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Appeal Nos: CA 013/2021
CA 015/2021

THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS

In the Name of His Highness Sheikh Mohammad Bin Rashid Al Maktoum, Ruler of Dubai

IN THE COURT OF APPEAL
BEFORE CHIEF JUSTICE ZAKI AZMI, H.E JUSTICE ALI AL MADHANI AND JUSTICE ROBERT FRENCH

BETWEEN

IGPL GENERAL TRADING LLC

Appellant/Claimant

and

(1) HORTIN HOLDINGS LIMITED
(2) LODGE HILL LIMITED
(3) WESTDENE INVESTMENT LIMITED

Respondents/Defendants

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JUDGMENT OF THE COURT OF APPEAL

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UPON hearing Counsel for the Appellant and the Respondents at the hearing on 24 January 2022 and 10 March 2022

AND UPON reading the submissions and relevant documents on the Court file,

IT IS HEREBY ORDERED THAT:

1. The Appeals CA-013-2021 and CA-015-2021 are consolidated (the “Consolidated Appeal” or “Appeal”).

2. The Consolidated Appeal is dismissed.

3. The Appellant is to pay the Respondents’ costs of the appeal to be assessed by the Registrar if not agreed.

Issued by:
Nour Hineidi
Registrar
Date of Issue: 23 March 2022
Time: 2.20pm

JUDGMENT

CHIEF JUSTICE ZAKI AZMI, H.E JUSTICE ALI AL MADHANI AND JUSTICE ROBERT FRENCH IN AGREEMENT:

Introduction

1. On 14 February 2021, the Appellant commenced proceedings in the Court of First Instance against Hortin Holdings Limited, Lodge Hill Limited and Westdene Investment Limited (the “Respondents”) seeking orders for specific performance of agreements dated 16 January 2013 and 4 March 2013, which were said to create an Assured Shorthold Tenancy Agreement in favour of the Appellant in respect of property in London. The Appellant contended that the Respondents were obliged by the Tenancy Agreement to enter into valid legal leases in respect of the properties and to register them with HM Land Registry in the United Kingdom.

2. The applicable law was that of England and Wales. The jurisdiction of the DIFC Court of First Instance (“DIFC CFI”) was invoked pursuant to Article 5A(2) of the Judicial Authority Law (Dubai Law No 12 of 2004). Orders for specific performance were sought pursuant to Article 39 of the Law of Damages and Remedies (DIFC Law No 7 of 2005).

3. On 14 February 2021, the Respondents applied for immediate judgment dismissing the claim. A hearing proceeded before Justice Roger Giles (“Justice Giles” or “His Honour”) on 4 August 2021. On 22 August 2021, His Honour ordered that there be immediate judgment in favour of the Respondents and dismissed the proceedings.

4. On 1 November 2021, Justice Giles granted the Appellant’s application for permission to appeal his Order upon some but not all of the grounds set out in the Permission Application. The central question on the appeal is whether the alleged agreement for which specific performance is sought, was entered into with the legal authority of the Respondents. These are the grounds of appeal in CA-013-2021.

5. On 21 December 2021, Chief Justice Zaki Azmi granted permission to appeal on the further ground, which is the subject of Appeal CA-015-2021. The first three grounds were argued at the hearing on 24 January 2022. The additional fourth ground was argued at a hearing on 10 March 2022. All grounds relate to one decision of the CFI. The two appeals should be treated in substance as one appeal advanced on four grounds.

Background Facts

6. Justice Giles set out in his judgment the background facts upon which the Appellant’s claim was based. The property in question is a mixed use residential and commercial development in Queenstown Road, Battersea Park, London, known as “The Bridge”. It consists of 103 separate premises, each of which is the subject of a long-term lease. The Second Respondent is the registered proprietor of the freehold of The Bridge. The First Respondent holds long-term leases of residential flats 803 and 804 for 125 years from 24 June 2000. The Third Respondent holds a long-term lease of residential flat 802 for the same term, and a long-term lease of the commercial suites 2 and 3 for 999 years from 24 June 2000. Justice Giles referred to the freehold and those leases as “The London Properties”, which he described as the Respondents’ only substantial assets.

7. Each of the Respondents is incorporated in the British Virgin Islands (“BVI”). According to the Register of Members, shares in those Respondents have been held successively by Waterman Nominees Limited, a Manx nominee company, Mr Antonis Papp, a Cypriot nominee, and from late 2016 Mr Mark Farmer, who acted as nominee for Mr Mohammed Abdulla Juma Al-Sari and Mr Majid Abdulla Juma Al-Sari. The application was conducted on the basis that at all material times before Mr Farmer’s involvement, including in January 2013, Mohammed and Majid were the beneficial owners of the shares in equal shares. Mohammed and Majid are the sons of Mr Abdulla Juma Al-Sari. Their children are parties to the Tenancy Agreement as joint lessees. Flats 802, 803 and 804 were structurally amalgamated between 2002 and 2007 to create one flat used by members of the Al-Sari family when visiting London. They are ordinarily resident in Sharjah.

8. On 27 February 2017, the Commercial Bank of Dubai (the “Bank”) obtained a judgment from the Sharjah Federal Appeal Court against Abdulla, Mohammed and Majid jointly and severally, together with others, for AED 433,831,166.81 plus interest and costs. The Bank took steps to enforce the judgment. On 7 June 2018, the Bank obtained judgment against Mohammed and Majid in the Eastern Caribbean Supreme Court in the amount of USD 118,103,193.58 plus interest and costs. Subsequently a provisional charging order was made over the shares in the Respondents, which were beneficially owned by Mohammed and Majid. On 15 February 2019, the Bank obtained a final charging order over those shares and an order for sale. That order included the appointment of Mr Paul Pretlove, a BVI licensed insolvency practitioner as receiver, with power to realise the Respondents’ assets and to sell the shares.

