D, a director, diverted company’s most lucrative contract away from company in breach of duty. As result of loss of this contract, company went into receivership and did not have enough money to launch proceedings against D. C, fellow shareholder in company, was in shareholders agreement with D; thus brought action against director for breach of duty. Held:
· Shareholders agreement was designed to protect C’s investment and remuneration
Ø And D’s breach of duty harmed both of these
Ø Therefore C has right of action.
· Reflective loss principle does not prevent shareholder recovering damages where director’s breach of duty has made it impossible for company to pursue its own cause of action against him
Ø Even where loss suffered by shareholder reflects that of shareholder.
· Thus C could recover his losses.