The Rule of Foss V/S Harbottle

THE RULE OF FOSS V/S HARBOTTLE There are 2 elements array for this rule to happen. They are found in the bailiwick of Edwards v/s Halliwell. It is the prudish plaintiff in an exemplifyion in respect of a wrong done to a federation is prima facia the federation itself. Where the alleged wrong is a trans performance which might be do binding on a friendship and all its members. No undivided member is allowed to maintain an do in respect of that matter. This means that whenever on that point is a transaction within the company and there has been a determination by the board (I. e. he legal age), any individual member exclusively will non be able to go to court. In the plate of Foss v/s Harbottle ?There were 2 members ( shareowners) of the Victoria Park alliance who brought an action against the companys 5 directors and promoters alleging that they had misapplied the companys assets and had im befittingly mortgaged its suitableties. ?The shareholders wanted the directo rs to make good the losses sustained by the company. The court stated that The injury was against the whole company and the company was the proper person to sue and not the individual members.The second proposition came from this lawsuit called the majority rule Mozley v/s Alston ? 2 shareholders tried unsuccessfully to restrain 4 directors of the company from acting as such when they should go through retired under the articles. The court refused to permit the shareholder to bring their action. The court had in mind that if the thing that one is complaining about is the thing in a company that a majority is entitled to do, then there is no need for litigation. Advantages to this rule 1. It is more convenient that a company should sue in respect of a wrong done. 2.It eliminates wasteful litigation because there is a process of passing resolution in a company. If there is a problem that can be resolved by majority, there is no need to go to the court. 3. It prevents vexatious acti ons started by hard minority trying to harass the company. Disadvantage to this rule 1. The company is the proper person to sue but the company can only act through its human agents (I. e. the board, shareholders). Usually, the board may well be the peck committing a wrong. There are 4 exceptions to this rule 1. Where the act accusation of is embezzled or is ultra vares.In the case of Prudential Assurance Co. Ltd v/s Newman Industries (No. 2) ? The court of appeal explains that where the wrongful act in resultant is ultra vares, the rule does not operate because the majority of members cant confirm the transactions. If any decision that was taken was taken outside the powers that the majority has, then the minority can bring an action as strange to the rule. ?It has been seen that an action by a shareholder to recover money or on behalf of the company in respect of an ultra vares or an illegal transaction could be undertaken by personal actions. In the case of smith v/s Croft (No. ) In this case, it has been decided that where what is sought is compensation for the company for the loss caused by the transaction. The wrong is done to the company, so the company is the proper plaintiff. The result out of the transaction caused a loss towards the company. ?Even though it was an illegal transaction, the loss was caused to the company. The shareholders can bring an action but an action called the derivative action (done on behalf of the company). 2. Where the matter in issue requires the abet of the special majority or there has been non-compliance with the special procedure. An individual shareholder will have locus standi to sue where the act complains of is one which requires the citation of the special majority of members and such resolution has not been obtained. This covers a concomitant where the article of association has specified a particular procedure that moldiness be followed in respect of a particular transaction. In the case of Edwards v/s Halliwell, ?2 members successfully restraint and attempt by the delegate meeting to increase the members contribution without obtaining the 2/3 majority. In this case, regardless that the 2 remaining members could bring that action and eventually won on that action. In the case of Quin & angstrom Axtens Ltd v/s Salomon ?In this case, the Article of Association stated that plastered transactions could not be entered without the consent of both managing director. One of the directors did not accept for a transaction but the company in a general meeting authorized the transaction without the directors consent. ?In this case, the court allowed the individual member to enter an action and granted an command to the individual member prohibiting the majority from acting in breach of the article.