Burland v Earle [1902] AC 83
Citation: Burland v Earle [1902] AC 83
Rule of thumb: If a person breaks a law towards a company, and the company directors decide not to take legal action, can the shareholders sue the directors & force them to? As a general rule, no. In company law there is a principle of ‘non-interference in directors decisions’ by the Court. The Court do not generally speaking have any power to strike down the decisions of a company director on the basis of it being commercially unviable – if it is not against the Articles or company law the Courts will generally not challenge it, and will only do so in exceptional circumstances where extremely powerful reasoning to guard against total irrationality is provided to them.
Judgment:
In company law there is a principle of ‘non-interference in directors decisions’ by the Court. The Court do not generally speaking have any power to strike down the decisions of a company director on the basis of it being commercially unviable – if it is not against the Articles or company law the Courts will generally not challenge it, and will only do so in exceptional circumstances where extremely powerful reasoning to guard against total irrationality is provided to them. The facts of this case were that some shareholders wanted the company to sue another organisation, a claim the shareholders regarded as very important and very viable, but the directors were opposed to raising this legal action, and were able to provide some reasons for this. The shareholders tried to force the directors to lodge this Court action for the company. The Court refused to provide a Court order for the director to do this, ‘It is an elementary principle of the law relating to joint stock companies that the Court will not interfere with the internal management of companies acting within their powers, and in fact has no jurisdiction to do so. Again, it is clear law that in order to redress a wrong done to the company or to recover moneys or damages alleged to be due to the company, the action should prima facie be brought by the company itself. These cardinal principles are laid down in the well-known cases of Foss v. Harbottle and Mozley v. Alston, and in numerous later cases … where the majority are seeking to keep for themselves money which belongs to the company as a whole (this will constitute minority prejudice)’, Lord Davey.
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