1 It is generally accepted that the most appropriate, analogy is with agents, see Gore-Browne on Companies, 43rd ed. (London 1977)Google Scholar, 27–23; although in certain circumstances directors may be treated as constructive trustees. For an excellent discussion of the law see Rao, C. S., The Role of Directors in Company Law (Madras 1966).Google Scholar

2 Re Smith & Fawcett Ltd. [1942]Google Scholar Ch. 304; Re City Equitable Fire Insurance Co. Ltd. [1925]Google Scholar Ch. 407, but see also Walker v. Wimbourne (1976) 50 A.L.J.R. 446Google Scholar and Barrett, R., “Directors' Duties to Creditors” (1977) 40 M.L.R. 226.Google Scholar

3 See Rider, B. A. K., “The Fiduciary and the Frying Pan” [1978]Google Scholar Conv. 114.

4 (1843) 2 Hare 461. See generally Rider, B. A. K., “Amiable Lunatics and the Rule in Foss v. Harbottle”” [1978]Google Scholar C.L.J. 270.

5 See for example Wallersteiner v. Moir (No. 1) [1974] 1 W.L.R. 991Google Scholar and in particular D.H.N. Food Distributors Ltd. v. Tower Hamlets London Borough Council [1976] 1 W.L.R. 852Google Scholar, and Schmitthoff, C. M., “The Wholly Owned and Controlled Sudsidiary” [1978]Google Scholar J.B.L. 218.

6 Pennington, R. R., Company Law, 3rd ed. (London 1973), pp. 39Google Scholar to 55 and Schmitthoff, C. M., “Salomon in the Shadow” [ 1976]Google Scholar J.B.L. 305. If a wholly owned subsidiary company is to be treated as a group entity with its holding company, D.H.N. Food Distributors Ltd. v. Tower Hamlets London Borough Council [1976] 1 W.L.R. 852Google Scholar, it is hard to see why as a matter of logic the same rule should not be applied to a company wholly owned by an individual.

7 See for example Walker v. Wimbourne (1976) 50 A.L.J.R. 446Google Scholar and Barrett, R., “Directors' Duties to Creditors” (1977) 40 M.L.R. 226Google Scholar and Coleman v. Myers [1977]Google Scholar (2) N.Z.L.R. 225 and [1977] (2) N.Z.L.R. 298 and Rider, B. A. K., “Percival v. Wright—Per Incuriam” (1977) 40 M.L.R. 471Google Scholar and Rider, B. A. K., “A Special Relationship on the Special Facts” (1978) 41 M.L.R. 585.Google Scholar In civil law countries it is not uncommon to find statutory provisions creating liability on directors for harm caused in the exercise of their duties to the company, shareholders and creditors, see for example Art. 754 of the Swiss Code of Obligations, discussed by Jenckel, J. H. and Rider, B. A. K., “The Swiss Approach to ' Insider Dealing'” (1978) 128 N.L.J. 683.Google Scholar

8 Allen v. Hyatt (1914) 30 T.L.R. 444Google Scholar; Gladsden v. Bennrtto [1913] 9 D.L.R. 719Google Scholar; Ferguson v. Wallbridge [1935] 3 D.L.R. 66Google Scholar; Briess v. Woolley [1954]Google Scholar A.C. 333; Gething v. Kilner [1972] 1 W.L.R. 337Google Scholar, and Coleman v. Myers [1977]Google Scholar (2) N.Z.L.R. 298 and Rider, B. A. K., “ A Special Relationship on the Special Facts” (1978) 41 M.L.R. 585.Google Scholar

9 3rd ed. (London 1969), Chap. 24, but see also Afterman, A. B., Company Directors and Controllers (Melbourne 1970)Google Scholar, Chap. 3.

10 See supra at note 1.

11 Of course a director's duties may be increased through a service contract and this is particularly so with regard to the duties of care and skill to be expected from executive directors. Note the implications of Lister v. Romford Ice & Cold Storage Co. Ltd. [1957]Google Scholar A.C. 555 for executive directors. Directors with some kind of professional qualification, such as an accountant or solicitor, may well be liable for failure to measure up to their special expertise, see Dorchester Finance Co. Ltd. & The Talbex Group Ltd. v. Stebbing et al. (1974Google Scholar D.No. 3538) High Court 22 July 1977 before Foster J.

12 See Birds, J., “The Permissible Scope of Articles Excluding the Duties of Company Directors” (1976) 39 M.L.R. 394Google Scholar; Baler, C. D., “Disclosure of Directors' Interests in Contracts” [1975]Google Scholar J.B.L. 181 and Abbey Glen Property Corp. v. Stumborg (1976) 65 D.L.R. (3d) 235Google Scholar, 279 et seq.

13 Pender v. Lushington (1877) 6 Ch.D. 70.

14 North West Transportation Co. v. Beatty (1887) 12 A.C. 589; Burland v. Earle [1902]Google Scholar A.C. 83, 93 and Regal (Hastings) Ltd. v. Gulliver [1942] 1 All E.R. 378.Google Scholar

15 Note the impact of the ambiguously worded Article 80 of Table A, Companies Act 1948, see Goldberg, G. D., “Article 80 of Table A of the, Companies Act 1948” (1970) 33 M.L.R. 177Google Scholar; Sullivan, G. R., “The Relationship Between the Board of Directors and the General Meeting in Limited Companies” (1977) 93 L.Q.R. 569Google Scholar; Aichin, R., “Division of Power Between Directors and the General Meeting as a Matter of Law and as a Matter of Fact and Policy” [1967] 5 Melb.U.L.Rev. 449Google Scholar; Cohen, C. J., “The Distribution of Powers in a Company as a Matter of Law” (1975) 92 S.A.L.J. 286.Google Scholar It is established that apart from any question as to the correct interpretation of Article 80, where the board of directors is deadlocked or cannot act for some: reason, the powers of management revert to the shareholders in general meeting, see Barren v. Potter [1914] 1 Ch. 895Google Scholar and Alexander Ward & Co. Ltd. v. Samyang Navigation Co. Ltd. [1975] 2 All E.R. 424, 428.Google Scholar On the question of ratification of breaches of the articles of association or directors' duties see Winthrop Investments Ltd. v. Winns Ltd. [1975] 2 N.S.W.L.R. 666Google Scholar and Mason, H., “Ratification of the Directors' Acts; an Anglo-Australian Comparison” (1978) 41 M.L.R. 161.Google Scholar

16 Scottish Insurance Corporation v. Wilsons & Clyde Coal Co. [1949]Google Scholar A.C. 462.

17 Even though as compared with some other class their treatment might not be fair, see Re Mackenzie & Co. [1916]Google Scholar 2 Ch. 450.

