Foss v Harbottle
(1843) 2 Hare 461; 67 ER 189
Ratio Decidendi
Two fundamental rules govern litigation in respect of wrongs alleged to have been done to a company. First, the 'proper plaintiff rule': the only person who can sue for a wrong done to a company is the company itself, acting through its directors or, in certain circumstances, through a liquidator. Individual shareholders cannot sue on behalf of the company for wrongs done to it. Second, the 'majority rule': if the alleged wrong is something that a simple majority of shareholders could ratify or confirm, a minority shareholder cannot compel the court to intervene to prevent or remedy it. The courts will not act at the suit of a minority to restrain or remedy a matter that lies within the ordinary powers of the company's majority.
حقائق
Richard Foss and Edward Harbottle were two shareholders in the Victoria Park Company, a company incorporated by private Act of Parliament to develop land in Manchester. They commenced an action in the Court of Chancery against five of the directors of the company, alleging that the directors had improperly applied company property and had been guilty of fraudulent breaches of trust. The two shareholders purported to sue on behalf of themselves and all other shareholders. The defendants applied to have the bill dismissed on the ground, among others, that the proper plaintiff for the wrongs alleged was the company itself, not individual shareholders.
فیصلے کا خلاصہ
Wigram V-C sustained the defendants' objection and dismissed the bill. He formulated two distinct but related principles that together have come to be known as the rule in Foss v Harbottle. The first is that where a wrong has been done to a company, the company is the proper plaintiff and the courts will not entertain a suit brought by individual shareholders. The second is that where the alleged wrong could be ratified or made regular by the majority of shareholders, the court will not grant relief at the suit of a minority since the majority might choose to condone the act. Wigram V-C observed that to allow the opposite would expose companies to a multiplicity of suits and would enable a minority to override decisions that the majority was entitled to make. The case was decided before the Companies Act regime existed; the principles it established became foundational to company law and led to both the 'proper plaintiff' rule and the 'majority rule' which the common law recognised as subject only to the fraud on the minority exception articulated in Daniels v Daniels [1978] Ch 406.
اہم اقتباسات
"The corporation should sue in its own name and in its corporate character, or in the name of someone whom the law has appointed to be its representative."
— Wigram V-C at 490
"If a thing be once done which is within the powers of the company, irregularities in the mode of doing it can be set right by the majority."
— Wigram V-C at 492
"Nothing could be more monstrous than to say that a court of equity would give relief in such a case. If the thing complained of is a thing which in substance the majority of the company are entitled to do, or if something has been done irregularly which the majority of the company are entitled to do regularly, or if something has been done illegally which the majority of the company are entitled to do legally, there can be no use in having a litigation about it."
— Wigram V-C at 492
بعد کا علاج
The fraud on the minority exception was recognised in Daniels v Daniels [1978] Ch 406: a minority shareholder may bring a derivative action where the majority are using their control to benefit themselves at the company's expense.
Companies Act 2006 ss.260–264 replaced the common law derivative action with a statutory derivative claim, which a member may bring with court permission in respect of an actual or proposed act or omission by a director involving negligence, default, breach of duty or breach of trust.
The proper plaintiff principle continues to apply in situations outside the Companies Act 2006 statutory regime. Applied in Iesini v Westrip Holdings Ltd [2009] EWHC 2526 (Ch) in the context of the s.261 permission stage for derivative claims.
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