9. Mr Pretlove’s solicitors wrote to Majid on 20 June 2019 advising that the London Properties were to be realised by sale. Majid’s solicitors wrote back on 27 June 2019 advising of the Tenancy Agreement, the existence of which was previously unknown to Mr Pretlove. There was no evidence of it in the Respondents’ corporate records.

10. The Appellant brought these proceedings seeking specific performance of the Tenancy Agreement. The Respondents’ defence included that the Tenancy Agreement was “a false document, which was not created on the date that it purportedly bears, and a sham …”, and that it had been made not with the intention of creating its purported legal consequences but for the purpose of frustrating enforcement of the Bank’s judgment.

11. At some time, Mr Pretlove had sold shares in the Respondents. The shares are now held by a special purpose vehicle of the Bank which wishes to realise the London Properties.

The Tenancy Agreement

12. The Agreement of which the Appellant sought specific performance was dated 16 January 2013, supplemented by an agreement between the same parties dated 4 March 2013, described as an Addendum.

13. The Tenancy Agreement is expressed to be made between “Landlords”, namely the three Respondents, and “Tenants”, being the Appellant and seven named natural persons (the “Other Tenants”). The Appellant was identified as a UAE incorporated company with its registered office in Sharjah. The Other Tenants were identified as UAE nationals, resident in Sharjah, and are the children of Mohammed and Majid. Abdulla was named as the manager of the Appellant in its trading licence. In the application, the Appellant was described as a proxy for the Al-Sari family.

14. The Tenancy Agreement recited that it was an agreement to create an Assured Shorthold Tenancy “as defined in Section 19A of the Housing Act 1988 or any successor legislation as supplemented or amended from time to time and any other applicable and relevant laws and regulations.”

15. The principal operative clause provided:

16. The term of the tenancy was to commence on 16 January 2013 for a period of 15 years, with an option for renewal for similar terms thereafter. Provision was made for a lump sum rent of £850,000, said to have been fully paid by the Appellant on behalf of the Landlords in settlement of loans taken from a bank. Neither the rent nor the deemed payment was apportioned between the Landlord companies or the flats and suites. The Tenants had the right to assign or submit without prior written consent of the Landlords. The agreement was to be “construed in accordance with and governed by the laws of England”. The parties submitted to the exclusive jurisdiction of the DIFC Courts.

17. There was only one signatory. The document was signed by Abdulla separately on behalf of each of the three Landlords and the eight Tenants.

18. The Addendum cited the desire of the Landlords and Tenants to supplement the terms and conditions of the earlier agreement. It repeated that the rent of £850,000 had been fully paid. It effectively placed all expenses in relation to the London Properties to the account of the Landlords and all income to the account of the Tenants. Like the principal document, it provided for the laws of England to apply and the jurisdiction of the DIFC Courts. Again, there was one signatory, namely Abdulla on behalf of each of the three Landlords and the eight Tenants.

19. The Appellant did not seek specific performance of the Tenancy Agreement in its entirety. It only sought specific performance as to the freehold and the residential flats — that is, not as to the commercial suites.

The Application for Immediate Judgment in the CFI

20. The application for immediate judgment was filed on 30 March 2021 along with the defence. Witness statements were lodged on both sides. No evidence was called from Abdulla, or from Mohammed or Majid.

21. His Honour referred to RDC r 24.1, which provides for immediate judgment against a Claimant to be given if the Court considers that the claimant has no real prospect of succeeding on the claim and there is no other compelling reason why the case should be disposed of at trial. The principles to be applied were not in dispute.

22. The case for immediate judgment was advanced on two grounds. The first was that the Tenancy Agreement was a sham. The second, which His Honour described as “a discrete and narrow ground” was that the Tenancy Agreement was not binding on the Respondents because the signatures by Abdulla purportedly on their behalves, had been without their authority.

23. His Honour noted at the outset that the Tenancy Agreement was expressed as an agreement to let to the Appellant and Other Tenants jointly. The Appellant was the only party seeking specific performance. All of the Other Tenants, save one, were minors. After hearing from the parties His Honour decided he would not rule on whether the Other Tenants should be parties but would hear and decide the application on the action as constituted before him.

24. In relation to the contention that the Tenancy Agreement was a sham, His Honour accepted that there was force in the matters upon which the Respondents relied but he was not persuaded that a case for immediate judgment had been made out. That finding as it is, is not the subject of this Appeal. His Honour’s decision turned on the question of authority and it is that which is the subject of this Appeal.

The Reasons of the CFI on the Authority Question

25. As at January 2013, the sole director of each of the Respondents was Ayre Management Ltd (“Ayre”) a company registered in the BVI. The directors of Ayre were Mr Richard Hird and Mr Andrew Howroyd. It was common ground that at the time the Tenancy Agreement was made, as at 16 January 2013, and as at 4 March 2013 for the Addendum, the director Ayre, had not given authority for the Respondents to enter into the Tenancy Agreement. It knew nothing of the Agreement. His Honour held that the Respondents had thus satisfied the evidential burden of establishing their entitlement to judgment. The Appellant therefore had the evidential burden of showing reasonable prospects of success for the proposition that Abdulla had the requisite authority.

26. The Appellant relied primarily upon a Power of Attorney granted to Abdulla by Mohammed and Majid as beneficial shareholders in the Respondents. In the alternative, the Appellant relied upon the exercise of an implied actual authority of Mohammed and Majid — an implication to be drawn from the acquiescence of Ayre in their direct or indirect management of the Respondents’ affairs — again via the Power of Attorney.

