Table of Contents

Introduction of the Case of Foss v. Harbottle…………………………………………………………………….Pg. 2
Describe and explain the rule set out in Foss v Harbottle and identify the exceptions to the rule
…………………………………………………………………………………..……Pg 3,4,5 & 6

Describe the remedies, if any, which are available for ‘minority’ shareholders who feel that they have been the victim of wrongdoing by those in a ‘majority’……….…………………...Pg 7 & 8

References………………………………………………………………………………………………………………….Pg 9 & 10

Introduction of the Case of Foss v. Harbottle
The Victoria Park Company is a company had been established during September 1835. This company is to establish a residential area for the prosperous business and professional families to stay. This estate will be established to the east of Wilmslow Road. Richard Foss and Edward Starkie are the minority shareholders. A bill was lodged by 2 shareholders of the company that incorporated by Art of Parliament, on their own and the other shareholders’ behalf. In the case they claim that fraudulent transactions misapplying the company’s assets did by 3 bankruptcy directors, a solicitor, proprietor and architect, and take some unqualified people to put in board of director to make it full and a company without clerk or office, in this situation the proprietors has no rights to take out the property from the hand of defendant directors. Observations were made on this point of case is that the trust between the company and company promoters had arises. Void transaction is not necessarily to be created by the possible of avoiding a transaction. A company can select to apply the transaction later and hold the directors bound by them. If the act is given the power that authorized the transaction on mortgage then they can be confirmed. Although this act is the act beyond the power of control of the corporation but if there is any voice of dissenting raise up then cannot be confirmed. The judger Jenkins LJ has said that the proper plaintiff in an action in respect of a wrong alleged to be done to a corporation is, prima facie, the corporation. (Foss v. Harbottle, 1843)

