Ciban Management Corporation v Citco (BVI) Ltd

• Jurisdiction: British Virgin Islands
• Judge: Blenman JA
• Judgment Date: 13 February 2019
• Neutral Citation: VG 2019 CA 6
• Judgment citation (vLex): [2019] ECSC J0213-3
• Court: Court of Appeal (British Virgin Islands)
• Docket Number: BVIHCVAP2013/0001
• Date: 13 February 2019

EASTERN CARIBBEAN SUPREME COURT

IN THE COURT OF APPEAL

Before:

The Hon. Mde. Louise Esther Blenman Justice of Appeal

The Hon. Mde. Gertel Thom Justice of Appeal

The Hon. Mde. E. Ann Henry Justice of Appeal [Ag.]

BVIHCVAP2013/0001

Between:

Ciban Management Corporation

Appellant

and

[1] Citco (BVI) Limited

[2] Tortola Corporation Company Limited

Respondents

Appearances:

Mr. Ben Hubble, QC with him, Mr. Andrew Chissick for the Appellant.

Mr. Steven Thompson, QC with him, Mr. Richard Brown for the Respondents.

Civil appeal — Breach of duty of care — Whether learned judge erred in finding that there was no duty of care owed as director — Whether learned judge erred in finding that there was no breach of tortious duties — Applicability of principle of ostensible authority — Breach of statutory duty

The appellant, Ciban Management Corporation (“Ciban”) is the survivor company of a merger between Ciban and Spectacular Holdings Inc. (“Spectacular”), the latter of which was incorporated in the British Virgin Islands. The respondents, Citco (BVI) Limited (“Citco”) and Tortola Corporation Company Limited (“TCCL”) were Spectacular's registered agent and its sole director, respectively. Mr. Alberto Jackson Byington Neto(“Mr. Byington”) was Spectacular's ultimate beneficial owner. Through Gravacoes Electricas S.A. (“GEL”), a music and recording company, Mr. Byington sold artistes' contracts and royalty rights for US$3 million. The bulk of the sum was to be paid to GEL's creditors. Mr. Byington lent GEL US$3 million to keep the business afloat. The business was failing and Mr. Byington was concerned about his US$3 million. He then sought to acquire two companies, Waterloo Capital Corp (“Waterloo”) and Spectacular, the latter was incorporated with the help of Mr. Henrique de Moura Costa (“Mr. Costa”). The two companies would be used in a scheme under which GEL's share capital would be ‘sold’ to Mr. Costa, who would appear to hold it through Waterloo, although in reality, the sale was a sham. As part of the scheme, Mr. Byington sued GEL for his US$3 million and obtained a judicial sale. By public auction, Spectacular purchased five parcels of the land from which GEL carried on business (the “property”).

Mr. Costa remained involved in Spectacular and took instructions from Mr. Byington. Mr. Byington's financial situation worsened and Mr. Costa informed him that certain fees were due for Waterloo and Spectacular. He then emailed Mr. Byington advising him that unless Citco's fees were paid they would cease to act, which would affect Spectacular's ownership of the property. He asked Mr. Byington to attempt to remedy the financial difficulties. However, the fees remained outstanding. Subsequently, Mr. Costa, without telling Mr. Byington, sent Citco a power of attorney (the “fifth power of attorney”), which he asked TCCL to grant, enabling Spectacular's property to be sold. Mr. Byington had utilised Mr. Costa to procure three previous powers of attorney. TCCL passed a director's resolution providing for the issue of the power required. Citco did not consult Mr. Byington about these transactions, nor was Mr. Byington aware of the instruction. Thereafter, the fifth power of attorney was effected and a contract of sale was entered into by Spectacular and Mr. Thomas Law. Mr. Costa then wrote to Mr. Byington telling him, for the first time, what had happened in relation to the sale of the property.

Spectacular sued Citco and TCCL for breach of duty of care and statutory duty in relation to the procurement of the fifth power of attorney. It also complained that Citco and TCCL failed to ensure compliance with section 80 of the International Business Companies Act (the “IBC Act”). Citco and TCCL denied that they breached any duties. They said that the relationship between Mr. Byington, Citco, and Spectacular was governed by a contract to be implied between Mr. Byington, Citco and TCCL to act on Mr. Byington's instructions. Further, that Mr. Costa had the ostensible authority of Mr. Byington to give instructions for procuring the fifth power of attorney.

The learned judge dismissed Ciban's claim against Citco BVI and TCCL. The judge found that Citco owed Spectacular no duties, contractual or tortious, to make inquiries about the issuance of the fifth power of attorney or to perform due diligence, or any duties in the capacity of a de facto director. The judge held that Spectacular's claim against TCCL for breach of duty of care was unsustainable, as TCCL's responsibilities were limited to ensuring that Spectacular's acts were lawful and valid. The judge also held that the principle of ostensible authority was inapplicable and section 80 of the IBC Act was not engaged.

