¹ Percival v. Wright [1902] 2 Ch. 421Google Scholar; Re Smith & Fawcett Ltd. [1942]Google Scholar Ch. 304 and Re City Equitable Fire Insurance Co. Ltd. [1925]Google Scholar Ch. 407. Certain Commonwealth courts have recently been prepared to extend the scope of these duties, see for example Walker v. Wimborne (1976) 50 A.L.J.R. 446Google Scholar, discussed by Barrett, R., “Directors' Duties to Creditors,” 40 M.L.R. 226Google Scholar, and also Coleman v. Myers et al. (Sup.Ct. New Zealand, 13 May 1976Google Scholar, rev'd. 11 August 1977) discussed by Rider, B., “Percival v. Wright—Per Incuriam,” 40 M.L.R. 471Google Scholar and “A Special Relationship on the Special Facts,” 41 M.L.R. No. 5.

¹ Percival v. Wright [1902] 2 Ch. 421Google Scholar; Re Smith & Fawcett Ltd. [1942]Google Scholar Ch. 304 and Re City Equitable Fire Insurance Co. Ltd. [1925]Google Scholar Ch. 407. Certain Commonwealth courts have recently been prepared to extend the scope of these duties, see for example Walker v. Wimborne (1976) 50 A.L.J.R. 446Google Scholar, discussed by Barrett, R., “Directors' Duties to Creditors,” 40 M.L.R. 226Google Scholar, and also Coleman v. Myers et al. (Sup.Ct. New Zealand, 13 May 1976Google Scholar, rev'd. 11 August 1977) discussed by Rider, B., “Percival v. Wright—Per Incuriam,” 40 M.L.R. 471Google Scholar and “A Special Relationship on the Special Facts,” 41 M.L.R. No. 5.

² Burland v. Earle [1902]Google Scholar A.C. 83.

³ (1843) 2 Hare 461, and see Russell v. Wakefield Waterworks (1875) L.R. 20 Eq. 474.

⁴ Per Davey, Lord, Burland v. Earle [1902]Google Scholar A.C. 83, 93, and also Jenkins, L.J. in Edwards v. Halliwell [1950] 2 All E.R. 1064, 1066.Google Scholar Reference should be made to Boyle, A. J., “The Minority Shareholder in the Nineteenth Century,” 28 M.L.R. 317Google Scholar and Linehan, D., “Derivative Suits in American, English and Irish Law,” 9 Irish Jurist 265.Google Scholar

⁵ For further reasons see Mellish L.J. in MacDougall v. Gardiner (1875) 1 Ch.D. 13, 25.

⁶ See generally Boyle, A. J., “The Minority Shareholder in the Nineteenth Century,” 28 M.L.R. 317Google Scholar and on the “right” of a minority to dissent in a democracy see McGruipan, R., “Democracy and Civil Disobedience,”Google Scholar 49 Can.Bar Rev. 222.

⁷ There is much sense in the observation of Reay, J.C. in Peek v. Russell (1924)Google Scholar Fed. Malay States L.Reps. 4, 32, “it is better to run the risk of interfering with the internal management of a company than to run the risk of denying justice…”

⁸ With regard to the “overall interests” of the company, including its employees see Kahn-Freund, O., “Industrial Democracy,” 6 I.L.J. 65Google Scholar and Davies, P. and Wedderburn, K. W., “The Land of Industrial Democracy,” 6 I.L.J. 197.Google Scholar “The Report of the Committee of Inquiry on Industrial Democracy,” Cmnd. 6706, p. 82, recommended that the shareholders should retain their present power to ratify breaches of duty by the directors, but in addition a resolution of the board of directors would be required. Of course this recommendation is based upon the assumption that inter alia employee representatives will be entitled to sit on the board. See also the White Paper “Industrial Democracy,” Cmnd. 7231, which does not discuss this point.