Describe and explain the rule set out in Foss v Harbottle and identify the exceptions to the rule.
The case of Foss v Harbottle (1843) was applied by the old common law that was based on the theory of the 'Majority Rule'. Majority rule can be explained as the minorities have to accept the suggestion of majority and the decision and choices that pass through the majority. In real life, if an individual can hold the greater amount of share which mean that individual will have greater rights and powers to do decision and choices in the company and all other minority shareholder have to accept and follow. Thus this is meaning that the substantial amount of power will actually be control in the shareholder’s hand that own the greater amount of share and this is the virtue of the majority rule, so the minority shareholders can only accept the decision that made by the majority shareholders. In this situation of Foss v Harbottle, even minority shareholders has complain that the company has wrong done but the majority shareholders has decided to refuse to take any action to the wrong party which mean the minority shareholder has no right to ask for the court to intervention to the company.
Proper plaintiff rule mean that the company can only sue the directors or outsider in the circumstance of the company have wrong done or the company is facing losses due to corrupt or fraudulent that did by directors or the debtors refuse to return their debts to the company in order to comply the rights of the company (Dr. MD. Abdul Jalil, 2013). This rule also mean that due to the principle of separate legal entity, the member of the company has no rights to act behalf of the company to sue other parties to comply rights of the company. The principle of separate legal entity has stated that the members in the company and the company itself are two different entities, so a legal person can only sue or be sued under his own name. The members in the company are strictly not allowed to bring any legal action that act on behalf of the company to remedy the loss that face by company because the company itself can institute the legal proceedings to the court to remedy the loss that facing by the company but the loss must be causes by the fraud or negligent acts by the board of directors or outsiders. Legal action against the wrong done by the behalf of the company can only brought by the members of the company if that member is pass through the board of director and been authorized by the board of directors or the member has suggest the resolution and be passed in general meeting ( Chan, Koh & Ling, 2006). The decision in the case of Foss v Harbottle is the origin of proper plaintiff rule. In the case there were 2 shareholders that act on behalf of all shareholders but exclude the 5 directors and some particular shareholders to bring a legal action to the court. The plaintiff states that the directors of the company use a price that is much higher than the market price to purchase their own personal land on the behalf of company. This is the reason that company is facing loss. The plaintiff claim that the directors have to recover the loss of the company that causes by purchasing their land in higher price. This issue was said that is it the shareholders are capable to act behalf of the company to bring the legal action. The court held that the shareholders has no capable to bring the legal action on behalf of the company due to the principle of separate legal entity. In this circumstance, the legal action against the director can only be brought by the company. If the decision of the board of director and majority shareholders has affected a member of the company, that specific member has no right to bring a legal action against board of directors and the majority shareholder ( Stein v. Blaket, 1998) but he can bring bring legal action if he been authorized by board of directors. Normally the legal action that brought out which act on the behalf of company will only authorizes the board of director to do so (Foss v Harbottle, 1843). The person who can bring out the legal action to act behalf of the company will be stated in the articles of association of the company. If the articles of association of the company state that only board of director can take action while any wrong done has happened so the other member has no right to interfere with this power (Fong Poh Yoke v The Central Construction Co. (Malaysia) Sdn Bhd, 1998). The articles of association also has the function that the member has right to appoint a representative in general meeting to take a legal action that act on behalf of company (see Automatic Self-cleaning Filter Syndicate Co. Ltd. v. Cuningham, 1906) (Gramophone and Typewriters Ltd. v Stanley, 1908) (Salmon v Quinn & Axtens Ltd, 1908) (John Shaw & Sons (Salford) Ltd v Shaw, 1935).
The first exception in the case of Foss v Harbottle is ultra vires and illegality. Ultra vires or illegal has the meaning of directors or majority shareholders cannot use their control of the company to act on behalf of the company to paper out the legal action (S39 Companies Act, 2006). In the cases of Smith v Croft no.2 and Taylor v National Union of Mineworkers that about the support of an unlawful strike and the issue of violating the transaction of the capital maintenance provisions of the Companies Acts or financial assistance. These two cases show that member will has his own rights to sue on the lawful act that was threatened (Simpson v Westminster Palace Hotel Co, 1860) and brought the derivative action to set on aside the unlawful act.
The second exception will be focus on a circumstance that the matter stated was been validly done or sanctioned that has violate the articles of associate's requirement by some special majority of members. This exception has an example that is Edwards v Halliwell. In this case, it was stated that the alleged act could have been done only by a two-thirds majority and not by a simple majority and thus the rule in Foss v Harbottle could not be relied upon as the members were suing in their own right only to protect their own rights in their capacity as members and were not in fact suing in the right of the union because here the wrong has not been done against the union(in which case, the union would solely have been able to bring a cause of action). Instead, these was the defendants has break the union's rules that the union has setting up and encroach the right of minority of the personal and individual.
The third exception is the invasion of members' personal rights. This exception is concern on the case that plaintiff has the right to seek to vindicate which vested by personally but not company. An example that can apply in this situation that the right of plaintiff to vote in general meeting is refuse to be recognized by the company. The situation can be seen in the case of Pender v Lushington. In this case, the Jessel MR has said that the action that did by Mr. Pender is for himself. He is one of the member in company so his vote is entitled to be recorded not matter he vote with minority or majority. This individual has his right to sue against this matter. This exception can invoked in some case that having different rules with Foss v Harbottle because this is the issue of the rights of shareholder not the rights of company. But if it has summiteers to court will not limit the personal rights to which this exception will apply. Such right may include statutory rights, contractual rights, constitutional rights, rights flowing from the company's articles and memorandum of association (see Kraus v JG Lloyd Pty Ltd (1955), Clark v Workman (1920), Hennessy v National Agricultural & Industrial Development Association (1947)) , rights specified in a shareholders' agreement, specific rights under the Companies Acts and so on.
The forth exception will be the fraud on the minority which the majority has committed that themselves has control over the company. The exception of fraud on the minority has various examples. One of the examples is misappropriation of corporate assets in the case of Menier v Hooper's Telegraph Works (1874). Mender is a minority shareholder, he has complained the majority member and company because he found there is self-interest transaction between company and majority member in the company. The court held that this is the properly action that brought by minority shareholder in these case. Another case will be the case of abuse of power or discrimination. Other example cases are Estmanco (Kilner House) Ltd v Greater London Council(1982). The individual member has the right to brought the claim to the court where the powers are being conduct intentionally or unintentionally, negligently or fraudulently which can prove the directors has benefit themselves and has bring harm on advantage to the individuals. So the court held that the company has formed the purpose of stultification against the minority shareholders' wishes so fraud on minority is constituted (see Daniels v Daniels (1978) & Pavlides v Jensen (1956)).

