Foss v. Harbottle
Where a wrong is done to a company, the company itself is the proper plaintiff, and the court will not ordinarily interfere at the suit of individual members in matters the majority can lawfully ratify.
Citation
Foss v. Harbottle
(1843) 2 Hare 461
- Court
- Court of Chancery
- Statute
- Company law — majority rule and minority protection
Facts, issue and held
Facts
Two shareholders of the Victoria Park Company brought an action against the directors and promoters, alleging that they had misapplied and wasted the company's property and had improperly mortgaged it. The company itself was not the plaintiff; the two members sued in their own names on behalf of themselves and the other shareholders.
Issue
Whether individual shareholders could maintain an action in respect of a wrong alleged to have been done to the company.
Held
The court dismissed the action. The alleged injury was to the company, and the company — as a distinct legal person, acting through the will of the majority in general meeting — was the proper plaintiff. Since the company was still in existence and capable of suing, and since the acts complained of were capable of being confirmed by the majority, the individual members could not maintain the suit.
- The proper plaintiff in an action for a wrong done to a company is prima facie the company itself.
- Where the alleged wrong is capable of ratification by a simple majority, no individual member may sue, because the majority may choose to confirm the act.
- The court will not interfere with the internal management of a company acting within its powers.
- The rule prevents a multiplicity of suits by individual members over matters the company may itself resolve.
Ratio decidendi
Ratio decidendi
For a wrong done to a company, the company alone is the proper plaintiff; individual members cannot sue in respect of it where the majority is competent to ratify the act complained of.
Why it matters
Foss v. Harbottle states the majority rule that underpins company decision-making, and the recognised exceptions to it form the entire framework of minority shareholder protection.
Current standing
The rule is subject to established exceptions: acts that are ultra vires or illegal, acts requiring a special majority that were passed by a simple majority, invasion of a member's individual or personal rights, a fraud on the minority, oppression and mismanagement, and where the interests of justice require it. In India these protections are given statutory form through the oppression and mismanagement provisions and the class action remedy under the Companies Act, 2013.
Using it in an answer
The rule in Foss v. Harbottle (1843) 2 Hare 461 provides that where a wrong is done to a company, the company itself is the proper plaintiff, and individual members cannot sue in respect of a matter the majority is competent to ratify.
On the present facts the wrong alleged is to the company rather than to the member personally, and prima facie the rule applies.
However, the facts disclose a fraud on the minority by those in control, which is a recognised exception to the rule. The member may therefore maintain the action, and may in addition pursue the statutory remedies against oppression and mismanagement.
In the exam
Rarely examined as a bare statement of the rule. The question almost always presents facts designed to fall within one of the exceptions, so identifying which exception applies is where the marks are.
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Talk to usWhat are the exceptions to the rule in Foss v. Harbottle?
Ultra vires or illegal acts, acts requiring a special majority but passed by a simple majority, infringement of a member's individual rights, fraud on the minority by those in control, and cases of oppression and mismanagement. In India these are reinforced by the statutory remedies under the Companies Act, 2013.
Why does the rule exist at all?
It reflects two ideas: that a company is a separate person which must sue for wrongs done to it, and that companies are governed by majority decision. Without it, any dissatisfied member could litigate every internal decision, and majority rule would be unworkable.
Please note
These summaries are prepared for CA exam preparation and are not legal advice. Case law develops — a decision may be distinguished, read down or superseded by later judgments or by legislative amendment. Verify the current position against ICAI's study material for your attempt and against the reported judgment before relying on any principle stated here.
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