18 For instance, see White v. Bristol Aeroplane Co. [1953]Google Scholar Ch. 65 and supra at note 17.

19 Greenhalgh v. Arderne Cinemas Ltd. [1951] 1 Ch. 286.Google Scholar

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21 Re Smith & Fawcett Ltd. [1942]Google Scholar Ch. 304.

22 See cases cited at note 14, supra.

23 Per R, Evershed M.. in Greenhalgh v. Arderne Cinemas Ltd. [1951] 1 Ch. 286Google Scholar, 292 cited with approval in Australian Fixed Trusts Pty. Ltd. v. Clyde Industries Ltd, [1959]Google Scholar S.R.(N.S.W.) 33, see also Rights & Issues Investment Trust Ltd. v. Stylo Shoes Ltd. [1965]Google Scholar Ch. 250. This test presupposes the existence of at least three identifiable groups: those for the proposal, those against it and those of a neutral opinion—it being the interest of this neutral group that the majority must consider. It is hard, if not impossible, to apply this test where there are only two conflicting groups, see here Joffe, V., “Majority Rule Undermined?” (1977) 40 M.L.R. 71Google Scholar, 73. In Shuttleworth v. Cox Bros. & Co. (Maidenhead) Ltd. [1927] 2 K.B. 9Google Scholar Scrutton L. J. stated that the test was whether the proposal was for the benefit of the company or a particular class of its shareholders. This was accepted by J, Megarry. in Re Holders Investment Trust Ltd. [1971] 1 W.L.R. 583.Google Scholar

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25 Given the diversity of interests and the number of people involved, even a subjective test is likely to have a significant degree of objectivity, see for example Foster, J. in Clemens v. Clemens Bros. Ltd. [1976] 2 All E.R 268Google Scholar, 281 and 282.

26 Re Holders Investment Trust Ltd. [1971] 1 W.L.R. 583.Google Scholar

27 Clemens v. Clemens Bros. Ltd. [1976] 2 All E.R. 268.Google Scholar

28 Clemens v. Clemens Bros. Ltd. [1976] 2 All E.R. 268, 282.Google Scholar

29 Clemens v. Clemens Bros. Ltd. [1976] 2 All E.R. 268, 282Google Scholar, referring to Wilberforce, Lord in Ebrahimi v. Westbourne Galleries Ltd. [1972] 2 All E.R. 492, 500.Google Scholar

30 Greenhalgh v. Arderne Cinemas Ltd. [1951] 1 Ch. 286.Google Scholar

31 See Gower, L. C. B., The Principles of Modern Company Law, 3rd ed. (London 1969), pp. 574 to 575Google Scholar, Sealy, L. S., “The Protection of Minority Shareholders” [1976]Google Scholar C.L.J. 235 and Joffe, V., “ Majority Rule Undermined?” (1977) 40 M.L.R. 71.Google Scholar

32 Foster J., unlike the opinions expressed in certain of the earlier authorities, did not appear to consider that personal self-interest was a legitimate consideration. See here Mills v. Mills (1938) 60 C.L.R. 160.Google Scholar

33 See Hulsmann, J. H. H., De Ongeldigverklaring van Meerderheidsbesluiten op Grand van Wilsgebreken en haar Gezag van Gewijsde (Amsterdam 1935)Google Scholar; Prine, H., The Protection of the Minority Shareholders in a Limited Company at English, South African and Dutch Law (Leiden 1972)Google Scholar; Wurdinger, H., German Company Law (London 1975), pp. 57Google Scholar to 63, and in particular see Aktiengesetz 1965, arts. 117, 243 and 311 and also [1941] R.G.Z. 166, 129; [1935] R.G.Z. 146, 385; [1954] B.G.H.Z. 14 25; [1931] R.G.Z. 133, 190, but on the other hand see [1953] B.G.H.Z. at p. 157. The application of any general principle of good faith, outside the law relating to the alteration of a company's constitutional documents, has rarely been raised in any Commonwealth jurisdiction. The South African courts have rejected the contention that majority shareholders owe a duty of good faith when selling controlling shares at a premium, see United Trust Pty. Ltd. v. South African Milling Co. [1959] (2) S.A. 426Google Scholar (Wits.L.D.) and in particular Boyle, A. J., “The Sale of Controlling Shares, American Law and the Jenkins Committee,”Google Scholar 13 I.C.L.Q. 189.

34 See for example article 41 of the Swiss Code of Obligations, discussed in Jenckel, J. H. and Rider, B. A. K., “The Swiss Approach to ' Insider Dealing'” (1978) 128 N.L.J. 683Google Scholar; for a similar provision see article 420 of the Civil Code of Thailand. On the general question of mere “unfairness” founding liability see Ffrench, H. Leigh and Rider, B. A. K., “Should Insider Trading be Regulated? Some Initial Considerations” (1978) 95 S.A.L.J. 79Google Scholar and see also s. 138 of the Consumer Credit Act 1974 with regard to “extortionate” credit bargains.

35 Symington v. Symington Quarries [1905] 8 F. 121Google Scholar; Harris v. A. Harris [1936]Google Scholar S.C. 183 and Baird v. Beard & Co. (Falkirk) Ltd., 1949Google Scholar S.L.T. 368.

36 Harris v. A. Harris [1936]Google Scholar S.C. 183, to be discussed in due course.

37 See Brandeis, J. in Louis K. Liggett Co. v. LeeGoogle Scholar, 288 U.S. 517 and generally Williston, R., “A History of the Law of Business Corporations Before 1800,” 2 Harv.L.Rev. 105Google Scholar; Raymond, R. L., “The Genesis of the Corporation,” 16 Harv.L.Rev. 791Google Scholar; Cohen, Lord, “One Hundred Years of Limited Liability Companies in England” (Hebrew University of Jerusalem, 3rd Series, 1957)Google Scholar and Berle, A., Historical Inheritance of American Corporations, Social Meaning of Legal Concepts, (3) The Powers and Duties of Corporate Management [1950]Google Scholar N.Y.Univ. 189.