⁹ Peppiatt, L., “Statutory Protection of Minority Shareholders in English Limited Companies,” 14 Business Lawyer 621Google Scholar and Prins, H., Protection of the Minority Shareholders in a Limited Company at English, South African and Dutch Law (1972).Google Scholar

¹⁰ The shareholders in general meeting cannot authorise by ordinary resolution something which requires a special resolution, although it would seem that it may be permissible to excuse by ordinary resolution something which could only have been authorised by a special resolution, Grant v. United Kingdom Switchback Railways (1888) 40 Ch.D. 135. Of course where the conduct is ultra vires then a special resolution would be ineffective.

¹¹ Shaw & Sons (Salford) Ltd. v. Shaw [1935] 1 K.B. 113.Google Scholar

¹² Danish Mercantile Co. Ltd. v. Beaumont [1951]Google Scholar Ch. 680, and note in particular the observations of Plowman, J. in Bamford v. Bamford [1968] 3 W.L.R. 317Google Scholar, which were doubted by Harman L.J. at [1969] 2 W.L.R. 1107.

¹³ Wallersteiner v. Moir (No. 2) [1975] 1 All E.R. 849, 857.Google Scholar

¹⁴ The name “derivative action” although in common usage throughout the world has only recently been given to this form of representative action in the United Kingdom. See for example Lord, Denning M.R. in Wallersteiner v. Moir (No. 2) [1975] 1 All E.R. 849, 857Google Scholar, and also Boyle, A. J., “The Derivative Action in Company Law,” [1969]Google Scholar J.B.L. 120.

¹⁵ See Pender v. Lushington (1877) 6 Ch.D. 70; Salmon v. Quin & Axtens Ltd. [1909] 1 Ch. 311Google Scholar; Pulbrook v. Richmond Consolidated Mining Co. (1878) 9 Ch.D. 610; Hayes v. Bristol Plant Hire Ltd. [1957] 1 All E.R. 685Google Scholarand see also Kraus v. J. G. Lloyd Pty. Ltd. [1965]Google Scholar V.R. 232. Of course it is possible to override such rights through alteration of the articles of association under s. 10 of the Companies Act 1948, see Greenhalgh v. Arderne Cinemas [1951]Google Scholar Ch. 286, but even here note the implications of Clemens v. Clemens Bros. Ltd. [1976] 2 All E.R. 268Google Scholar and Joffe, V., “Majority Rule Undermined?” 40 M.L.R. 71.Google Scholar

¹⁶ MacDougall v. Gardiner (1875) 1 Ch.D. 13.

¹⁷ On this problem reference should be made to Wedderburn, K. W., “Shareholders' Rights and the Rule in Foss v. Harbottle,” [1957]Google Scholar C.L.J. 194, 209, continued [1958] C.L.J. 93; Goldberg, R., “The Enforcement of Outsider Rights under section 20 (1) of the Companies Act 1948,” 35 M.L.R. 362Google Scholar; Bastin, N., “The Enforcement of a Member's Rights,” [1977]Google Scholar J.B.L. 17 and Chantler, D. W., “The Shareholders' Corporate Contract,”Google Scholar 12 Univ.West.Aust.L.Rev. 320.

¹⁸ See Hogg v. Cramphorn [1967]Google Scholar Ch. 254; Bamford v. Bamford [1969] 2 W.L.R. 1107Google Scholar and Howard Smith Ltd. v. Ampol Petroleum [1974] 1 All E.R. 1126.Google Scholar

¹⁹ MacDougall v. Gardiner (1875) 1 Ch.D. 13 and Alexander v. Automatic Telephone Co. [1900] 2 Ch. 56.Google Scholar

²⁰ “The contrasting difference between a stockholder's suit for his corporation and a suit by him against it, is crucial. In the former, he has no claim of his own, he merely has a personal controversy with his corporation regarding the business wisdom or legal basis for the latter's assertion of a claim against third parties. Whatever money or property is to be recovered would go to the corporation, not a fraction of it to the stockholder … this is a wholly different situation from that which arises when the corporation is charged with the invasion of the stockholder's independent right …” per Frankfurter, J.Swanson v. Traer, 354 U.S. 114Google Scholar and see also Gower, L. C. B., Principles of Modern Company Law, 3rd ed., at pp. 592 to 595.Google Scholar

²¹ [1902] A.C. 83, 93, and see also Dominion Cotton Mills v. Amyot [1912]Google Scholar A.C. 546.

