STATUTORY DERIVATIVE CLAIM

Statutory Derivative Claim



Statutory Derivative Claim

Introduction

A majority, however large, cannot bind a dissentient minority, however small, to do that which is not authorised by the constitution (Simpson v Denison (1852) 10 Hare 51 at 55). The majority must allow the minority to state their views and express themselves generally on the matter which is the subject of the meeting(Steiner 1988). The minority must not, however, unreasonably obstruct the will of the majority, as, for example, by discussing and talking about the matter in question beyond a reasonable time (Wall v London and Northern Assets Corpn [1898] 2 Ch 469, CA).

Discussion

The rule in Foss v Harbottle is of very little relevance following the introduction of section 459 of the Companies Act 1985. Discuss. Company is vested in the shareholders holding the majority of the voting power and having control of the company, that is, shareholders holding at least three-quarters of the voting power. This general principle is known as the rule in Foss v Harbottle 1, which states that only the company can sue for redress if a wrong has been done to it, not minority shareholders. However, there are exceptions to this rule, as demonstrated in case law below, and since the introduction of section 459 of the Companies Act (CA) 1985, again demonstrated by subsequent case law. Criticisms of the actions based upon exceptions to the rule in Foss v Harbottle and under section 459 led to recommendations by the Law Commission, as discussed below.

The facts in the case of Foss v Harbottle involved two shareholders in a company that was formed to buy land for a pleasure park, who sued the defendants, being directors and other shareholders, for taking certain actions to defraud the company, including selling land at an increased price. (Johnson & Bade 2010)It was held that as the board of directors was still in existence, that it was the board that should call a general meeting to make a claim in this instance, and therefore the claimants' action could not stand.

This case effectively denied minority shareholders the right to protection or to make 'derivative' claims.

The reasons for the application of the rule in Foss v Harbottle were, firstly that the court should not become involved in matters involving disputes over company business policy, that disputes between members should have been resolved between themselves at a general meeting, and thirdly, that otherwise there would have been the danger of multiplicity of claims, as stated by James LJ in Gray v Lewis 2.

There were certain exceptions to the rule in Foss v Harbottle, which are that a simple majority of members cannot ratify an act by the company which is illegal or ultra vires. After the introduction of the CA 1985, (Evans 1998) an individual member of a company can apply to the court for an injunction to stop directors from entering into such transactions under section 35; also if the act being complained of can only be ratified by a special or extraordinary ...