38 Dodd, H., “Statutory Developments in Business Corporation Law 1886–1936,”Google Scholar 50 Harv.L.Rev. 27 and Latty, “Why are Business Corporation Laws Largely Enabling?” 50 Corn.L.Q. 599.

39 15 Ind. 294, 295.

40 See also Jackson v. Hooper, 76 N.J.Eq. 598, 599 and Weisman v. Awnair Corp. 3 N.Y. 2d 444.

41 See for example Recreation & Amusement Association of the Philippines v. City of Manila, 100 Phil. 950 and Salonga, J. R., Philippine Law on Private Corporations (Manila 1968)Google Scholar, Chap. 1 and also Park, K., Some Problems Concerning The Amendment of Korean Stock Company Law (Seoul 1977)Google Scholar, Chap. 1.

42 See Gower, L. C. B., The Principles of Modern Company Law, 3rd ed. (London 1969)Google Scholar, Chap. 2, and see the materials that Professor Gower refers to at p. 22, n. 1, and also Hein, R., “The British Company, its Origins and its Control,”Google Scholar 15 Univ.Toronto L.J. 134.

43 See for example Hawaii General Corporation Law 172–1; Mason v. American Express Co., 334 F. 2d 392 (2d Cir. 1964)Google Scholar and Hibbs v. Brown, 190 N.Y. 167. There are of course a wide variety of business forms in the United States of America, see for example Jones, R. “Business Trusts in Florida,”Google Scholar 14 Univ.Fla. L.Rev. 1.

44 Gower, L. C. B., “Some Contrasts Between British and American Corporation Law,” 69 Harv.L.Rev. 1369, 1371.Google Scholar

45 See Hiscock, J. in Hibbs v. Brown, 190 N.Y. 167Google Scholar and Brandeis, J. in Buck-Waggoner Oil Association v. Hopkins, 269 U.S. 110.Google Scholar

46 Zahn v. Transamerica Corporation, 162 F. 2d 36 (3rd Cir. 1947)Google Scholar; Southern Pacific Co. v. Bogert, 250 U.S. 483, 487; Mansfield Hardwood Lumber Co. v. Johnson, 268 F. 2d 317 (5th Cir. 1959)Google Scholar; Overfisld v. Penroad Corporation 42 F, Supp. 586 (E.D.Pa. 1941)Google Scholar; Singer v. Carlisle, 26 N.Y.S. 2d 172; Sinclair Oil Corporation v. Levien, 280 A. 2d 717 and Jones v. H. F. Ahmanson & Co., 1 Cal. 3d 93, see also Berle, A., “Corporate Powers as Powers in Trust,” 44 Harv.L.Rev. 1049Google Scholar and Wood, D., “ Voting Status of Management Stockholders,” 38 Yale L.J. 57.Google Scholar

47 308 U.S. 295, 306.

48 Perlman v. Feldman 219 F. 2d 173 (2d Cir. 1965)Google Scholar; Gerdes v. Reynolds, 28 N.Y.S. 2d 622; Honigmen v. Green Giant Co., 309 F. 2d 667 (8th Cir. 1962)Google Scholar and Essex Universal Corporation v. Yates, 305 F. 2d 572 (2d Cir. 1962)Google Scholar and generally Cary, W., Cases and Materials on Corporations, 4th ed. (1969)Google Scholar, Chap. 6.

49 See s. 15 of the Securities Act 1933 and s. 20 (a) of the Securities Exchange. Act 1934 and Securities and Exchange Commission v. Management Dynamics Inc., 515 F. 2d 801 (2d Cir. 1975)Google Scholar and Note, “The Burden of Control, Derivative Liability Under Section 20 (a) of the Securities Exchange Act,” 49 N.Y.U.L.Rev. 1019.

50 See for example United Trust Pty. Ltd. v. South African Milling Co. [1959]Google Scholar (2) S.A. 426 (Wits.L.D.) referring to the British law, and see also Boyle, A. J., “The Sale of Controlling Shares, American Law and the Jenkins Committee,” 13 I.C.L.Q. 189Google Scholar and Mason, H. H., “Share Dealings by a Company's Officers, an Australian-American Comparison,” 12 Univ.West.Aust.L.Rev. 153.Google Scholar Of course the sale of control in public companies in Britain is now regulated under the City Code on Take-overs and Mergers, see generally Davies, P., The Regulation of Take-overs and Mergers (London 1976), pp. 79Google Scholar to 84 and Rider, B. A. K. and Hew, E. J., “The Role of the City Panel on Take-overs and Mergers in the Regulation of Insider Trading” (1978)Google Scholar 20 Mal.L.Rev. (December). In certain circumstances the British courts have been prepared to regard the controllers as almost de facto directors, see Wallersteiner v. Moir (No. 1) [1974] 1 W.L.R. 991Google Scholar and note the observations of Keith, Lord in Scottish Co-operative Wholesale Society Ltd. v. Meyer [1959]Google Scholar A.C. 324, 361.

51 See for example s. 200 (9) of the Companies Act 1948, which provides that for the purposes of the register of directors and secretaries, “a person in accordance with whose directions or instructions the directors of a company are accustomed to act shall be deemed to be a director and officer of the company.” See also s. 303 (1) of the Income and Corporation Taxes Act 1970 for a similar rule. In practice it would be extremely difficult to establish such domination. Acting merely as a professional adviser would not be sufficient, see s. 455 (2) of the 1948 Act. It should be noted that many countries adopt the wider approach of s. 200 (9) in their general definition of “directors,” see for example s. 4 of the Singapore Companies Act, as compared with the narrower general definition in s. 455 of the British Act.

52 This has been of particular importance in the development of liability for “insider trading,” see generally Walker, R., “The Duty of Disclosure by a Director Purchasing Stock from his Stockholders,” 32 Yale L.J. 637Google Scholar; Wilgus, “Purchase of Shares of a Corporation by a Director from a Shareholder,” 8 Mich.L.Rev. 267; Conant, “Duties of Disclosure of Corporate Insiders Who Purchase Shares,” 46 Corn.L.Q. 53 and Fletcher, , Cyclopedia-Corporations, Perm-ed., (1965) and Cum.Sup. 1974, Vol. IIIGoogle Scholar, Chap. 11, xxv, and see also Rider, B. A. K., “The Regulation of ‘Insider Trading’ in the Republic of the Philippines” (1977) 19 Mal.L.R. 353Google Scholar for a discussion of the development of the “special facts” doctrine.