²² The misappropriation or diversion of a proprietary interest would appear to be the most logical basis for distinguishing such cases as North West Transportation Co. Ltd. v. Beatty (1887) 12 App.Cas. 589, where ratification was allowed even though the interested insiders voted their own shares, and Regal (Hastings) Ltd. v. Gulliver [1942] 1 All E.R. 378Google Scholar, where it was accepted that the defendant insiders could have exonerated themselves, from those cases where ratification has been disallowed. Exactly when a “corporate opportunity” will be considered the property of the company in equity is almost anyone's guess. Similar problems arise with regard to the question as to whether confidential information may be considered “property,” see Rider, B., “The Fiduciary in the Frying Pan” [1978] Conveyancer p. 114.Google Scholar There is merit in the observation of Dr. Sealy that whether a mere opportunity is considered “property” depends in practice on the pleadings and remedy sought rather than any jurisprudence, Sealy, L., Cases and Materials in Company Law (1971), p. 391.Google Scholar

²³ It is arguable that it is this principle which lies behind decisions such as Parke v. Daily News [1962]Google Scholar Ch. 927 and Re W. & M. Roith [1967] 1 W.L.R. 432.Google Scholar Reference should also be made in this regard to Adams v. Smith 275 Ala. 142.

²⁴ Cook v. Deeks [1916]Google Scholar A.C. 554; Menier v. Hooper's Telegraph Co. (1874) L.R. 9 Ch.App. 350; Atwool v. Merryweather (1868) L.R. 5 Eq. 464 and Canada Safeway Ltd. v. Thompson [1951] 3 D.L.R. 295Google Scholar and [1952] 2 D.L.R. 591.

²⁵ Pavlides v. Jensen [1956]Google Scholar Ch. 565.

²⁶ See L. C. B. Gower, in 19 M.L.R. 538, 540. Professor A. J. Boyle has written, “in the case of large public companies. it will be virtually impossible to bring an action for fraud on the minority, no matter how grave the breach … In the nature of the case the board are not in de iure control of the company, and it will be easy for them to remain unchallenged in de facto control without calling a meeting to ratify what has been done.” Boyle, A. J., The Shareholders' Derivative Action in Anglo-American Law (1968)Google Scholar, S.J.D. Thesis, Harvard Law School, at p. 82. See further Pickering, M., “Shareholder Voting Rights and Company Control,” 81 L.Q.R. 278.Google Scholar

²⁷ Mozley v. Alston (1847) 1 Ph. 790; Gray v. Lewis (1873) L.R. 8 Ch.App. 1053 and Mason v. Harris (1879) 11 Ch.D. 97.

²⁸ A high proportion of the cases involving misappropriation of corporate assets would, subject to proof of mens rea, constitute theft. See generally on this Smith, A., “Constructive Trusts in the Law of Theft” [1977]Google Scholar Crim.L.R. 395 and also Williams, Glanville, “Theft, Consent and Illegality” [1977]Google Scholar Crim.L.R. 127, 205 and 327.

²⁹ See Sheridan, L. A., Fraud in Equity, A Study of English and Irish Law (1956)Google Scholar and Rider, B., “Percival v. Wright—Per Incuriam?” 40 M.L.R. 471.Google Scholar

³⁰ Considerable controversy has surrounded the question as to what mental state is required to render a company director a constructive trustee of corporate property in his hands. In Selangor United Rubber Estates Ltd. v. Cradock [1965] 1 Ch.D. 896Google Scholar and Karak Rubber Co. v. Burden [1972] 1 W.L.R. 602Google Scholar it was held that mere constructive knowledge was sufficient; in other words, such knowledge of circumstances that would put a reasonable man on inquiry would be sufficient to constitute that person a trustee of the property in question. This was doubted in Carl Zeiss Stiftung v. Herbert Smith & Co. (No. 2) [1969] 2 Ch. 276Google Scholar, which favoured the stricter test of lack of probity, laid down in Williams-Ashman v. Price & Williams [1942]Google Scholar Ch. 219, 228. This view was endorsed in The Competitive Insurance Co. v. Davies [1975] 1 W.L.R. 1250Google Scholar and has been approved, albeit obiter, by the Court of Appeal in Belmont Finance Corporation Ltd. v. Williams Furniture Ltd. (1977)Google Scholar Unreported, 127 N.L.J. 1248.