27. The Power of Attorney was executed by Mohammed and Majid in favour of Abdulla and certified by notary on 26 June 2008. Its genuineness was not questioned before His Honour.

28. The Power of Attorney was in terms an appointment of Abdulla by Mohammad and Majid “in our personal capacity and in any capacity whatsoever … To represent us and take our place”. This was followed by reference to numerous powers and rights, including to enter into contracts, to lease and to trade in and subscribe to “shares in all companies operating in the country”. The last sentence included:

“This is an absolute general power of attorney granted to his word, opinion and action, without excluding any matter of such power of attorney, whether mentioned above or not…”

The Power of Attorney was in Arabic and His Honour’s quotations were drawn from a translation.

29. His Honour assumed that the Power of Attorney was joint and several on the part of Mohammad and Majid. The Appellant’s argument for implied actual authority from the Respondents rested on Mohammad alone as agent.

30. The legal principle relied upon by the Respondents was derived from In re Duomatic Ltd.¹ This was said to support the principle originally derived from Salomon v A Salomon & Co Ltd² that '’[a] company is bound in a matter intra vires by the unanimous agreement of its members”. In that case a liquidator had claimed to recover payments made to directors by way of director’s salary on the basis that they had not been voted for by the company in general meeting. Company accounts showed the payments had been signed and approved by one of the directors against whom the claim was made, and another director. The two directors were the only shareholders entitled to vote in the general meeting. Buckley J held that the payments could not be disturbed. He proceeded:

“…upon the basis that 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 could carry into effect, that assent is as binding as a resolution in general meeting would be.”³ (emphasis added)

31. His Honour also referred to the observation of Neuberger J in EIC Services Ltd v Phipps:

“The essence of the Duomatic principle, as I see it, is that, where the articles of a company require a course to be approved by a group of shareholders at a general meeting, that requirement can be avoided if all members of the group, being aware of the relevant facts, either give their approval to that course, or so conduct themselves as to make it inequitable for them to deny that they have given their approval. Whether the approval is given in advance or after the event, whether it is characterised as agreement, ratification, waiver, or estoppel, and whether members of the group give their consent in different ways at different times, does not matter.”⁴

32. The principle was also summarised in Bowstead & Reynolds on Agency where it was said:

“…both in relation to directors and shareholders the courts recognised early on that these groups could also bind their company informally, so long as it could be established that all directors, or all shareholders, as the case may be, assented unanimously to the decision being made on the company’s behalf.”⁵

Bowstead further stated:

“Assent must be proven, but may be tacit and need not be manifested in concert, and may occur before or after the events in question have taken place. Informal unanimous assent cannot, however, be used to do anything that could not be achieved by formal resolution.”⁶

33. It was accepted by the Respondents that the Duomatic principle applied to them as BVI companies. They did not submit otherwise. However, what His Honour focussed upon was the way in which it was said by the Appellant that the principle applied in this case. After referring to submissions by the Appellant and the Respondents, His Honour identified the real question in the case as ”not simply a decision to enter into the Tenancy Agreement, but the actual entry into it by Abdulla’s signatures purportedly on behalf of the [Respondents].”⁷ The Appellant’s submission was that the act of signing the Tenancy Agreement was not a matter for the shareholders in general meeting. If a company’s board resolved to enter into an agreement, the company would not be bound to it unless and until the agreement was duly executed on behalf of the company, or became binding by some other means. The same was true if the resolution to enter into the agreement were by the shareholders in general meeting and necessarily the same if their assent was not by due resolution in general meeting, but informally under the Duomatic principle. His Honour said:

“It is not enough to say that, whether by inference of the assent of Mohammed and Majid or of assent of Abdulla on their behalves pursuant to the power of attorney, there was a decision of the Defendants to enter into the Tenancy Agreement. Abdulla’s authority to sign it on behalf of the Defendants must still be found.”⁸

34. His Honour then referred to the Privy Council decision in Ciban Management Corporation v Citco (BVI) Ltd⁹ where what was in question was the conferral of authority to sign. That case involved the question whether the sole beneficial shareholder in a company had clothed his business associate with ostensible authority to issue a power of attorney pursuant to which property held by the company was sold and the proceeds used by the business associate. Their Lordships considered that the business associate, Costa, had been clothed with ostensible authority to instruct the issue of the relevant power of attorney. His Honour quoted from the judgment of Lord Burrows JSC:

“The question therefore becomes whether one can apply the Duomatic principle of informal unanimous shareholder consent to ostensible authority. As a matter of principle, there seems no reason why not. If actual authority can be conferred informally by unanimous shareholder consent the same should apply to ostensible authority.”¹⁰

35. His Honour pointed out that there was no submission of ostensible authority in this case. The submission was that Mohammed and Majid, as beneficial shareholders, could appoint an agent with authority to bind the Respondents and had done so by the appointment of Abdulla.

36. The Respondents argued before His Honour that it was demonstrably not known by Mohammed and Majid that Abdulla was signing the Tenancy Agreement. His Honour did not think that was a fact finding which could be made on the immediate judgment application. However, he found that the Appellant’s argument failed for a more fundamental reason. He said:

“Let it be assumed that Mohammed and Majid informally resolved that the Defendants should enter into the Tenancy Agreement. Apart from the power of attorney, and in the absence of evidence from any of Mohammed, Majid and Abdulla, there is nothing to warrant finding that they informally resolved that it should be signed by Abdulla on behalf of the Defendants. The power of attorney is the essential link to that appointment of Abdulla, but it is a false link. It empowers Abdulla to act on behalf of Mohammed and Majid – not on behalf of the Defendants. Put another way, in the Claimant’s reliance on the power of attorney as embodying Abdulla’s authority, he signed the Tenancy Agreement not on behalf of the Defendants, but on behalf of Mohammed and Majid. To say that he signed on behalf of Mohammed and Majid in their capacity as beneficial shareholders does not work, because signing is not something for them in general meetings of the Defendants.¹¹

37. His Honour identified the preceding as the fatal flaw in finding authority in Abdulla in the exercise of the powers of Mohammed and Majid as beneficial shareholders. His Honour concluded that the Appellant had no real prospect of establishing Abdulla’s authority to sign the Tenancy Agreement in the manner that he did.