53 [1902] 2 Ch. 421.

54 Although there is little authority expressly approving Percival v. Wright the vast bulk of British and Commonwealth authorities merely take its correctness for granted. See specifically on thisGoogle ScholarLynall v. I.R.C. [1968] 3 All E.R. 322, 329Google Scholar; Green v. Charterhouse Group of Canada [1973] 2 O.R. 729Google Scholar and Jones v. Drum-bell (unreported judgment of J, Smith., Supreme Court of Victoria, 25 March 1968).Google Scholar The Court of Appeal of New Zealand in Coleman v. Myers [1977]Google Scholar (2) N.Z.L.R. 298 clearly thought that the decision of Swinfen Eady J. was correct on the facts of the case.

55 [1902] 2 Ch. 421, 426.

56 Particular reference should be made to the excellent work of D. S. Ribbens of the University of South Africa in' this field, see “The Fiduciary Duty Concept and the Multinational Enterprise—A Comparative Analysis,” [1976]Google ScholarThe South African Chartered Accountant 203 cont. 239, 276, 319, 345, 389, 434, and [1977]Google Scholaribid. 53 cont: 87, 189, 261 and 330. But see also Morse, G. and Tedd, R., “Partnership Companies” [1971]Google Scholar J.B.L. 261; Schmitthoff, C. M., “How the English Discovered the Private Company” in Quo Vadis Ius Societatum (Liber amicorum P. Sanders 1972)Google Scholar; Welch, J., “The English Private Company—A Crisis of Classification” [1974]Google Scholar J.B.L. 277 and Schmitthoff, C. M., Commercial Law in a Changing Economic Climate (London 1977), pp. 20Google Scholaret seq. The “close company” is recognised as a special entity for the purpose of taxation, see ss. 282, 283 and 302 of the Income and Corporation Taxes Act 1970 and in particular Tiley, J., Revenue Law, 2nd ed. (London 1978)Google Scholar, Chap. 33 and Gore-Browne on Companies, 43rd ed. (London), §§ 24–63 to 24–66, but note the observation at § 24–63: “the close company has no counterpart in company law.” The distinction was also important with regard to the “exempt private company” under s. 129 of and Sched. 7 to the 1948 Companies Act with regard to corporate disclosure. In accordance with the recommendations of the Company Law Committee, Cmnd. 1749, paras. 57 to 63, this exemption was abolished by ss. 2, 43 and 47 of the 1967 Companies Act.

57 Coleman v. Myers [1977]Google Scholar (2) N.Z.L.R. 298.

58 For a comprehensive discussion of this development see D. S. Ribbens, supra at note 56, at The South African Chartered Accountant [1976], p. 433Google Scholar and [1977], pp. 53 and 87.

59 For example in Jackson v. Hooper, 16 N.J.Eq. 592 the court stated “they cannot be partners inter se and a corporation as to the rest of the world.” See also Weisman v. Awnair Corporation of America, 144 N.E. 2d 415.

60 Note, “Definitions of the Close Corporation,” 16 Vand.L.Rev. 1267; Cary, W., “How Illinois Corporations May Enjoy Partnership Advantages,” 48 Nw.U.L. Rev. 427Google Scholar; Hornstein, “Stockholders Agreements in the Closely Held Corporation,” 59 Yale L.J. 1040 and for a full discussion of the relevant law see O'Neal, Close Corporations; Law and Practice (1958) and Oppression of Minority Shareholders (1975).Google Scholar

61 224 App.Div. 614 and see Fortugno v. Hudson Manure Co., S1 N.J.Super. 282; Strutts v. Strutts, 271 App.Div. 1023 and A. Chayes, “Madam Wagner and the Close Corporation,” 73 Harv.L.Rev. 1532. The law is analogous to that applied by the courts in the case of joint ventures, see for example De Boy v. Harris, 207 Md. 212.

62 See supra at note 60 and also Note, “Statutory Assistance for Closely Held Corporations,” 71 Harv.L.Rev. 1498 and O'Neal, “Recent Legislation Affecting Close Corporations,” 23 Law and Contemporary Problems 341.

63 N.Y.Leg.Doc. No. 17 at p. 115.

64 See “Symposium on the Close Corporation,” 18 Law and Contemporary Problems 433 and Notes, “The American Close Corporation and its German Equivalent” (1958)Google Scholar Bus.Law. 229; “The American Close Corporation and its Dutch Equivalent” (1958)Google Scholar Bus.Law. 251 and “The American Close Corporation and its Swiss Equivalent” (1958)Google Scholar Bus.Law. 263.

65 Implementation of the Second E.E.C. Directive on Company Law, An Explanatory and Consultative Note, Department of Trade (London 1977)Google Scholar, Pt. 1; Changes in Company Law, Cmnd. 7291, Pt. 1, discussed by Walmsley, K., “Draft Companies Bill: Implementation of the Second Directive—1” (1978) 128 N.L.J. 1051Google Scholar cont. 1075 and also Preparing for changes in Company Law, Peat, Marwick, Mitchell & Co. (1978)Google Scholar, Chap. 1. Reference should also be made to Welch, J., “The English Private Company—A Crisis of Classification” [1974]Google Scholar J.B.L. 277; Schmitthoff, C. M., European Company Law Texts (London 1974), p. 10Google Scholar and Schmitthoff, C. M., “The Future of the European Company Law Scene,”Google Scholar in Schmitthoff, C. M. (ed.), The Harmonisation of European Company Law (London 1973), pp. 3Google Scholar and 19 to 21.

66 See cl. 14. Changes in Company Law, Cmnd. 7291 and Implementation of the Second E.E.C. Directive on Company Law, An Explanatory and Consultative Note, Department of Trade (London 1977)Google Scholar, Pt. 1.

67 Company Law Committee, Cmnd. 1749, paras. 57 to 63, and with regard to incorporated partnerships see at paras. 71 to 75.