³¹ Fiduciaries do not hold secret profits on constructive trust; see generally on this Underhill, The Law Relating to Trusts and Trustees, 12th ed., p. 240, Stephens, R., “An Agent's Duty to Account” [1975]Google ScholarCurrent Legal Problems 39, 52, and Fridman, “Agency and Secret Profit,” 3 Manitoba L.J. 17, 23. Although a secret profit may be waived by the company, see the authorities cited supra n. 21, a bribe cannot, see Vaughan-Williams L.J. in Kaye & Croydon Tramways [1898] 1 Ch. 358, 375, and Haenden & Sons v. Mellhoff (1900) 83 L.T. 41.Google Scholar This is anomalous as in both cases there is only a personal duty to account for the sum in question, see Lister v. Stubbs (1890) 45 Ch.D. 1, although it is possible to obtain damages instead of an accounting in the case of bribes, see T. Mahesan S/O Thambiah v. Malaysia Government Officers Co-operative Housing Society Ltd. [1978] 2 W.L.R. 444Google Scholar, but not for secret profits, Rider, B., “A Special Relationship on the Special Facts,” 41 M.L.R. No. 5.Google Scholar

³² “Directors must exercise their discretion bona fide in what they consider is in the interest of the company and not for any collateral purpose,” per Lord, Greene M.R. in Re Smith & Fawcett [1942]Google Scholar Ch. 304, 306, and see the decisions cited supra n. 18.

³³ Confusion has resulted because of the assumption both at first instance and in the Court of Appeal in Bamford v. Bamford [1968] 3 W.L.R. 317Google Scholar and [1969] 2 W.L.R. 1107 that the directors had allotted the relevant shares in bad faith. The better view is that the term “bad faith” was here used to refer to the conduct of the directors in exceeding their powers. The directors exceeded their powers by using them for a purpose other than that for which they were entrusted to them. There was no evidence that the directors had acted other wise than in good faith.

³⁴ Hirsch v. Sims [1894] A.C. 554, 640, and see also Mills v. Mills (1938) 60 C.L.R. 150.Google Scholar

³⁵ See for example Industrial Development Consultants Ltd. v. Cooley [1972] 1 W.L.R. 443Google Scholar; Canadian Aero Service Ltd. v. O'Malley (1974) 40 D.L.R. (3d) 371Google Scholar and Abbey Glen Property Corporation v. Stumborg [1976] 2 W.L.R. 1.Google Scholar The deliberate intention to “pull a fast one” on the company or its shareholders would seem to be an important factor in the eventual determination of liability even though the court might tend to hide this in its legal reasoning. With regard to the conduct of the insiders in Regal (Hastings) Ltd. v. Gulliver [1942] 1 All E.R. 378Google Scholar see the observations of Scott, L.J. in Cooper v. Luxor (Eastbourne) Ltd. [1939] 4 All E.R. 411, 416Google Scholar, and Viscount Simon L.C. at [1941] A.C. 108, 112. On this question see generally Ffrench, H. L. and Rider, B., “Should Insider Trading be Regulated? Some Initial Considerations,” 95 S.A.L.J. 79, 80 to 84.Google Scholar The approach of an independent majority in such cases will inevitably influence judicial attitudes.

³⁶ (1875) L.R. 2 Eq. 474.

³⁷ [1964] 1 W.L.R. 843; and see A. J. Boyle in 27 M.L.R. 603, who refers to the “thin but steady stream of obiter dicta … which adopt a more flexible attitude to Foss v. Harbottle.”

