The Rule in Foss v Harbottle; s212; Derivative Actions - Key Cases and Legislation Flashcards
Glynn v Owen [2007] (HC) (F v H Rule)
Finlay-Geoghegan J:
- Jenkins LJ in Edwards v Halliwell – Rule and exceptions (Endorsed in SC in Balkanbank v Taher)
- Lord Davey in Burland v Earle approved in Crindle v Wymes – Fraud or beyond powers of company, appropriating money example
- Keane J = Breach of duty without fraud but benefit – Templeman J in Daniels v Daniels (Joffe Textbook)
- Interests of justice exception caution
Glynn v Owen (SC) (Derivative Action)
- O’Donnell J: Question of control - Not just voting power; key is independent judgment
Re Westwind Holding Co Ltd
Kenny J - Word “minority” not in section 205 (s212)
Re Greenmore Trading Company [1980] (HC)
Keane J:
- ‘Oppressive’ conduct for the purposes of the corresponding s. 210 of the English has been defined as meaning the exercise of the company’s authority ‘in a manner burdensome, harsh and wrongful.’ (See Scottish C.W.S. Ltd v Meyer [1959] AC 324 at p. 342.)
- Not merely were the company’s monies purportedly applied towards an unlawful purpose, i.e. the payment of compensation to a director for loss of office without the sanction of a general meeting: the payment of that compensation was not separately dealt with in the company’s accounts for the relevant year, as required by law.
Re Murph’s Restaurant Ltd [1979] (HC)
Gannon J:
- Kevin and Murph allowed Kevin to withdraw money from the company through cheques signed in his own name without telling Brian
- Company just a structure for LL - Not run in accordance with statutory requirements - No directors’ fees or SH dividends
- Required a relationship of mutual confidence and trust and active open participation in the management and conduct of the affairs of the company
- Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 (HoL) – Wind up as just and equitable, limit of only SH relying on just and equitable rejected; The same words ‘just and equitable’ appear in the Partnership Act, 1892 s. 25, as a ground for dissolution of a partnership
- Lack of justification for removal - could have been resolved by a temporary spell of personal attention by one of the other directors more experienced in that area of work.
- Refusing to recognising Brian as a director – Repudiation of relationship on which the company was founded
- Wind up company favoured
Re Charles Kelly Ltd [2011] (HC)
Laffoy J:
Suspension – First respondent acknowledged that he had obtained no advice at the time as to whether the suspension was procedurally correct or not or authority for suspension; no approval of the Board and he knew he could not get this; Suspended as an employee, not as a director or a shareholder of the company; Suspension “designed to annoy, harass and embarrass him”.
- Re Greenmore – “Burdensome, harsh and wrongful”
- Re Irish Visiting Motorists Bureau Ltd – Objective standard and acting honestly/in good faith irrelevant
- Objective assessment – Meet BHW test
- Total breakdown in relationship and mainly brought about by conduct of the first respondent
- Remedy goal – Bring oppression to end
Re Irish Visiting Motorists Bureau Ltd [1970] (HC) - BHW = Objective standard
Kenny J:
- Oppressive conduct must affect the complainant in their capacity as a member of the company and not as a creditor or a person having commercial dealings with the company.
- - “Oppressive conduct even if those in charge of the company are acting honestly and in good faith. If one defines oppression as harsh conduct or depriving a person of rights to which he is entitled, the person whose conduct is in question may believe that he is exercising his rights in doing what he does.
- One of the most terrifying aspects of human history is that many of those who we now regard as having been oppressors had a fanatical belief in the rightness of what they were doing.
Re Williams Group Tullamore Ltd [1985] (HC) (Note objective standard used)
Barrington J:
- Oppression = BHW
- Evershed MR in Greenhalgh v Arderne Cinemas Ltd – “bona fide for the benefit of the company as a whole” = 1. Shareholder must proceed on what, in his honest opinion, is for the benefit of the company as a whole. 2. “the company as a whole,” = … the corporators as a general body.
- - Even if not distributed in dividends to the preference shareholders, need not necessarily be distributed to the ordinary shareholders – Other uses.
- But still not be available for distribution to the ordinary shareholders or for purposes of which they approve – Contrary to the interests of the ordinary shareholders.
Case Note – Pender v Lushington [1877] (Chancery Division
Jessel MR:
- Menier v Hooper’s Telegraph Works – Mellish LJ = Shareholders may cast their vote to advance their own personal interests
- Question is whether person entitled to vote, motives irrelevant
- Companies Act 1862 – Member if on the Register of Members
- AoA – Member = Person on the Register of Shareholders
- F v H – Impossible for relief exception
- Pender member of company – Right to have vote recorded
Moylan v Irish Whiting [1980] (HC)
- Excluding director at meetings = F v H on Interests of justice
- Burland .v. Barle – Lord Davies = Court will not interfere with the internal management of companies acting within their powers and in fact has no jurisdiction to do so; Only UV or fraud
- Russell v Wakefield Watertanks Ltd – Jessel MR = Exceptions depend very much on the necessity of the case – doing justice/interests of Justice”.
