UK: The Re Duomatic principle, ostensible authority and the consent of beneficial owners

The Judicial Committee of the Privy Council delivered its opinion today in Ciban Management Corporation v Citco (BVI) Ltd & Anor (British Virgin Islands) [2020] UKPC 21: see here or here (pdf). The Board found, amongst other things, that the principle of informal, unanimous shareholder consent - often referred to as the Re Duomatic principle - could operate to confer ostensible authority. This operated subject to recognised exceptions or qualifications: where there is dishonesty; where the shareholder had not consented to the relevant act; and where the transaction would jeopardise the company's solvency or cause loss to creditors.

The Board also referred to what it called a further "possible" qualification in the operation of the principle: where the consent is that of the beneficial owners rather than the registered shareholders. But it stated: "... the correct view is that, at least as here where the ultimate beneficial owner and not the registered shareholder is taking all the decisions in the relevant transactions, the Duomatic principle applies as regards the consent of (and authority given by) the ultimate beneficial owner" (para. [47]).

UK: JCPC opinion on apparent authority

The Judicial Committee of the Privy Council handed down its opinion last week in East Asia Company Ltd v PT Satria Tirtatama Energindo (Bermuda) [2019] UKPC 30: see here or here (pdf). A summary of the opinion is available here (pdf).

In a case concerning the principles of apparent authority, the Board upheld the decision of the Court of Appeal of Bermuda (here, pdf) that a director did not have the apparent authority to enter into a share sale agreement, contained within a heads of agreement document, on the company's behalf. Amongst the factors leading to this conclusion was the absence of reliance on any representations made by the company.

Of particular interest - and importance - is the discussion the Board provides, albeit obiter, about the extent to which a party can rely on apparent authority where they are "put on inquiry" as to the agent's authority (or lack thereof). In such cases, the Board accepted that in order to rely on the apparent authority of a director, the third party must have made the inquiries that a reasonable person would have made in all the circumstances in order to verify that director's authority. In adopting this test, the Board rejected the position adopted by Lord Neuberger in Akai Holdings Ltd v Kasikornbank Public Co Ltd [2010] HKCFA 64, [2011] 1 HKC 357, that reliance was permitted unless the third party knew of the agent's lack of authority, was dishonest or irrational, or reckless in his belief or turned a blind eye.

Update (18 July 2019) - a summary has been published by the ICLR: see here.

UK: trustees, delegation and ostensible authority

The Judicial Committee of the Privy Council gave its opinion last week in Kelly v Fraser (Jamaicas) [2012] UKPC 25. The court held that the trustees of a pension fund were bound by representations made by a senior officer of a company to which administrative functions had been delegated. Judgment was given by Lord Sumption, in the course of which he stated (at para. [15], emphasis in the original):

An agent cannot be said to have authority solely on the basis that he has held himself out as having it. It is, however, perfectly possible for the proper authorities of a company (or, for that matter, any other principal) to organise its affairs in such a way that subordinates who would not have authority to approve a transaction are nevertheless held out by those authorities as the persons who are to communicate to outsiders the fact that it has been approved by those who are authorised to approve it or that some particular agent has been duly authorised to approve it. These are representations which, if made by some one held out by the company to make representations of that kind, may give rise to an estoppel".