Matter note: a supply or manufacturing contract with the BVI party

Cross-border supply and manufacturing contracts look straightforward until the counterparty sits inside a British Virgin Islands (BVI) company – an offshore holding vehicle incorporated under the BVI Business Companies Act, widely used across Asia and internationally as a top-tier holding or contracting entity. The moment the BVI appears as the contracting party, three questions that most commercial draftsmen treat as boilerplate become genuinely live: which law governs the contract, which forum hears a dispute, and what enforcement route is available if performance breaks down.

A supply or manufacturing contract with a BVI party requires deliberate choice of governing law and a forum clause that functions across the BVI, Hong Kong, and the jurisdiction where assets and operations actually sit. The BVI Business Companies Act permits wide commercial contracting, but it does not supply a default dispute-resolution infrastructure; that must be built into the agreement. Under the Arbitration Ordinance (Cap. 609), Hong Kong-seated arbitration produces awards enforceable in over 170 New York Convention contracting states, making Hong Kong the preferred forum architecture for agreements of this kind.

This matter note sets out an anonymised situation our desk handled: a supply arrangement structured through a BVI entity, the governing-law and forum issue that surfaced after signing, and the steps taken to put the contracting position on a sound footing. The note draws out the transferable lesson for principals, general counsel, and in-house teams with similar cross-border exposure.

What the situation looked like and where the constraint arose

A mid-market manufacturing group operating in the Asia-Pacific region had engaged a BVI-incorporated counterparty as its principal supply-side contracting vehicle. The BVI entity sat above an operational structure with procurement, logistics, and payment functions flowing through Hong Kong and one other Asian jurisdiction. On paper, the arrangement was efficient: a single offshore contracting entity, clean invoicing, and an existing trade relationship.

The constraint emerged not from any immediate dispute but from a routine legal review triggered by a proposed expansion of the supply volumes. Counsel reviewing the agreement identified that the governing-law clause was ambiguous – it pointed to the law of "the jurisdiction of incorporation" without specifying which party's jurisdiction was intended. The forum clause was an asymmetric submission to the courts of a jurisdiction that neither party actually used and where neither had assets.

In our cross-border practice, we see this pattern with some regularity. The BVI is chosen for the holding or contracting vehicle because of its structural flexibility and the familiarity of offshore advisers. The governing-law clause is then drafted by reference to the BVI's incorporation, without considering that BVI contract law – while a developed common-law system – does not have the same arbitral infrastructure, enforcement track record, or proximity to the operational parties as Hong Kong. When volume or value increases, and the risk of non-performance becomes material, the governing-law and forum question moves from footnote to front page.

What was the issue and which route did we take?

The core issue was that the existing agreement, if a dispute arose, would route the parties into a forum that neither could enforce against efficiently. The BVI counterparty had no assets in the specified court jurisdiction. The manufacturing group had no litigation capability there. Any judgment would require a further enforcement step in a third jurisdiction to reach assets – a sequence that would take years and uncertain cost, with no guarantee of recovery.

The route chosen was a restructured dispute-resolution clause – an agreement to arbitrate under the HKIAC Administered Arbitration Rules (the 2024 Rules, effective 1 June 2024), with Hong Kong as the seat. That choice was grounded in three considerations.

First, Hong Kong arbitration awards are enforceable under the New York Convention in over 170 contracting states. Second, BVI companies are capable of being party to Hong Kong-seated arbitration, and BVI courts have a well-established practice of recognising and enforcing Hong Kong arbitral awards. Third, assets and operations were reachable through a Hong Kong enforcement route in a way they were not through the original forum clause.

Governing law was aligned to English law – a common choice for BVI-party contracts because the BVI's own common-law system is closely modelled on English law, most BVI commercial contracts are drafted with English law in mind, and English law is both well-developed and widely understood by counsel in Hong Kong, the BVI, and across Asia. The parties executed a deed of amendment to the existing agreement rather than replacing it, preserving the commercial terms while correcting the legal architecture.

The sequence above describes the standard position. Your matter turns on the documents, the jurisdictions actually engaged, and the order of steps – which is where the route is won or lost. To discuss the governing-law and forum architecture for your supply or manufacturing agreement, write to us at info@lockhartyip.com.

How did the matter sequence and where was the turning point?

The matter ran in three stages. The first was a document review: we reviewed the existing agreement, the corporate documents of the BVI entity (to confirm its good standing and authority to contract and to execute the amendment), and the broader commercial structure to understand where assets and operations sat relative to the contracting entity.

The document review identified a second issue alongside the forum clause: the agreement's assignment and change-of-control provisions were drafted at a level of generality that would have permitted the BVI entity to transfer its obligations without the manufacturing group's consent. In a supply context, where the identity and reliability of the supplier matters operationally, that was an unacceptable gap.

The second stage was drafting the amendment. The deed of amendment addressed three things: the governing-law clause (aligned to English law), the arbitration clause (HKIAC, Hong Kong seat), and the assignment restriction (requiring the manufacturing group's prior written consent to any assignment or transfer of the BVI entity's obligations). The BVI counterparty's counsel reviewed and approved the amendment; no commercial renegotiation was required because the changes were legal-architecture corrections, not commercial alterations.

The turning point in the matter was the change-of-control discovery. It was not the presenting issue – the client had come to us about the forum clause – but it was the higher-risk gap. In a structure where the BVI entity is a vehicle above an operational group, a change of ownership in the BVI layer can change the economic reality of the supply relationship without triggering any notification or consent right. Correcting that in the same amendment was the substantive value of the exercise.

The third stage was a brief verification of the BVI entity's standing with the BVI registry, to confirm that the entity was in good standing and that its registered agent was current. This is a step that is sometimes omitted in transactional reviews of BVI-party agreements – but registration with the relevant BVI registry and good-standing status are preconditions for the entity's capacity to validly execute documents, and a lapsed entity creates an enforceability risk that affects the entire contract.

If an earlier filing, structure or enforcement attempt produced an adverse or stalled result, a second read can identify the strategic error and the routes still open. Email info@lockhartyip.com to discuss the position.

What was the outcome and what is the transferable lesson?

The amendment was executed. The supply relationship continued on the same commercial terms, with a corrected legal architecture. No dispute arose from the original agreement. The matter closed without litigation or arbitration.

The qualitative outcome was structural rather than adversarial: the manufacturing group moved from a position where a dispute would have been expensive to prosecute and uncertain to enforce, to a position where the route to an enforceable outcome was clear. That is the correct framing for governing-law and forum work – it is insurance, not litigation preparation.

The transferable lesson sits in two places.

The first is the timing of the review. Supply and manufacturing contracts are often reviewed at their most commercially pressured moment: when a dispute has started, or when volume is being increased and the stakes are rising. Both are late. The governing-law and forum clause should be reviewed – and, where necessary, corrected – at or before the point of initial execution, or at the first opportunity when a material change is being made. An amendment executed without a dispute on the table is straightforward; one executed when a dispute is imminent is contested.

The second is the BVI-specific point. A BVI entity is a capable commercial counterparty. The BVI Business Companies Act provides a well-functioning corporate vehicle. But the BVI does not have a large, locally seated arbitration infrastructure or a network of bilateral enforcement treaties comparable to Hong Kong. Contracts in which the BVI entity is a party should import the enforcement infrastructure explicitly – through a Hong Kong seat, English law, or another well-connected legal architecture – rather than assuming the BVI jurisdiction supplies it.

In our cross-border practice, we regularly act on supply and manufacturing agreements where the BVI layer requires this kind of legal-architecture correction. The correction is almost always straightforward when done proactively; it becomes considerably harder, and sometimes impossible, after a dispute has crystallised.

For a structured assessment of your supply or manufacturing agreement and its governing-law and forum position across Hong Kong and the BVI, write to us at info@lockhartyip.com.

What foreign counsel and in-house teams commonly get wrong

There is a widespread assumption in cross-border commercial practice that choosing a BVI vehicle as the contracting party is a neutral decision from a dispute-resolution perspective. It is not.

The BVI is an excellent incorporation jurisdiction. The BVI Business Companies Act is modern, flexible, and well-regarded. BVI directors have clear authority to contract, execute documents, and bind the company. None of that is in issue. The issue is what happens after performance breaks down.

Foreign counsel – particularly those practising in civil-law jurisdictions – sometimes treat the BVI's English-law heritage as equivalent to a Hong Kong or English court choice. It is not equivalent. The BVI courts are respected, but they are geographically and procedurally remote from the operational reality of most Asia-based supply chains. An award or judgment from BVI proceedings requires enforcement steps wherever the assets sit; if those assets are in the Mainland, Hong Kong, or another Asian jurisdiction, there is no direct enforcement pathway from BVI proceedings that is faster or more reliable than arbitration with a Hong Kong seat.

A second error is treating the governing-law clause as purely academic. In a supply or manufacturing context, governing law determines how implied terms operate – including implied terms about quality, fitness for purpose, and time of delivery. If the goods or services are being manufactured and delivered in a jurisdiction whose laws differ from the chosen governing law, a mismatch can create gap-filling uncertainty that is only discovered when performance is disputed. Alignment between governing law, the nature of the goods or services, and the operational jurisdiction is worth considering at the drafting stage.

A third error is omitting or under-drafting the change-of-control and assignment provisions in BVI-party contracts. As noted above, BVI holding entities are frequently transferred as part of group restructurings, private equity exits, or family succession arrangements. Without a properly drafted consent requirement, the manufacturing group may find itself in a supply relationship with a counterparty it did not choose and cannot vet.

We are regularly asked whether these issues can be resolved after the fact. They can, but the cost and friction increase significantly once a relationship has deteriorated. The right time to address them is during the drafting or, at the latest, during a structured legal review before the relationship scales.

Related practices

• Corporate Counsel – cross-border commercial contracting, entity structuring, and governance in Hong Kong and offshore
• Disputes & Arbitration – enforcement of awards and judgments across Greater China and offshore centres

Speak with Lockhart & Yip

For a scoped view of your matter, contact info@lockhartyip.com. Discuss your matter →

Related

• Corporate Counsel
• Terminating Or Exiting Cross Border Commercial Relationship Matter
• Corporate Restructuring Across Hong Kong United Kingdom Uk

This publication is general information and does not constitute legal advice. For advice on your situation, contact info@lockhartyip.com.