Professor Wedderburn writes

Date01 May 1970
DOIhttp://doi.org/10.1111/j.1468-2230.1970.tb01280.x
Publication Date01 May 1970
MAT 1970
CORRESPONDENCE
851
Professor
Wsdderbum
writer
:
Mr. Phillips’ letter requires
a
careful answer, not
least
because of its
many misconceptions.
1.
He
complains
that
of
the
three cases cited in Gower,
Mo&wn
Cmpw
Law
(2nd ed.),
p.
612, note 37, only one involves
a
“minority” shareholder
plaintiff. But
in
both
the
cases he
rejects,
Punt
v.
Bymons
and
Pisrcy
v.
Xi&
contextual status was
a
majority
status
(for
the
purpose of the dispute) if they won, but
a
losing minority if they
lost
their
suit.
In
Pwrcy
the
categorisation
is
perhaps, therefore,
a
matter
of
taste.
But in
Pd,
the plaintiffs were, in
strict
terms,
a
minority
udesa
and
wtil
a
court
set
aside the issue of
the
new shares
(see
Byrne
J.
[19Oa]
2
Ch.
at
p.
516).
2. More important,
since
a
case
is
authority for its
ratw
not
its
facts,
these decisions have been traditionally cited (with many others such
as
Alexander
v.
Azltonu~tic Telephone
Co.
[1900] 2 Ch. 66) for
the
proposition
that directors who break fiduciary duties
h
wrongfully exercising
their
powers
may be liable
in
a
derivative action brought by an individual, commonly
minority, shareholder.
(See
for older authorities, Stiebel,
Company Law
(3rd
ed., 1929), p. 286; Palmer,
Company Law
(19th ed., Topham), p. 172; and
now
iW.
(21st ed., Schrnitthoff and Thompson) p. 629; Buckley,
Compm*er
Acts
(13th
ed),
p.
866).
3.
Another ancient principle underlay such cases, namely: when the
shareholders cannot sanction, there may be
a
right of action; but
“in
respect
to any transaction which they could sanction, although the directors might
not have been justified
in
what they were doing, there could
be
no right of
action,”
per
Lord Cranworth,
Davidson
v.
Tulloch
(1860)
3
Me.
783,
796
(H.L.Sc.). The footnote in Gower summed up
all
these points, while rightly
suggesting
that
no
decision had overtly tied
all
the ends together. Recent
decisions have increased the uncertainty and muddle-see Gower,
Modern
Company Law
(3rd ed.),
p.
686; or if that is unacceptable,
H.
Lesser [1969]
Camb.L.J. 198.
4.
1
objected
to
Harman
L.J.
saying
it
is
“trite
law” that directors can
‘‘
obtain absolution and forgiveness for
their
sins
by shareholders’ sanction,
whatever the
sin
may belack of quorum, defects
in
appointment,
“no
proper appointment,” improper
or
collateral motives,
or
even mala Ades and
‘‘
bad faith
:
[
19691
1
All
E.R.
972. The
last
he confused
with
collateral
purpose, which Plowman
J.
was careful not
to
do.
I
cannot share
Mr. Phillips’ “earnest hope” that students
will
“regard
it
as
trite
law that
directors can
obtain
absolution from their members.” Such
a
statement is not
adequately scrupulous. Some sins cannot
be
forgiven by shareholders. In
Davidson
v.
Tylloch
the directors’ breach could not be
so
sanctioned
“even
against
a
single dissentieot,”
ibid.
at
p. 797. A century
of
distinctions between
wrongs
that can and cannot be sanctioned
is
not
swept away by one judgment
which cites few cases and misstates the
facts
of one
upon
which
it
relies.
5.
I
was
at
fault in not stressing that Harman
L.J.
at
p. 978,
as
well
as
Russell
L.J.
at
p.
976, suggests that
Bmford
was
a
derivative,
not
a
personal,
action,
as
had been said below.
As
a
teacher of company law, Mr. Phillips will
appreciate how important
that
was, though he
kindly
omits it from his
criticisms.
6. By failing
to
make any precise citation, Mr. Phillips implies
that
I
threw
in
Re Roith
[1967]
1
All
E.R.
427, ignorant
as
to
ita facts. My note in
(1967)
30
M.L.R. 566 would reveal his mititake; and footnote
8
of
the
note
about which he writes
takes
him there
via
(1968)
31
M.L.R. 689.
He
claims
Re Roith
involves an
ultra
d~er
act.
The judgment did not say
so,
only
the
headnote
to
the
All England
Report.
I
took the
view
that
this
diBcult judjp
ment rested on the failure
by
directors
to
act
bona dde. Opinions dWer
still
00,
the plaintiffs’

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