The Limits Of DUOMATIC: The Court Of Appeal Clarifies The Scope Of The Doctrine In The BVI In Two Back-to-Back Decisions

• Law Firm: Appleby
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Corporate and Company Law, Trials & Appeals & Compensation, Shareholders
• Author: Mr Andrew Willins and Tamara Cameron
• Published date: 11 April 2023

In two decisions from the British Virgin Islands, Fang Ankong and ors v Green Elite Limited¹ and Arrowcrest Ltd v JSC VTB Bank², the Eastern Caribbean Court of Appeal clarifies the application of the Duomatic principle, a doctrine which has long been applied in the British Virgin Islands.

The Duomatic principle, which derives it name from the 1969 English decision, Re Duomatic Ltd³, recognises that the unanimous assent of shareholders of a solvent company in respect of an intra vires matter may bind the company, notwithstanding that the approval did not comply with the strict formalities of the company's articles.

The principle has been long applied in the British Virgin Islands. Most recently, it was considered by the Privy Council on an appeal from the British Virgin Islands in Ciban Management Corporation v Citco (BVI) Ltd [2020] UKPC 21. In that case, it was alleged that the defendants had breached their duty of care by issuing a power of attorney which resulted in the unauthorised sale of the company's sole asset. In issuing the power of attorney, the defendants had relied on the instructions of a Mr Costa who had been held out by the ultimate beneficial owner as having authority to give instructions on matters concerning the company and had previously given instructions to issue four other powers of attorney. The Court held that the Duomatic principle applied so that the company was bound by the informal consent of the ultimate beneficial owner to the representation by conduct that Mr Costa had authority to instruct the defendants to issue the fifth power of attorney. Having set up a mode of operation on which the defendants reasonably relied, the ultimate beneficial owner was estopped from denying that he consented to giving authority to Mr Costa.

From that decision, the following key principles can be distilled:

(1) The Duomatic principle applies to ostensible authority

(2) The relevant consent may be by way of conduct

(3) The consent of the ultimate beneficial owner can bind the company just as the consent of the registered shareholder.

(4) The principle does not apply where the relevant consent involves dishonesty or illegality.

The limits of that principle are, however, apparent from two recent decisions of the Court of Appeal in which the principle was found not to apply.

FANG ANKONG V GREEN ELITE

In Fang Ankong, the issue was whether the directors of a BVI company, Green Elite Limited (Green Elite) had lawfully paid the proceeds of the sale...