In the course of a contested take-over bid, the directors of the target company who owned a majority of the company’s voting shares were alleged, in breach of their duties both to the company and to its shareholders, to have accepted proposals which would reduce the value of the company’s assets and hence of its shares and induce the shareholders to accept the lower of two rival offers.
Held: A breach of a director’s fiduciary duties may cause loss to the shareholders because: ‘they are deprived of the opportunity of realising their shares to greater advantage’. Foss v. Harbottle has nothing whatever to do with a shareholder’s right of action for a direct loss caused to his own pocket as distinct from a loss caused to the coffers of a company in which he holds shares. The case occurred where, as a result of the breach of the duty of care on the part of directors to advise their shareholders in relation to a prospective takeover bid, the plaintiff (and other shareholders) was induced or compelled to dispose of his shares to a bidder at an under-value. The wrong is done not to the company, but the shareholders. Its assets are not depleted; its coffers remain unaffected. The court distinguished the facts on the bais that the reckless decision of the directors, if implemented, will cause losses in two directions. The company in question will suffer a loss to the extent that its shares in a subsidiary are depreciated in value. That is a loss exclusively to the coffers of ACC. It is not a loss to the pockets of the shareholders in ACC, although it might, in theory, cause the market value of ACC shares to fall. No shareholder in ACC could sue the directors for a diminution in the value. In this case, however the loss which would be suffered is the loss to the pockets of the shareholders because they are deprived of the opportunity of realising their shares to greater advantage. That is a loss suffered exclusively to the pockets of the shareholders, and is in no sense a loss to the coffers of the company, which remain totally unaffected.
Judges:
Lawton LJ
Citations:
[1983] BCLC 244
Jurisdiction:
England and Wales
Citing:
Cited – Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) CA 1982
A plaintiff shareholder cannot recover damages merely because the company in which he has an interest has suffered damage. He cannot recover a sum equal to the diminution in the market value of his shares, or equal to the likely diminution in . .
Cited by:
Cited – Stein v Blake and others CA 13-Oct-1997
The defendants challenged leave to appeal given to the plaintiff against dismissal of his claim following the Prudential Assurance case.
Held: The issue was whether the plaintiff can recover the loss which he has allegedly sustained by reason . .
Cited – Johnson v Gore Wood and Co HL 14-Dec-2000
Shareholder May Sue for Additional Personal Losses
A company brought a claim of negligence against its solicitors, and, after that claim was settled, the company’s owner brought a separate claim in respect of the same subject-matter.
Held: It need not be an abuse of the court for a shareholder . .
Lists of cited by and citing cases may be incomplete.
Company, Damages
Updated: 27 April 2022; Ref: scu.180877