68 See supra, at note 56.

69 See for example, Report of the Committee of Inquiry on Small Firms, Cmnd. 4811; Bates, J., The Financing of Small Businesses, 2nd ed. (London)Google Scholar; Hadden, T., Company Law and Capitalism, 2nd ed. (London 1977), pp. 222Google Scholar to 231 and Chesterman, M., Small Businesses (London 1977)Google Scholar, Chap. 8.

70 Cmnd. 5391, paras. 30 to 34. The present Government is known to be considering this problem also.

71 See supra at note 65 with regard to the Second Directive on Company Law Harmonisation.

^71a As to the Government's proposals in this regard see Rider, B. A. K., “Changes in Company Law—Directors' Duties” (1978) 128 N.L.J. 1116Google Scholar; “Changes in Company Law—Directors' Private Transactions” (1978) 128 N.L.J. 1138Google Scholar and “Companies Bill—Insider Trading” (1978) 128 N.L.J. 1236Google Scholar, and Chow, K. C. K., “Proper Purpose Doctrine and the Companies Bill” (1979) 129 N.L.J. 123Google Scholar continued (1979) 129 N.L.J. 135.

72 For instance Keith, Lord in Scottish Co-operative Wholesale Society Ltd. v. Mayer [1959]Google Scholar A.C. 324, 361.

73 See for example, with regard to Canada, Re Rogers and Agincourt Holdings Ltd. et al. (1977)Google Scholar 74 D.L.R. (3d) 152: Re Bondi Better Bananas Ltd. [1952] 1 D.L.R. 277Google Scholar; In Re Concrete Clamps Ltd. [1953] 4 D.L.R. 60Google Scholar; Re White Castle Inn [1946]Google Scholar O.W.N. 773; Re Purvis Fisheries Ltd. (1954) 13 W.W.R.(N.S.) 401Google Scholar and Re Sydney and Whitney Pier Bus Service Ltd. [1944]Google Scholar D.L.R. 468; New Zealand, Tench v. Tench Bros. Ltd. [1930]Google Scholar N.Z.L.R. 403; Australia, Re Wonderflex Textiles Pty. Ltd. [1951]Google Scholar V.L.R. 458 and Re Straw Products Pty. Ltd. [1942]Google Scholar V.L.R. 222; Malaysia, Ng Eng Hiam v. Ng Kee Wei [1965]Google Scholar M.L.J. 238; Singapore, Re Kwong on Company Ltd. [1949]Google Scholar S.L.R. 20; West Indies, Lock v. John Blackwood Ltd. [1924]Google Scholar A.C. 783; Black Africa, in the Matter of the Stevedoring (Nig.) Ltd. [1962]Google Scholar L.L.R. 164; Re Pool House Group (Nig.) Ltd., High Court of Lagos, No. M./190/70, 25 January 1971Google Scholar; Georgius Cole v. R. C. Irving & Co. Ltd. [1971]Google Scholar i U.I.L.R. 314; Re Modern Retreading Co. [1962]Google Scholar E.A. 57 and Mitha v. Mitha [1967]Google Scholar E.A. 575 and South Africa, Redler & Collier v. General Manufacturing Co. Ltd. [1923]Google Scholar C.P.D. 458 and Lawrence v. Lawrich Motors Ltd. [1948]Google Scholar (2) S.A. 1029 (Wits.L.D.).

74 [1972] 2 All E.R. 492 reversing [1971] 1 All E.R. 561 and restoring [1970] 3 All E.R. 374.

75 See for example Symington v. Symington's Quarries Ltd., 13 S.L.T. 509; Re Yenidje Tobacco Co. Ltd. [1916]Google Scholar 2 Ch. 426; Thomson v. Drysdale, 1925Google Scholar S.C. 83; Elder v. Elder & Watson, 1952Google Scholar S.C. 49; Baird v. Lees, 1924Google Scholar S.C. 83; Re Cooper (Cuthbert) & Sons Ltd. [1937] 2 All E.R. 466Google Scholar: Re Lundi Bros. Ltd. [1965] 1 W.L.R. 1051Google Scholar; Re Expanded Plugs Ltd. [1966] 1 W.L.R. 514Google Scholar; Re K/9 Meat Supplies (Guildford) Ltd. [1966] 1 W.L.R. 1112Google Scholar; Re Swaledale Cleaners Ltd. [1968] 1 W.L.R. 1710Google Scholar; Rè Fildes Bros. Ltd. [1970] 1 W.L.R. 592Google Scholar and Re Ledenhall General Hardware Stores Ltd. (Unreported), High Court, 4 February 1971Google Scholar, noted in 115 S.J. 202.

76 Under s. 222 (f) of the Companies Act 1948. For procedure see Gore-Browne On Companies, 43rd ed. (London), Chap. 31.

77 See generally Lindley on the Law of Partnership, 13th ed., Pt. 111. s. 14 and Pt. IV; Underhill's Principles of the Law of Partnership, 9th ed., Chap. V. and Drake, C. D., The Law of PartnershipGoogle Scholar, 2nd ed., Chap. V. Reference should also be made generally to Bamford, The Law of Partnerships and Voluntary Associations in South Africa, 2nd ed. (Pretoria), and Pothier On Partnership.

78 See McPherson, B. H., “Winding Up on the ‘Just and Equitable Ground’” (1964) 27 M.L.R. 282Google Scholar; Chesterman, M. R., “The Just and Equitable Winding Up of Small Private Companies” (1973) 36 M.L.R. 129Google Scholar; Beuthin, R. C., “Winding Up a Domestic Company…” (1972) 89 S.A.L.J. 481Google Scholar, Pitt, G., “Winding Up on the ‘Just and Equitable’ Ground” (1977) 127 N.L.J. 619Google Scholar and Markson, H. E., “Winding Up the Partnership Analogy” (1978) 128 N.L.J. 115.Google Scholar

79 For a thorough discussion of the relevant law see Gore-Browne On Companies, 43rd ed. (London), Chap. 31.

80 But see the exceptional case of Re Sailing Ship “Kentmere” Co. [1897] W.N. 58. Where the board of directors is “deadlocked” then it would seem that the power of management reverts to the shareholders in general meeting, see Barron v. Potter [1914] 1 Ch. 895Google Scholar and supra, at note 15.

