Foss v Harbottle

Facts

Two minority shareholders in the Victoria Park Company alleged that the directors and promoters had defrauded the company by improperly applying its assets and mortgaging its property. They sued the directors on behalf of themselves and other shareholders, seeking to make the directors account for the losses caused to the company.

Issues

• Can an individual shareholder bring an action in respect of a wrong done to the company?
• Who is the proper plaintiff to sue for a loss suffered by the company?

Arguments

The minority shareholders argued the directors had committed fraud on the company's property and should be held to account. The defendants argued that the company, as a separate legal entity and the party actually injured, was the only proper plaintiff and that the majority could ratify the conduct.

Held

The Vice-Chancellor dismissed the suit. Since the alleged wrong was done to the company, the company in its corporate character was the proper plaintiff, not the individual members. Because the acts complained of were capable of being confirmed by the majority of members, the court would not interfere at the instance of a minority. The will of the majority, expressed in general meeting, must prevail on matters within the company's competence.

Ratio decidendi

The proper plaintiff for a wrong done to a company is the company itself, and the court will not interfere with the internal management of a company acting within its powers where the majority can ratify the act.

Significance

Foundational rule of company law establishing the 'proper plaintiff' principle and the majority rule. It remains the starting point worldwide, including India, with recognised exceptions (fraud on the minority, ultra vires/illegal acts, acts requiring special majority, infringement of personal/individual rights), and underpins the statutory oppression and mismanagement remedies that qualify it.

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