Exceptions To The Rule
There are certain exceptions to the rule in Foss v. Harbottle, where litigation will be allowed. The following exceptions protect basic minority rights, which are necessary to protect regardless of the majority's vote.
- 1. Ultra vires and illegality
The directors of a company, or a shareholding majority may not use their control of the company to paper over actions which would be ultra vires the company, or illegal.
- s 39 Companies Act 2006 for the rules on corporate capacity
- Smith v Croft (No 2) and Cockburn v. Newbridge Sanitary Steam Laundry Co. 1 IR 237, 252-59 (per O'Brien LC and Holmes LJ) for the illegality point
- 2. Actions requiring a special majority
If some special voting procedure would be necessary under the company's constitution or under the Companies Act, it would defeat both if that could be sidestepped by ordinary resolutions of a simple majority, and no redress for aggrieved minorities to be allowed.
- Edwards v Halliwell 2 All ER 1064
- 3. Invasion of individual rights
- Pender v Lushington (1877) 6 Ch D 70, per Jessel MR
...and see again, Edwards v Halliwell 2 All ER 1064
- 4. "Frauds on the minority"
- Atwool v Merryweather (1867) LR 5 EQ 464n, per Page Wood VC
- Gambotto v WCP Limited (1995) 182 CLR 432 (Aus)
...and see Greenhalgh v Arderne Cinemas Ltd for an example of what was not a fraud on the minority
Read more about this topic: Foss V Harbottle
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