Citco Banking Corporation NV v Pusser's Ltd [2007]

Citco Banking Corporation NV v Pusser's Ltd [2007] UKPC 13 is a significant Privy Council decision originating from the British Virgin Islands. The case revolves around amendments to a company's memorandum and articles of association and delves into the responsibility of shareholders to exercise their votes in the best interests of the company as a whole.

Pusser's Ltd, with an authorised share capital of $4.4 million, experienced amendments to its articles in 1994. The company created new class B shares, each carrying 50 votes, and converted existing class A shares, held by the chairman Charles Tobias, into class B shares. Citco Banking Corporation NV, holding dissenting shares, contested the amendments, alleging they were made in Tobias's interest rather than bona fide for the company.

The case proceeded through various stages, including a delay in the first instance judgment, which the Privy Council deemed completely unacceptable. Benjamin J initially held the amendments invalid, stating that he found it impossible to assert the changes benefited Citco and the remaining shareholders.

On appeal, the Eastern Caribbean Court reversed the decision, contending that the wrong test was applied at first instance. While ruling the amendment lawful, the Court of Appeal cautioned about potential exposure to a derivative action due to the shareholders' behaviour.

The Privy Council, delivering advice through Lord Hoffman, examined the historical treatment of the power to amend a company's constitutional documents. The court acknowledged certain limitations on this power and reviewed precedents such as Allen v Gold Reefs of West Africa Ltd [1900].

Lord Hoffman emphasised the need for amendments to be exercised bona fide for the benefit of the company as a whole, subject to general principles of law and equity. He highlighted relevant cases, including Shuttleworth v Cox Brothers and Co (Maidenhead) Ltd [1927], to underscore the importance of considering reasonable grounds for decisions made by shareholders.

The burden of proof, as established in Peters' American Delicacy Company Ltd v Heath [1939], lies with the party challenging the validity of an amendment. In reviewing the decisions below, the Privy Council agreed with the Court of Appeal's reasoning, dismissing Citco's argument and upholding the validity of the amendments.

In summary, Citco Banking Corporation NV v Pusser's Ltd provides insights into the judicial scrutiny of constitutional amendments, emphasising good faith, reasonable decision-making, and the overarching duty to act in the best interests of the company.
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