Ostensible authority and consent of beneficial owners
Under a power of attorney (PoA), a lawyer was authorised to sell property belonging to a BVI registered company. That company had issued bearer shares that were held by a US lawyer on behalf of X.
On the authority of a director of the company, the lawyer concluded a contract under the PoA for the sale of assets, but without informing X. The PoA had been issued by the director on the instructions of Y, a business associate of X, and the sale proceeds were used to pay off debts Y alleged were owed to him by X.
The resulting court proceedings against the director alleged that he had acted in breach of his duty of care in failing to ensure that Y had the authority to procure the grant of the PoA.
The trial judge dismissed the claim, holding that the duty of care owed by the director to the company had to be seen in the context of the set-up created and operated by X which meant that the director was to carry out his instructions, through Y, unless those instructions were illegal or dishonest. The decision was appealed to the Court of Appeal, which upheld the trial judge's decision. That decision was appealed to the Privy Council.
The Privy Council dismissed the appeal, holding that that there had been no breach of the duty of care owed by the director to the company. It held that the Duomatic principle* could confer ostensible authority. It added that, where the ultimate beneficial owner (X in this case) and not the registered shareholder (the US lawyer in this case) was taking all the decisions in the relevant transactions, the Duomatic principle applied as regards the consent of (and authority given by) the ultimate beneficial owner. Therefore, the ostensible authority conferred by X counted as ostensible authority conferred by the company, and the company could not be allowed to deny that it authorised Y to give the instructions to the director.
*Re Duomatic Buckley J: “…where it can be shown that all shareholders who have a right to attend and vote at a general meeting of the company assent to some matter which a general meeting of the company would carry into effect, that assent is as binding as a resolution in general meeting would be”.