Foss v Harbottle (1843) 67 E.R. 189

Key Point

  • In general, only the company is entitled to sue for wrongs committed against the company and shareholders are not entitled to sue.

Facts

  • Two shareholders in a real estate company brought a claim against the directors for breach of their duties by misapplying capital.

Held (Court of Chancery)

  • The shareholders were not entitled to bring the claim.

Wigram V-C

  • ‘Whilst the Court may be declaring the acts complained of to be void at the suit of the present Plaintiffs, who in fact may be the only proprietors who disapprove of them, the governing body of proprietors may  defeat the decree by lawfully resolving upon the confirmation of the very acts which are the subject of the suit. The very fact that the governing body of proprietors assembled at the special general meeting may so bind even a reluctant minority is decisive to shew that the frame of this suit cannot be sustained whilst that body retains its functions. In order then that this suit may be sustained it must be shewn either that there is no such power as I have supposed remaining in the proprietors, or, at least, that all means have been resorted to and found ineffectual to set that body in motion’ p. 204

Commentary

  • The reasoning is basically that since the majority shareholders can ratify the acts of the directors that are allegedly in breach of their duties, the shareholder should not be entitled to sue.
  • Note that the rule here is subject to common law and statutory exceptions.