In Foss v Harbottle (), two shareholders commenced legal action against the promoters and directors of the company alleging that they had misapplied the. Foss v Harbottle Rule is an important rule which was discussed and applied by Wallis JA in am important judgment concerning corporate. Foss Vs Harbottle. 1. COMPANY LAW PRESENTATION MS SHAKARI MURUGANDAN; 2. TASK “Majority of members of company are in an.

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A minority shareholder has the right to disagree to a the alteration of the corporate articles to revise the provisions concerning to the issuance or shift of shares, or to modify or take away any constraint on the business the corporation may carry on; b the merging of the corporation with a corporation that is not a additional or parent; c the maintenance of the corporation in another jurisdiction; or d the corporation selling, hiring or exchanging all or significantly all fiss its property.

Other consequences are limited liability and limited rights. The proposition I have advanced is that, although the Act should prove to be voidable, the cestui que trusts may elect to confirm it. This, being beyond the powers of the corporation, may admit of no confirmation whilst any one dissenting voice is raised against it.

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Rule in Foss v Harbottle Definition:

Retrieved from ” https: Thus, Kelly ruled that there was no case to warrant the court’s intervention, much less a very strong one. Remember me on this computer.

If a man intervenes in the affairs of another he must do so honestly, whatever be the character of that intervention. Major principle regarding the majority rule was developed in the case Foss vs. Harbottle,41 then went on a formulated a third limb for the minority shareholder to satisfy before he could bring a claim under the rule in Foss v. During the argument I intimated an opinion, to which, upon further consideration, I fully adhere, that the rule was much too broadly stated on the part of the Defendants.

The rule stands changed now and therefore, minority rights are finally protected under the law. These include the reluctance of the courts to interfere in the internal management of a company.

Foss, one of the shareholders brought a derivative suit alleging that the promoters had conspired together to profit by the establishment of the company, and at the expense of the company. The court ruling for the plaintiff said that even though in matters of internal management, the company was the best judge and the rule was that the court should not interfere, application of assets of a company was not merely a matter of internal management.


The rule in Foss v Harbottle is best seen as the starting point for minority shareholder remedies. Register for a free subscription. Thus, an action, if any, can be brought in only by the company, as company is the proper plaintiff for wrongs done to the company.

Rule in Foss v Harbottle Law and Legal Definition

Also, there is a new statutory derivate action available under ss of the Act and s Corporations Act in Australia. Login Register Follow on Twitter Search. As stated above, there are exceptions to the rule and, in order for a minority shareholder to bring a derivative action on behalf of the company, it must show ” i that the company is entitled to the relief claimed and ii that the action falls within the proper boundaries of an exception to the rule in Foss v.

Whilst harbotyle Court may be declaring the acts complained of to be void at the suit of the present Plaintiffs, who in fact may be the only proprietors who disapprove of them, the governing body of proprietors may defeat the decree by lawfully resolving upon the confirmation of fose very acts which are the subject jarbottle the suit.

Derivative actions and exceptions to Foss v Harbottle Matheson.

This applies in situations of ‘wrongdoer control’ and is, in reality, the only true exception to the rule. The Arguments by Counsel The argument by Counsel in support of the demurrers centred on the pleadings used by the plaintiff – the representative derivative action.

They are situations where the rule does not have any role to play. The principle in Harbotle v Harbottle preserves the right of majority to decide how the affairs of the company shall be conducted.

In other words, the transactions admit of confirmation at the option of the corporation. In the second case, harbottl winding up of a company, an application may be made to the court by the official receiver, the liquidator or by any creditor of the company or with leave of the court, by any present or past member of the company, for an order against any present or past officer of the company, any person who has acted as a liquidator, administrator or administrative receiver of the company or any other person who has been concerned or taken haebottle in the promotion, formation or management of the company, and who in the case of any such person has misapplied or retained or become accountable for any money or property of the company, or has been guilty of any misfeasance or breach of any fiduciary or other duty in relation to the company.


The minority shareholder was unsuccessful. Narbottle extends to an abuse, or misuse of power. If you find an error or omission in Duhaime’s Law Dictionary, or if you have suggestion for a legal term, we’d love to hear from you!

Jensen34 a minority shareholder sought to bring an action on behalf of himself and all other shareholders save and except three directors. The company acquires causes of action for breaches of contract and for torts which damage the company.

A rule of corporations law: Harbottle was re-traced and reiterated. Harbottle is not applicable in cases where the company exceeds its powers. On a closing note, it is interesting to know, that in England, the law has changed drastically since Notwithstanding that, he went on to consider whether the applicant fell within any of the exceptions to the Foss v Harbottle rule.

In the case at hand the applicant contended that he fell within the fourth exception — namely, that the matters about which he complained constituted a fraud against the minority and the wrongdoers themselves were in control of the company. The majority cannot appropriate either the property of the company or the interest of the minority shareholders, which includes appropriating property to another company where majority shareholders are in control and passing resolution for compulsory acquisition of shares of minority shareholders, respectively.

They asked that the guilty parties be held accountable to the company and that a receiver be appointed.


Owing to the ambiguity surrounding the notions of ” fraud against the minority ” and ” control by the majority “, the Court has in the past held that the question of the locus standi of minority shareholders should be dealt with first as a preliminary issue before the trial of the action.

There are certain exceptions to the rule in Foss v. Enter the email hsrbottle you signed up with and we’ll email you a reset link.

Gardiner, Mellish LJ stated: It received Royal assent on the 5 May 7 Will 4. Foss v Harbottle 67 ER is a leading English precedent in corporate law. The majority rule finds applicability only in cases of rights of the company or wrong against the company and not with respect to personal rights of the vvs.