81 See Warrington, L. J. in Re Yenidje Tobacco Co. [1916] 2 Ch. 426.Google Scholar

82 See supra, at note 77.

83 In Re Yenidje Tobacco Co. [1916] 2 Ch. 426Google Scholar, the Court of Appeal adopted the relevant passage in Lindley on the Law of Partnerships to the effect that “all that is necessary is to satisfy the court that it is impossible for the partners to place that confidence in each other which each has a right to expect, and that such impossibility has not been caused by the person seeking to take advantage of it…” See also as to the nature of the relationship of confidence Nash v. Muirhead (1909) 19 C.T.R. 69Google Scholar; Truter v. Hancke [1923]Google Scholar C.P.O. 48 and Bamford, The Law of Partnerships and Voluntary Associations in South Africa, 2nd ed. (Pretoria), p. 28.

84 See in particular Lord Wilberforce in Ebrahimi v. Westbourne Galleries Ltd. [1972] 2 All E.R. 492Google Scholar, 498, and also Re A. & B.C. Chewing Gum Ltd. [1975] 1 W.L.R. 579Google Scholar and Re North End Motels (Huntly) Ltd. [1976] 1 N.Z.L.R. 446.Google Scholar See also the approach of the courts in Moosa No v. Mavjee Bhawan Pty. Ltd. [1963] (3) S.A. 131 (T), especially Trollip J. at p. 136Google Scholar; Re Bondi Better Bananas Ltd. [1952] 1 D.L.R. 277Google Scholar and Lawrence v. Lawrich Motors Ltd. [1948]Google Scholar (2) S.A. 1029 (Wits.L.D.).

85 The restrictive approach of the courts in placing reliance on the articles of association, see for example Re Cooper (Cuthbert) & Sons Ltd. [1937] 2 All E.R. 466Google Scholar and Re Expanded Plugs Ltd. [1966] 1 W.L.R. 514Google Scholar, has been firmly rejected by the House of Lords, see Wilberforce, Lord in Ebrahimi v. Westbourne Galleries Ltd. [1972] 2 All E.R. 492Google Scholar, 498, and see also Beuthin, R. C., “Winding Up a Domestic Company…” (1972) 89 S.A.L.J. 481Google Scholar, 483. Of course the articles of association may well be a highly probative item of evidence as to the parties' intentions, see Malone Trust v. Secretary for Inland Revenue [1977]Google Scholar (2) S.A. 819 (A.D.) and Bellairs v. Hodnett [1978]Google Scholar (1) S.A. 1109 (A.D.).

86 Per Lord Wilberforce [1972] 2 All E.R. 492, 500.

87 Re A. & B.C. Chewing Gum Ltd. [1975] 1 W.L.R. 576Google Scholar, discussed by J. Birds in (1975) 125 N.L.J. 786.

88 [1902] 2 Ch. 421, 424.

89 Per Lord Wilberforce [1972] 2 All E.R. 492, 500.

90 [1977] (2) N.Z.L.R. 225.

91 Mahon J. rejected the plaintiff's allegations that the defendant had been guilty of fraudulent misrepresentation on the basis that there was no evidence that in fact the defendant made a misrepresentation, fraudulently or otherwise.

92 See Rider, B. A. K., “Percival v. Wright—Per Incuriam” (1977) 40 M.L.R. 471.Google Scholar

93 According to British company law and indeed the laws of most Commonwealth jurisdictions, shareholders do not have a right to inspect the books of account and other financial documents belonging to their company, see for example Lynall v. I.R.C. [1971] 3 All E.R. 914Google Scholar and Crabtree v. Hinchcliffe [1971] 3 All E.R. 967.Google Scholar It would seem that even directors have not got an unqualified right of inspection under s. 147 (3) of the Companies Act 1948, see Conway v. Petronius Clothing Co. Ltd. [1978] 1 All E.R. 185.Google Scholar In the United States of America there is in many states both a common law and a statutory right vested in the shareholder of a corporation to inspect its records and financial documents provided the inspection is “in good faith for the purpose of advancing the interests of the corporation and the rights of the shareholders,” Guthrie v. Harkness, 199 U.S. 148. This privilege extends to allowing the shareholder to be accompanied by professional advisers, see Varney v. Baker, 194 Mass. 239 and also Re Aimonette v. C.R. Heating Service Co., 475 Sw. 2d 409. On the slightly different problem of selective disclosures see City Panel on Take-overs and Mergers Practice Note 2, “General Principle 10—Publication of information”; “Announcement of Price Sensitive Matters”—Joint Statement of the City Panel on Take-overs and Mergers and the Stock Exchange (1977); “Probe into Dunbee share dealings,” Sunday Times, 29 October 1978, p. 53Google Scholar, and in particular Dunford & Elliott Ltd. v. Johnson & Firth Brown Ltd. [1977]Google Scholar 1 Lloyd's Rep. 505 and Rider, B. A. K., “The Abuse of Inside Information” (1977) 127 N.L.J. 830.Google Scholar

94 Rider, B. A. K., “Percival v. Wright—Per Incuriam” (1977) 40 M.L.R. 471Google Scholar, 475, n. 27.

95 [1977] (2) N.Z.L.R. 298 and Rider, B. A. K., “A Special Relationship on the Special Facts” (1978) 41 M.L.R. 585.Google Scholar

96 The Court of Appeal considered that the information in question was sufficiently material and had been misrepresented.

97 See Rider, B. A. K., “A Special Relationship on the Special Facts” (1978) 41 M.L.R. 585.Google Scholar

98 J, Cooke. referred to Ebrahimi v. Westbourne Galleries Ltd. [1972] 2 All E.R. 492Google Scholar; Re Hellenic & General Trust Ltd. [1976] 1 W.L.R. 123Google Scholar; Clemens v. Clemens Bros. Ltd. [1976] 2 All E.R. 268Google Scholar and Daniels v. Daniels [1978] 2 W.L.R. 75.Google Scholar

99 [1978] (1) S.A. 1109 (A.D.). The author is extremely grateful to Professor S. W. L. De Villiers of the University of South Africa for drawing his attention to this decision.

