Plugging the arbitration gap | Asian Legal Business

The British Virgin Islands has long touted itself as a destination of choice for international investment, and fact is that it does have much going for it. The territory has a stable environment, both economically and politically, and is strategically located. Companies incorporated in the BVI can also list on stock markets across the world, there are no exchange controls, and the U.S. dollar is used as local currency. Finally, the jurisdiction appears on the OECD’s “white list” reflecting a high level of tax transparency, regulatory and compliance standards.

As a result, the BVI is now the world’s largest domicile, with more than one million companies incorporated there since 1984 (about half of these incorporated after the territory adopted its Business Companies Act in 2004). As a financial centre, the BVI ranks above cities like Shanghai, Milan, Madrid and Mumbai, and receives billions of dollars of foreign investment globally. In 2013, it received $92 billion of foreign investment (see accompanying Reuters story), more than India and Brazil combined. And while investments occasionally lead to disputes, investors are further comforted by the fact that the BVI possesses a familiar and established legal and court system based on English common law.

To cater to the increase in commercial litigation, the territory also established a specialised commercial court dedicated to dealing with high-value and complex commercial matters. However, with the rise in arbitration globally as a means of resolving commercial disputes, the BVI was in dire need of a more modern arbitration act; the 1976 Act was thought to be quite inadequate in dealing with modern international arbitration. To remedy this, the territory passed the Arbitration Act 2013, which will come into force on May 25. The act provides the BVI with a modern statutory framework incorporating the UNCITRAL model law into domestic legislation, and simultaneously, the New York Convention, which provides for reciprocal enforcement of arbitral awards, will be fully extended to the BVI. “The principal reason behind the new act was the need to modernise and update the law,” say Arabella di Iorio, managing partner, and Michael Gagie, partner, of Maples and Calder’s BVI office. “It is intended to provide a thorough framework for the conduct of arbitrations in the BVI and also to expand significantly the support that the BVI court can provide to domestic and foreign arbitrations.”

Modern approach

On Dec. 17, 2013, the British Virgin Islands House of Assembly held the third and final reading of the new Arbitration Act 2013, which was part of the work produced by the Arbitration Focus Group, a committee comprised jointly of public and private sector representatives tasked with modernising the jurisdiction's arbitration framework. Lawyers interviewed agree that the new arbitration act will has been quite eagerly anticipated for some time now. “The old legislation was a slightly unhappy consolidation of two different English statutes, and so the 2013 Act should be a considerable improvement,” says Colin Riegels, a Singapore-based partner at Harneys.

Meanwhile Jerry Samuel, a partner in the BVI office of Conyers Dill & Pearman, terms the enactment of the act, as well as the effective extension of the New York Convention as “important first steps” when it came to modernizing and enhancing the legislative infrastructure required for the BVI to enhance its product offering to international clients and to facilitate efficient resolution of cross-border disputes using arbitration. “The predecessor act of 1976 is outdated, deficient and in many ways not very well suited to accommodate the emergence of international commercial arbitration as a popular form of dispute resolution,” he says. “The [2013] act, by contrast, incorporates – in some instances with careful modifications – many important aspects of the UNCITRAL Model Law thereby giving it some immediate familiarity to international users, makes it more compatible with the BVI’s international reputation as a modern offshore jurisdiction and responds to market demand for a user-friendly framework in the BVI that would facilitate entry into arbitration agreements and efficient enforcement of international arbitral awards.”

Gagie and di Iorio note that hand in hand with the modernisation of the legislation, is the BVI's commitment to compete with existing arbitration centres such as Paris, London and New York, by being able to offer the facilities and infrastructure needed to support arbitrations in the BVI, as well as ensuring that its awards are enforceable internationally to the fullest possible extent.

Key features

Riegels says that the previous legislation was “a bit of a mish-mash,” and as such one of the benefits of the new legislation is simply consolidating and simplifying the existing law. “There are no fancy or unique provisions in the new legislation – it broadly follows the UNCITRAL model law template with a few minor modifications to comply within the wider structure of British Virgin Islands commercial law,” he says. “Some of the more radical innovations which we have in Singapore – the ability to seek ex parte orders from a sole arbitrator for example – were things that the committee felt were just a step too far for the BVI.”

Gagie and di Iorio, however, believe that much of the new act is a wholesale change from its predecessor, which included “archaic provisions” such as appeals by way of case stated. For example, when it comes to arbitrations, there are detailed sections covering the composition of the tribunal and the conduct of arbitration proceedings. “Its predecessor was very limited in its deeming provisions, and was silent as to matters such as language, timetabling, legal representation, and the liability of arbitrators for negligent acts or omissions or mistakes,” they say. “Similarly, much was left to the application of common law principles, for example issues of bias and the duties of the tribunal.”

In terms of the role of the court, that has been clarified and extended. “The court retains the power to stay court proceedings commenced in breach of an arbitration agreement and can settle non-arbitrable questions arising in the course of arbitration proceedings,” say Gagie and di Iorio. “Its new powers include, firstly, being able to enforce interim orders and directions of foreign and domestic arbitral tribunals; and secondly, being able to grant interim measures, including preservative injunctions.” Finally, in addition to the incorporation of the Model Law, the new act has comprehensive provisions covering the enforcement of non-Convention awards. “The definition of Convention award now includes an award from the United Kingdom – UK awards had confusingly been excluded under the previous act on the basis that they were enforceable under the BVI's reciprocal enforcement of judgments legislation,” they add. “The change has introduced certainty and clarity.”

