Home Information Cases Shaker v Mohammed Al-Bedrawi & Ors (2002)

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Shaker v Mohammed Al-Bedrawi & Ors (2002)

Summary

The so-called "Prudential principle" did not preclude an action brought by a claimant not as a shareholder but as a beneficiary under a trust against his trustee for an account of profits received in relation to shares which were the subject of the trust, unless it could be shown that the whole of the claimed profit reflected what the company had lost and which it had a cause of action to recover.

Facts

Claimant's ('S') appeal from a decision of Lawrence Collins J by which he determined as a preliminary issue that the so-called "Prudential principle" (Prudential Assurance v Newman Industries (No.2) (1982) Ch 204) precluded S from proceeding against any of the defendants in three actions that he had brought. In 1989 S agreed to invest in a satellite/cable television and radio station in the USA ('the business'), the day-to-day management of which would be under the control of the first defendant ('AB'). S's pleaded case was that: (i) the business was operated by a ANA Ltd ('the Company') of which AB was the sole shareholder; (ii) AB held 70 per cent of that upon trust for S; and (iii) fraudulently and/or in breach of trust AB failed to account to S for any of the subsequent proceeds of sale of the shares in the Company. S also brought separate actions against the purchasers of the shares in the Company and the solicitors who had acted for AB in connection with the sale. The defendants in all three action contended, in reliance upon the Prudential principle, that S could have no personal claim against them because his sole interest was in the Company. S argued that his interest was in the business and not in the Company. The judge rejected that argument and concluded that S could not proceed against any of the defendants. By this appeal, which proceeded only in relation to AB and the solicitors, S now accepted that his interest was in the shares in the Company but argued that: (a) he had an independent cause of action against AB for an account of profits arising out of his breach of fiduciary duty in relation to the proceeds of sale; and (b) his claim against the solicitors for knowing assistance did not rely upon breach of AB's duty to the Company


Report reproduced

Held

(1) Commendable though the attempt was to save time and costs through a preliminary issue at the commencement of a lengthy trial, this case illustrated the difficulties and complications that could ensue. There were too many questions of fact and law, capable only of resolution at trial, for this to have been an appropriate course to adopt. (2) Although S had not advanced his present argument before the judge, it would be wrong not to allow him to pursue that argument on this appeal. (3) The Prudential principle did not preclude an action brought by a claimant not as a shareholder but as a beneficiary under a trust against his trustee for an account of profits received in relation to shares which were the subject of the trust unless it could be shown that the whole of the claimed profit reflected what the company had lost and which it had a cause of action to recover. (4) Everything would turn, therefore, on whether the proceeds of sale had been lawfully extracted from the Company, which could only be determined after a trial. (5) Similar considerations applied to the main part of the claim against the solicitors.

Appeal allowed.

Court of Appeal
Peter Gibson LJ, Arden LJ, Buckley J
Judgment date
18 October 2002
References

​LTL 18/10/2002 : (2003) 2 WLR 922 : (2002) 4 All ER 835 : (2003) 1 BCLC 157 : Independent, October 25, 2002

Practice areas

trusts-and-settlements,Trusts & Settlements