38. His Honour then turned to an alternative argument advanced by the Appellant that Abdulla’s actual authority to sign the Tenancy Agreement was to be implied from the acquiescence of the Respondents’ directors in their affairs being managed by the beneficial shareholders, Mohammed and Majid, directly or “by their appointed proxies”.

39. The Appellant had relied upon the acquiescence by Ayre, the director of the Respondents. There was evidence that Ayre played no significant role in the management of the Respondents but like their other corporate directors, was limited to maintaining requisite company documentation and ensuring compliance with legal requirements in the BVI.

40. His Honour unpacked the management activities described by Mr Colquhoun-Denvers of Ayre, who took his instructions from Mohammed, whom he understood was authorised to act on behalf of the rest of the Al-Sari family. He had no involvement in the Tenancy Agreement. His Honour concluded that it was clear that he did not know of its existence until recently.

41. His Honour assumed, in favour of the Appellant, that for the purpose of implying an authority, the factual matters which he outlined were as at and prior to 2013. He went on to say however:

“Nothing in this evidence gives implied actual authority to Abdulla directly, or to Majid – in the light of the evidence and as earlier stated, the Claimant’s argument more accurately required that authority in Mohammed be implied, which was exercised through his attorney Abdulla. But the evidence is wholly insufficient to establish implied actual authority in Mohammed to sign the Tenancy Agreement.”¹²

42. While Mohammed was left to instruct Mr Colquhoun-Denvers in management and administrative matters and Ayres acquiescence could be implied, it was an entirely different proposition that Ayre acquiesced in Mohammed committing the Respondents to major transactions of the scale of the Tenancy Agreement. That Agreement, according to its terms which purported to allow perpetual renewals, was, as His Honour observed “…tantamount to disposition of the whole of the [Respondents’] undertakings.” The evidence was against such acquiescence.

43. His Honour concluded that the Appellant had no real prospect of establishing implied actual authority in Abdulla to sign the Tenancy Agreement.¹³

44. His Honour rejected the Appellant’s submission that the question of authority raised complex legal issues requiring factual investigation, making it unsuitable for immediate judgment. However, His Honour pointed out it was not in dispute that there was no express authority given to Abdulla. The Appellant had the evidentiary burden of showing that there was a real prospect of establishing authority. The relevant legal principles are well-established and on the evidence put forward by the Appellant, no such case had been made out. His Honour found no reason to think that other significant evidence, not presently available to the Appellant, might exist and could be available at trial. Nor did he think there was any other compelling reason why the case should go to trial.¹⁴

45. In stating the result, His Honour also observed that on 31 January 2021, orders had been made ex parte in proceedings CFI 016-2021 restraining the Respondents and Mr Pretlove until 3 February 2021 from action contrary to the Tenancy Agreement. Those orders were subsequently extended by consent. Upon the dismissal of the proceedings, those orders should be discharged.

The Orders of the CFI

46. His Honour made the following Orders:

Grounds of Appeal

47. The three Grounds of Appeal for which permission to appeal was given by Justice Giles are as follows:

48. The additional ground of appeal for which permission to appeal was given by Chief Justice Zaki Azmi is as follows:

“4. The Learned Judge erred in law by failing to appreciate or adequately take into account the further evidence that was likely to be available at trial in summarily disposing of the Appellant’s claim.”

The Appellant’s Submissions on the First Three Grounds

49. After setting out the background and procedural history, the Appellant referred to His Honour’s reasons for judgment and the citations from Salomon, Duomatic, EIC Services Ltd and Bowstead and Reynolds on Agency. The Appellant also quoted the principle cited by His Honour from the decision of the Privy Council in Meridian Global Funds Management Asia Ltd v Securities Commission¹⁵ that:

“The unanimous decision of all of the shareholders in a solvent company about anything which the company under its memorandum of association has power to do shall be the decision of the company.”

50. The Appellant submitted that His Honour appeared to accept that the application of the Duomatic principle was not constrained to enabling shareholders to directly bind companies in a narrow set of circumstances. Nor was it limited to enabling shareholders to direct that a company, through its directors, should formally adopt a particular course of action. Instead, the Duomatic principle applies to enable the shareholders of a company, acting unanimously, to take any step that a company was empowered to do under its Memorandum of Association.

51. The Appellant contended that the Duomatic principle enabled shareholders to bind the company vis-à-vis third parties without there being a requirement that such acts be ratified by the company’s directors or formalised in accordance with the Memorandum and Articles of Association.

52. The Appellant contended that His Honour erred in his application of the law to the case put forward by the Appellant in a number of respects — one being an alleged misunderstanding by His Honour of the Appellant’s case. It is not necessary to explore that aspect of the argument here.

53. The Appellant submitted that the central issue before His Honour was whether the application of the Duomatic principle enabled the shareholders of a company, acting unanimously, to directly bind that company to a third party without that act being ratified by the company’s directors. The judgment, it was said, did not adequately provide an answer to that central question. Instead, His Honour had wrongly suggested that the Appellant’s case was premised on the narrower question of whether actual authority was donated by the shareholders to Abdulla authorising him to enter into the Tenancy Agreement which (according to the submission) he did pursuant to the Power of Attorney.

