East Asia Company Ltd v PT Satria Tirtatama Energindo

Ostensible authority requires a representation by the principal, made by someone with relevant actual authority, and reasonable reliance by the contracting third party. An agent cannot enlarge authority by asserting it, and the indoor management rule cannot create authority or make up for the absence of a board delegation. A third party facing an unusual disposition of a company’s sole asset, known board-only authority, or other warning signs must make reasonable inquiries. Undisclosed personal interests disqualify directors from voting on the transaction, so an interested and inquorate board cannot ratify it.

PT Satria sought rectification of Bali Energy Ltd’s register of members under section 67 of the Bermuda Companies Act 1981, relying on a heads of agreement and share transfer executed by directors of East Asia Company Ltd. Hellman J ordered rectification: [2016] SC (Bda) 90 Com. The Court of Appeal allowed East Asia Company Ltd’s appeal and dismissed the claim: [2016] CA (Bda) 20 (Civ).

The Privy Council considered ostensible authority, the reasonable-inquiry requirement, ratification and approval by interested directors, the admission of further evidence, and statutory refusal to register the transfer. It did not need to determine the remaining issues concerning the form of the transfer, Bermuda Monetary Authority consent, or the consequences of late notice.

The Board dismissed the appeal and advised Her Majesty accordingly.

1. Ostensible authority. The Board applied the established principles in Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 and Egyptian International Foreign Trade Co v Soplex Wholesale Supplies Ltd (The Rafaella) [1985] 2 Lloyd’s Rep 36. There must be a representation by the principal, made by a person with actual authority, which induces reasonable reliance by the contractor. An agent cannot clothe himself with authority. The indoor management rule cannot create authority or establish that a delegation has occurred. PT Satria knew that the board alone had authority, knew that Joenoes was not EACL’s managing director or chief executive officer, and could identify no resolution or minute authorising the transaction. It also relied on Joenoes’s assurances, rather than a representation by EACL.
2. Reasonable inquiry. Although it was unnecessary to the result, the Board held that a third party cannot rely on apparent authority after failing to make inquiries which a reasonable person would have made to verify the authority. The Board rejected the contrary reasoning in Akai Holdings Ltd v Kasikornbank Public Co Ltd [2010] HKCFA 64. PT Satria was put on inquiry by the sale of EACL’s only asset, the known board-only decision-making structure, the absence of approval evidence, the directors’ personal interests, and the unusual indemnities they gave.
3. Ratification and approval. Under section 97 of the Bermuda Companies Act 1981 and the companies’ bye-laws, Joenoes and Hata had to disclose their interests. Their undisclosed interests created a conflict with EACL, which was not itself insolvent. By necessary implication, their votes could not count towards the quorum. The EACL and BEL meetings were therefore inquorate, and the purported ratification of the heads of agreement and approval of the share transfer had no legal effect.
4. Registration and evidence. Under section 50 of the Bermuda Companies Act 1981, BEL refused registration and gave notice within three months of lodgement. The Court of Appeal had a wide discretion to admit the May resolution under section 8 of the Court of Appeal Act 1964 and section 14(5) of the Civil Appeals Act 1971. No proper basis for interfering with that decision was shown.

1. Privy Council: dismissed PT Satria’s appeal and advised that the appeal should be dismissed: [2019] UKPC 30 .
2. Court of Appeal for Bermuda: allowed EACL’s appeal and dismissed PT Satria’s rectification claim, holding that there was no ostensible authority, valid ratification, or valid approval of the transfer: [2016] CA (Bda) 20 (Civ).
3. Supreme Court of Bermuda, Commercial Court: Hellman J found for PT Satria and ordered rectification of the register: [2016] SC (Bda) 90 Com.