This case from Canada illustrates the extent that the Courts can go to in setting aside or avoiding a fraud on a minority shareholder.
Here, there were four shareholders, each having an equal share, and each also were directors. Three of them wanted to enter into a contract for a competing business, without including Mr Cook. When he realised what was happening, Mr Cook, in the Canadian Courts, made an application about this.
In the Privy Council, Lord Buckmaster LC held that persons who control a company's business must remember they are not at liberty "to sacrifice the interests which they are bound to protect, and, while ostensibly acting for the company, divert in their own favour businesses which should properly belong to the company they represent."
Although this was an appeal from a Canadian Court, it has still been of great use in English Courts. The three shareholders therefore held the profits of the new contract on trust for the original company and an account had to be given. A director must account to the company for any profit derived from his position as a director. It is also an instance of the Court not necessarily applying the principle of majority rule to permit a general meeting to ratify an unauthorised act of the directors where they control the company.
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