54. The Appellant said its case could be distilled to three statements:

55. The Appellant further submitted that it was not its case that the shareholders granted Abdulla the narrow or specific authority to enter into or sign the Tenancy Agreement. Instead, they conferred a wide authority on him to act on their behalf in any capacity and, in the present context, that meant to stand in their shoes as the de facto shareholder of the Respondents.

56. The Appellant then referred to the relevant terms of the Power of Attorney. Its case for authority rested on the submission that Abdulla had the actual authority to do anything that the shareholders were entitled to do in their capacity as the 100% shareholders of the Respondents. That included giving Abdulla the authority to enter into the Tenancy Agreement on behalf of the Respondents but the ambit of his authority extended far beyond that.

57. The Appellant referred to the emphasis by His Honour on the Respondents’ submission which exposed that the question in the case was “not simply a decision to enter into the Tenancy Agreement, but the actual entry into it by Abdulla’s signatures purportedly on behalf of the Defendants.” The Appellant submitted that the real issue before the Court was not merely whether Abdulla was authorised to sign the Tenancy Agreement, but whether he was entitled to undertake any step that the shareholders would have been entitled to take, eg entering into agreements with third parties including, but not limited to the Tenancy Agreement. It was submitted that His Honour had misunderstood the Appellant’s case and that properly directed he would have considered the case put forward by the Appellant on the authority issue and found in its favour. In any event it was said the misdirection constituted an error of law and the judgment should be set aside.

58. The Appellant further argued that His Honour had erred in his application of the Duomatic principle to the facts of the case. He was wrong to hold that the shareholders could not execute the Tenancy Agreement because signing was not a matter for them in general meetings of the Respondents. The Appellant submitted that His Honour was overly concerned by questions of formality and the signing or “execution” of the Tenancy Agreement in circumstances where the Duomatic principle was intended to circumvent the need for the application of rigid formality where unanimous shareholder assent existed. The correct formulation of the principle was said to be that set out in Meridian as cited in Bowstead and Reynolds and by His Honour that “the unanimous decision of all the shareholders in a solvent company about anything which the company under its memorandum of association has power to do shall be the decision of the company.” The shareholders acting by unanimous consent were capable of binding the Respondents in entering into an agreement with a third party in precisely the same manner as if those companies had acted through their directors in accordance with the Memorandum and Articles of Association. The Tenancy Agreement was said to be binding on the Respondents not simply because it was signed by Abdulla based on some express authorisation and signatory, but instead because the signature of Abdulla stood as an expression of the unanimous assent of the shareholders that the Respondents should be bound by the Tenancy Agreement.

59. His Honour was also said to have erred in his understanding and attribution of the significance of Ciban with respect to the application of the Duomatic principle in this case. The conferral of authority to sign on behalf of a company was not the issue in Ciban. It was not disputed in that case that the company had issued a power of attorney which permitted Mr Costa to alienate the property of the beneficial owner. The issue was not whether he was authorised to sign on behalf of the company, but whether he was authorised by the shareholder to issue instructions to the company requiring that they draw up powers of attorney in the first place.

60. The Appellant submitted it did not rely on Ciban on the question of how a company ought to authorise a third party agent on the instruction of the shareholders. The main point to be derived from Ciban was whether in principle the shareholders who, acting unanimously, were entitled to act on behalf of and bind the respondents were also able to delegate that same authority to an agent. Ciban was said to confirm that they can and that it was immaterial whether there is actual or ostensible authority.

61. It was said that His Honour should have asked whether it was permissible in principle for the shareholders to delegate their authority as shareholders to Abdulla and if so, to what extent they delegated that authority and whether Abdulla acted within the scope of that authority in entering into the Tenancy Agreement.

62. The third ground asserted error of law on the part of His Honour in construing the proper scope and effect of the Power of Attorney. His Honour was said to have erred in law and in its application to the facts in concluding that the Power of Attorney was a “false link” that did not entitle Abdulla to bind the Respondents because it did not “warrant finding that they informally resolved that [the Tenancy Agreement] should be signed by Abdulla on behalf of the [Respondents]”. Properly construed the Power of Attorney conferred a broad power on Abdulla to:

Respondents’ Submissions on the First Three Grounds — The Supplemental Skeleton Argument

63. The Respondents, like the Appellant, made extensive written submissions in their Skeleton Argument on the first three grounds. However, the scope of their argument was considerably narrowed by their Supplemental Skeleton Argument. It is sufficient to refer to that submission.

64. By Supplemental Skeleton Argument filed on 14 January 2022, the Respondents narrowed their submissions to focus on what they called “the core issue for the Court of Appeal” namely the extent of the power of the former ultimate beneficial owners of the BVI companies to make on behalf of the BVI companies a contract granting rights against the BVI companies to a third party. They referred to the provisions of the BVI Business Companies Act 2004 and the Articles of Association of the Respondents vesting the power of the management of the business and affairs of the company in the directors. They submitted that case law on similar English articles makes clear that shareholders are not generally empowered as a body when operating via resolutions passed in general meetings, to give directions to the directors as to how the company’s affairs are to be managed. They relied upon Towcester Race Course Co v The Race Course Association;¹⁶ John Shaw & Cons (Salford) Ltd v Shaw¹⁷ and the observation of Lady Arden JSC in Children’s Investment Fund v Attorney-General.¹⁸ They contended that Duomatic could not widen the power of the shareholders inconsistently with the statutory allocation of responsibilities as between shareholders and directors and the allocation of responsibilities reflected in the Articles of Association.

