Ciban Management Corporation v Citco (BVI) Ltd and another
| Jurisdiction | British Virgin Islands |
| Judge | Lord Burrows |
| Judgment Date | 30 July 2020 |
| Judgment citation (vLex) | [2020] ECSC J0730-2 |
| Docket Number | Privy Council Appeal No 0093 of 2019 |
| Court | Court of Appeal (British Virgin Islands) |
| Date | 30 July 2020 |
Trinity Term
[2020] UKPC 21
From the Court of Appeal of the Eastern Caribbean Supreme Court
Lord Hodge
Lady Black
Lady Arden
Lord Leggatt
Lord Burrows
Privy Council Appeal No 0093 of 2019
Appellant
Ben Hubble QC
(Instructed by Pinsent Masons LLP (London))
Respondents
Steven Thompson QC
Jeremy Child
(Instructed by Macfarlanes LLP)
Heard on 10 and 11 June 2020
This case raises some interesting questions about a director's duty of care, the doctrine of ostensible authority and the so-called “ Duomatic principle” (named after the case of In re Duomatic Ltd [1969] 2 Ch 365). The claimant, and the appellant before the Board, is Ciban Management Corpn but at all material times the relevant company was Spectacular Holdings Inc (which has since been merged with Ciban Management Corpn). We shall therefore refer to the appellant throughout as “Spectacular”. The defendants, and respondents before the Board, are Citco BVI Ltd (“Citco BVI”) and Tortola Corporation Company Ltd (“TCCL”). The former was the registered agent of Spectacular and the latter was its sole (legal) director.
The central allegation of Spectacular is that there was a breach of a tortious duty of care owed to Spectacular by Citco BVI and/or by TCCL in issuing, on 15 August 2001 on behalf of Spectacular, a power of attorney, referred to as the “fifth power of attorney” (“fifth POA”). Under the fifth POA, Mr Delollo (a Brazilian lawyer) was authorised to sell five parcels of land which belonged to, and were the only assets of, Spectacular. The sole purpose of Spectacular was to hold that property. It had no bank account and did not trade. Mr Alberto Jackson Byington Neto (“Mr Byington”) was the ultimate beneficial owner of Spectacular with the only shares being bearer shares held on behalf of Mr Byington by a lawyer in Florida, Mr Stollman. On 14 December 2001, using the powers conferred under the fifth POA, Mr Delollo concluded a contract for the sale of all the land owned by Spectacular. Mr Byington knew nothing about the fifth POA or about the sale of Spectacular's assets. In issuing the fifth POA, Citco BVI and TCCL were acting on the instructions of Mr Henrique de Moura Costa (“Mr Costa”), who had been a long-standing friend and business associate of Mr Byington (albeit that he had sent a resignation letter to Mr Byington in November 2000). Mr Costa used the proceeds of sale to pay off debts Mr Costa alleged were owed to him by Mr Byington. In essence, therefore, the allegation by Spectacular is that Mr Costa had deceived Mr Byington and that he was able successfully to do so because, while not themselves fraudulent, Citco BVI and TCCL were in breach of the tortious duty of care that they owed to Spectacular.
Spectacular also alleged that the issuing of the fifth POA constituted a breach of section 80 of the International Business Companies Act 1984 (BVI) (“IBC”). It is important to note at the outset that the breach of this section was pleaded by Spectacular as merely one aspect of the alleged breach of the duty of care owed by TCCL, rather than as founding an independent cause of action for breach of statutory duty. It is convenient to set out that provision straightaway:
“… any sale, transfer … or other disposition … of more than 50% of the assets of a company incorporated under this Act … if not made in the usual or regular course of the business carried on by the company, shall be made as follows —
(a) The proposed sale, transfer, lease, exchange or other disposition must be approved by the directors;
(b) Upon approval of the proposed sale, transfer, lease exchange or other disposition, the directors must submit the proposal to the members for it to be authorized by a resolution of members …”
Bannister J, sitting at first instance in the Eastern Caribbean Supreme Court (Territory of the Virgin Islands), in a judgment handed down on 27 November 2012, held in summary as follows:
(i) Citco BVI, as registered agent, owed no duty of care in tort to Spectacular as regards the fifth POA (and related sale documents); any such duty was owed to Mr Byington. Citco BVI was not a de facto director and so owed no duty of care as a director to Spectacular. Even if Mr Byington, not Spectacular, had been the claimant, there had been no breach of a duty of care to Mr Byington because he had set up a system whereby he expected Citco BVI to rely on the instructions of Mr Costa, and Citco BVI had not unreasonably ignored what the claimant argued were warning signs (referred to by Bannister J and hereinafter as “red flags”) concerning the instructions relating to the fifth POA.
