Rule In Foss And Harbottle Flashcards
What does the rule in Foss v Harbottle state?
Only the company can sue for a wrong done to it; individual shareholders cannot.
What are the two limbs of the rule?
Proper plaintiff is the company
Court won’t interfere with acts approved by majority
What is the rationale behind the rule?
Preserves majority rule and avoids multiplicity of suits.
When can a shareholder sue on behalf of the company?
When the case falls under a common law or statutory exception.
Name four common law exceptions to Foss v Harbottle.
Ultra vires or illegal acts
Breach of special procedure
Invasion of personal rights
Fraud on the minority
What is the ‘fraud on the minority’ exception?
When wrongdoers control the company and commit a fraud that the company cannot act on.
What is a derivative action?
A shareholder sues on behalf of the company where directors fail to do so.
What test must be satisfied to bring a derivative action?
Falls within a Foss exception
Company has a valid cause of action
Is leave of the court required for a derivative action?
Yes – preliminary leave application is required.
What does s.212 CA 2014 provide?
Remedy for shareholders where company affairs are conducted in a manner oppressive or in disregard of their interests.
Who can bring a s.212 application?
Any member or their personal representative.
Can a court order compensation under s.212?
Yes – compensation is one of the available remedies.
What defines oppressive conduct?
Conduct that is burdensome, harsh, or wrongful, lacking fair dealing or probity.
Is a single act enough for oppression?
Yes – as held in Williams Group.
Is oppression judged subjectively or objectively?
Objectively.
What is a quasi-partnership company?
A closely-held company with mutual trust, often among family or friends, where exclusion from management may be oppressive.
What remedy is often granted for irreparable breakdowns in trust?
Winding up under s.569(1)(f).
What is reflective loss?
Loss suffered by a shareholder that mirrors the company’s loss—cannot be claimed personally.
Which case confirmed reflective loss cannot be recovered by shareholders?
Keaney v Sullivan.
What did Cook v Deeks establish?
Directors who diverted a contract to themselves committed fraud on the minority.
What happened in Greenore Trading?
Oppressive use of company funds to maintain control.
What did Murph’s Restaurant decide?
Breakdown in trust justified winding up of a quasi-partnership.
How does s.212 differ from derivative action?
s.212 is for personal relief from oppression
Derivative action is on behalf of the company.
Is court leave required for s.212?
No.