1 This confusion is illustrated by the statement of Innes C.J. in Robinson v. Randfontein Estates [1921]Google Scholar A.D. 168, 177 to 179 and discussed in Gower, L. C. B., The Principles of Modern Company Law, 3rd Ed. (London), pp. 276Google Scholar to 277. Reference should also be made to Naude, S., Die Reqsposisie van die Maatskappydirekteur (Pretoria), p. 116Google Scholar, and also Gross, J. H., Company Promoters (Tel-Aviv 1972)Google Scholar, Chap. 5.

2 This is clearly shown in Lister v. Stubbs (1890) 45 Ch.D. 1 and emphasised in Hanbury and Maudsley, Modern Equity, 10th ed. (London), pp. 314, 515 and 516.

3 See Regal (Hastings) Ltd. v. Gulliver [1942] 1 All E.R. 378Google Scholar; Industrial Development Consultants Ltd. v. Cooley [1972] 1 W.L.R. 443Google Scholar and Canadian Aero Service Ltd. v. O'Malley (1974) 40 D.L.R. (3d) 371.Google Scholar

4 See here Boardman v. Phipps [1967] 2 A.C. 46Google Scholar and see Rider, B. A. K., “The Fiduciary and the Frying Pan,” [1978]Google Scholar Conv. 114, and Die Meester v. Meyer en Andere [1975]Google Scholar (2) S.A. 13 (A.D.). The North American courts have experienced a great deal of trouble in attempting to justify the liability of an insider who trades on inside information to other market traders, see Shapiro v. Merrill Lynch, Pierce, Fenner & Smih, Inc., 495 F. 2d 228 (2nd Cir. 1974)Google Scholar on other than a prophylactic basis. But note the approach of the Court of Appeals for the Sixth Circuit in Fredrick v. Bradford, 542 F. 2d 307 (6th Cir. 1976)Google Scholar, cert, denied 97 S.Ct. 767 (1977). Reference should also be made to Rider, B. A. K., “Changes in Company Law—Directors Duties” (1978)Google Scholar 128 N.L.J. supra, n. 71a.

5 See for example Cook v. Deeks [1916] 1 A.C. 554.Google Scholar

6 Compare Cook v. Deeks [1916] 1 A.C. 554Google Scholar with North-West Transportation v. Beatty (1887) 12 App.Cas. 589 and see generally Rider, B. A. K. “Amiable Lunatics and the Rule in Foss v. Harbottle” (1978)Google Scholar C.L.J. 270. The question whether the profit or opportunity belongs in equity to the company or not has of course important implications as to the nature of remedy available. It could also have significance in regard to whether the law of theft was applicable.

7 [1905] T.S. 255.

8 [1905] T.S. 255, 265.

9 [1978] (1) S.A. 1116 (A.D.). The South African courts have been prepared to accept the analogy of partnership when considering the affairs of a two man company on a number of occasions, see for example Taylor v. Welkom Theatres (Pty.) Ltd. [1954]Google Scholar (3) S.A. 339, 346, and Lawrence v. Lawrich Motors Ltd. [1948]Google Scholar (2) S.A. 1029.

10 See for the relevant South African authorities, Purdon v. Muller [1961]Google Scholar (2) S.A. 230; Parr v. Crosbie (1886) 5 E.D.C. 211 and Olifants Tin “B” Syndicate v. De Jager [1912]Google Scholar T.P.D. 314.

11 See Nash v. Muirhead (1909) 19 C.T.R. 69Google Scholar and Ford v. Abercrombie [1904]Google Scholar T.S. 878 see also Kregor v. Hollins (1913)Google Scholar 109 L.T. 225.

12 By limited partnership the defence meant a partnership with limited objectives, see generally Pothier On Partnerships, Chap. 11, s. 2 and Bester v. Van Niekerk [1960]Google Scholar (2) S.A. 784.

13 [1978] (1) S.A. 1112 (A.D.).

14 [1978] (1) S.A. 1130 (A.D.).

15 [1978] (1) S.A. 1133 (A.D.).

16 See supra, at note 3.

17 [1975] 1 M.L.J. 20.

18 [1972] 2 All E.R. 492.

19 [1976] 1 M.L.J. 140.

20 1936 S.C. 183.

21 1936 S.C. 183, 202.

22 1936 S.C. 183, 204.

23 [1950] Ch. 1.

24 See Lyle & Scott Ltd. v. Scott's Trustees, 1958Google Scholar S.L.T. 169 reversed [1959] A.C. 763; Can Sin Tuan v. Chew Kian Kor (1958) 24 M.L.J. 62Google Scholar and see in particular Bellairs v. Hodnett [1978]Google Scholar (1) S.A. 1109 (A.D.). Generally see Rice, “Take-over Bids For Private Companies” [1961]Google Scholar J.B.L. 260.

25 See Gower, L. C. B., The Principles of Modern Company Law, 3rd ed. (London), pp. 262Google Scholar to 263 and (1958) 21 M.L.R. 401 and 657.

26 See for example Johnston, Lord in Brenes & Co. v. George Downie & Andrew M'Dougall, 1914Google Scholar S.C. 97, 104; J, Buckley L.. in Wallersteiner v. Moir (No. 2) [1975] 1 All E.R. 849Google Scholar, 866 and possibly Bushell v. Faith [1970]Google Scholar A.C. 1099. Reference should also be made to Parsons v. Albert J. Parsons & Sons Ltd., Court of Appeal, 13 November 1978Google Scholar, reversing [1978] I.C.R. 456. In the Court of Appeal Lord Denning M.R. referred to the observations of Bridgewater Industrial Tribunal, “we feel that we are entitled to look at the realities of the situation. Counsel described it as ‘a family partnership with corporate status.’ There is, of course, no such description known to the law. We feel, however, that it aptly describes the position.” Reversing the Employment Appeals Tribunal the court did not consider that a director's contract of service could be inferred whenever a director worked full time for a small private company and was paid emoluments annually.

