Jan 2024
Voidable dispositions in the BVI are governed by section 81 of the Conveyancing and Law of Property Ordinance. The Act was passed in 1961 and is often overlooked in the heady world of fast-paced litigation where fraudsters need to be caught and assets seized quickly. It is an underutilised yet useful provision.
Under section 81(1) of the Act, every conveyance of property with the intent to defraud creditors “shall be” voidable at the instance of any person prejudiced, reversing the burden of proving damages in favour of prejudice alone, alongside the discretionary remedy of avoiding the transaction if so desired. Property is widely defined as “including anything in action and any interest in real or personal property”. Under this provision “any person” prejudiced would have the locus standi to bring a claim even though the person against whom the intent is formed is the creditor. Since the only requirement is that the person affected be prejudiced, there is a wide cohort of potential claimants. This is an obviously attractive feature of this provision because it allows a potential claimant who may not be a creditor, or comfortably defined as such, but has been prejudiced by the conduct complained of, to obtain relief. Further, once the claim has been made out the court must order that the transaction is voidable – there is no discretion to do otherwise.
As in any other instances where the court is being asked to determine “intent”, whether an intention to defraud was or had been formed is always a question of fact. While in seeking to persuade the court that there was a fraud there is no requirement to show actual deceit, there should be “some element of dishonesty” or sharp practice. Further, fraud is a serious allegation and must be sufficiently particularised and failure to do so may result in the claim being struck out.
Of the relief available under section 81, the transaction is voidable at the instance of the creditor, but what then is the relevant point in time? In a nineteenth century case, Re Mouat Kingston Mills Company v Mouat [1899] 1 Ch 1, it was held that this was when the claim is asserted. That decision was applied and relied on in the BVI in Civil Suit No 197 of 1993 Bigler v Blettner. As with all things fraud related, timing is critical and the effect of the decision in Re Mouat is that fraudsters cannot now resist the claim on the basis that the property cannot be traced into their hands because there has been a subsequent dealing and intermeddling of the assets after the claim was issued.
While a section 81(1) claim is incredibly flexible and may arise in a myriad of circumstances, it can be defeated if it is successfully alleged that the property was transferred for valuable consideration, in good faith and to a person not having notice of the intent to defraud, reflecting the continued sacrosanctity of equity’s darling.
On the question of limitation, an action under section 81(1) cannot be brought six years after the cause of action accrued, but under section 25 of the Limitation Ordinance, that period of limitation will not begin to run until the claimant has discovered the fraud or with reasonable diligence could have discovered the fraud. Reasonable diligence requires an active step and as Justice Bannister (Ag) once said of the provision, it “was there to give latitude to the innocently mistaken or to those prejudiced by the mistake of a third party, not to the incompetent.”
Therefore, the next time one is faced with an allegation of fraud, you may want to consider carefully whether it is worth pleading a section 81 cause of action, noting that even if pleaded in the alternative to other more “economic torts” of recent years such as conspiracy to cause economic harm, there is a solid cause of action based on a statutory test of conduct involving creditors.