³⁸ Where the duty of care is owed directly to the shareholders and not solely to the company then there would appear to be nothing preventing a shareholder initiating a personal action. See here Mooney v. Peat, Marwick, Mitchell [1967] 1 M.L.J. 87Google Scholar and not the allegations made against the defendant directors in Coleman v. Myers, supra, n. 1. Where the majority have not had the chance of expressing a view it would seem that a minority may legitimately seek to vindicate their rights. This was arguably the situation in Hogg v. Cramphorn [1967]Google Scholar Ch. 254 and Bamford v. Bamford [1969] 2 W.L.R. 1107Google Scholar; see here Gore-Brown on Companies, 43rd ed., pp. 28–25.

³⁹ [1956] Ch. 565.

⁴⁰ Professor Gower has criticised this decision perhaps with some justification. Indeed he observes that “it is difficult to imagine a stronger example of injustice.” Gower, L. C. B., The Principles of Modern Company Law, 3rd ed., p. 588Google Scholar, and also 19 M.L.R. 538. Professor Pennington considers that “the only plausible explanation” of the courts' refusal to permit a derivative action for negligence is that at the time when the Court of Chancery invented the representative action, an action for negligence had to be brought in the common law courts which did not permit representative actions. …” Pennington, R. R., Company Law, 3rd ed., p. 571.Google Scholar Since the Judicature Acts there is no reason why this historical accident should endure.

⁴¹ See generally Gower, L. C. B., The Principles of Modern Company Law, 3rd ed., pp. 589 to 590.Google Scholar

⁴² Pergamon Press Ltd. v. Maxwell [1970] 1 W.L.R. 1167.Google Scholar

⁴³ Company Law, 3rd ed., pp. 571 to 572.

⁴⁴ [1916] 1 A.C. 554.

⁴⁵ Pennington, R. R., Company Law, 3rd ed., p. 571.Google Scholar

⁴⁶ See supra, n. 22.

⁴⁷ See for instance Lindley, M.R. in Allen v. Gold Reefs of West Africa [1900] 1 Ch. at p. 671Google Scholar and generally Gower, L. C. B., The Principles of Modern Company LawGoogle Scholar, 3rd ed., Chap. 24.

⁴⁸ Rights and Issues Investment Trust Ltd. v. Stylo Shoes Ltd. [1965]Google Scholar Ch. 250 and Greenhalgh v. Arderne Cinemas [1951]Google Scholar Ch. 286.

⁴⁹ It is intended to discuss fully this topic in a subsequent article by the present author.

⁵⁰ See Clemens v. Clemens Bros. Ltd. [1976] 2 All E.R. 268Google Scholar with regard to an expectancy of control.

⁵¹ Gower, L. C. B., The Principles of Modern Company Law, 3rd ed., p. 567.Google Scholar

⁵² See Parsons, R., “The Directors' Duty of Good Faith,” 5 Melbourne Univ.L.Rev. 395, 422, but see note 26 on p. 422.Google Scholar

⁵³ Birds, J. R., “The Permissible Scope of Articles Excluding the Duties of Company Directors,” 39 M.L.R. 394Google Scholar; Baker, R., “Disclosure of Directors' Interests in Contracts” [1975]Google Scholar J.B.L. 181; and see in particular Abbey Glen Property Corporation v. Stumborg [1976] 2 W.L.R. 1.Google Scholar

⁵⁴ Wallersteiner v. Moir (No. 2) [1975] 1 All E.R. 849.Google Scholar

⁵⁵ It is surmounting this initial hurdle that has rendered the various statutory derivative actions found in many company laws largely ineffective. See for example s. 99 of the Ontario Business Corporations Act and s. 114 of the Ontario Securities Act. It is interesting that cl. 134 of the Ontario Securities Act (Bill 20) 1977 provides that the court may make an order for costs with regard to expenses properly incurred in the commencement, prosecution or continuation of the action. See generally Boyle, A. J., “The Derivative Action in Company Law” [1969]Google Scholar J.B.L. 120. Perhaps the most practical solution is to facilitate administrative enforcement; see for example Rider, B., “The Regulation of Insider Trading in Hong Kong,” 17 Mal.L.R. 310Google Scholar, continued 18 Mal.L.R. 157, 177 et seq., and note the Department of Trade's power to bring civil actions on behalf of companies under s. 37 of the Companies Act 1967. In practice administrative enforcement in Britain has been virtually non-existent; see Rider, B. and Hew, E. J., “The Regulation of Corporation and Securities Laws in Britain—The Beginning of the Debate,” 19 Mal.L.R. 144 to 151Google Scholar, and Rider, B. and Hew, E. J., “The Structure of Regulation and Supervision in the Field of Corporation and Securities Laws in Britain” [1977] Revue de la Banque 83.Google Scholar

