Vendort Traders Inc. Appellant v Evrostroy Grupp LLC Respondent [ECSC]

• Jurisdiction: British Virgin Islands
• Judge: Baptiste JA,Justice of Appeal,Davidson Kelvin Baptiste,Ola Mae Edwards
• Judgment Date: 26 May 2014
• Neutral Citation: VG 2014 CA 9
• Judgment citation (vLex): [2014] ECSC J0526-3
• Court: Court of Appeal (British Virgin Islands)
• Docket Number: BVIHCVAP2012/0041
• Date: 26 May 2014

[2014] ECSC J0526-3

EASTERN CARRIBBEAN SUPREME COURT

IN THE COURT OF APPEAL

Before:

The Hon. Mr. Davidson Kelvin Baptiste Justice of Appeal

The Hon. Mde Louise E. Blenman Justice of Appeal

The Hon. Mde Ola Mae Edwards Justice of Appeal [Ag.]

BVIHCVAP2012/0041

In the Matter of Vendort Traders Inc.

and

In the Matter of the Insolvency Act, 2003

Between:

Vendort Traders Inc.

Appellant

and

Evrostroy Grupp LLC

Respondent

Appearances:

Mr. Marcus Staff with him Mr. Adam Cloherty and Mr. Jeremy Child for the Appellant

Ms. Tamara Cameron for the Respondent

Civil appeal — Commercial appeal — Arbitration proceedings — Share and sale purchase agreement — Application to set aside statutory demand — Whether there is a substantial dispute as to whether debt is owing or due

Pursuant to a share and sale purchase agreement ("SPA") the appellant agreed to buy from the respondent 834,693 shares (the "ISKOG Shares") in a Russian company known as ISKOG JSC ("ISKOG") for a total purchase price of RUR44,672,769.36. In that respect, the appellant paid the sum of RUR 15,183,713 to the respondent and on 24 ^th July 2006, the respondent transferred all 834,693 ISKOG Shares to the appellant. The balance of RUR 29,489,056.36 remained outstanding. The SPA was governed by English law and contained an arbitration clause in the event of a dispute.

In 2009, the management of the respondent changed. The then owner of the company, Ms. Elena Smirnova, sought to enforce the debt due under the SPA by making a demand for payment in October 2009 and when this was unsatisfied, commenced arbitration proceedings before the London Court of International Arbitration ("LCIA") in December 2009. Both parties submitted to the jurisdiction of the arbitration tribunal and participated fully in the proceedings. After a contested hearing in which they were both represented by legal counsel, the Arbitrator made an award on 1 ^st November 2011 ("the Award") in which the respondent was entitled to the sum of RUR29,489,056.36 plus interest of 4,467,276.94, arbitration costs of GBP30,973.24 and legal costs of RUR4,397,135.27, GBP35,925.93 and US3,474.15 (together the "Debt") which sums became immediately due and payable upon the Award being made. Demand for payment was made by the respondent by letter on 17 ^th January 2012 couriered to the appellant's registered office. No response was ever received to this demand as a consequence of which the respondent issued the statutory demand.

In the court below, the appellant tried unsuccessfully to set aside the statutory demand under section 157(1)(a)(i) of the Insolvency Act, 2003. It has appealed the decision of the learned trial judge on grounds that there was no debt owing because the Award had not been enforced in the BVI and an unenforceable award could not form the basis of the statutory demand; there was a substantial dispute as to whether the Award was enforceable in the BVI because the Award was either procured by fraud or its enforcement was part of a fraudulent scheme to divest it of its assets; and that the learned judge erred in holding that it had accepted that the Award created an estoppel between it and the respondent.

Held: dismissing the appeal and ordering that the parties file submissions on costs within 21 days, that:

• 1. It is not necessary for an arbitration award to be first enforced before a statutory demand can be presented in reliance on it. Further, there is no statutory provision or common law principle obtaining in the Virgin Islands which prohibits an award holder from serving a statutory demand or a winding up petition based on an unenforced foreign arbitration award or judgment. Section 28 of the Arbitration Act merely sets out the procedure for enforcing a non-Convention arbitration award and cannot be read as compelling the award holder to enforce the award before relying on it for the purpose of serving a statutory demand or presenting a winding up petition.

  In Re International Tin Council [1987] Ch. 419 applied; Section 28 of the Arbitration Act Cap. 6 Revised Laws of the Virgin Islands 1991 distinguished.

• 2. For a court to set aside a statutory demand on the basis that there is a substantial dispute as to the validity of the debt there must be so much doubt and question about the liability to pay the debt that the Court sees that there is a question to be decided. The allegations of fraud and misconduct had no bearing on the issue which was before the arbitral tribunal, that is, whether the balance of the purchase price was due. Further, the allegation of fraud complained of by the appellant occurred in 2007, long after the obligation to pay the debt under the SPA had become due. The appellant's obligation to pay the entire purchase price under the SPA was unaffected by any fraudulent actions which took place after the debt became owing and due under the SPA. In the absence of any fresh evidence of a variation of the SPA, there is no substantial dispute that the Debt is owing and due or that this Award should be enforced.

