Central Bank of Ecuador & Ors v Conticorp SA & Ors (Bahamas) (Rev 4 : includes Costs)

Factual and Procedural Background

Company C, an offshore investment fund administered in The City, originally held a portfolio of loans, cash and minority shareholdings worth approximately USD 192 million. Those assets derived from deposits raised by Company E (an offshore banking subsidiary) from members of the public in The State and were to be managed for their benefit. Between December 1995 and March 1996 Company C entered into three transactions with Company B (a holding vehicle for a wider corporate group, including Company D, a domestic bank). Under those transactions Company C surrendered virtually all of its assets to Company B and its affiliates and received in exchange global depository receipts (GDRs) or shares in Company F, the parent of Company D.

The transactions coincided with an acute liquidity crisis in Company D and Company E, ultimately requiring a large subordinated loan from Company A (the central banking authority). When Company D defaulted, the subordinated loan was capitalised; existing equity was cancelled and the GDRs Company C had received became worthless. Company C (now controlled by Company A’s statutory managers) sued Company B, four individual officers (Defendant 1–4) and related companies alleging dishonest assistance in breaches of fiduciary duty by Director X, Company C’s nominal sole director.

A lengthy trial before Judge [Adderley] dismissed all claims; the Court of Appeal of The Bahamas affirmed. Company C was granted leave to appeal to the Judicial Committee of the Privy Council, which has now allowed the appeal.

Legal Issues Presented

1. Whether Director X acted in breach of his fiduciary duties by executing the three transactions without independently considering Company C’s interests.
2. Whether Defendants (Company B and the four individual officers) dishonestly procured or assisted those breaches.
3. If liability were established, what measure of equitable compensation should be awarded to Company C.

Arguments of the Parties

Appellants' Arguments

• Director X was a nominee who simply followed Defendants’ instructions, thereby breaching his duty to act in Company C’s best interests.
• The GDRs/shares were grossly over-valued and could not honestly be regarded as adequate consideration; Defendants therefore acted dishonestly.
• The transactions stripped Company C of performing assets and exposed it—unnecessarily—to the known risk of Company D’s collapse.

Respondents' Arguments

• The transactions formed part of a bona-fide “debt-to-equity” restructuring plan allegedly approved orally by the banking regulator, Superintendent Y.
• Director X relied on professional administrators at Company G; any assistance from Respondents was therefore not “dishonest”.
• Company C suffered no provable loss because the value of the loan portfolio was unclear and the GDRs retained value at the date of transfer.

Table of Precedents Cited

Court's Reasoning and Analysis

1. Director X owed statutory and fiduciary duties identical to those recognised in English law. Receiving USD 2,500 per year and acting for dozens of companies did not dilute those obligations.

2. He exercised no independent judgment; he executed documents exactly as instructed via Company G. That constituted a breach of duty.

3. Defendants orchestrated the instructions. The purported reliance on Company G’s “vetting” was implausible; there was no evidence Company G analysed the transactions substantively.

4. The asserted regulator-approved “debt-to-equity plan” did not withstand scrutiny. Documentary records showed (a) the first transaction pre-dated any discussion with Superintendent Y; (b) the third transaction was never explained to regulators; and (c) the Structural Reorganisation Plan sent on 1 February 1996 omitted any description of the impugned transfers.

5. Economic analysis demonstrated that the consideration was “hopelessly overstated.” The prices (USD 480, 769 and 602 per share) bore no rational relationship to values derivable from 1995 year-end accounts or market comparables (USD 264–355). The only plausible inference was that values were reverse-engineered to match the assets being stripped from Company C.

6. There was no commercial justification—urgent or otherwise—for Company C to exchange performing loans for illiquid shares during a known liquidity crisis. Exposure of depositors’ funds to the collapse risk of Company D was self-evident.

7. Applying the objective test in Barlow Clowes, no honest person with Defendants’ knowledge could have viewed the transactions as in Company C’s interest. Dishonesty was therefore established.

Holding and Implications

Appeal ALLOWED. The Privy Council held all Respondents jointly and severally liable for dishonestly assisting Director X’s breach of fiduciary duty and awarded equitable compensation of USD 191,953,517.50 to Company C. Interest and costs were reserved for further submissions.

Implications: The decision reiterates the rigorous, objective standard for dishonest assistance and confirms that nominee directors in offshore vehicles owe full fiduciary duties. It also illustrates the Privy Council’s willingness, in exceptional cases, to revisit concurrent factual findings where documentary evidence contradicts them.