Foss v Harbottle [1843]
Share
Foss v Harbottle [1843] 2 Hare 461, 67 ER 189 addresses the principle that in any action where a wrong is alleged to have been done to a company, the proper claimant is the company itself. This is known as the proper plaintiff rule, and the case discusses exceptions to this rule.
Richard Foss and Edward Starkie Turton were minority shareholders in the Victoria Park Company, which was established to buy land near Manchester for development. They alleged that the company's property had been misapplied, mortgages were given improperly, and they sought accountability from the directors and others involved.
Vice-Chancellor Wigram dismissed the claim, establishing two key principles. First, the court affirmed the proper plaintiff rule, stating that when a company is wronged, only the company itself has the standing to sue. Individual shareholders cannot sue for wrongs done to the company. Second, the court introduced the majority rule principle, asserting that if the alleged wrong can be confirmed or ratified by a simple majority of members in a general meeting, the court will not interfere.
The case emphasises that a wrong done to the company is a matter for the company to pursue, and individual shareholders cannot bring a claim for such wrongs. The proper plaintiff rule and the majority rule principle are established, providing a framework for when a court will intervene in matters concerning the company's internal affairs. The distinction is made between voidable and void transactions. If a transaction is voidable, the company may elect to confirm it, but if it is void, confirmation is not possible. The judgment also considers whether individual shareholders can sue in certain cases, departing from the general rule. It suggests that in cases of injury to a corporation by some of its members, a suit by individual corporators may be permissible in certain circumstances.
The principles laid out in this case have had a significant impact on company law, serving as the foundation for the proper plaintiff rule and guiding the legal framework for addressing wrongs within a company.
Richard Foss and Edward Starkie Turton were minority shareholders in the Victoria Park Company, which was established to buy land near Manchester for development. They alleged that the company's property had been misapplied, mortgages were given improperly, and they sought accountability from the directors and others involved.
Vice-Chancellor Wigram dismissed the claim, establishing two key principles. First, the court affirmed the proper plaintiff rule, stating that when a company is wronged, only the company itself has the standing to sue. Individual shareholders cannot sue for wrongs done to the company. Second, the court introduced the majority rule principle, asserting that if the alleged wrong can be confirmed or ratified by a simple majority of members in a general meeting, the court will not interfere.
The case emphasises that a wrong done to the company is a matter for the company to pursue, and individual shareholders cannot bring a claim for such wrongs. The proper plaintiff rule and the majority rule principle are established, providing a framework for when a court will intervene in matters concerning the company's internal affairs. The distinction is made between voidable and void transactions. If a transaction is voidable, the company may elect to confirm it, but if it is void, confirmation is not possible. The judgment also considers whether individual shareholders can sue in certain cases, departing from the general rule. It suggests that in cases of injury to a corporation by some of its members, a suit by individual corporators may be permissible in certain circumstances.
The principles laid out in this case have had a significant impact on company law, serving as the foundation for the proper plaintiff rule and guiding the legal framework for addressing wrongs within a company.
