Professional Documents
Culture Documents
FAITS DE LA CAUSE
Richard Foss and Edward Starkie Turton were two minority shareholders in the "Victoria Park Company". The company had been set up in September 1835 to buy 180 acres of land near Manchester and, according to the report, "enclosing and planting the same in an ornamental and park-like manner, and erecting houses thereon with attached gardens and pleasure-grounds, and selling, letting or otherwise disposing thereof". This became Victoria Park, Manchester. Subsequently, the company was incorporated. The claimants alleged that property of the company had been misapplied and wasted and various mortgages were given improperly over the company's property. They asked that the guilty parties be held accountable to the company and that a receiver be appointed. The minority shareholder took action against the majority shareholder The defendants were the five company directors and the solicitors and architect
Held The company and its members are separate legal entities and the company has power to sue whenever its rights have been infringed upon. Its legal personality is a statutory creation and therefore its powers could be exercised by and subject to the wishes of the majority The shareholders/members cannot enforce the rights and remedies of the company. The company should sue in its own name.
ADVANTAGES
Minimizing the risk of multiplicity of suits regarding the same matter Company will not be subjected to unnecessary suits in respects of matters which are mere irregularities in internal management and which can be set right by the majority
DISADVANTAGES
The majority could restrain any proceedings which are for the benefit of the minority and not to the advantage of majority A wrongdoer may escape a company action to enforce its rights as they will not proceed with the action against himself if the wrongdoer is in control and is authorised by the companys AoA to decide so.
THE COURTS HAVE ALLOWED MEMBERS TO TAKE ACTION AGAINST THE WRONGDOER IN CERTAIN SITUATIONS
Where the act complained of is wholly ultra vires the company or association the rule (Foss v Harbottle rule) has no application because there is no question of the transaction being confirmed by any majority. In this case, the act was not ultra vires based on the facts.
FRAUD ON MINORITY
Meaning of fraud Fraud requirement actual fraud or deception enough? Abdul Rahim bin Aki v Krubong Industrial Park (Melaka) Sdn Bhd 1. Fraud on minority a term of art and has nothing to do with actual fraud or deception at common law 2. Lack of probity comes within expression but no need to prove dishonesty 3. Sufficient if show majority in power abuse powers improper use of powers
EXAMPLES
Expropriate the company's property Cook v Deeks Expropriates minority's property Brown v British Abrasive Wheel Co
COOK V DEEKS
The directors expropriated a project which the company was negotiating. As they formed the majority, they passed a shareholders resolution to declare that the company had no interest in the contract.
The Privy Council advised that the three directors had breached their duty of loyalty to the company, that the shareholder ratification was a fraud on Mr Cook as a minority shareholder and invalid. The result was that the profits made on the contractual opportunity were to be held on trust for the Toronto Construction Co.
Tan Guan Eng & Anor v Ng Kweng Hee &Ors The control can be determined from the shareholding. When wrongdoers do not hold the majority shares, the court may go behind the apparent ownership of the shares in order to determine whether wrongdoers do in fact control the company)
SPECIAL MAJORITY
There are transactions requiring special majority (e.g passing of members special resolution) Similarly, if the AoA requires certain transactions to be approved by a certain shareholder, the decision of the shareholder cannot be overridden.
SPECIAL MAJORITY
Quin & Axtens Ltd v Salmon The companys articles provided that certain contracts must be approved by Salmon and Axtens. In one instant, Salmon refused to consent and the directors called for an EGM to approve the transaction. The court granted injunction to restrain the company from acting on the members resolution.
PERSONAL RIGHTS
Where the personal and individual rights of the shareholders were invaded, shareholder may sue Pender v Lushington (1877) One vote for every 10 shares maximum of 100 votes A member transferred his shares to Mr Pender for him to vote Company meeting: vote disallowed
Jessel MR This is an action by Mr Pender for himself. He is a member of the company and whether he votes with the majority or the minority he is entitled to have his vote recorded- an individual right in respect of which he has a right to sue.