Central Bank of Ecuador and others v Conticorp SA and others

A nominee director must understand the company’s affairs, apply an independent mind to its interests and exercise personal judgment. The director cannot surrender that judgment to another, even where the instructions happen to benefit the company.

Dishonest assistance is assessed by applying objective standards of honesty to the transaction’s elements as actually known by the defendant. The defendant need not recognise that ordinary standards characterise the conduct as dishonest. Acting as a corporate officer provides no immunity from personal liability.

An appellate court may exceptionally overturn concurrent factual findings where legal or procedural errors prevented the central issues from being tested against documents and inherent probabilities. Compensation may reflect later consequences of the wrongful risk, including the loss of substitute assets after the breach.

Interamerican Asset Management Fund Ltd (IAMF), a Bahamian investment fund, transferred cash, performing loan portfolios and company shares to Conticorp SA in three transactions. In exchange it received global depositary receipts and shares in Grupo Financiero Conticorp SA while that group’s principal banking subsidiaries were experiencing an acute financial crisis.

IAMF alleged that its sole director, Mr Taylor, had blindly implemented instructions originating from Conticorp and its principal owners and officers. It claimed that those respondents had dishonestly procured or assisted his breaches of fiduciary duty. Adderley J dismissed the claims, and the Court of Appeal of the Commonwealth of The Bahamas dismissed the plaintiffs’ appeal on 22 November 2011.

The appeal concerned Mr Taylor’s duties, whether the respondents’ instructions constituted dishonest assistance, whether the concurrent findings could be displaced, and the measure of IAMF’s loss.

1. Appeal allowed. The concurrent decisions below could not stand. The respondents were jointly and severally liable to IAMF for dishonestly procuring and assisting Mr Taylor’s breaches of fiduciary duty in entering all three transactions.

2. Under section 55 of the International Business Companies Act, a director had to act honestly and in good faith in the company’s best interests and exercise the care, diligence and skill of a reasonably prudent person. A nominee director could not surrender his discretion, irrespective of his remuneration. Mr Taylor breached his duties by acting blindly on instructions without understanding IAMF’s affairs or independently considering its interests. Whether the breach caused loss was a separate question concerning relief.

3. Applying Barlow Clowes International Ltd v Eurotrust International Ltd [2005] UKPC 37, dishonesty depended on the transaction’s elements as actually known to the respondents, assessed against objective standards. They did not need to appreciate that ordinary standards characterised their conduct as dishonest. Their instructions caused Mr Taylor’s breaches notwithstanding that they passed through Ansbacher. The respondents could not avoid personal liability by acting as Conticorp’s officers, and neither piercing the corporate veil nor establishing shadow directorship was required.

4. The case justified the rare appellate displacement of concurrent findings exonerating parties from dishonesty. The courts below had applied legally irrelevant considerations, misunderstood the proper honesty inquiry and failed to test the oral accounts against the documented history and inherent probabilities, as required by the approach in Armagas Ltd v Mundogas SA (The “Ocean Frost”) [1985] 1 Lloyd’s Rep 1. The evidence admitted no honest belief that exchanging IAMF’s valuable assets for illiquid and inadequately valued shares was in IAMF’s interests.

5. Compensation for dishonest assistance could take account of events after the breach. The eventual cancellation of the shares was the direct realisation of the risk wrongfully imposed on IAMF. Restoration was therefore unnecessary. IAMF was entitled, subject to correction of the computation, to USD 191,953,517.50, representing the face value of the cash, loans with accrued interest, and shares surrendered. Submissions on that computation, interest and costs were directed within 21 days.

• Privy Council: In Central Bank of Ecuador and others v Conticorp SA and others [2015] UKPC 11, the Board allowed the appeal, displaced the concurrent decisions and held the respondents jointly and severally liable to IAMF.

• Court of Appeal of the Commonwealth of The Bahamas: On 22 November 2011, the court dismissed the plaintiffs’ appeals from Adderley J.

• Trial before Adderley J: By judgment dated 3 June 2010, the judge dismissed all the plaintiffs’ claims. He also dismissed a counterclaim which was not pursued further.