255:
Mr Costa repeatedly complained to Mr
Byington. Then, on 14 August 2001, without telling Mr Byington, Mr Costa sent an email to Citco containing the text of a draft power of attorney which he asked Spectacular to grant so as to authorise Mr Delollo (a Brazilian lawyer) to sell the property owned by Spectacular. Mr Costa sent the email from his personal email address and gave his home telephone number, but otherwise it was similar to previous instructions. The next day, TCCL passed a resolution providing for the issue of that fifth power of attorney and executed it. A copy of it was sent to Mr Costa. Mr Costa caused the invoice for Citco and TCCL's fees to be settled on 23 August 2001 by a transfer from his son's bank account in Oxford. On 20–21 November 2001 Mr Costa asked Citco to produce further documents in connection with the proposed sale, which it did.
293:. After reviewing the facts, the Privy Council considered the central allegation made on behalf of the appellants, namely that Citco and TCCL had ignored "red flags" in relation to the instructions from Mr Costa in relation to the fifth and final power of attorney which was used in the attempt to sell the property. However, the Privy Council accepted the view of the judge at first instance that Mr Byington expected TCCL (and Citco) to follow the instructions of Mr Costa. They endorsed the first instance judgment that Mr Byington "remained in the shadows while Mr Costa communicated his instructions and was the point of contact". In so doing, the Privy Council agreed with the trial judge that Mr Byington "accepted the risk that Mr Costa might one day betray him".
408:: "where the articles of a company require a course to be approved by a group of shareholders at a general meeting, that requirement can be avoided if all members of the group, being aware of the relevant facts, either give their approval to that course, or so conduct themselves as to make it inequitable for them to deny that they have given their approval." Lord Burrows felt that, even in the absence of express knowledge, it would be inequitable for Mr Byington to deny he had given approval: "Mr Byington should not be allowed to deny that he consented to the giving of authority to Mr Costa. By operating as he did, so as to keep his connection with Spectacular out of the picture, he was taking the risk that Mr Costa might betray him."
28:
502:, was subject to a wide array of duties. Lord Burrows did not accept this. He noted the role of the registered agent was limited to various services. "Those services included providing ongoing company administration and could embrace accurately passing on relevant information and instructions from Mr Byington (as ultimate beneficial owner) to TCCL as director of the company. But those services were very limited", and nothing on the facts amounted to any breach of any duty of care in relation to those limited services by Citco. He also rejected the argument that Citco was a
259:
said Mr
Byington owed him. Mr Byington was not pleased, and his response made clear that he had not authorised the grant of the fifth power of attorney and was entirely unaware of the sale until then. He caused the fifth power of attorney, together with all the earlier powers of attorney, to be revoked. On 21 December 2001 he commenced proceedings in Brazil seeking to repudiate the sale agreement with the purchaser, Mr Law. This dispute was eventually settled by an agreement under which Spectacular retained the property in return for a payment to Mr Law of R$ 1.6m.
727:... any sale, transfer ... or other disposition ... of more than 50% of the assets of a company incorporated under this Act ... if not made in the usual or regular course of the business carried on by the company, shall be made as follows - (a) The proposed sale, transfer, lease, exchange or other disposition must be approved by the directors; (b) Upon approval of the proposed sale, transfer, lease exchange or other disposition, the directors must submit the proposal to the members for it to be authorized by a resolution of members …
246:
Then, to get the valuable assets out, Mr
Byington sued GEL for his $ 3m and secured a judicial sale of five of the six parcels of land which GEL owned. A public auction was held and the second company (Spectacular Holdings Inc, called "Spectacular" in the judgment), was the successful bidder. But Spectacular was beneficially owned by Mr Byington throughout, and it purchased the properties for
251:
of attorney authorizing
Brazilian lawyers to take steps on behalf of the company. Mr Costa communicated the instructions to issue these powers of attorney to Citco and TCCL. Each time, his instructions were followed without question and the power of attorney was issued by TCCL as director on behalf of Spectacular.