⁵⁶ Boyle, A. J., “Indemnifying the Minority Shareholder” [1976]Google Scholar J.B.L. 18, 19.

⁵⁷ See here Wallersteiner v. Moir (No. 1) [1974] 3 All E.R. 217Google Scholar, and Farrar, J. H. and Lowe, N. V., “Fraud, Representative Actions and the Gagging Writ,” 38 M.L.R. 455Google Scholar, as well as the Economist, 25 May 1974, at p. 118. Reference should also be made to the Report of the Department of Trade's Inspectors. J. B. Hazan q.c., T. C. Harding and A. M. Troup, of their investigation into the affairs of Hartley Baird Ltd. (1976).

⁵⁸ Prentice, D. D., “Wallersteiner v. Moir, The Demise of the Rule in Foss v. Harbottle,” 40 Conveyancer 51.Google Scholar

⁵⁹ Supra, n. 58, at p. 61.

⁶⁰ Note the court's power under s. 135 of the Companies Act 1948 to summon a general meeting, see for example Re El Sombrero Ltd. [1958] 1 Ch. 900.Google Scholar

⁶¹ See for example Lord Denning's observation on the question of contingency fees for lawyers at [1975] 1 All E.R. 849, 860 to 862, and see the more cautious remarks of Buckley and Scarman L.JJ. at pp. 867 to 868, and 872 to 873. See also Mr. Cant M.P. at 822 House of Commons Debates, 28 July 1971. The Department of Trade is currently examining the question of minority shareholder's action and reference should be made to cl. 70 of the Companies Bill 1973.

⁶² [1978] 2 W.L.R. 73.

⁶³ In Spokes v. Grosvenor Hotel Co. [1897] 2 Q.B. 124, Chitty L.J. stated at p. 128, “to such an action as this the company are necessary defendants. The reason is obvious: the wrong alleged is done to the company, and the company must be party to the suit in order to be bound by the result of the action and to receive the money recovered in the action.”

⁶⁴ [1978] 2 W.L.R. 75. A similar problem no doubt faced the plaintiffs in Pavlides v. Jensen [1956]Google Scholar Ch. 565. It is very doubtful whether in such cases any misappropriation of corporate property has taken place. The notion of misappropriation is very much stronger in such decisions as Re W. & M. Roith Ltd. [1967] 1 W.L.R. 432Google Scholar, although not apparently decided on this basis. There is no general principle providing liability for waste in British law other than possibly negligence. It is open to question whether an action could be brought “in equity” for negligence in the present context and what advantages if any would be gained. In certain States of the United States of America it is possible to bring a representative action for negligence in equity, see Rettinger v. Pierpoint, 15 N.W. 2d 393 (1944).Google Scholar In Coleman v. Myers, supra n. 1, the New Zealand Court of Appeal came very near to equating common law negligence with liability for breach of fiduciary duty on the part of directors, see Rider, B., “A Special Relationship on the Special Facts,”Google Scholar 41 M.L.R. No. 5.

