COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
Lawrence Collins J.
Strand, London, WC2A 2LL
B e f o r e :
LADY JUSTICE ARDEN
MR. JUSTICE BUCKLEY
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|MOHAMMED AL-BEDRAWI AND OTHERS||Respondents|
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Mr. Michael Roberts (instructed by Messrs Dawson & Co. of London) for the 1st Respondent
Mr. Michael Lyndon-Stanford Q.C. and Mr. Guy Newey Q.C. (instructed by Messrs Lovells of London) for the 4th Respondents
AS APPROVED BY THE COURT
Crown Copyright ©
Peter Gibson L.J. (giving the judgment of the court):
“But what [a shareholder] cannot do is to recover merely because the company in which he is interested 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 dividend, because such a “loss” is merely a reflection of the loss suffered by the company. The shareholder does not suffer any personal loss. His only “loss” is through the company, in the diminution in the value of the net assets of the company ....”
B The facts
C The judgment
“(1) Where a company suffers loss caused by a breach of duty owed to it, only the company may sue in respect of that loss. No action lies at the suit of a shareholder suing in that capacity and no other to make good a diminution in the value of the shareholder’s shareholding where that merely reflects the loss suffered by the company. A claim will not lie by a shareholder to make good a loss which would be made good if a company’s assets were replenished through action against the party responsible for the loss, even if the company, acting through its constitutional organs, has declined or failed to make good that loss.... (2) Where a company suffers loss but has no cause of action to sue to recover that loss, the shareholder in the company may sue in respect of it (if the shareholder has a cause of action to do so), even though the loss is a diminution in the value of the shareholding.... (3) Where a company suffers loss caused by breach of duty to it, and a shareholder suffers a loss separate and distinct from that suffered by the company caused by breach of a duty independently owed to the shareholder, each may sue to recover the loss caused to it by breach of the duty owed to it but neither may recover loss caused to the other by breach of the duty owed to that other.”
“40. Consequently the first question is whether the claimant has a personal cause of action against the defendant. In particular, a shareholder does not normally have a direct cause of action against a wrongdoing director who has misappropriated company assets. If the claimant does not have a personal cause of action, then no further questions arise. If the claimant has a cause of action, but the company does not, then there is no bar to an action by the claimant. If each has a cause of action, the shareholder may sue to recover damages in respect of all heads of non-reflective consequential loss which are not too remote, i.e. loss which is separate and distinct. So, for example, even if a deceit is practised on the claimant shareholder and reliance on the false representation makes the shares worthless, he cannot sue if the company has a cause of action for the same damage which deprives the shares of all value....”
D Mr. Shaker’s principal arguments on appeal
(1) a claim is brought by or on behalf of a shareholder in a company;
(2) the claim is for damages for loss to the shareholder;
(3) the loss, through a diminution in value of shares or in distributable assets, is reflective of loss to the company; and
(4) the company has its own cause of action to recover its loss.
(1) The claim is by a beneficiary to recover from his trustee a profit for which the trustee is liable to account by reason of his use of trust property to obtain it.
(2) The claim is not one for damages for loss in the diminution of the value of shares or distributable assets: it is a proprietary claim to the profit taken by the trustee.
(3) What is claimed is not reflective of a loss to the company. The claim is for an account from the trustee.
(4) The company has no cause of action to obtain such an account.
E The Defendants’ principal arguments
“The whole basis of your case is that Mr. Bedrawi was stealing the money from the company and hiding that fact from the claimant.”
Counsel did not challenge that suggestion. There are passages in the judge’s judgments (including a judgment on 29 June 2001 on whether amendments to Mr. Shaker’s pleadings should be allowed) which show that he was proceeding on the footing that there had been a misappropriation by Mr. Bedrawi of the assets of ANA Inc. for which he was answerable to the company.
“(2) The Judge was wrong in law or misdirected himself or took into account irrelevant facts ...
(e) in assuming that there has been an unlawful distribution of assets of ANA Inc. in breach of its director’s fiduciary duty under Pennsylvanian law, despite the absence of any pleading or admissible evidence of any facts relating to such distribution or breach of such law.”
Accounting for a profit
Applicability of the Prudential principle
“The claim is for breach of trusts alleged to have been committed by both trustees as holders of 70 per cent of the shares in the company, not a claim against Mr. Lucking for breach of his duty to the company as one of its directors.”
And at p. 875:
“He was in the position he was partly as a representative of the trust and if and so far as he failed in his duty to the company he also failed in his duty to the trust. To hold this is not, as I see it, inconsistent with [Salomon v Salomon  AC 22].”
Cross J. held Mr. Lucking liable for breach of trust.
“the Prudential .... principle will not operate to deprive a claimant of an otherwise good cause of action in a case where (a) the claimant can establish that the defendant’s conduct has constituted a breach of some legal duty owed to him personally (whether under the law of contract, torts, trusts or any other branch of the law) and (b) on its assessment of the facts, the court is satisfied that such breach of duty has caused him personal loss, separate and distinct from any loss that may have been occasioned to any corporate body in which he may be financially interested.”
That statement was quoted with approval by Lord Hutton in the Johnson case (at p. 110) when subsequently it reached the House of Lords.
Application for new evidence