Ciban, being dissatisfied with the judge's decision, appealed. Citco and TCCL counter appealed. The issues for this Court's determination are: (i) whether the judge erred in holding that Citco did not owe Spectacular a duty of care, as director, in relation to the issuance of the fifth power of attorney; (ii) whether the judge erred in holding that Citco did not breach any tortious duties to Spectacular; (iii) whether the judge erred as a matter of law in failing to conclude that the principle of ostensible authority was applicable to the relationship between Mr. Byington and Mr. Costa viz-a-viz Citco and TCCL; and (iv) whether the judge erred in concluding that TCCL did not breach any of its duties, in tort.

Held:

dismissing the appeal; allowing the counter appeal; awarding costs in the court below and two-thirds of those costs on the appeal and the counter appeal to the respondents to be assessed, if not agreed within 21 days of this judgment, that:

• 1. The test for the determination of whether a person is a de facto director is one of fact and degree. The question to be answered is whether the individual was part of the governing structure of the company. The learned judge, having heard and seen Mr. Byington, made critical findings about him and his “scheme”. In view of the totality of the circumstances, the learned judge correctly concluded that Citco was not a de facto director of Spectacular as there is no basis upon which Citco could be said to be a part of the governing structure of Spectacular.

  Revenue and Customs Commissioners v Holland and Another; In re Pay Check Services 3 Ltd. and Others [2010] 1 WLR 2793 applied.

• 2. There is no basis for the contention that the learned judge ignored the relevant principles of directors' duties in relation to TCCL. The case at bar had very little to do with the general duties of directors. Accordingly, the judge correctly concluded that TCCL had breached no duty of care to Spectacular.

  Re Barings Plc and others (No.5), Secretary of State for Trade v Baker & Others (No.5) [1999] 1 BCLC 433; Re Westmid Packing Services Ltd, Secretary of State for Trade and Industry v Griffiths and Others [1998] 2 BCLC 646; Weavering Macro Fixed Income Fund Limited (In Liquidation) v Peterson and Ekstrom Cause No. FSD 113 of 2010; and Weavering Capital (UK) Ltd. (In Liquidation) v Peterson and Others [2012] EWHC 1480 (Ch) distinguished.

• 3. Since Mr. Byington had utilised Mr. Costa to communicate instructions for three previous powers of attorney prior to the relevant one, the learned judge correctly found that there was no duty of care imposed on Citco, as registered agent, to make enquires about the fifth power of attorney. Accordingly, the judge's finding that Citco had not been negligent in providing the fifth power of attorney to Mr. Costa, given the system which Mr. Byington had set up, cannot be fairly criticised.

  Beacon Insurance Company Limited v Maharaj Bookstore Limited [2014] UKPC 21 applied; Yates Associates Construction Company Limited v Blue Sand Investments Limited BVIHCVAP2012/0028 (delivered 20th April 2016, unreported) followed.

• 4. Where a principal, by words or conduct, represents that an agent is authorised to act on his behalf, he is bound by the acts of the agent, notwithstanding the termination of authority, to the same extent as he would have been if the authority had not been terminated, when it was reasonable for the third party to deal with the agent, on the faith of any such representation, without notice of such termination. The present case clearly evidences the ostensible authority of Mr. Byington upon which Citco and TCCL could have relied in taking instructions from his agent, Mr. Costa. The learned judge ought to have upheld Citco and TCCL's defence of ostensible authority and insofar as he failed to do, he erred as a matter of principle. This Court should uphold the decision of the judge on the additional basis that Mr. Costa's instructions were ostensibly authorised and provided by Mr. Byington.

  Newcastle International Airport Ltd. v Eversheds LLP [2014] 1 WLR 3073 applied.

Introduction

Blenman JA

1 This is an appeal by Ciban Management Corporation (“Ciban”) against the decision of the learned Justice Bannister in which he dismissed Ciban's claim for breach of duty of care against Tortola Corporation Company Ltd. (“TCCL”) together with its claim against Citco BVI and TCCL for a breach of statutory duty for allegedly failing to comply with section 80 of the International Business Companies Act 1 (the “IBC Act”). Ciban says that the learned judge made a number of errors of fact and law in arriving at his conclusion and seeks to have the judgment set aside.

2 There is also a counter notice, filed by Citco BVI and TCCL, which seeks to have this Court uphold the orders of the learned judge for the reasons given and on additional grounds which will be dealt with in detail shortly. Of importance, is the fact that Citco BVI and TCCL assert that the judge's finding and decisions were correct, and they have put forward additional bases to support the decision.

3 In order to give a proper context of this appeal, it is necessary to provide the...