27 See Conway v. Petronius Clothing Co. Ltd. (1978) 1 All E.R. 185Google Scholar, and with regard to the ability of the majority of the shareholders to ratify acts of mis feasance see Daniels v. Daniels [1978] 2 W.L.R. 75.Google Scholar It has already been pointed out that in so far as the court must be satisfied that the facts of the case would justify a winding-up order under s. 222 (f) before granting a petition for oppression under s. 210 of the Companies Act 1948, the court will probably be prepared to take into account the nature of the company. On this point see Re H. R. Harmer Ltd. [1959] 1 W.L.R. 62Google Scholar; Re Chi Liung & Sons Ltd. (1968) 1 M.L.J. 97Google Scholar, noted by K. Polack in (1969) 11 Mal.L.R. 345; Re Tivoli Freeholds Ltd. (1972)Google Scholar V.R. 445 and Shanti Prasad Jain v. The Kalinga Tubes Ltd. (1962)Google Scholar A.I.R. Orissa 202. Certain Commonwealth courts, and to a limited extent the British courts, have been prepared to accept, on the presentation of a petition based on oppression, that the directors and controllers owe a duty to the minority. Thus in Re Hindustan Co-operative Insurance Society Ltd. [1961]Google Scholar A.I.R. Calcutta 443, Law J. stated “the directors failed to behave with scrupulous fairness to the minority shareholders as was incumbent on them as holding a position of trust. They failed to maintain the utmost good faith between themselves and the minority…” See also Scottish Co-operative Wholesale Society Ltd. v. Meyer [1959]Google Scholar A.C. 324.

28 [1975] Q.B. 373.

29 See Boyle, A. J. “Indemnifying The Minority Shareholder” [1976]Google Scholar J.B.L. 18 and Rider, B. A. K., “Amiable Lunatics and the Rule in Foss v. Harbottle” [1978]Google Scholar C.L.J. 270.

30 See Coleman v. Myers [1977]Google Scholar (2) N.Z.L.R. 225 and [1977] (2) N.Z.L.R. 298. With regard to the liability of partners see Law v. Law [1905] 1 Ch. 140.Google Scholar It is interesting that the Government has decided not to provide either a civil or criminal penalty for “insider trading” in the securities of an “unlisted issuer” or for that matter in any non-market transaction. See The Conduct of Company Directors, Cmnd. 7037, para. 30 and Rider, B. A. K., “The Conduct of Company Directors” (1978) 128 N.L.J. 27Google Scholar and Changes in Company Law, Cmnd. 7291, cl. 61 and Rider, B. A. K. “Changes in Company Law—Insider Trading” (1978) 128 N.L.J. 1236.Google Scholar The only obligation, enforceable through both civil and criminal sanctions, placed upon an insider in a non-market transaction is to disclose to the other party that he is in fact an insider. It is arguable that such a duty already existed, see Strong v. Repide, 6 Phil. 680 (Supreme Court of the Philippine Islands) reversed 213 U.S. 419 and discussed in Rider, B. A. K., “The Regulation of Insider Trading in the Republic of the Philippines” (1977) 19 Mal.L.Rev. 355Google Scholar and see also Rider, B. A. K., “The Crime of Insider Trading” [1978]Google Scholar J.B.L. 19, 27.

31 Ebrahimi v. Westbourne Galleries Ltd. [1972] 2 All E.R. 492.Google Scholar

32 Daniels v. Daniels [1978] 2 W.L.R. 75.Google Scholar

33 Clemens v. Clemens Bros. Ltd. [1976] 2 All E.R. 268.Google Scholar

34 This is brought out in those cases which indicate that in certain circumstances an action will be available to shareholders for a violation of the issuer's articles of association, see Pender v. Lushington (1877) 6 Ch.D. 70; Salmon v. Quin & Axtens Ltd. [1909] 1 Ch. 311Google Scholar and see generally Wedderburn, K. W., “Shareholders' Rights and the Rule in Foss v. Harbotlle” [1957]Google Scholar C.L.J. 194, continued [1958] C.L.J. 93; Goldberg, R., “The Enforcement of Outsider Rights Under section 20 (1) of the Companies Act 1948” (1972) 35 M.L.R. 362Google Scholar; Bastin, N., “The Enforcement of a Member's Rights” [1977]Google Scholar J.B.L. 17; Chantler, D. W., “The Shareholders' Corporate Contract,”Google Scholar 12 Univ. West. Australia L.Rev. 320 and also Smith, R. J., “Minority Shareholders and Corporate Irregularities” (1978) 41 M.L.R. 147.Google Scholar

35 Rowe v. Woods (1882) 2 Jac. & W. 553, 558 and see s. 24 (5) of the Partnership Act 1890.

36 Wong Kim Fatt v. Leong & Co. Sdn.Bhd. [1976] 1 M.L.J. 140Google Scholar and Bellairs v. Hodnett [1978]Google Scholar (1) S.A. 1109 (A.D.).

37 See for example Law v. Law [1905] 1 Ch. 140Google Scholar; Maddeford v. Austwick (1826) 1 Sim. 89 and Burton v. Wookey (1822) 6 Madd. 367 as well as authorities cited supra at note 83. Reference should also be made to ss. 29 and 30 of the Partnership Act 1890.

38 See here Minority Shareholders in Small Companies, Company Law Sub-Committee, Justice, March 1969. Given the complete absence of an active, or indeed in many instances, any market, in a very high proportion of unlisted securities, the minority shareholders are likely to be “locked” into the company and thus to a very real extent at the mercy of the majority. Indeed, the Companies Act 1948 in s. 209 recognises the problems that a minority “locked” into a company recently taken over by new controllers might face.

39 See generally Rider, B. A. K. and Hew, E. J., “The Regulation of Corporation and Securities Laws in Britain—The Beginning of the Real Debate” (1977) 19 Mal.L.Rev. 144Google Scholar; Rider, B. A. K. and Hew, E. J., “The Structure of Regulation and Supervision in the field of Corporation and Securities Laws in Britain” [1977]Google Scholar Revue de la Banque 83 and Rider, B. A. K. and Hew, E. J., “Regulaco de Titulos de Empressas no Reino Unido—Os Meritos da Auto-Regulacao” [1978]Google Scholar R.Bras.Merc.Cap. 21.

40 City Panel on Take-overs and Mergers, Practice Note No. 1, “Private Companies, Unlisted Public Companies and Foreign Companies,” see also B. A. K. Rider, “The British Approach to Policing Conduct in the Securities Business—with particular reference to the role of the City Panel on Take-overs and Mergers in the regulation of ‘insider-dealing’” [1979] 1 J. Comp.Corp.L. & Secs.Regs. No. 3, and with regard to the new Council for the Securities Industry see Rider, B. A. K. “The British Council for the Securities Industry” [1978]Google Scholar Revue de la Banque 303.