An important principle has been clarified in a significant court ruling that should encourage company owners to exercise caution where an agent has authority to act on the company’s behalf. The specialist and corporate commercial lawyers at Bahamas law firm ParrisWhittaker are highly experienced in advising companies and others on corporate decision-making.
The ruling1 was handed down by the UK’s Privy Council – the highest appeal court for The Bahamas – in relation to the so-called Duomatic principle. The decision has significant implications for companies, their directors and their agents.
Put simply, under the Duomatic principle anything the members of a solvent company can do by formal resolution at a general meeting, they can also do informally if each assents to it. Importantly, such resolution can bind the company even where an ultimate beneficial owner (UBO) (ie a company owner) does not consent to the action.
What’s the case about?
It was a convulated case involving a complex company structure established on behalf of the UBO by a friend for the sole purpose of holding land. The intention was to mask the UBO’s true ownership. The company shares were held by a lawyer in Florida; and a British Virgin Islands-based company was registered as agent for the company (it also provided a professional director).
Following a dispute between the UBO and the friend, the professional director executed a power of attorney as instructed by the friend. Under the power, a Brazilian lawyer had authority to sell the land. The UBO brought proceedings arguing that there had been a breach of directors’ duties but lost.
A key issue was whether the Duomatic principle could be applied to ‘ostensible authority’ – that is to say, holding someone out as having authority to act on your behalf where, in fact, they do not have authority.
The Privy Council upheld the ruling of the two lower courts and found that in setting up arrangements in the way he had, the UBO had accepted the risk of the agent betraying him. The agent did betray him and, in applying the Duomatic principle, the agent acting under ostensible authority also bound the company.
The Privy Council said: “If actual authority can be conferred informally by unanimous shareholder consent the same should apply to ostensible authority”.
What does this mean?
Company owners need to take on board the implications of this case particularly where they employ the services of agents. If they grant the agent authority to act on their behalf, thus binding the company; the same is true if the agent has ostensible authority to act on the UBO’s behalf – even if the decisions amount to a betrayal or deception.
In light of the ruling, it would be wise to review your articles of association, as well as the general and or specific authority given to any agents acting on your behalf, to ensure your interests are protected. It may be wise to consider explicitly limiting the extent of an agent’s authority to act on behalf of the company/UBO.
How can we help?
We advise and represent companies and directors on their decision-making processes and on who has authority to make bind decisions. We also advise entities and individuals who are instructed as agents for a company, providing strategic advice on the limits of an agent’s authority to act on behalf of a company, and risks of exceeding any such authority.
If you have any concerns in relation to these issues, contact the expert corporate and commercial lawyers at ParrisWhittaker for strategic advice and representation.
1Ciban Management Corporation (Appellant) v Citco (BVI) Ltd and another (Respondents) (British Virgin Islands) Case ID: JCPC 2019/009
