Chapter 13 - Members' Remedies Flashcards
State the rule in Foss v Harbottle.
In any action in which a wrong is alleged to have been done to a company, the proper claimant is the company.
What are the three exceptions to the rule in Foss v Harbottle?
1 A member is exercising a personal right
2 the member applied where a simple majority is used where special was needed.
3 fraud on the minority.
Why is it believed that historically the courts have been so strict in the application of the rule in Foss v Harbottle?
The courts do not wish to be involved in every dispute by a member.
In respect of which causes of action is it possible to commence a statutory derivative cause of action?
The member takes action on behalf of the company only in respect of a cause of action involving negligence, default, breach of duty or breach of trust by a director.
Who may commence a derivative cause of action?
A member of the company.
In which circumstances is a court required to refuse permission to continue a CA 2006 S260 claim?
Stage 1: If there is no prima facie case made out
Stage 2: if a person acting in accordance with the s172 duty would not continue the claim, or the act has been authorised ahead of time by the company.
Identify 6 factors the court is required to consider before deciding whether or not to exercise its discretion to grant permission for a s260 claim to continue.
1 Whether the claimant is acting in good faith
2 The importance a person acting in accordance with s172 would attach to the claim.
3 Whether or not the act or omission could be ratified by the company
4 Whether the company has decided to pursue the claim
5 Whether the act is one which the member could pursue in their own right (under s 994)
6 Any evidence of the views of shareholders who have no personal interest in the matter.
Who takes the cost of a s260 application?
The company can be ordered to pay, as the member is acting on behalf of the company.
What is a representative action?
A representative action is an action made by a shareholder on behalf of himself and other shareholders.
What is the leading case on representative actions?
Wood v Odessa Waterworks.
Why is the rule in Foss v Harbottle not relevant where a shareholder brings an action based on his or her personal rights?
Because the company is the defendant rather than the claimant.
Describe a situation that could result in both a claim by a company against its directors for breach of duty and a claim by a shareholder for breach of his or her personal rights.
Where directors allot shares without respecting the preemption right of shareholders.
What is a reflective loss?
Where a company suffers a loss which also significantly diminishes its assets, thereby reducing the value of shares. (i.e. the loss is reflected to the shareholders)
What is the no reflective loss principle?
Where a breach of directors’ duties causes a reflective loss to the shareholders, they have no rights to sue, as the loss is of the company.
What is the exception to the “no reflective loss” principle?
Where the company is unable to pursue its claim because of the directors’ wrongdoing, the member is permitted to bring action to recover reflective loss.
e.g. the breach of duty causes the company to go into insolvent liquidation, and it therefore cannot cover court fees.
