Foss V Harbottle Case Study

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The rule in Foss v Harbottle1 has long been seen as a significant barrier to effective shareholder enforcement action, particularly in cases of wrongdoing by a company’s own directors.2 In response to the uncertainties associated with the common law, section 303 of the Companies and Allied Matters Act 2004 was enacted introducing for the first time into Nigeria’s company law a statutory ‘derivative action’.
A derivative action is an action brought by a shareholder or director of a company in the name and on behalf of that company. Such an action is ‘derivative’ in the sense that the right to sue belongs not to the party actually bringing the action, but is ‘derived’ from that of the company. Its purpose is to achieve relief in situations where …show more content…
there can be no use in having a litigation about it, the ultimate end of which is only that a meeting has to be called, and then ultimately the majority gets its wishes.5
Consequently, when reference is made to the ‘rule in Foss v Harbottle’, it is generally this broader set of principles which is being referred to, rather then just the locus standi rule referred to by Sir James Wigram in Foss v Harbottle itself.
There is disagreement as to whether the rule is in fact a single rule incorporating these two components - the ‘proper plaintiff’ component and the ‘internal management’ or ‘majority rule’ component - or two separate but related rules. The former interpretation postulates a single rule, based in broad terms on the majority rule principle,6 and stating that, where a company has a cause of action, that company is the proper party to bring proceedings, provided that an individual shareholder or director may take action on the company’s behalf if the conduct complained of cannot be properly ratified by an ordinary resolution of
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