserted that he was acting in a “transparent manner” had not been properly presented to the Court at the ex parte hearing (even though, as the Court of Appeal noted at , ironically that correspondence did not draw attention to the corporate steps that Mr Iacovides had already purported to take).
The claimants appealed the order discharging the injunction and Mr Iacovides cross-appealed, arguing that the claimants had failed to establish that their case raised a serious issue to be tried.
The Court of Appeal allowed the appeal and ordered that the injunction should be re-granted.
On the material non-disclosure issue, the Court of Appeal held (at  – ) that although it may well have come to a different conclusion from Wallbank J as to whether there had been any material non-disclosure at all materiality was primarily a question for the first instance judge, but in any event Wallbank J had been wrong to suggest that any non-disclosure had not been innocent so that his exercise of discretion to discharge the injunction had been flawed. The Court of Appeal therefore exercised the discretion afresh and determined that the injunction should continue.
In arriving at that decision, the Court of Appeal considered and determined several interesting and important points of law and procedure, in particular:
- Distinguishing Halliwel Assets v Hornbeam BVIHCMAP2015/0001, the BVI Court has the power to order to service out of an injunction which has been obtained on an urgent basis before a claim form has been issued ( – ).
- Applying Re Diplock  Ch 465 and Gany Holdings v Khan  UKPC 21, it is at least arguable that the beneficiary of a trust can assert a direct claim to prevent unauthorised interference with trust property by a third party ( and ).
- It is at least arguable, in accordance with the principles identified in Roberts v Gill  1 AC 240, that the fact that a trust has no trustee in office constitutes sufficient justification to permit a beneficiary to pursue a derivative claim in respect of trust assets against a third party because in that circumstance there is no one else who can bring the claim to protect trust property ( – ).
- Where the beneficiaries of a trust can assert either a direct claim or a derivative claim to protect trust assets it is not necessary for the beneficiaries to apply for the appointment of a receiver to protect the trust property as the appointment of a receiver is usually a measure of last resort where no other interim remedy would suffice ().
- No period of limitation applies to a claim by a beneficiary to prevent such unauthorised interference with trust property by a person who does not assert any beneficial entitlement to the property, such as a trustee de son tort ().
- The effect of section 245 of the Business Companies Act, 2004 is that the situs of shares in a BVI company is the BVI wherever the bearer shares may be physically located ().
- Applying New York Breweries v Attorney General  AC 62, a personal representative appointed by a foreign court is not entitled to deal with assets situated in the BVI (including shares in a BVI company) without first obtaining a BVI grant of representation. This is so whether the foreign personal representative purports to deal with the assets on the basis that the deceased was the sole surviving trustee of the asset under section 19 of the Trustee Ordinance () or on the basis that the assets belonged beneficially to the deceased ( – ).
- In relation to a proprietary injunction, it is not necessary to show that a person who is interfering with property they have no entitlement to deal with is likely to damage the property or that they intend to cause harm. In such a situation, the interference with the property itself can justify the grant of a protective order to restrain a person from doing what he is not entitled to do ().
Significantly, the Court of Appeal ordered both Mr Iacovides and Citco to pay the claimants’ costs at first instance and on the appeal with the Court of Appeal noting that many of the problems which had arisen had occurred as a result of Citco’s decision to deal with the shares before the underlying dispute as to beneficial ownership had been resolved. This will no doubt serve as an important warning to the custodians of BVI bearer shares to exercise caution in future cases where the beneficial ownership of bearer shares is in dispute.