At common law, many breaches of duty by directors were ratifiable including non-disclosure of a conflict of interest in a transaction with the company,127 mere negligence,128 or the exercise of powers bona fide but for a collateral purpose.129 But at common law shareholders could not authorise or ratify by their own votes acts which amount to the appropriation to themselves of ‘money, property or advantages which belong to the company or in which the other shareholders are entitled to participate’, a category usually described as a fraud on the minority.130 In Abouraya v Sigmund131 David Richards J reviewed the authorities on fraud on the minority and concluded that financial or other loss to the shareholders, albeit normally reflective of loss to the company, and benefit to the wrongdoers is essential to a claim.132 He went on: ‘The significance of this requirement (benefit to the wrongdoers) is that their breach of duty cannot be ratified by a majority vote which depends on the votes of the wrongdoers. It is essential to the exception to the rule in Foss v Harbottle that the alleged wrongdoing is incapable of lawful ratification.’ In the famous words of Lord Buckmaster in Cook v Deeks:133
(p. 567) ‘[I]f directors have acquired for themselves property or rights which they must be regarded as holding on behalf of the company, a resolution that the rights of the company should be disregarded in the matter would amount to forfeiting the interest and property of the minority of shareholders in favour of the majority, and that by the votes of those who are interested in securing the property for themselves. Such use of voting power has never been sanctioned by the courts …’