The Rule of Foss V/S Harbottle

THE RULE OF FOSS V/S HARBOTTLE there are 2 elements present for this swayer to happen. They are shoot in the case of Edwards v/s Halliwell. It is the proper plaintiff in an meet in detect of a vilify d unrivaled to a smart set is prima facia the company itself. Where the alleged wrong is a motion which might be made binding on a company and all its members. No individual member is allowed to maintain an action in take to be of that matter. This means that whenever there is a motion inside the company and there has been a conclusiveness by the bill of fare (I. e. he majority), any individual member alone will non be able to go to court. In the case of Foss v/s Harbottle ?There were 2 members (shareholders) of the Victoria Park Company who brought an action against the companys 5 directors and promoters alleging that they had misapplied the companys assets and had improperly mortgaged its properties. ?The shareholders wanted the directors to make good the losses sustaine d 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 case called the majority rule Mozley v/s Alston ? 2 shareholders tried unsuccessfully to restrain 4 directors of the company from playing as much(prenominal) when they should have retired under the articles. The court refused to give up 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 select 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 solve of passing resolution in a company. If there is a caper that domiciliate be resolved by majority, there is no need to go to the court. 3. It prevents vexatious actions started by trou blesome minority trying to chivvy the company. Disadvantage to this rule 1. The company is the proper person to sue save the company foot only act through its human agents (I. e. the board, shareholders). Usually, the board may well be the people committing a wrong. There are 4 exceptions to this rule 1. Where the act complaint of is illegal or is ultra vares.In the case of Prudential Assurance Co. Ltd v/s Newman Industries (No. 2) ? The court of court explains that where the wrongful act in issue 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 opposed 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 ca se, 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 only when an action called the derivative action (done on behalf of the company). 2. Where the matter in issue requires the sanction of the special majority or there has been non-compliance with the special procedure. An individual shareholder will have locale standi to sue where the act complains of is one which requires the approval of the special majority of members and such resolution has not been obtained. This covers a situation where the article of association has contract a particular procedure that must be followed in respect of a particular transaction. In the case of Edwards v/s Halliwell, ?2 m embers successfully restraint and attempt by the delegate meeting to step-up the members contribution without obtaining the 2/3 majority. In this case, irrespective that the 2 remaining members could bring that action and eventually won on that action. In the case of Quin & Axtens Ltd v/s Salomon ?In this case, the word of Association stated that certain transactions could not be write in codeed without the respond 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 injunction to the individual member prohibiting the majority from acting in breach of the article.