65. It was not necessary for the Respondents’ argument to consider what would have been the position had the shareholders in the Respondents passed a special or unanimous resolution instructing the directors to effect the grant of a lease of the Respondents’ property to a third party. They did not. In any event it would have been within the power of the directors to question the transaction which the members wished the companies to carry out. On any analysis the director, Ayre, was not asked to consider, let alone to grant, any lease to the Appellant or even to make a promise under contract that the Respondents would make such a grant. Ayre held the exclusive power to effect such a grant or make such a promise. It did not. The Appellant could therefore have obtained no rights against the Respondents.

Statutory and Corporate Constitutional Framework

66. The Respondents were governed by the BVI Business Companies Act, 2004. Section 109 of that Act provided:

The Respondents also relied upon Article 62 of the Articles of Association of the First Respondent, which was in the same terms as Articles 57 and 62 of the Second and Third Respondents’ Articles. Article 62 provided:

“The business of the Company shall be managed by the directors who may pay all expenses incurred preliminary to and in connection with the formation and registration of the Company, and may exercise all such powers of the Company as are not by the Act or by these Regulations required to be exercised by the members subject to any delegation of such powers as may be authorised by these Regulations and to such requirements as may be prescribed by resolution of the members; but no requirement made by resolution of the members shall prevail if it be inconsistent with these Regulations nor shall such requirement invalidate any prior act of the directors which would have been valid if such requirement had not been made.”

Consideration and Conclusion on the First Three Grounds

67. After all the extensive, and to some degree distracting, submissions have been considered, this case on the first three grounds reduces to the single question — did the shareholders of the Respondents have the power to execute the Tenancy Agreement? If they did not, then there was no such power to donate. The same would be true if they lacked power to resolve that the company should execute the Tenancy Agreement. If the shareholders lacked those powers, they could not be validly conferred by the Power of Attorney on Abdulla.

68. The relevant provisions of the BVI Business Companies Act, 2004 and of the Articles of Association of the Respondents plainly confer the management of the business and affairs of those Respondents upon their directors, in this case one director, Ayre. It may be accepted that Ayre had played no significant role in their management beyond maintaining requisite company documentation and ensuring compliance with legal requirements in the BVI.

69. It is well established that shareholders of a company cannot by numerical majority at a general meeting of the company, impose their will upon directors in relation to the management of the company’s affairs where the Articles have confided that responsibility in the directors — Gramophone and Typewriter Co Ltd v Stanley.¹⁹ In that case Buckley LJ said:

“This Court decided not long since, in Automatic Self-Cleansing Filter Syndicate Co v Cunninghame, that even a resolution of a numerical majority at a general meeting of the company cannot impose its will upon the directors when the articles have confided to them the control of the company’s affairs. The directors are not servants to obey directions given by the shareholders as individuals; they are not agents appointed by and bound to serve the shareholders as their principals. They are persons who may by the regulations be entrusted with the control of the business, and if so entrusted they can be dispossessed from that control only by the statutory majority which can alter the articles.”

70. In Quin & Axtens Ltd v Salmon²⁰ decided in 1908, the powers of the board had been conferred by a provision of the company’s constitution. The directors passed resolutions for the acquisition of premises and the letting of other premises. One of the two directors dissented. There was a provision in the constitution that no resolution of a meeting of directors for the acquisition or letting of premises should be valid if either of the two named directors dissented. However, at a general meeting resolutions to the same effect as those passed by the directors were passed by a simple majority. The general meeting’s resolutions were held to be of no effect as inconsistent with the constitution. In the Court of Appeal, Farwell LJ referred to Automatic Self-Cleansing Filter Syndicate Co Ltd v Cunninghame. He held that on its proper construction the constitution of the company left the directors free from direction by the general meeting and said:

“Any other construction might, I think, be disastrous because it might lead to an interference by a bare majority very inimical to the interests of the minority who had come into a company on the footing that the business should be managed by the board of directors.”²¹

71. The House of Lords dismissed an appeal from the decision of the Court of Appeal.²² Lord Loreburn LC, delivering the judgment with which the other Law Lords agreed, said:

“The bargain made by the shareholders is contained in … the articles of association and it amounts for the purpose in hand to this, that the directors should manage the business; and the company, therefore, are not to manage the business unless there is provision to that effect.²³

72. In 1935, in John Shaw & Sons (Salford) Ltd v Shaw.²⁴ Greer LJ said:

“A company is an entity distinct alike from its shareholders and its directors. Some of its powers may, according to its articles, be exercised by directors, certain other powers may be reserved for the shareholders in general meeting. If powers of management are vested in the directors, they and they alone can exercise these powers. The only way in which the general body of the shareholders can control the exercise of the powers vested by the articles in the directors is by altering their articles, or, if opportunity arises under the articles, by refusing to re-elect the directors of whose actions they disapprove. They cannot themselves usurp the powers which by the articles are vested in the directors any more than the directors can usurp the powers vested by the articles in the general body of shareholders.”²⁵

73. In a paper in the Melbourne University Law Review published in 1967, Mr KA Aickin QC, later Justice Aickin of the High Court of Australia, discussed “Division of Power between Directors and General Meeting as a Matter of Law and as a Matter of Fact and Policy”.²⁶ After reviewing relevant English cases, he said at 463:

“The result of the cases discussed above is that, where the articles are in common form, the general meeting is excluded from participation in the ordinary business or trading affairs of the company and cannot issue instructions as to the manner in which its affairs are to be carried on, e.g. in the making of contracts, in the embarking on new business ventures, in the engagement of employees and the like.”

