Ciban Management Corporation v Citco (BVI) Ltd & Anor (British Virgin Islands)

Factual and Procedural Background

Company A, a British Virgin Islands vehicle whose sole purpose was to hold five parcels of land in “The City,” was ultimately owned by Person A. To conceal this ownership, bearer shares were held by Attorney [Last Name] and day-to-day instructions were channelled through Person B, a long-standing associate of Person A. Between 1997 and 1999 Company C (its sole director) issued four powers of attorney (“POAs”) that were validly authorised by Person A via Person B.

In August 2001 Person B, without Person A’s knowledge, instructed Company B (the registered agent) and Company C to issue a fifth POA empowering Attorney [Last Name] to sell all of Company A’s land. The property was contracted to be sold on 14 December 2001 and the proceeds were applied to debts Person B alleged were owed by Person A. Person A immediately revoked the POA and commenced Brazilian proceedings, which settled after Company A paid the purchaser compensation.

On 14 December 2007 Company A sued Company B and Company C for negligence (and related fiduciary breaches) and, as against Company C, for failure to comply with section 80 of the International Business Companies Act 1984. Bannister J dismissed the claim in 2012; the Eastern Caribbean Court of Appeal affirmed that decision in 2019. Company A appealed to the Judicial Committee of the Privy Council, which heard the matter in June 2020 and delivered judgment on 30 July 2020.

Legal Issues Presented

1. Whether Company C breached its tortious duty of care as sole director by issuing the fifth POA on the strength of Person B’s instructions.
2. Whether Company B, as registered agent, owed and breached a similar duty of care.
3. The relevance and operation of the doctrine of ostensible authority in circumstances where instructions were given by an unauthorised intermediary.
4. Whether the “Duomatic principle” (informal unanimous shareholder assent) attributed Person A’s conduct to Company A, thereby validating reliance on Person B’s instructions.
5. Whether section 80 of the International Business Companies Act 1984 was infringed and, if so, to whom any duty was owed.

Arguments of the Parties

Appellant’s Arguments

• Company C ought to have verified Person B’s authority; numerous “red flags” made blind reliance unreasonable.
• Company B, either as registered agent or de facto director, owed the same standard of care and similarly failed to exercise it.
• The sale amounted to a disposition of more than 50 % of Company A’s assets outside the ordinary course of business, triggering section 80; failure to obtain member approval was negligent.

Respondents’ Arguments

• Person A had deliberately created and operated a system whereby Person B issued instructions; four earlier POAs had been processed in that manner without objection.
• The doctrine of ostensible authority entitled both companies to rely on Person B’s instructions; any risk of abuse rested with Person A.
• The Duomatic principle attributed Person A’s conduct to Company A, defeating any complaint by the company itself.
• No duty of care was breached: Company B’s role was purely administrative and Company C’s role was one of execution unless illegality or dishonesty was evident.

Table of Precedents Cited

Court's Reasoning and Analysis

The Board limited itself to the facts as concurrently found by the lower courts. It framed one decisive question: did Company B and/or Company C breach a duty of care to Company A by acting on Person B’s instructions?

Step 1: Context of the Relationship. Person A intentionally remained “in the shadows,” employing bearer shares and routing all instructions through Person B. Four earlier POAs had been issued without objection, creating a settled course of dealing.

Step 2: Ostensible Authority. By that course of dealing, Company A (through Person A) represented that Person B had authority. Company B and Company C were objectively reasonable in relying on that representation; the alleged “red flags” (private e-mail address, payment of fees from Person B’s family account, breadth of the POA) did not compel further enquiry.

Step 3: Duomatic Principle. Any act that could have been approved by a shareholder resolution is equally valid if all shareholders assent informally. Person A’s conduct amounted to such assent, attributing the representation to Company A itself. Consequently, Company A could not disavow Person B’s apparent authority.

Step 4: Application to Director’s Duty (Company C). Given the above, Company C’s role was merely to execute lawful instructions unless illegality or dishonesty was evident. The Board saw no negligence in relying on Person B’s request, nor any failure to conduct “due diligence” in a context where scrutiny of commercial wisdom was outside Company C’s remit.

Step 5: Application to Registered Agent (Company B). Company B’s statutory and contractual duties were limited and largely administrative. If the director was not negligent, it followed a fortiori that the agent was not. The Board also rejected the contention that Company B was a de facto director.

Step 6: Statutory Point (section 80). While expressing reservations about certain conclusions of the courts below, the Board held that compliance with section 80 could not, on these facts, give rise to liability because reliance on Person B’s ostensible authority already satisfied the necessary shareholder approval via Duomatic.

Holding and Implications

APPEAL DISMISSED.

The Board affirmed that neither Company B nor Company C breached any duty of care to Company A. The decision underscores that where an ultimate beneficial owner deliberately interposes an intermediary and conceals personal involvement, the company will be bound by the intermediary’s apparent authority under the Duomatic principle. Beneficial owners who adopt such opaque structures bear the risk of the intermediary’s misconduct; directors and registered agents who reasonably rely on the system so created will not be liable in negligence. The ruling sets no new precedent on directors’ duties but clarifies the interaction between ostensible authority and informal unanimous assent in offshore corporate administration.