summary of facts
- briefly state case facts |
- mention issues at hand |
- topics to which question relates |
general introduction
The majority rule pervades over much of company law, touching over the key issue of who owns & controls the company (provisio Reg.3 + 4 of model articless). When simultaneously read with the doctrine of 'seperate legal personality' (SLP) laid in Saloman v. Saloman, the right to sue where the company sustains injury is bestowed upon the company itself - which will be the proper claimant (Foss v. Hartbottle). As a concequence, individual shareholders (SH) cannot sue on the company's behalf as such a decison resides with executive body i.e.; the Board (John Shaw & Sons[Salford]) |
Nonetheless, proper execution of the majority rule (in the passing of resolutions), results in all members becoming bound to it, regardless of their dissent. Additionally, the Court's non-interventionist policy in dealing with the internal management of companies - explained in Carlen v Drury - has led to the dissenting minority being bound to the wiles & wishes of the majority. |
In recognizing the potential of abuse, the law aims to find the right balance between the majority rule and protection of minority members. |
1. derivative claims
- claim previously existed under common law but was inaccessible, unclear & too restrictve |
- Law Commission (LC) recommended presevation of the sanctity of Foss v. Hartbottle as it was sound but to refurbish the law of DC in line with modern pricniple through a codified procedural code |
achieved via Part XI CA, 2006 |
s.260 - action brought by member on company's behalf, seeking relief under the same |
- when claim is granted leave by Courts, company joins as defendant (since Board presumably denied such action) |
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2. section 260 (CA, 2006)
- cause of action (CoA) primarly vested in company (refelct Foss v. Hartbottle) |
- pursued by member for compan'y benefit |
- arising from D's 1. negligence 2. default or 3. breach of duties/ trust |
breach principle extends scope of viable actions (compared to common law) by including D Duties, listed under Part X of Act) most commonly applied s. 172 & 174 |
Pavlides v. Jensen - even where D acted in good faith & hasn't personally gained, claim can be pursued |
- action eiter against D |
or 3rd party who dishonestly assisted D in breach |
- D broadly defined (de jure, de facto shadow or former) |
- immaterial whether SH became member to company after CoA had already occured |
hearing is a two-stage process (paper & full-permission) |
before claim proceeds, SH to be granted permission (leave) from Courts (s.261) (1st stage) |
1. paper hearing= courts consider evidence. |
- onus on member to estblish self prima facie proper claimant otherwise Courts dismiss application (Iesini v. Westrip Holding) |
- threshold relatively low here |
3. section 263 (CA, 2006)
- criteria refered to by judges deciding claim procession as a derivative claim |
- criteria divided into mandatory & discretionary bars. Both to be satisfied to proceed |
MANDATORY BARS s.263(2) |
4. act/ omission yet to occur is already authorized |
5. act/ omssion already occured has been authorized/ratified (Re Singh Brothers Contractors) |
authorization (& maybe ratification) - requires full & frank disclosure BEFORE authorization (Cullen Investements v. Brown - SH be 'well-informed') |
ratification - 'wrong-doer' or related persons can't partake in voting(s.239(4)) |
6. a D acting in accordance with s.172 would'nt continue the claim |
hypothetical D test (would he consider claim worth pursuing) |
consider criteria in Iesini v Westrip Holdings |
size of claim |
proceedings cost |
company's ability to fund proceedings |
defendant's ability to satisfy judgement |
impact on company if persued |
would prosecuton damage company in other ways |
disruption in company's activities while proceedings occur |
is claim hiding personal vandetta |
DISCRETIONARY BARS s.263(3) |
requirement of 'good fatih' |
availability of alternate remedy |
claim u/s.994 preferred by judges (Franbar Holdings) (Mission Capital**) |
importance of claim given by 'notional D' in accordance with s,172 (Franbar) |
first 3 bars identified as crucial factors (Kiani v. Cooper) |
likelihood of authorization |
Smith v. Croft - courts will have 'particular regard' to view of SH w/o any personal interest in claim |
whether company decided not to pursue claim |
if Board's decision based on 'wrong-doers' advice might influence judge against permission (Kleanthous) |
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4. personal action
- 2 hurdles need be crossed |
CAUSE OF ACTION (s.994) |
- Ds do not personally owe a duty to SH, as observed u/s.170 |
but 3 exception give rise to such |
Tort Law |
- D gave SH negligent or dishonest advice |
Williams v. NLHF - "assumption of personal resposibility" for advice need be shown |
takeover advice does not fall in this category (Sharp v. Blank) |
Fiduciary Relationship |
- 'sufficiiently close' relation owe fiduciary duties |
- where D takes on additional burden relating to SH (Platt v Platt) |
Allen v Hyatt - Ds are trustees of profit for SH's benefit |
Coleman v. Myers - selling/buying of shares taken on by D, FR formed |
takeover does not fall in this category (Peskin v. Anderson) |
Special Contract |
- not employement contract but a special one b/w SH & D |
Giles v Rhind - SH agreement where their responsibilites as D are also mentioned |
REFLECTIVE LOSS BARRIER |
Sevilleja v Marex Financial - principle only applys to SH claims, not Creditors |
- where los is reflective of loss suffered by company itself, cannot sue (Prudential Assurance) |
Jhonson v. Gore Woods - loss has to be seperate from any suffered by the company (i.e.; company suffered no loss as a result of that suffered by SH) |
Marex - can only apply to claim brought by SH in his capacity as SH |
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