⁶⁵ [1978] 2 W.L.R. 80 and also Finer, H., “Company Fraud” [1966] The Accountant 583Google Scholar, and Santow, G. F., “Regulating Corporate Misfeasance and Maintaining Honest Markets,” 51 A.L.J. 541.Google Scholar

⁶⁶ Mahon J. was very critical of the plaintiffs' allegation of fraud in Coleman v. Myers, supra n. 1. He considered that the allegation was both unfounded and irresponsible; he observed, “I must say that at the close of evidence I fully expected the allegations of fraud to be withdrawn.” In fact they were not and Mahon J. attempted to reflect this displeasure in the assessment of costs. However, on appeal the Court of Appeal unanimously accepted the plaintiffs' allegation of fraud and reversed Mahon J, on this point. Note also that the allegations of fraud in the Regal (Hastings) Ltd. case were dropped before the case came before the House of Lords, see Lord Russell at [1942] 1 All E.R. 378, 389.

⁶⁷ [1978] 2 W.L.R. 75, and see Turquand v. Marshall (1869) L.R. 4 Ch.App. 376, 386, where Lord Hatherley L.C. refused to allow a minority shareholder to proceed simply upon an allegation of negligence; “whatever may have been the amount lent to anybody, however ridiculous and absurd their conduct might seem, it was the misfortune of the company that they chose such unwise directors …”

⁶⁸ See generally Trebilcock, M. J., “The Liability of Company Directors for Negligence,” 32 M.L.R. 499Google Scholar and Paterson, R. K., “Reformulating the Standard of Care of Company Directors,”Google Scholar 8 Vict.Univ. of Wellington L.Rev. 1. With regard to the Government's recent proposals to codify the standard of care required from directors see The Conduct of Company Directors, Cmnd. 7037, and Rider, B., “The Conduct of Company Directors,” 128 N.L.J. 27.Google Scholar

⁶⁹ On the facts of the present case provided the plaintiffs could have shown that the directors made the initial sale dishonestly it would seem probable that they could have contended that the property or the proceeds of sale was held on constructive trust for the company. The present case does not involve a diversion of a corporate opportunity, see supra n. 22, but the diversion of corporate property. The need to establish lack of probity to render the defendants constructive trustees has already been discussed above, at n. 30. Apart from the difficulty of proof there is uncertainty as to exactly what lack of probity imports, see with regard to another area of the law, Rider, B., “The Crime of Insider Trading” [1978]Google Scholar J.B.L. 19.

⁷⁰ [1978] 2 W.L.R. 79.

⁷¹ Although it has been held that “gross negligence” is a meaningless term, see Wilson v. Brett (1843) 11 M. & W. 115, there must inevitably become a stage where negligence is so blatant so as to merge into recklessness, or at least raise a fair inference of fraud. The allegations in the present case, if true, would seem to be of this nature.

⁷² [1978] 2 W.L.R. 80. Speaking of the North American law Professor Bishop has written, “The search for cases in which directors … have been held liable in derivative suits for negligence uncomplicated by self-dealing is a search for a very small number of needles in a very large haystack. Few are the cases in which the stockholders do not allege conflict of interest, still fewer those among them which achieve even such partial success as denial of the defendants' motion to dismiss the complaint … I remain very skeptical of the proposition that directors … run any substantial risk of liability for ordinary negligence,” in “Sitting Ducks and Decoy Ducks; New Trends in Indemnification of Corporate Directors and Officers,” 77 Yale L.J. 1078, 1099. Thus in practice the American law would seem to bear much in common with the position taken by Templeman J. in the present case.

⁷³ See generally Gore-Brown on Companies, 43rd ed., pp. 35–21.

⁷⁴ Coventry & Dixon's Case (1880) 14 Ch.D. 660, 670. There must be some improper use of property or misappropriation of company assets including property that should have come to the company but which has been diverted, see Re Sale Hotel and Botanical Gardens (1898) 78 L.T. 368 and Re Kingston Cotton Mill Co. (No. 2) [1896] 2 Ch. 279, 283. Proof of moral turpitude is not necessary, see Selangor United Rubber Estates v. Cradock [1967] 1 W.L.R. 1168, 1174Google Scholar, but see supra at n. 30.

