Cook v Deeks [1916] 1 AC 554

Facts: Directors of a company diverted a lucrative contract from the company to themselves and ratified the transaction with a resolution carried by the wrongdoing directors.

Issue: Can minority shareholders bring a derivative action when directors in control of the company misappropriate company assets to themselves?

Held: Yes, the Privy Council held that the benefit of the contract was held on constructive trust for the company, and the directors were required to account for the profits to the company. This decision recognized the concept of ‘fraud on the minority,’ allowing minority shareholders to pursue recovery when the company’s assets are misappropriated by directors.

Key Judicial Statement: Lord Buckmaster asserted that directors holding a majority of votes cannot appropriate company assets for themselves, as it would be oppression of the minority.

💡LevelUpLaw: Minority shareholders can bring a derivative action to recover assets misappropriated by directors in control of the company. This case underscores the protection of minority interests against fraudulent actions by those in control.