Rayfield v Hands [1960] Ch 1
Citation:Rayfield v Hands [1960] Ch 1
Rule of thumb:Can a shareholder be sued for breach of company law? Yes, a shareholder can be sued if they do not follow their obligations in the Articles of Association.
Judgment:
The facts of this case were that it was stated that a member must offer their shares at market value to their fellow members before transferring them to another external person. The shareholder did not want to do this as the external investor was prepared to pay more than market value, and the shareholder was able to sue their fellow member to get them to sell the shares to them for market value. ‘Now the question arises at the outset whether the terms of article 11 relate to the rights of members inter se (that being the expression found in so many of the cases), or whether the relationship is between a member as such and directors as such. I may dispose of this point very briefly by saying that, in my judgment, the relationship here is between the plaintiff as a member and the defendants not as directors but as members. In re Leicester Club and County Racecourse Co, Pearson J, referring to the directors of a company said that they "continue members of the company, and I prefer to call them working members of the company," and on the same page he also said: "directors cannot divest themselves of their character of members of the company. From first to last, ... they are doing their work in the capacity of members, and working members of the company. ..." I am of opinion, therefore, that this is in words a contract or quasi-contract between members, and not between members and directors’.
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