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Hacked Telegram messages ruled inadmissible as BVI Commercial Court winds up insolvent company

03.11.20

BVI Commercial Court rules that hacked Telegram messages are inadmissible as it orders winding-up of insolvent company and dismisses contention that application brought for an improper purpose (Tall Trade Ltd v Capital WW Investment Ltd – Claim 2020/0157)

In a judgment handed down on 2.11.20, the Honourable Mr Justice Adrian Jack, sitting in the Commercial Division of the High Court of the British Virgin Islands, ordered that liquidators be appointed over Capital WW Investment Ltd (“Capital”) under s. 162(1)(a) of the Insolvency Act 2003. In so ordering, the judge dismissed Capital’s contention that the applicant’s, Tall Trade Ltd (“Tall Trade”), application for liquidators to be appointed was made for an improper purpose. Charles Samek QC, instructed by Harneys, acted for Tall Trade, the successful petitioning creditor.

Capital’s contention was in substance that the alleged ultimate beneficial owner of Tall Trade had conspired with others to block the payment by a company called Befree Ltd of dividends to Capital so that it was unable to make its quarterly repayments under a loan agreement which it had entered into with Tall Trade (and which non-payment founded the basis for the application to wind up). Capital therefore argued that the application to wind it up had been brought for an improper purpose and the evidence upon which it relied consisted of Telegram text messages intercepted from the account of one of the alleged conspirators.

Tall Trade argued that the messages did not show substantial grounds for supposing that there might be a conspiracy as alleged and accordingly that there was no evidence of any alleged improper purpose. It also argued that no conspiracy (assuming that common-law applied) could, on the evidence, arise as a matter of law. In the alternative Tall Trade submitted that even if the messages did disclose a conspiracy as alleged, then in any event they should not be admitted into evidence because they had been obtained improperly or in consequence of an impropriety: see section 125 Evidence Act 2006 (EC)[i].

In a comprehensive and detailed judgment, the judge rejected Capital’s submissions and ordered that it be wound up.

First, following a careful analysis of the Telegram messages Capital relied on, the judge held that they disclosed no evidence of the alleged conspiracy.

Secondly, it followed from that, and in any event, that the case was not one where, even applying the low Sparkasse Bregenz test[ii], the appointment of a liquidator should be refused on the grounds of the applicant having an improper purpose. As the judge put it, Tall Trade had an undoubted claim for repayment of instalments of at least €2 million a quarter on their loan of €17 million.

Thirdly, he held in the exercise of his discretion under section 125 of the Evidence Act 2006 that even if the Telegram messages were important evidence of the alleged conspiracy, nevertheless the messages should not be admitted into evidence anyway. One of the matters to which the judge had regard was the circumstances of the obtaining of the evidence: see section 125(3)(d) and (e) below.

In this regard, the judge found that the Telegram account had been accessed when the relevant account holder’s computer or server had been hacked. He also found that the messages had been given to Capital and that Capital knew how access had been gained. Although the judge held that there was no evidence of where the computer or server had been hacked, and therefore it was not possible to say whether a criminal offence had been committed in the relevant jurisdiction, he nonetheless accepted Tall Trade’s submissions that hacking a computer or a server was improper and an impropriety within the meaning of s. 125.  As the judge put it:

“… hacking someone’s computer or server, as happened here, is a serious impropriety in my judgement. Everyone, including businessmen, has a reasonable expectation of privacy when using an encrypted service such as Telegram.”

Issues as to the admissibility of evidence obtained through impropriety or improperly are different from those which arise in the UK because of the particular provisions of section 125 of the Evidence Act 2006, and this judgment will be of interest to BVI practitioners.

 

[i] Section 125 provides (as far as material):

“(1) Evidence that was obtained

(a) improperly or in contravention of a law, or

(b) in consequence of an impropriety,

shall not be admitted unless the desirability of admitting the evidence outweighs the undesirability of admitting evidence that has been obtained in the manner in which the evidence was obtained.”

(3) For the purposes of subsection (1), the court shall take into account, among other things, the following matters:

(a) the probative value of the evidence;

(b) the importance of the evidence in the proceeding;

(c) the nature of the relevant offence, cause of action or defence and the nature of the subject-matter of the proceeding;

(d) the gravity of the impropriety or contravention;

(e) whether the impropriety or contravention was deliberate or reckless;

(f) whether any other proceeding, whether or not in a court, has been or is likely to be taken in relation to the impropriety or contravention;

(g) the difficulty, if any, of obtaining the evidence without impropriety or contravention of law.

[ii] Sparkasse Bregenz Batik AG v Associated Capital Corpn. MI Civil Appeal No. 10/2002
“… the dispute must be genuine in both a subjective and objective sense. That means that the reason for not paying the debt must be honestly believed to exist and must be based on substantial or reasonable grounds. Substantial means having substance and not frivolous, which disputes the Court must ignore…”

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Charles Samek QC
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