Describe the remedies, if any, which are available for ‘minority’ shareholders who feel that they have been the victim of wrongdoing by those in a ‘majority’.
Section 181(1)(a) is allowed the court to provide remedy to a member when the affairs of the company are being conducted or the directors has exercised their power in an oppressive manner to treat on the member of the company that include of his self-interest .
In Section 181(1)(b) is focus on the company or shareholders or holders of debenture for the real or proposed act that behalf of the resolution or company or a proposed resolution that let the court to provide a remedy to plaintiff if the court can found there is unfairly discriminatory on proposed act or resolution treated to shareholder or holders of debenture that involve by the plaintiff as well. In the case of Re Tong Eng Sdn Bhd [1994] and Re Chi Liung & Son Ltd [1968], the court held that as long as the shareholders of the company are feeling indignant and it has been affected the shareholders capacity and the shareholders have the right to apply for remedy. Another example of cases is Scottish Co-operative Wholesale Society Ltd v Meyer [1959], this case has stated that normally apply for the personal remedy, the court will search for a guide which is visible departure from standards of fair dealing or where there is burdensome, harsh and wrongful. The court held under wrongful conduct if the case is a company that shift their profit of the company to another new develop department that develop by them after fail to buy off the share of the company. But the court may also have the power of direct or stop the act or omitted the complained if the court found that the application has merit in the condition of the company may reduce their capital or increase of shares.
Under Section 218(1)(i) of the Companies Act 1965, the member can ask for action to be taken to wind up the company on the reason of just and equitable ground. But in the case of Ng Eng Hiam and Ng Ke Wei & Ors [1965] has stated that the courts are reluctant to wind up the company due to the court feel that the company has ability to solvent and have a future but also due to there is shareholder complains on the company has oppressive conduct. In this situation, is preferable to use oppression action. In the case of Wallersteiner v Moir (No. 2) [1975], the court held that the rule of proper plaintiff will be excluded in this situation. The situation is like the case of Edwards v Halliwell [1950], where the case is fraud on the minority. In this kind of situation that all the damage awarded will be charged to the company but not shareholder, reason of this action is because the directors is breaching their duties so that company has to against them. The previously, that based on the Rules of High Court 1980 under order 15 rule 12, the enforcement will be made toward the directors and the company will be added to be a nominal defendant but recently Companies Act 2007 has amend and added in the s 181A until 181 E in Companies Act 1965. These sections may have the effect of minority shareholder can leave the court or bring a legal action behalf on the name of company to against the board of director of the company that conduct wrongful. The court also giving the power to shareholders that shareholders have the power to question on the control that conduct on all proceedings, this is to omission complained on the company or cancel off the ratification.
Section 218(1)(f) can wind up a company if the directors have acted in the affairs of the company in their own interests rather than in the interests of the members as a whole, or in any other manner whatsoever which appears to be unfair or unjust to other members. In the case of Ng Ah Kway v Tai Kit Enterprise Sdn Bhd [1986], Shankar J held that a petition to wind-up a company is a serious matter as it affects the reputation of the company. The company must have ability to settle off and undisputed the debts. The petition cannot request help on the issue of settle disputed debts. Another example will be NKM Development Sdn Bhd v Irex Sdn Bhd [1988], this case has stated that the petition is capable to disputed and on substantial ground. But there also some failure case which is the case of Re Lympne Investments Ltd. [1972].

References * Foss v. Harbottle. (1843) 67 ER 189, (1843) EngR 478, (1843) 2 Hare 461 * Dr. MD. Abdul Jalil, Company Law, Chapter 4, 2013 * Chan, Koh & Ling, Malaysian Company Law Principles and Practice, Malaysia: Sweet & Max-Well Asia, Second Edition 2006 at page 476. * Stein v. Blake (1998) 1 All ER 724, 730, CA. * Fong Poh Yoke v The Central Construction Co. (Malaysia) Sdn Bhd (1998) 4 CLJ Supp 112, at 126. * Automatic Self-cleaning Filter Syndicate Co. Ltd. v. Cuningham (1906) 2 Ch. 34, CA. * Gramophone and Typewriters Ltd. v Stanley (1908) 2 KB 89 * Salmon v Quinn & Axtens Ltd (1908) 100 LT 161; (1909) 1 Ch 311. * John Shaw & Sons (Salford) Ltd v Shaw (1935) 2 KB 113. * S39 Companies Act 2006: The rules on corporate capacity. * Edwards v Halliwell (1950) 2 All ER 1064 * Pender v Lushington (1877) 6 Ch D 70 * Kraus v JG Lloyd Pty Ltd (1955) VR 232 * Clark v Workman (1920) 1 IR 107 * Hennessy v National Agricultural & Industrial Development Association (1947) IR 159 * Re Tong Eng Sdn Bhd [1994] 1 MLJ 451 * Re Chi Liung & Son Ltd [1968] 1 MLJ 97 * Scottish Co-operative Wholesale Society Ltd v Meyer [1959] AC 324 * Ng Eng Hiam and Ng Ke Wei & Ors [1965] 1 MLJ 238 * Wallersteiner v Moir (No. 2) [1975] 1 QB 373 * Ng Ah Kway v Tai Kit Enterprise Sdn Bhd [1986] 1 MLJ 58 * NKM Development Sdn Bhd v Irex Sdn Bhd [1988] 2 CLJ * Re Lympne Investments Ltd. [1972] 2 All ER 385 * Menier v Hooper’s Telegraph Works (1874) 9 CH App 350 * Estmanco (Kilner House) Ltd v Greater London Council (1982) 1 WLR 2 * Taylor v National Union of Mineworkers (1985) BCLC 237 * Smith v Croft No.2 (1988) CH 114 * Simpson v Westminster Palace Hotel Co (1860) 8 HLC 712