74. In 1972, in Howard Smith Ltd v Ampol Petroleum Ltd²⁷ their Lordships observed that “directors within their management powers, may take decisions against the wishes of the majority of shareholders, and indeed that the majority of shareholders cannot control them in the exercise of these powers while they remain in office.”²⁸

75. In 1980 in Federal Commissioner of Taxation v Commonwealth Aluminium Corporation Ltd²⁹ the High Court of Australia was concerned with the concept of control of a company for the purposes of the Income Tax Assessment Act 1936 (Cth). The Court held that non-resident companies which were shareholders in the taxpayer company did not control the taxpayer’s business in fact merely because they had the ability, if they chose to exercise it, to control a general meeting of the taxpayer. In the joint judgment of Stephen, Mason and Wilson JJ, their Honours referred to Gramophone and Typewriter Co Ltd v Stanley³⁰ and quoted Fletcher Moulton LJ when speaking of the control of a legal corporator, he said:

“It has been decided by this Court, in the case of Automatic Self-Cleansing Filter Syndicate Co Ltd v Cunninghame …., that in an English company, by whose articles of association certain powers are placed in the hands of directors, shareholders cannot interfere with the exercise of those powers by the directors, even by a majority at a general meeting. Their course is to obtain the requisite majority to remove the directors and put persons in their place who agree to their policy. This shows that the control of individual corporators is something wholly different from the management of the business itself.”³¹

Their Honours referred to Mr Aickin’s paper in the Melbourne University Law Review.

76. In 2016, the Full Court of the Federal Court of Australia was concerned in Australasian Centre for Corporate Responsibility v Commonwealth Bank³² with the validity of a notice by shareholders of a resolution proposed to be moved at the annual general meeting of the Commonwealth Bank. The directors included only one of the proposed resolutions in its notice of meeting. The appellant shareholders sought a declaration that the disputed resolutions “could validly be moved”. It was accepted that the proposed resolutions were not binding and would have no legal effect. It was also accepted that the Bank’s constitution exclusively vested the power to manage its business in the directors. Nevertheless, the appellant shareholders argued they should have the power to pass ineffective resolutions. The Full Federal Court held that a resolution requires some constitutional or statutory basis to be put to the shareholders in general meeting. In that case the Bank’s constitution provided:

“The business of the company shall be managed by or under the direction of the directors, who may exercise all such powers of the company as are not, by the Corporations Act or by this Constitution, required to be exercised by the company in general meeting.”

This reflected s 198A of the Corporations Act 2001 (Cth). The model of the statutory and constitutional provisions is similar to that applicable to the BVI companies in this case. The Court observed:

“The Appellant accepted that by virtue of [the constitutional provision] the shareholders in general meeting were not entitled to control, usurp or exercise the powers of the directors: Howard Smith Ltd v Ampol Petroleum Ltd (1974) 1 NSWLR 68 at 69, citing Automatic Self-Cleansing Filter Syndicate Co Ltd v Cunninghame [1906] 2 Ch 345; Federal Commissioner of Taxation v Commonwealth Aluminium Corporation Ltd (1980) 143 CLR 646 at 660-661 and John Shaw & Sons (Salford) Ltd v Shaw [1935] 2 KB 113 at 134; Aickin K, “Division of Power between Directors and General Meeting as a Matter of Fact and Policy” (1967) 5 MULR 448.”

77. In 2020 in her judgment in Lehtimäki & Ors v Cooper,³³ Lady Arden referred to the Articles of Association of a charitable company, The Children’s Investment Fund Foundation (UK) and observed:

“The articles of association of CIFF provide for the appointment of trustees who perform the functions of both directors of the company and charity trustees. The trustees are authorised by the articles of CIFF to manage its operations … Some matters, however, require a resolution of the company in general meeting … The members cannot interfere with the decisions of the trustees unless they amend the articles to enable them to do so (see John Shaw & Sons (Salford) Ltd v Shaw [1935] 2 KB 113, 134 approving a passage in Buckley on The Companies Act (1930) 11th ed, p 723).”³⁴

78. Unanimity of shareholders does not affect the general proposition where the power of shareholders in general meeting is limited by the statute and the company’s constitution. As Isaacs J said in Australian Metropolitan Life Assurance Co Ltd v Ure:

“Directors may be regularly displaced, or the articles may be regularly altered. But until that is done, the position is not doubtful. Directors obtain their powers from the consensus of all the shareholders as expressed in the articles because the primary maxim of corporate action is ubi major pars ibi totum, that is the whole corporation. The duty of directors is consequently primarily to the company itself. The consensus of the shareholders if therefore not as individuals, and even if the whole of them were unanimously to attempt to withdraw the powers of the directors, it would be ineffectual unless done in the way prescribed by law. So long as the articles stand … the directors, and not the Company by its general body of shareholders, have the power to manage the corporate affairs unless some provision to the contrary is found.”.³⁵

His Honour cited Automatic Self-Cleansing Filter Syndicate Co v Cunninghame;³⁶ Gramophone and Typewriter Co Ltd v Stanley³⁷ and Salmon v Quinn & Axtens Ltd.³⁸

79. In 1983, the Court of Appeal of England and Wales held in Multinational Gas and Petrochemical Co Ltd v Multinational Gas and Petrochemical Services Ltd³⁹ that the approval by shareholders of decisions taken by the directors provided a defence to an action by the company (in liquidation) against the directors for negligence in making the decisions approved by the shareholders. Lawton LJ said that when the plaintiff’s shareholders acting together required the directors to make a decision or approved what had already been done, what they did or approve became the plaintiff’s acts and were binding upon it.⁴⁰ This was plainly not a case about the division of powers between shareholders and directors. It had nothing to say about whether the unanimous decision of shareholders could require the company to enter into a particular contract when the management of the business of the company was vested in the board.

