His Master's Voice: The Privy Council Clarifies The Application Of The Doctrine Of Ostensible Authority And The Duomatic Principle

• Published date: 01 September 2020
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law, Shareholders
• Law Firm: Campbells
• Author: Mr Matt Freeman and Rachael Stitt

The Duomatic principle concerns shareholders' informal approval of a company's actions. Provided that the shareholders' approval is unanimous and given with full knowledge of what they are approving, their informal assent to a course of action, whether given prospectively or retrospectively, will be as binding as a resolution passed at a general meeting.

There has been some uncertainty under English law as to whether the informal assent of a beneficial owner (rather than the registered legal owner) of a share is sufficient to fall within the Duomatic principle. In Deakin and another v Faulding and another [2001] EWHC Ch 7, the English High Court held that a beneficial owner's agreement to a transaction was sufficient in circumstances where the registered shareholder acted as its nominee. However, the same Court reached the opposite conclusion in Domoney v Godinho [2004] EWHC 328. In Shahar v Tsitsekkos and other [2004] EWHC 2659 (Ch), the English Court took a more holistic view and found that there was no reason why the Duomatic principle should not operate in relation to the beneficial owner of shares in an appropriate case if the facts justified it.

The application of the Duomatic principle in this context is highly relevant to the operation of BVI (and other offshore) companies. It is crucial for a company's registered agent and professional directors to know from whom they may take instructions, in order to avoid the risk of liability for damage caused to the company through them acting on the instructions of someone without the requisite authority.

In a recent judgment in Ciban Management Corporation v Citco (BVI) Ltd & Anor [2020] UKPC 21, the Judicial Committee of the Privy Council (the BVI's final court of appeal) considered the application of the Duomatic principle and offered useful guidance on its application to the question of which individuals have authority to provide instructions to a company.

Parties and background

The background to this case is a familiar one to the BVI.

In 1997, Mr Byington told his friend and business associate, Mr Costa, to instruct a US lawyer to acquire a BVI incorporated company.

A BVI incorporated company called Spectacular Holding Inc ("Spectacular") was purchased. Citco BVI Ltd ("Citco") was appointed to act as its registered agent. Tortola Corporation Company Ltd ("TCCL") was engaged to act as director. The share capital of Spectacular consisted of 5,000 bearer shares, which were held by the US lawyer on behalf...