(ii) As regards TCCL, one had to see the duty of care owed by the director to Spectacular in context. Here the set-up created and operated by Mr Byington meant that TCCL was to carry out his instructions, through Mr Costa, unless illegal or dishonest. In other words, TCCL's duty of care as director was merely to ensure that what Mr Byington was instructing TCCL to do, through Mr Costa, was legal and valid (ie TCCL's role was one of execution only).
(iii) In relation to section 80 of the IBC, there was no breach of duty by TCCL because what was done was in the “usual or regular course of [Spectacular's] business”. Spectacular's business was that of a property-holding company. Such companies dispose of, as well as acquire, property. In any event, the duty owed under section 80 was to Mr Byington and not to Spectacular.
The Court of Appeal of the Eastern Caribbean Supreme Court (“the Court of Appeal”), in a judgment dated 13 February 2019, upheld Bannister J's decision and reasoning but added:
(i) That the doctrine of ostensible authority (which was applicable because Mr Costa in giving instructions to Citco BVI/TCCL appeared to be acting on the authority of Mr Byington) provided an additional reason why the claims against Citco BVI and TCCL both failed.
(ii) Another reason why the claim against TCCL under section 80 of the IBC failed was because there was no disposition of property by TCCL, as opposed to by Mr Delollo, under the POA.
As is reflected in the judgments of the courts below, there has been considerable difficulty in deciding in this case whether the doctrine of ostensible (or apparent) authority has a pivotal role. The Board considers that, on this appeal, there is one central question to be determined: were Citco BVI and/or TCCL in breach of the tortious duty of care which they owed to Spectacular in acting on the instructions of Mr Costa in relation to the fifth POA? But in answering that question both counsel, Ben Hubble QC for Spectacular and Steven Thompson QC for Citco BVI and TCCL, were in agreement that ostensible authority was central to the resolution of the case. While it is important not to overcomplicate matters, it is also the Board's view that, in line with the Court of Appeal, it is helpful to see some of the issues through the lens of the doctrine of ostensible authority.
The answer which the Board gives to the central question raised by this appeal is that we see no reason to interfere with the decision of the Court of Appeal (upholding Bannister J) that Citco BVI and TCCL were not in breach of the duty of care owed to Spectacular.
We should clarify at the outset that, in accordance with our normal practice, we do not think it appropriate to go behind the concurrent findings of fact of the two lower courts (ie the facts which Bannister J found proven and on which his findings were upheld by the Court of Appeal). For that practice of the Board see, for example, Srimati Bibhabati Devi v Kumar Ramendra Narayan Roy [1946] AC 508; Central Bank of Ecuador v Conticorp SA [2015] UKPC 11, [2016] 1 BCLC 26, paras 4–8; Juman v Attorney General of Trinidad and Tobago [2017] UKPC 3, para 15; Al Sadik v Investcorp Bank BSC [2018] UKPC 15, paras 43–44.
This summary of the facts draws heavily on the judgment of the Court of Appeal and the parties' agreed statement of facts.
Mr Byington is a Brazilian businessman. Through a company called Gravacôes Electricas SA (“GEL”), he carried on a music and recording business in Sao Paulo beginning in the 1950s. He sold the artists' contracts and royalty rights for US$18m. Of this sum, US$3m was paid to Mr Byington himself, but the bulk was paid to GEL's creditors, and Mr Byington lent his $3m to GEL in order to keep afloat what remained of the business.
By 1997 the remainder of GEL's business was failing and Mr Byington was concerned about his $3m. He persuaded his longstanding friend and associate, Mr Costa, to acquire two BVI shelf companies: Spectacular and Waterloo Capital Corpn (“Waterloo”). The purpose of the acquisitions was to enable the use of the companies in a scheme by which GEL's share capital would appear to be sold to Mr Costa and to be held by him through Waterloo. But the sale was a sham, for after its completion, unbeknown to Mr Byington's creditors, GEL in fact remained in Mr Byington's beneficial ownership.
As a further step in the scheme, Mr Byington then sued GEL for his $3m and secured a judicial sale of five of the six parcels of land from which GEL had carried out its business in Sao Paulo. We shall refer to those five parcels as “the Property”. A public auction was held and Spectacular, which was beneficially owned by Mr Byington throughout the period relevant to these proceedings, obtained the Property for R$2.75m. In this way Mr Byington succeeded in taking the Property out of the reach of GEL's creditors without anyone other than Mr Costa knowing that he had been the real purchaser of it.
It is necessary here to explain in more detail how Spectacular was acquired. In late 1997 Mr Byington told Mr Costa...
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