  Sparkasse Bregenz Bank AG v In the Matter of Associated Capital Corporation Territory of the British Virgin Islands, High Court Civil Appeal BVIHCVAP2002/0010 (delivered 18 ^th June 2003, unreported).

• 3. There could be no challenge to the process or to the rendering of the Award itself, the appellant having been given full opportunity to participate therein. The learned judge was correct in acknowledging that the appellant was estopped save in exceptional circumstances, from re-litigating the issues which had already been decided by an arbitral tribunal of competent jurisdiction.

• 4. The respondent had an arbitration award which was valid and binding having been issued by a tribunal of competent authority to whose jurisdiction both parties had submitted and which award had not been set aside or even attempted to be set aside. The Award was a liability which was present, due and enforceable within the meaning of section 10(3) of the Insolvency Act, 2003.

  Section 10(3) of the Insolvency Act, 2003 applied.

Baptiste JA

1 The appellant, Vendort Traders Inc. ("Vendort"), a company incorporated in the British Virgin Islands, appeals an order of Bannister J [Ag.] dismissing its application for an order to set aside a statutory demand served on it by Evrostroy Grupp LLC ("Evrostroy"), the respondent, a company incorporated in Russia.

BACKGROUND

2 On 24 ^th May 2012, Evrostroy served a statutory demand 1 on Vendort at its registered office pursuant to section 155 of the Insolvency Act, 2003. 2 The demand was for the payment of a debt due under a share sale and purchase agreement ("the SPA") that had been the subject of an arbitration award dated 1 ^st November 2011 (the "Award") 3 in the London Court of International

Arbitration ("LCIA") made after a contested hearing between the parties. Pursuant to the Award, Evrostroy was entitled to the sum of RUR29,489,056.36 plus interest of 4,467,276.94, arbitration costs of GBP30,973.24 and legal costs of RUR4,397,135.27, GBP35,925.93 and US3,474.15 (together the "Debt") which sums became immediately due and payable upon the Award being made.

3 The Debt arose out of the SPA 4 entered into by Vendort and Evrostroy on 15 ^th May 2006 pursuant to which Vendort agreed to buy from Evrostroy 834,693 shares (the "ISKOG Shares") in a Russian company known as ISKOG JSC ("ISKOG") for a total purchase price of RUR44,672,769.36. The SPA was governed by English law and contained an arbitration clause in the event of a dispute.

4 On 17 ^th July 2006, Vendort paid the sum of RUR 15,183,713 to Evrostroy and on 24 ^th July 2006, Evrostroy transferred all 834,693 ISKOG Shares to Vendort. The balance of RUR 29,489,056.36 remained to be paid by Vendort to Evrostroy under the SPA but Vendort made no further payments after the transfer of the shares.

5 There was no dispute that the SPA was valid and binding on the parties and indeed the appellant relies on the validity of the SPA in claiming ownership of the ISKOG Shares. In 2007 the ownership of Evrostroy changed when Mr. Andrey Bidzinovich Mamporia ("Mr. Mamporia"), a manager of the company purchased the shares from the then sole shareholder, Mr. Denis Vladmirovich Koltsov (Mr. Koltsov"). Ms. Elena Smirnova purchased the shares from Mr. Mamporia in 2009. Upon purchasing the company she sought to enforce the debt due under the SPA making a demand for payment in October 2009 and when this was unsatisfied, commenced arbitration proceedings before the LCIA in December 2009. Both Evrostroy and Vendort submitted to the jurisdiction of the arbitration tribunal and participated fully in the proceedings.

6 After a contested hearing in which both parties were represented by legal counsel, the Arbitrator made the Award on 1 ^st November 2011. Demand for payment was made by Evrostroy by letter on 17 ^th January 2012 couriered to Vendort's registered office. 5 No response was ever received to this demand as a consequence of which the respondent issued the statutory demand.

7 On 7 ^th June 2012, Vendort filed an application to set aside the statutory demand. It rested its case entirely on the power of the court under section 157(1)(a)(i) of the Insolvency Act, 2003 to set aside a statutory demand where there is a substantial dispute as to whether the debt is owing or due. The crux of Vendort's argument was that:

• (a) there was no debt owing because the Award had not been enforced in this jurisdiction(the BVI) and an unenforceable award could not form the basis of the statutory demand; and

• (b) there was a substantial dispute as to whether the Award was enforceable in this jurisdiction (the BVI) because, as it contended, the Award was either procured by fraud or its enforcement was part of a fraudulent scheme to divest it of its assets.

8 These two arguments now form the grounds of Vendort's appeal in addition to a third...