- Heything v Dupont – Harmond – Interests of Justice
- Interests of Justice – Constitution
Fanning v Murtagh [2008] (HC)
- Plaintiff interests of justice exception contention – Supreme Court of Western Australia in Biala PTY v. Mallina Holdings Ltd – Allow interests of justice – Equity is concerned with substance and not form;
- Ireland – Glynn v Owen = Keane J said justice exception ideain book as F v H and Edwards v Halliwell – Rule not applied so rigorously as to cause injustice; FG J’s endorsement of Templeman J in Daniels v Daniels but have to show minority benefitted
- Danger of interests of justice exception
- Derivative action factors:
(i) Delay
(ii) Plaintiff = Appropriate party
(iii) Possible damage;
(iv) Ulterior motive
(v) Any other remedy available. - Lord Denning in Wallersteiner v Moir – DA bringer identified by company for reasonably incurred costs – Equity principles/trustee analogy
- RSC – Company as defendant and apply to court for DA permission supported by written evidence
- Liquidator Analogy
- Finlay Geoghegan J. in Glynn v. Owen, the onus is on the plaintiff where he seeks to rely upon the fourth exception to the rule to establish:
(i) that a wrong was done to the company;
(ii) that it was done at a time when the company was controlled by the alleged wrongdoers; and
(iii) that those wrongdoers benefited from their alleged wrongdoing.
Discretionary Matters: - Delay – 18 months between Special Purchase Agreement and commencement of proceedings
- Timing of claim – Sale of portion of 5th named defendant’s business
- Approbation of the Alleged Wrongdoing by Execution of a Proxy in Favour of the Transaction
- Alternative Remedies – Benefit could be gotten through s205 claim
Connolly v Seskin Properties Limited & Ors [2012] (HC)
Kelly J:
- F v H rationale = SLP
- Peter Gibson LJ in Barrett v Duckett
- Derivative action test – Prudential Assurance Co Ltd v Newman Industries Ltd – Establish a prima facie case (i) that the company is entitled to the relief claimed and (ii) that the action falls within the proper boundaries of the exception to the rule in Foss v. Harbottle” but Fanning v Murtagh – Test = Realistic prospect of success
- Irvine J. in Fanning v. Murtagh – Four exceptions to F v H
- FG J in Glynn v Owen – Interests of justice
- Fraud on the minority – Crindle Investments v Wymes – Keane J – Daniels v Daniels – Benefit on directors can sue
- Current case = Low prospect of success as little assets to discharge judgment; Evidence insufficient to support fraud allegation; Not interests of justice as not very strong case, especially having regard to the no fraud
Case Note – Cockburn v Newbridge Sanitary Steam Laundry Co Ltd [1914] (HC)
- O’Brien LC
- Facts of case
- General rule in F v H but fraudulent and UV exceptions
- Lord Cairns in Ashbury Railway Carriages & Iron Co v Ritchie – SH couldn’t have authorized the making of a particular contract, how could sanction it after being made?; fatal to the whole scheme of the legislation if this were permitted (not concerned with a criminal act)
- Agreement if made so tainted with crime and subversive of public policy as to be illegal itself
- Not internal management
Case Note – Baillie v Oriental Telephone and Electric Company, Limited [1914] (English CoA)
- Lord Cozens-Hardy MR (Kennedy LJ agreeing):
- Kaye v. Croydon Tramways Co. (Very similar facts) – Special resolution passed by what was a “tricky” notice it could not be supported (No reference to F v H)
- Act – Not allowed to do something by ordinary resolution which is not even allowed under special resolution (Intention of Parliament
- Swinfen Eady LJ:
- Wigram VC in Kaye – Injury and no other remedy but to allow individual member to sue, then allowed (Lord Cottenham in Wallworth v. Holt 28); Claims of justice supersede technical suing rules.
- Mozley v Alston – Lord Cottenham = Rule - All persons interested to be parties relaxed to avoid denial of justice leaving parties who had a real grievance without a remedy; sufficient support in case for bill to be passed by the company to remedy the wrong so no need for SH to bring own action; Contrary in current case
Foss v Harbottle
Sir James Wigram
- If corporation injured by some of its members and there is no adequate remedy but a suit by individual members to protect the corporation’s interest; justice over technical rules – Lord Cottenham in Wallworth v Holt
