Foss v Harbottle (1843) 2 Hare 461 - The Rule In Foss v Harbottle
This case is of course the one that lead to the famous rule, now know as "The Rule In Ross v Harbottle". Two minority shareholders initiated legal proceedings against, among others, the directors of the company. The claimants asked the court to order the defendants to compensate for losses to the company as a result of alleged fraudulent activity. Wigram VC held that since the company’s board of directors was still in existence, and since it was still possible to call a general meeting of the company, there was nothing to prevent the company from obtaining redress in its corporate character and thus the action by the claimants could not be sustained: "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."
However, the best known and perhaps the clearest statement of the rule in Foss v Harbottle was actually set out by Jenkins LJ in the case of Edwards v Halliwell:
"The rule in Foss v Harbottle, as I understand it, comes to no more than this. First, the proper plaintiff in an action in respect of a wrong alleged to be done to a company or association of persons is prima facie the company or the association of persons itself. Secondly, where the alleged wrong is a transaction which might be made binding on the company or association and on all its members by a simple majority of the members, no individual member of the company is allowed to maintain an action in respect of that matter for the simple reason that, if a mere majority of the members of the company or association is in favour of what has been done, then cadit quaestio.". The rule established that where the company suffers harm, the company itself is the true and proper claimant. Therefore the shareholders cannot generally sue for wrongs done to the company.
There are however several exceptions to the rule in Foss v Harbottle that have given rise to a number of exceptions which include - the act complained of is illegal or 'ultra vires'; the requirement of a special majority; personal rights; and a fraud on the minority.
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