Corporations

• Author: International Law Group

Ghassan Shaker is a national of Saudi Arabia and a distinguished businessman and diplomat. He was the plaintiff in three actions relating to the alleged proceeds from the sale of two subsidiaries of the Arab Network of America Inc. (ANA Inc.), a U.S. company run by Mohammed Al-Bedrawi (Mr. Bedrawi).

ANA Inc. was a U.S. satellite/cable television and radio station business that furnished programming to the Arab American population and to Arabic-speaking consumers. Incorporated in April 1989 in Pennsylvania, it operated through two Virginia subsidiaries, one for radio and one for TV broadcasting.

Mr. Shaker owned a number of ANA Inc. shares. Mr. Bedrawi, the company's only director, claimed that he was holding the shares in trust for Mr. Shaker. Mr. Bedrawi, however, repeatedly failed to comply with plaintiff's requests to receive his share of the sales proceeds.

Mr. Shaker first sued Mr. Bedrawi in a Virginia State court in 1996, and obtained a judgment for $5,750,000 plus interest. In January 1999, Mr. Shaker filed suit against Mr. Bedrawi in the English courts to enforce the Virginia judgment. In July 1999, a Master handed down a judgment for Mr. Shaker for nearly $8 million. Mr. Bedrawi agreed to dismiss his appeal. Plaintiff also lodged Bankruptcy proceedings against director Bedrawi and a trustee in bankruptcy took office in May 2001.

Suspicions existed that the director might have either made off with the sales proceeds or had illegally given it out to others. Under either theory, English law would recognize a valid claim by the company against the director for the whole amount for breaching his fiduciary duties to the corporation. On the other hand, if the facts showed that the director has lawfully extracted part of the money, the company as such would have had no claim against the director.

At first instance, the defendants argued that the "reflective loss"or "Prudential" principle would bar plaintiff's suit. This principle blocks a shareholder from suing for damages under circumstances where the company itself owns the cause of action.

For example, a shareholder cannot recover damages merely because the company in which he has interests has suffered damage. Nor can he recover a sum equal to the reduction in the market value of his shares, or equal to a likely cut in dividends, because such a "loss" merely counts as a company loss. The law does not look upon the shareholder as receiving a personal loss.

The lower court judge agreed...