Towers v African Tug Co [1904] 1 Ch 558

Court: Court of Appeal

Facts: Illegal dividends were paid out of the company's capital, contrary to capital maintenance laws. Two shareholders, who had received these illegal dividends, sued for repayment.

Issue: Can shareholders who have received illegal dividends bring a derivative action for repayment?

Held: The claim was dismissed. The shareholders could not bring the action because they had received the illegal dividends and were therefore implicated in the wrongdoing.

Key Judicial Statement: Vaughan Williams LJ stated that a shareholder with proceeds from the very act complained of cannot bring a claim, even if suing on behalf of others.

💡LevelUpLaw: Shareholders involved in wrongdoing, such as receiving illegal dividends, cannot bring a derivative action for that wrongdoing. The principle of "clean hands" ensures that those benefiting from the misconduct cannot seek legal remedy for it.