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18 Cards in this Set
- Front
- Back
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Basic Rule in Foss v Harbottle |
Limb 1: Only a company, and not its shareholders can maintain proceedings in respect of wrongs done to it. No individual shareholder has that right. Limb 2: Individual or group of shareholders may not bring proceedings to overturn a decision of the company where the majority of members may confirm. Based on Salomon. |
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Philosophy |
O'Neill v Ryan. Give the company control over its corporate destiny. Glynn and McCabe v Owen et al. Courts hesitant to interfere with internal management of a company. Member's personal rights always enforceable against the company. |
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Foss v Harbottle 1843 facts. |
-Company formed by Act of Parliament for acquiring land in Manchester. Intended to develop that land. -Purchased from 1 of 13 defendants, JD. -Plaintiffs, RF and ET subscribed for 2 and 12 shares respectively in the joint stock company. Succesfully incorporated. -Defendant directors had purchased the lands from themselves for the use of the company, and had charged over the odds. So 2 members taking action v 5 directors for misapplying company monies in relation to a land deal which directors were personally involved in. -Failed. Wrongs were against the company, so the company should take the action. |
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Restatement. |
Jenkins LJ in Edwards v Halliwell. 1. Proper plaintiff is company 2. If majority wanted it, it's fine. If they didn't, then the company should sue. 3. Exception 1: Rule doesn't apply if it was ultra vires 4. Exception 2: Doesn't apply if transaction complained of could be validly done only by a special resolution, as a simple majority can't confirm where it needs a greater majority. 5. Exception 3: Fraud where wrongdoers are in control of the company. |
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Application in Ireland |
Duggan v Bourke O'Neill v Ryan |
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Exceptions |
1- Majority cannot commit an ultra vires or illegal act 2- Certain decisions need more than a majority 3- Certain actions infringe individual rights 4- Majority committing fraud on a minority 5- Justice of the case requires it. |
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Ultra Vires |
Exception to both limbs. Company not proper plaintiff, majority can't ratify an ultra vires act. Doesn't apply for restraining an act, but applies for an act which has already been done. Smith v Croft. Has been criticised. |
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Illegal Act |
Anticipatory or already committed. Cockburn v Newbridge Sanitary Steam Laundry Company |
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Unratifiable by bare majority |
Jenkins LJ in Edwards v Halliwell. |
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Infringement of Personal Rights |
Not really an exception. Rule doesn't come into the equation at all. Pender v Lushington |
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Fraud on Minority by Those in Control |
Controllers seek to use powers for some mala fide motive. Shareholders may take action on behalf of company here. Exception to both limbs, disrespects majority rule and company's exclusive locus standi. It's still on behalf of the company. Edwards v Haliwell. |
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Requirements for Fraud |
1. Defendant majority perpetrates fraud against minority and the company 2. Defendant is in control of the company 3. Wrong committed to the company is unredressed and unless a derivative action is permitted no proceedings could be instituted. |
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Control |
Easiest way to prove is showing that majority hold over 50% of shares. Fairweather J in Fisher v St.John Opera House Co. Must account for why the company didn't take action on its own behalf. Disinterested shareholders are taken into account: Smith v Croft. |
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Fraud |
Person with power to be exercised on behalf of others uses them for another purpose. Usually moral turpitude- Connolly v Seskin Properties Ltd. Cook v Deeks, directors taking contract in personal capacity. Parke v Daily News. Charitable stuff. |
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Wrongdoers must benefit. |
Crindle Investments v Wymes. Decided that it's essential to the fraud exception that the majority were seeking to appropriate benefits to themselves to the detriment of the company as a whole. Fanning v Murtagh made the same decision. |
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Where required by justice |
Heything v Dupont; Moylan v Irish Whiting Manufacturers Ltd Prudential Assurance v Newman did not regard it as practical. SC in O'Neill v Ryan did not decide. |
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Derivative Action |
Shareholder suing on foot of company's rights. Central question is whether, if no permission is granted, the wrong will go unredressed. Wallersteiner v Moir |
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Threshold |
Smith v Croft. Independent shareholder held a majority of minority shares and was not in favour of proceeding with litigation. So wasn't allowed. If the courts disapprove of the plaintiff's actions of if they approved of the conduct in the past. Fanning v Murtagh. |