Samuel calls the new act “much clearer and more comprehensive” than its predecessor. “It introduces a number of changes that benefit both international and domestic arbitration,” he says. “Some of those key features are that it enhances the framework for ensuring arbitration proceedings and documents remain private and confidential, it allows parties greater freedom to determine how their disputes should be resolved, it clarifies and improves the limits on judicial intervention and bolsters the need to have due regard to the parties’ wishes and provisions of arbitration agreements, it adopts and modifies important articles of the UNCITRAL Model Law and it makes provision for establishment of an international arbitration centre in the BVI.”

New arbitration centre

The 2013 act also makes provision for the establishment of a corporate body known as the BVI International Arbitration Centre (BVI IAC), and its function will be to promote and facilitate arbitration in the BVI. The BVI IAC will be tasked with, among other things, providing all the facilities and services necessary for the conduct of arbitral proceedings and mediation in the British Virgin Islands. Gagie and di Iorio believe that there are a number of reasons why the territory can be successful as an arbitration centre. “The BVI is the domicile of choice of hundreds of thousands of companies: a captive audience for dispute resolution by arbitration, and an audience that has become increasingly comfortable with the BVI Court system and the quality of the legal profession,” they say. “Those are key factors in the development of the BVI as an international arbitration centre. Other key factors are the maintenance of the infrastructure necessary to support this development, and – perhaps most importantly – the maintenance of momentum and commitment to the project once the new act comes into force.”

However, for Riegels, it is difficult to predict with confidence BVI’s chances of success in this regard. “There are an awful lot of countries who are trying to position themselves to capture international arbitration work, and it is difficult to predict with certainty which of those countries will succeed,” he says. “Bermuda has been very successful, but Barbados has not. It is often not easy to see why. But one of the things I have learned over the years about legislative developments is that, even where they are successful, they never develop quite the way you had expected.”

Samuel believes that the success of the BVI IAC will not be realised overnight, but in his view, it will be determined largely by whether the institution is able to develop independently and carve out a reputation for providing international clients with confidentiality, coupled with efficient, responsive and cost-effective services. “These determinants of the BVI IAC’s competitiveness will be driven by the jurisdiction’s ability to sustain socio-economic stability and ensure availability of suitable expertise, seemless and cost-effective access to the BVI,” he says. “Other critical factors necessary to ensure success of the BVI IAC include the availability of ancillary infrastructure, both physical and technological, and the flexibility and certainty of the legal framework for arbitration.”

Differentiation

But with many offshore and midshore jurisdictions today seeking to market themselves as arbitration centres, how can the BVI set itself apart? Riegels of Harneys believes it will be “very difficult,” as there are a lot of excellent competing jurisdictions. “A lot of countries focus on geographic ties,” he says. “For example, Singapore in relation to Southeast Asia, Mauritius in relation to Africa and Dubai in relation to the Middle East. The BVI is unlikely to follow that trend as it has no strong geographic links.” He thinks that there are two aspects that the BVI will be more likely to try and rely upon. “These are strong brand recognition in terms of protection of privacy in key markets, including PRC and Russia, and high volumes of existing BVI companies which were incorporated with arbitration provisions in their articles of association as a standard provision,” says Riegels.

For Samuel at Conyers Dill & Pearman, the BVI’s competitive advantage rests on its foundation as a common law jurisdiction with a history of political and socio-economic stability, coupled with a significant measure of political consensus about the importance of attracting international business and a willingness to respond in a timely way to market changes. “From this foundation, BVI service providers will be able to rely on the valuable experiences gained from competing for international business over the past 30 years, during the jurisdiction’s ascension as the leading international corporate domicile,” he says. “This valuable experience, along with sustained public-private stakeholder collaboration can be used to manage diversification of the jurisdiction’s product base, which is necessary to accommodate arbitration as a mainstream idea. The strategy will have to focus on exploiting the synergies between arbitration and the flexibility and competitiveness of well-established complementary corporate and trust service offerings.”

Gagie and di Iorio at Maples and Calder feel that one of the BVI IAC’s weapons can be speed and affordability. “The new act expressly states that its object is to facilitate and obtain a fair and expeditious resolution of disputes by arbitration without unnecessary delay or expense,” they say. “Whilst the more established centres do of course have the necessary infrastructure in place, access to them can be expensive and slow. The establishment and success of the Commercial Court under the stewardship of Edward Bannister QC have demonstrated that the BVI can deliver justice extremely quickly compared to onshore courts and there is every reason to suppose that the position will be the same with arbitration hearings. There will therefore be two, complementary, systems ensuring the delivery of quick and efficient decisions at reasonable expense.”

Act impact

The immediate impact of the act, say Gagie and di Iorio, will be the introduction of a modern, comprehensive, arbitration law. “The legislation will have a familiar feel to those with international arbitration experience, will expressly cover much of what its predecessor left unsaid, and will reduce commercial parties' nervousness about introducing BVI arbitration clauses in their agreements,” they say.

For Riegels, the short-term impact will be on foreign arbitration provisions. “This new legislation in BVI dovetails with the extension of the New York Convention to the BVI and the streamlining of enforcing foreign arbitration awards,” he says. “At present, this process can be cumbersome, and so the new procedures will be welcomed by litigants and practitioners alike seeking to enforce overseas awards in the BVI.” Longer term, he adds, “the new arbitration regime should provide a viable alternative in a pure offshore context as a forum for resolution of disputes, but that is an inherently more uncertain journey.”

Samuel says that the long-term impact is more difficult to predict. “But certainly, the enactment and bringing into force of the Act will be regarded as a significant milestone for the future of arbitration in the BVI,” he concludes.