Majority Control & Minority Protection - Discuss legal effects of Foss v. Harbottle and its exceptions

Foss v Harbottle

1. Proper plaintiff rule - Actions can only be brought by the company because wrong is done on the company not its members.

2. Internal management rule- Court does not want to interfere company internal management. Pointless for minority shareholders to bring an action if majority shareholders can ratify a wrong.

Advantages:

1. Prevent multiplicity of actions.

2. Minority shareholders do not have enough resources to bring an action.

3. Company should be run according to the will of majority shareholders.

4. Conflicts should be resolved internally and according to A/A.

5. Court does not want to interfere the internal management of company.

6. Company is an entity separated from its members, creditors and employees.

Disadvantages:

1. The wrongdoers are usually directors that normally are the majority shareholders therefore they can prevent the company from bringing action against them.

2. Company is managed on majority shareholders' will, disregard minority will.

3. Limiting shareholders rights.

4. Limited exceptions for minority shareholders to bring an action

5. There can be a misuse of powers for directors.

There are some exceptions to the general rule- Russell v. Wakefield Waterworks Co Ltd

1. Act is ultra vires - Simpson v. Westminister Palace Hotel Co.

2. Act/Resolution require special majority but do not obtain- Edward v. Halliwell

3. Act infringes shareholders' personal rights- Pender v. Lushington

4. Majority shareholder commit fraud on minority shareholder- Burland v. Earle

5. Where interest of justice is so requires- Tan Guan Eng v. Ng Kweng Hee & Ors

6. Minority shareholder must prove that there is a fraud- Peter's American Delicacy Co Ltd v. Heath

7. Example: Expropriation of company's property- Menier v. Hooper's Telegraph Works

8. Example: Expropriation of member's property- Brown v. British Abrasive Wheels Co.