263:
try and sell the property, and that Citco had acted in breach of its tortious (and fiduciary) duty of care as a registered agent in failing to do the same and in supplying further documents for the sale. Spectacular also claimed that TCCL had acted in breach of a duty of care in relation to section 80 of the
435:
The appellants argued that Mr
Byington was not in fact the shareholder (although he was the ultimate beneficial owner). Legal title to the shares was vested in a US attorney who held the shares on behalf of Mr Byington. And only the legal holder has title to vote the shares. However, Lord Burrows
426:
principle would not be permitting the ultimate beneficial owner or the director to commit a fraud against the company." In other words, dishonesty on the part of an agent would not be relevant to the application of the principle - only the dishonesty of an "insider" like a director or shareholder.
376:(or implied authority). There was no case asserting that implied authority could be approved in this manner by the shareholder. Lord Burrows swept this objection aside: "If actual authority can be conferred informally by unanimous shareholder consent the same should apply to ostensible authority".
254:
By early 2000 Mr
Byington was facing financial difficulties. He had borrowed US$ 85,000 from Mr Costa, and failed to repay that loan within the timeframe they had agreed. Mr Costa also appears to have been owed salary arrears. Despite reaching a settlement agreement, these debts remained unpaid and
559:
The decision has been handed down recently, and so as yet has attracted relatively little academic commentary. However, many of the comments made by the Privy
Council in relation to the first instance decision were reflective of comments that textbook writers had previously made in relation to the
550:
Lastly he noted that "it has not been necessary for the Board to consider the propriety of that course of action" by Mr
Byington setting up the structure in the way that he did. He accepted that there may be separate claims to be heard against Mr Costa, but he rejected the suggestion that the risk
514:
The Privy
Council indicated that it disagreed with the courts below when they indicated that the duty under section 80 of the International Business Companies Act (to seek shareholder consent) was a duty owed to the shareholder directly rather than a duty to the company. Lord Burrows also rejected
416:
The Privy
Council noted that dishonesty is normally a bar to the application of the principle. It was alleged by Mr Byington that Mr Costa was dishonest in his actions, and that the court should not allow an agent to defraud the company. The appellants argued "it would be a 'remarkable extension'
276:
In June 2012 there was a statutory merger between Ciban Management Corp and Spectacular, and Ciban replaced Spectacular as the claimant in the proceedings. A trial limited to the issue of liability took place. On 27 November 2012 Bannister J gave judgment dismissing the claims. On 1 November 2018
250:
2.75m. "In this way Mr Byington succeeded in taking the Property out of the reach of GEL’s creditors without anyone other than Mr Costa knowing that he had been the real purchaser of it." In relation to the judicial sale of the property and at various times subsequently, Spectacular issued powers
245:
Mr Byington then purported to sell the shares in GEL to the first of the two companies which appeared to the world to be controlled by Mr Costa. "But the sale was a sham, for after its completion, unbeknownst to Mr Byington’s creditors, GEL in fact remained in Mr Byington’s beneficial ownership."
