By Colleen Farrington, Associate, Harneys
Friday, 15 August, 2014, marked thirty years since the British Virgin Islands (BVI) passed the landmark International Business Companies Act into law. While the territory was preparing to celebrate the milestone of the legislation which transformed it into the offshore centre that it is today, the BVI took another bold step and passed the Arbitration Act, 2013 which will come into force on 1 October, 2014. In order to keep pace with the changing tides of the global market, the Act seeks to establish the BVI as a premier jurisdiction for alternative dispute resolution.
The Act will replace the previous arbitration regime and provides for a more modern arbitration procedure while creating the tools to assist with the arbitration process. Most importantly, in order for arbitrations to be regulated under the Act, the arbitration agreement must list the BVI as the seat of the arbitration. Where the arbitration is conducted outside of the territory, the Act will only have limited applicability (principally in relation to the enforcement of foreign arbitration awards).
Arbitration is an important dispute resolution mechanism, particularly in cases where the parties are sensitive to the publicity of information relating to their dispute. The Act maintains a policy of flexibility towards procedural aspects to allow parties to tailor the process to best suit their needs.
Key Features of the Act
The Act is significantly longer than its predecessor, reflecting the increasingly complex nature of international arbitration and will be further supplemented in due course by the BVI International Arbitration Centre Arbitration Rules, 2014.
Key features of the 2013 Act include:
1) Incorporation of the UNCITRAL Model Law into the Act – The Arbitration Act is modelled on the UNCITRAL Model Law on International Commercial Arbitration (adopted by the UN Commission on 21 June, 1985 and further amended in 2006) which provides rules on arbitration proceedings and is recognised internationally. The incorporation of the UNCITRAL Model Law into the Act will show that BVI arbitration will be conducted according to international standards and arbitrations in the territory will also be recognised in virtually every other country.
2) Extension to the BVI of the New York Convention – On 25 May, 2014, the BVI became a signatory to the New York Convention (or, to give it its full name, the UN Convention on Recognition and Enforcement of Foreign Arbitral Awards). The extension of the New York Convention will ensure that arbitration awards issued pursuant to the Act will be enforceable in all countries that are signatories. Previously, the provisions of the New York Convention were incorporated in the 1976 Act in relation to enforcement of foreign awards in the BVI only. The Court of Appeal, when considering the former regime, held there was a clear intent by the legislature to give effect to the Convention in this manner in Ipoc International v. LV Finance Group Limited (2007), which was to be guided by the procedure set out in the Eastern Caribbean Supreme Court Civil Procedure Rules Part 43 on enforcement. The converse was not true, however. A BVI award was not readily enforceable in Convention states. With the extension of the New York Convention, arbitrations taking place in the BVI will now be recognised by all member states.
3) Creation of the BVI International Arbitration Centre – In order to be effective, arbitration must be seen to be speedy, fair, and productive. The establishment of an International Arbitration Centre (IAC) under the Act is aimed at promoting arbitration, providing the necessary facilities for arbitral proceedings, providing administrative support to arbitral tribunals, and providing access to parties who choose to settle their disputes through arbitration. In addition to being charged with the responsibility for providing guidelines and regulations, the IAC will be responsible for maintaining a register of arbitrators which will be readily available. The Act also allows arbitration to be conducted on an ad hoc basis without the supervision of the IAC.
4) Construction of an arbitration agreement – The 2013 Act provides guidance and parameters for binding arbitration agreements. Under the new legislation, an arbitration agreement is an agreement by the parties (whether signed or not) to submit to arbitration all or certain disputes which have arisen between them in respect of a defined legal relationship, contractual or not. The agreement must be in writing. An agreement is in writing if its content is recorded in any form, whether or not it has been concluded orally, by conduct, or by other means. This requirement can be satisfied in varied ways including:
a) electronic communication, if it is accessible so as to be used for subsequent reference;
b) if it is contained in an exchange of a statements of claim and defence where the existence of an agreement is alleged by one party and not denied;
c) there is reference in a contract to any document containing an arbitration clause, provided the reference is such as to make the clause party of the contract.
5) Composition of the Arbitration Tribunal – The Act allows the parties to determine the number of arbitrators. The Act provides the appointment procedures for the arbitration tribunal whether it is an even panel, uneven panel, or a sole arbitrator. Unless the parties otherwise agree, the arbitrators can appoint an umpire at any time after their own appointment in instances where there is an even number of arbitrators.
The Act has deliberately limited the court's role where the parties agree to an arbitration, as the court must give due regard to the parties' wishes and the provisions of the arbitration agreement. Previously, case law has shown that, where there is evidence of the existence of an arbitration clause, the court tends to restrict its role and honour the parties' wishes to arbitrate and stay the relevant court proceedings. In Ennio Zanotti v. Interlog Finance Corp. & Others (BVIHCV 2009/034), the judge stayed the proceedings where a shareholder had wrongly refused to participate in an arbitration process provided for in the company's memorandum and articles of association. In Pacific China Holdings Ltd v. Grand Pacific Holdings Limited (HCVAP 2010/007), the Court of Appeal stressed the need for procedural fairness of the arbitration process and held that it had a narrow discretion to override Convention defences. Quite recently in Comodo Holdings Ltd v. Renaissance Ventures Ltd (BVIHC (COM) 2013/45), it was held, obiter, that the court is the appropriate forum for determining whether parties have standing to arbitrate as arbitration proceedings were not and could not be the appropriate forum to determine standing.
As dispute resolutions are settled outside of court, it is worth noting that the limitation period for bringing a cause of action as prescribed in the Limitation Act, 1961, will apply to arbitration actions as they would apply to court actions.
Challenging Arbitration Awards
The BVI's Arbitration Act provides only a very limited basis for any challenge of an arbitration decision or award. The Act does not, however, abrogate the existing common law rules which also provide for certain additional grounds to set aside an award and it is likely that these grounds survive. Additionally, with the establishment of an arbitration centre, it is anticipated that rules and guidelines will be issued dealing with the conduct of arbitration proceedings, including guidelines on challenging decisions and awards. Like parties to an arbitration, the court is bound by an arbitration decision but it will exercise its power in very limited circumstances, such as where the decision does not fall within the scope of the arbitration agreement or where there is a question as to the validity or fairness of the arbitration award itself as held in GL Asia Mauritius II Cayman Ltd v. Pinfold Overseas Limited (BVIHC (COM) 2013/055).
The BVI has registered more than 950,000 corporate vehicles and, historically, most of those entities have included a clause providing for alternative dispute resolution in their articles of association. With the adoption of the Arbitration Act, 2013, the BVI aims to emerge as an international arbitration centre on a regional and international level. As companies gravitate towards alternative dispute resolution, the Act will definitely give the BVI an edge on the global stage.