⁷⁵ It has been suggested that the procedure under s. 333 should be available to a shareholder, and a creditor, at any time during the life of the company, see Company Fraud Report of the Company Law Sub-Committee of Justice, April 1975, and see also the Sub-Committee's Report on Minority Shareholders in Small Companies, March 1969.Google Scholar

⁷⁶ An allegation of negligence is not sufficient to support a petition under s. 210 of the Companies Act 1948, see Re Five Minute Car Wash Service Ltd. [1966] 1 W.L.R. 745.Google Scholar Without persistent incompetence there would not be the required continuum, of conduct required for “oppression.” Furthermore, it will be necessary to establish “some lack of probity on the part of the defendants,” per Plowman, J. in Re Westbourne Galleries [1970] 1 W.L.R. 1378, 1387,Google Scholar and see also In Re Jermyn Street Turkish Baths Ltd. [1971] 1 W.L.R. 1042.Google Scholar There have been proposals to widen the scope of s. 210, see generally Boyle, A. J., “The Sale of Controlling Shares, American Law and the Jenkins Committee,” 13 I.C.L.Q. 185, 195Google Scholaret seq., and see also cl. 70 of the Companies Bill 1973.

⁷⁷ [1978] 2 W.L.R. 80.

⁷⁸ This presumption is perhaps similar to that in the case of bribes and secret commissions, where it is presumed that the mind of the recipient is by needs corrupted to the detriment of his principal.

⁷⁹ If the attainment of the profit is in any way connected with the director's fiduciary position he would be accountable to the company, see Boardman v. Phipps [1967] 2 A.C. 46.Google Scholar It is interesting to speculate whether J, Roskill. would have accepted the argument in Industrial Development Consultants Ltd. v. Cooley [1972] 1 W.L.R. 443Google Scholar, that Cooley had been at least negligent in failing to acquire the contract for the company rather than taking it himself. The court clearly thought he was under both a fiduciary and contractual duty to the company to use his best endeavours to acquire the contract for the company.

⁸⁰ Pavlides v. Jensen [1956] 1 Ch. 565.Google Scholar

⁸¹ In Daniels v. Daniels the defendant husband argued that the financial advantage had accrued solely to his wife, the other director and co-defendant, who had acquired and sold the property in question. Templeman J. was not prepared to dismiss the case at this preliminary stage against the husband before the full facts were known and there had been an opportunity for discovery, [1978] 2 W.L.R. 80. However, it appears that Templeman J. would have been prepared to dismiss the action against the husband if there had been clear evidence that he had not benefited in his wife's “good fortune.” See for a similar dilemma, Ryan, F. J., Report on the Investigation into Certain Dealings in the Shares of Ducon Industries Ltd. (1963)Google Scholar, New South Wales.

⁸² Of course if breach of trust could be established both directors would be liable irrespective of which one actually took the illicit profit. Similarly if the transaction was considered to be ultra vires.

⁸³ See supra n. 8.

⁸⁴ See here the interesting argument of Bastin, N., “Charity at the Boardroom Table,” 36 Conveyancer 89.Google Scholar Could it, however, be the case that essentially the cases on misappropriation and the so called charity cases are one and the same?

⁸⁵ See generally Trebilcock, M. J., “The Liability of Company Directors for Negligence,” 32 M.L.R. 499, 512.Google Scholar

⁸⁶ A descriptive term for non-executive directors who were paid a fee of one guinea for attending a board meeting and in addition were given lunch, see generally Douglas, , “Directors Who Do Not Direct,” 47 Harvard L.Rev. 1305. The New Statesman, Vol. 56 at p. 187Google Scholar referred to a recent advertisement in The Times for “a titled person, required to add distinction to the Board of a Wine company. No responsibility, investment or participation required—Firm very sound.”

⁸⁷ A very important factor in determining the degree of skill and care to be reasonably expected from directors and officers in the United States of America is the availability or otherwise of indemnity insurance and at what premium, see Schaeftler, M. A., The Liabilities of Office: Indemnification and Insurance of Corporate Officers and Directors (1976).Google Scholar In Britain given the restrictive nature of derivative liability, indemnity insurance for civil liabilities for mismanagement is at present rare, see Boyle, A. J., “The Director's Duty of Care and Skill,” in Towards A Code of Business Ethics (C.A.B.E., 1972).Google Scholar But there is evidence that it is increasing.