262:
On 14 December 2007 Spectacular issued proceedings against Citco and TCCL. In summary, it alleged that TCCL had acted in breach of its tortious (and fiduciary) duty of care as a director in failing to ensure that Mr Costa had the authority to procure the grant of the fifth power of attorney and to
525:
Finally, Lord Burrows rejected the view expressed by the courts below in relation to section 80 that, if a company was a single-purpose vehicle, then the sale of its only asset was necessarily "in the usual or regular course of the business carried on by the company". But he did not expand upon
258:
On 14 December 2001 Spectacular entered a contract for the sale of the property at a price of R$ 1.15m with Mr Thomas Law as purchaser under the power of attorney. On that day Mr Costa also wrote to Mr Byington telling him for the first time what he had done, and giving a breakdown of the sums he
331:
Lord Burrows indicated that it was thus reasonable for TCCL to rely on Mr Costa having ostensible authority to act on behalf of Mr Byington. But TCCL, as director, owed its duties to the company. Thus it was necessary to show that Mr Costa also had ostensible authority to act on behalf of the
208:
The Privy Council dismissed the appeal, upholding the decisions of the judge at first instance and the Court of Appeal. They held that where the beneficial owner of a company set up a structure whereby the director of a company was to take instructions form a third party, and that third party
301:
Lord Burrows first dealt with the "red flags" issue, that TCCL and Citco knew or ought to have known that Mr Costa was acting in an unauthorised fashion. In particular they relied upon the fact that he sent the e-mail from his personal account, that he asked for the invoice to be sent to him
929:
421:
principle to apply it to apparent authority so as to allow an agent to commit a fraud against the company and its members." But Lord Burrows disagreed with that analysis. He noted "neither Mr Byington nor TCCL was acting dishonestly in relation to that . Put another way, the
209:
subsequently acted in an unauthorised fashion, the company's director and registered agent did not breach any duties by acting in good faith on the instructions received in the usual way. In so doing the Privy Council made some important clarifications and extensions to the
427:
He also noted that the respondents rejected the allegation of dishonesty - Mr Costa was only trying to secure what was owed to him, and was turning over the surplus proceeds of sale to the company. The Privy Council did not make a finding in relation to that response.
480:
principle did apply here. By reason of that principle, the ostensible authority conferred by Mr Byington counts as ostensible authority conferred by Spectacular. Spectacular cannot be allowed to deny that it authorised Mr Costa to give the instructions to TCCL.
342:
302:
personally, and that he settled it out of his son's bank account. However, the Privy Council agreed with the trial judge that none of these things should have been expected to put the respondents on notice of anything untoward. In particular they stressed:
271:). The losses claimed by Spectacular included the moneys paid to Mr Law to settle the Brazilian proceedings; legal fees incurred by Spectacular in relation to the proceedings; and rent lost while title to the Property was disputed during those proceedings.
339:
principle. They noted that under the principle, "the unanimous decision of all the shareholders in a solvent company about anything which the company under its memorandum of association has power to do shall be the decision of the company" (citing
395:
principle is that the shareholder must know what it is that they are consenting to. In this case Mr Byington was completely unaware. However, Lord Burrows noted that it was wider than simple knowledge. He cited with approval the comments of
515:
the view expressed by the courts below that the grant of the power of attorney itself was not caught by the section 80 - the granting of the power of attorney was part and parcel of the sale of land process, and ought to have been approved.
551:
of Mr Costa's behaviour could be thrown onto the directors by acting in the way that he did. In such cases the courts would treat "the ultimate beneficial owner - Mr Byington in this case - as having been hoist by his own petard".
213:
principle. They also made some important legal clarifications in relation to directors' duties and the role of the registered agent, as well as expressing views on the proper application of certain statutory provisions.
306:
Citco and TCCL were aware - for example, from the refusal of Mr Byington to sign the management agreement in November 1997 - that Mr Byington wished to remain "in the shadows" albeit that he was the ultimate beneficial
229:
3m to GEL in order to keep it afloat. But by 1997 GEL was failing. Mr Byington was concerned about his US$ 3m, and he persuaded his longstanding friend and associate, Mr Costa, to assist him. They acquired two
352:
436:
referred to various cases where it was accepted that, in appropriate cases, the approval of the beneficial owner could be treated as the approval of the shareholders. In particular he cited
332:
company (not just its beneficial owner). Accordingly, the Privy Council had to consider to what extent the tacit authority of Mr Byington constituted authorisation on behalf of Spectacular.
313:
Mr Byington had not previously raised any complaints over those two years about the first four powers of attorney (and neither had Spectacular nor the US attorney holding the shares).