80. In Meridian Global Funds Management Asia Ltd v Securities Commission,⁴¹ Lord Hoffmann, delivering the judgment of the Privy Council on an appeal from the New Zealand Court of Appeal, was concerned with the identification of “rules of attribution” by which acts are attributed to a company. This was in the context of a case concerning whether the failure of officers of a company to give a statutory notice required by the Securities Amendment Act 1988 (NZ) meant that the company was in breach of that Act. It was not a case about the division of functions between shareholders and directors. Lord Hoffmann, at 506, quoted as a primary rule of attribution implied by company law the following statement:

“The unanimous decision of all the shareholders in a solvent company about anything which the company under its memorandum of association has power to do shall be the decision of the company.”

This was not a quote from Multinational Gas but Multinational Gas was referred to in support of it. (See: May CJ at 780 and Dillon CJ 289–90).

81. As noted above, the decision in Multinational Gas was itself not a decision about division of powers between shareholders and directors. Meridian does not support the proposition that a unanimous decision of the shareholders on a matter of management, where management is vested in the board by the relevant company’s legislation and the articles of the company is an effective decision.

82. In 2018, in the 17th edition of Ford, Austin and Ramsay’s Principles of Corporations Law⁴² , after reviewing the cases which have already been mentioned, the authors said:

“These cases establish that directors may exercise their management power against the wishes of a simple majority of members. That could be taken to leave open the question whether the board is bound to comply with a direction given by the members unanimously, or given by the 75% majority of members which is sufficient to pass a special resolution to alter the constitution. However, these issues have been addressed in other cases.”

In that context, reference was made to Imperial Hydropathic Hotel Co v Hampson⁴³ in which it was held that if the constitution clearly confers an exclusive power on the board a decision of the general meeting to override the board is ineffective even if passed by a majority large enough to alter the constitution. That would, of course, not prevent members in general meeting depriving the board of management of its power by following the proper procedure to alter the constitution. The learned authors also referred to the statement by Buckley LJ in Gramophone and Typewriter Ltd v Stanley in which he said “[d]irectors are not, I think, bound to comply with the directions even of all the corporators acting as individuals.”

83. The cases cited by the Respondents and the other cases mentioned above make the position clear. The shareholders could not by unanimous agreement do that which the Articles do not permit them to do unless they first amend the Articles. In this case the powers were limited not only by the Articles but also by the relevant statute. There is no suggestion that anything which was done by the shareholders or with their authority in this case constituted a decision to amend the Articles. The shareholders were not authorised to enter upon the preserve of the director of the Respondents and authorise the execution of the Shortfall Tenancy Agreement. A fortiori, they were not authorised to execute such an agreement.

84. What they did not have authority to do, they could not authorise someone else to do on their behalf. The Power of Attorney did not validly confer authority on Abdullah to do what he did in this case. The case of Duomatic which was relied upon by the Appellant is of no assistance. It does not confer a common law power on shareholders to override the division of powers between them and directors prescribed by statute and the company’s articles. In Ciban Management Corporation v Citco (BVI) Ltd,⁴⁴ the Privy Council encapsulated the Duomatic principle thus:

“The Duomatic principle is, in short, the principle that anything the members of a company can do by formal resolution in a general meeting, they can also do informally if all of them assent to it. See generally Palmer’s Company Law [25th ed (2020)] paras 7.434-7.449; and Peter Watts, “Informal Unanimous Assent of Beneficial Shareholders” (2006) 122 LQR 15. The principle derives its name from In Re Duomatic Ltd [1969] 2 Ch 365, in which it was encapsulated by Buckley LJ at p 373 as follows:

‘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 could carry into effect, that assent is as binding as a resolution in general meeting would be.’”

85. The qualification embedded in the principle is that the matter to which the shareholders assent must be “some matter which a general meeting of the company could carry into effect.” For the reasons already stated, the shareholders of the Respondents could not by unanimous resolution execute a tenancy contract nor resolve to execute such a contract without first altering the Articles of Association. They did not do that. They passed no resolution, formal or informal to that effect.

86. The appeal on the first three grounds should be dismissed. That leaves the question of the fourth ground.

The Fourth Ground

87. The fourth ground of appeal was that, in giving immediate judgment, the primary judge failed to appreciate or adequately take into account further evidence that was likely to be available at trial.

88. As pointed out by the Appellant, the primary judge did say in the course of his reasons:

89. The Appellant contended that the primary judge must be taken to have accepted that if evidence had been provided that Mohammed and Majid had informally resolved (through an application of Duomatic) that Abdulla should sign the Tenancy Agreement on behalf of the BVI companies, that would have been sufficient to establish that there was (at the very least) a triable issue. On that basis the matter should not have been determined on an application for immediate judgment.

90. Much followed in the Skeleton Argument about the proper approach to an application for immediate judgment.

91. The short answer to the Appellant’s submissions is to be found in the answer to the first three grounds. The shareholders lacked the power to authorise entry into the Tenancy Agreement or to enter into the Tenancy Agreement themselves on behalf of the Respondents. They lacked that authority because the issue was one of management vested in the director of the Respondents. That is not a lack which could be overcome by evidence.

92. There is nothing to suggest that Mohammed and Majid can be taken, by the grant of the Power of Attorney, to have amended the Articles of Association so as to entitle them to authorise Abdulla on their behalf, or that of the Respondents, to enter into the Tenancy Agreement. Nor was there anything to suggest that Abdulla in entering into the Tenancy Agreement under the Power of Attorney can be taken impliedly to have resolved, on behalf of Mohammed and Majid, to amend the Articles of Association of the Respondents to enable him to do so. In the end, these are conclusions of law which are fatal to the Appellant’s case. The fourth ground does not succeed.

Conclusion

93. For the preceding reasons the following orders should be made: