Daniels v Daniels
A minority shareholder can bring a derivative action where the majority directors have negligently benefited themselves at the expense of the company, even without fraud.
Facts
The two directors of a company, who were also its majority shareholders, caused the company to sell land to one of them, the wife of the other, for £4,250. Four years later, she sold the land for £120,000. The minority shareholders brought a derivative action against the directors, alleging that they had sold the land at an undervalue. The directors argued that the claim should be struck out, because no fraud was alleged.
Legal principle
Templeman J held that the claim could proceed. He said that a minority shareholder who has no other remedy may sue where directors use their powers, intentionally or unintentionally, fraudulently or negligently, in a manner which benefits themselves at the expense of the company. The principle that a minority cannot sue for negligence by the directors, established in Pavlides v Jensen, did not apply where the directors had benefited themselves from their negligence. The case was an extension of the fraud on the minority exception.
Related cases on derivative claims and reflective loss
- Edwards v Halliwell [1950] 2 All ER 1064
- Foss v Harbottle (1843) 2 Hare 461
- Franbar Holdings Ltd v Patel [2008] EWHC 1534 (Ch), [2009] 1 BCLC 1
- Iesini v Westrip Holdings Ltd [2009] EWHC 2526 (Ch), [2011] 1 BCLC 498
- Johnson v Gore Wood & Co [2002] 2 AC 1
- Kiani v Cooper [2010] EWHC 577 (Ch), [2010] 2 BCLC 427
- Mission Capital plc v Sinclair [2008] EWHC 1339 (Ch), [2010] 1 BCLC 304
- Pavlides v Jensen [1956] Ch 565
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This summary is for study and revision and is not legal advice. Although our case summaries are checked for accuracy, we do not guarantee that they are free from errors or omissions. Always read the full judgment for the court's reasoning.
