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EC CoA clarifies the Duomatic principle for shareholder assents

20 Jan 2023

On 9 January 2023, the Court of Appeal affirmed a BVI Commercial Court trial judgment finding that a common understanding did not amount to Duomatic assent.

The appeal was against a first-instance decision, which found that former directors of a BVI company (Green Elite Ltd) had breached their fiduciary duties by causing the company to make distributions of certain share sale proceeds to themselves. Our blog on the trial judgment is available here.

In upholding the lower court’s decision, the Court of Appeal found that although the Duomatic principle is characterised by informality, the shareholders must have knowledge of the matter and there must be an actual assent that can be objectively established. Where assent is said to have been given by way of agreement, the agreement must be unqualified or unequivocal. The Court also found that whilst not subject to principles of contract, the exercise of determining Duomatic assent requires a degree of objectivity and particularity of terms from which one could discern an intention to be bound, as with a formal resolution of shareholders.

In applying these principles, the Court of Appeal affirmed the first instance finding that a historical understanding between joint venture partners (and eventual shareholders in Green Elite) did not objectively evince an intention to create a binding shareholder agreement. In doing so, the Court observed that when the understanding was made key parts of the agreement had not yet been agreed and Green Elite had not yet been incorporated.

The judgment also commented on the scope of section 175 of the BCA, which applies where there is a disposal of more than 50 per cent of the assets of a company outside the company’s “usual or regular course of business”. The Court of Appeal affirmed the lower court’s finding that although the proceeds were transferred out of the company by several distributions, the transfers amounted to one composite transaction and were therefore subject to the shareholder/director approval requirements of section 175. The Court noted that a contrary finding would undermine the legislative intent of section 175.

The judgment reflects the pragmatism long recognised by BVI company law and lays down legal guardrails for informally run companies.

The decision also represents further clarification on the application of the Duomatic principle in the BVI, building on the landmark decision of the Privy Council in Ciban Management Corp v Citco (BVI) Ltd  [2020] UKPC 21 (see here).

The Court of Appeal’s judgment dated 9 January 2023 in Fang Ankong v Green Elite Ltd (in Liquidation)  (BVIHCMAP 2022/0013) can be found at https://www.eccourts.org/.

Harneys acted for the successful respondent, Green Elite Ltd (in liquidation).