Privy Council dismisses appeal from Court of Appeal for Bermuda in Indonesian energy dispute

27/06/19

The Privy Council has given judgment today in PT Satria Tirtatama Energindo v East Asia Company Ltd [2019] UKPC 30, dismissing an appeal from the Court of Appeal for Bermuda.

The case concerned the validity of a purported agreement (the “HoA”) for the sale by East Asia Company Ltd (“EACL”) to PT Satria Tirtatama Energindo (“PT Satria”) of EACL’s sole asset, the entire issued share capital of Bali Energy Ltd (“BEL”), a Bermuda exempted company which holds the rights to develop a geothermal energy site at Bedugul in Bali, Indonesia.

The HoA had been executed by one of EACL’s three directors, Mr Edwin Joenoes, on 25 February 2015.  PT Satria conceded that Mr Joenoes did not have the requisite actual authority to enter into such a transaction on behalf of EACL under its Bye-Laws.  However, it argued that he had nevertheless had ostensible authority to do so, or alternatively that the HoA had been validly ratified by the Board of EACL at subsequent meeting on 1 March 2015, which had been attended by Mr Joenoes and Mr Ira Hata, one of EACL’s other directors.

PT Satria therefore contended that the sale of BEL was valid and binding and it sought rectification of the register of members of BEL under s. 67 of the Bermuda Companies Act 1981.

The Court of Appeal for Bermuda (Clarke JA, Kawaley AJA and Baker P) rejected PT Satria’s claim (see [2016] CA (Bda) 20 (Civ)).  Following a 2-day hearing in January 2019, the Privy Council has today dismissed PT Satria’s appeal on a variety of different grounds.  It held that: 

1. EACL did not hold Mr Joenoes out to PT Satria, either expressly or impliedly, as having any authority to enter into a transaction such as the HoA on its behalf ([39]-[66]).  Mr Joenoes did not therefore have any ostensible authority to do so.

2. PT Satria had not in fact relied on any representation by EACL as to Mr Joenoes’s authority in any event.  To the contrary, it had relied on representations and assurances given by Mr Joenoes himself, which was not sufficient ([67]-[69]).

3. In any event, PT Satria would not have been entitled to rely on any ostensible authority of Mr Joenoes because it had been “put on inquiry” as to his lack of actual authority, particularly given the “many unusual features of the transaction” ([94]).

4. Mr Joenoes and Mr Hata both had a direct financial interest in the proposed sale of BEL, which they failed to disclose to the Board of EACL, in breach of their fiduciary and statutory duties. The consequence of this was that (i) they were both disqualified from voting at the Board meeting on 1 March 2015 and could not have counted towards the quorum at that meeting, such that the meeting was inquorate; (ii) the purported ratification of the HoA was therefore invalid and of no legal effect; and (iii) the HoA was in any event voidable at the election of EACL ([96]-[101]).

5. PT Satria was not entitled to rely on the so-called ‘indoor management rule’ or the ‘rule in Turquand’s case’ in relation to any procedural irregularities ([102]-[104]).

6. BEL had any in any event refused to register the transfer of shares to PT Satria within the 3-month period provided for in s. 50 of the 1981 Act ([106]-[109]).

The judgment provides authoritative guidance as to the legal principles governing the existence of ostensible authority and the related doctrine of estoppel by representation. 

In particular, the Privy Council has affirmed the “orthodox” and “conventional view” that a counterparty cannot rely on the ostensible authority of an agent if it has “reason to believe” that the agent does not have actual authority and fails to make the inquires that a reasonable person would have made in the circumstances in order to verify the authority of the agent (i.e. if it is “put on inquiry”) ([70]-[92]).  It therefore declined to follow the well-known decision of the Hong Kong Court of Final Appeal in Akai Holdings Ltd v Kasikornbank PCL [2011] 1 HKC 357, in which Lord Neuberger NPJ held that a counterparty is entitled to rely on the ostensible authority of an agent unless it has actual knowledge of the agent’s lack of actual authority, or its belief as to the authority of the agent was dishonest or irrational.

The judgment is here.