242:, found as a fact that Mr Byington had refused to sign any documents because he did not want anyone to find out, or even to be able to find out, that he owned Spectacular.
238:, a corporate services provider. Citco also arranged for one of their service companies, Tortola Corporation Company Ltd ("TCCL"), to act as director. The trial judge,
944:
277:(after a long delay attributed to loss of the court's file for the case), an appeal was heard by the Court of Appeal. On 13 February 2019 the Court of Appeal of the
346:
Ch 258). The respondents argued that under the principle, the consent of Mr Byington should be treated as the consent of the company. He also cited the speech of
397:
372:
rule, the rule had normally been used to validate the express authority of an agent. In this case Mr Costa did not have express authority - he was acting under
934:
310:
Over the course of two years, dealing with the four previous powers of attorney, Mr Byington had given Mr Costa actual authority to give instructions.
939:
187:
38:
225:
Mr Byington was a Brazilian businessman. He carried on business through a company called GravacĂ´es Electricas SA ("GEL"), and he had loaned
264:
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231:
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117:
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27:
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principle. Some of those limitations (principally, the requirement of solvency) were not relevant. But others were.
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268:
191:
89:
591:
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The Privy Council chose to briefly address certain other issues which had been argued in relation to the appeal.
109:
373:
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195:
166:
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153:
900:
904:
49:
Ciban Management Corporation v (1) Citco (BVI) Ltd, and (2) Tortola Corporation Company Ltd
499:
239:
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Lord Burrows then noted that there were a number of limitations on the application of the
441:
405:
343:
Multinational Gas and Petrochemical Co v Multinational Gas and Petrochemical Services Ltd
449:
222:
The Privy Council adopted the statement of facts as found by the Court of Appeal below:
930:
Judicial Committee of the Privy Council cases on appeal from the British Virgin Islands
247:
617:"The Re Duomatic principle, ostensible authority and the consent of beneficial owners"
457:
923:
534:
Finally, Lord Burrows expressly rejected the contention that directors' duties under
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864:
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835:
823:
811:
799:
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713:
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The Privy Council then gave detailed consideration to the area of law known as the
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principle fits within the general rules on attribution in respect of a company.
538:
imposes a lower standard of care on directors than is applicable under
522:
principle generally applied to the giving of consent under section 80.
235:
353:
Meridian Global Funds Management Asia Ltd v Securities Commission
289:
The unanimous decision of the Privy Council was handed down by
639:"Ciban v Citco (2020) – reformulating the Duomatic principle"
742:
International Business Companies Act 1984, section 78(3).
144:
136:
131:
105:
100:
79:
74:
62:
54:
44:
34:
20:
468:Accordingly, in relation to the issues around the
454:Dickinson v NAL Realisations (Staffordshire) Ltd
179:Ciban Management Corporation v Citco (BVI) Ltd
85:Ciban Management Corporation v Citco (BVI) Ltd
21:Ciban Management Corporation v Citco (BVI) Ltd
848:
846:
844:
8:
875:
873:
619:. Corporate Law and Governance. 30 July 2020
592:"Ciban Management Corporation v Citco (BVI)"
368:However, in previous cases relating to the
26:
17:
518:The Privy Council also affirmed that the
498:The appellants had argued that Citco, as
476:The conclusion to be reached is that the
945:British Virgin Islands company law cases
580:
356:2 AC 500 at 506 in relation to how the
188:Judicial Committee of the Privy Council
39:Judicial Committee of the Privy Council
586:
584:
897:British Virgin Islands Commercial Law
281:gave judgment dismissing the appeal.
7:
265:International Business Companies Act
935:2020 in the British Virgin Islands
570:British Virgin Islands company law
14:
442:[2004] EWHC 2659 (Ch)
406:[2003] EWHC 1507 (Ch)
725:That section broadly provides: "
450:[2010] EWHC 244 (Ch)
232:British Virgin Islands companies
198:and the legal rule known as the
68:AC 122 3 WLR 705 1 All ER 983
940:2020 in United Kingdom case law
391:One of the cornerstones of the
279:Eastern Caribbean Supreme Court
94:Eastern Caribbean Supreme Court
472:principle, Lord Burrows held:
1:
893:Harney Westwood & Riegels
961:
536:British Virgin Islands law
431:Beneficial ownership point
364:Ostensible authority point
324:
269:BVI Business Companies Act
506:director of the company.
494:Registered Agent's duties
402:EIC Services Ltd v Phipps
149:
25:
458:[2019] EWCA 2146
267:(now section 175 of the
96: 13 November 2019).
493:
483:
192:British Virgin Islands
184:[2020] UKPC 21
90: BVIHCVAP2013/0001
529:
474:
186:is a decision of the
597:. XXIV Old Buildings
374:ostensible authority
162:ostensible authority
901:Sweet & Maxwell
560:original judgment.
438:Shahar v Tsitsekkos
190:on appeal from the
327:Duomatic principle
530:Directors' duties
196:directors' duties
175:
174:
167:directors' duties
70:1 All ER (Comm) 1
952:
915:
914:
899:(4th ed.).
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883:
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500:registered agent
387:Actual knowledge
101:Court membership
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30:
18:
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903:. p. 129.
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45:Full case name
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880:Ciban v Citco
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865:Ciban v Citco
861:
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853:Ciban v Citco
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847:
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838:, para 50-51.
837:
836:Ciban v Citco
832:
829:
825:
824:Ciban v Citco
820:
817:
813:
812:Ciban v Citco
808:
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800:Ciban v Citco
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788:Ciban v Citco
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776:Ciban v Citco
772:
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764:Ciban v Citco
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757:
754:, para 27-28.
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752:Ciban v Citco
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745:
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732:
731:Ciban v Citco
728:
722:
719:
715:
714:Ciban v Citco
710:
707:
703:
702:Ciban v Citco
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690:Ciban v Citco
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678:Ciban v Citco
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666:Ciban v Citco
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649:. Retrieved
633:
621:. Retrieved
611:
599:. Retrieved
558:
549:
533:
526:this point.
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519:
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486:Other issues
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140:Lord Burrows
126:Lord Burrows
122:Lord Leggatt
84:
75:Case history
67:
58:30 July 2020
48:
15:
540:English law
398:Neuberger J
297:"Red flags"
240:Bannister J
137:Decision by
924:Categories
882:, para 54.
867:, para 39.
855:, para 53.
826:, para 48.
814:, para 47.
802:, para 44.
790:, para 43.
778:, para 42.
766:, para 38.
716:, para 17.
704:, para 16.
692:, para 12.
680:, para 11.
668:, para 14.
555:Commentary
510:Section 80
464:Conclusion
412:Dishonesty
118:Lady Arden
114:Lady Black
110:Lord Hodge
733:, para 3.
576:Footnotes
546:Propriety
321:principle
203:principle
157:principle
895:(2018).
651:3 August
564:See also
520:Duomatic
504:de facto
478:Duomatic
470:Duomatic
424:Duomatic
419:Duomatic
393:Duomatic
381:Duomatic
370:Duomatic
358:Duomatic
337:Duomatic
319:Duomatic
234:through
211:Duomatic
201:Duomatic
155:Duomatic
145:Keywords
66:UKPC 21
63:Citation
646:Harneys
623:31 July
601:31 July
417:to the
55:Decided
907:
307:owner.
92: (
88:,
642:(PDF)
595:(PDF)
456:
448:
440:
404:
236:Citco
218:Facts
182:
35:Court
905:ISBN
653:2020
625:2020
603:2020
452:and
227:US$
400:in
350:in
248:R$
926::
872:^
843:^
644:.
583:^
542:.
460:.
444:,
205:.
913:.
729:”
655:.
627:.
605:.
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