This chapter discusses the rule in Foss v Harbottle and the development of the common law derivative claim as an exception to that rule. The chapter considers the nature of a derivative claim including multiple derivative claims and the basis for granting permission for a claim at common law. The chapter then considers the statutory derivative claim introduced by the Companies Act 2006 (CA 2006), Part 11 and examines the basis for granting permission for these statutory claims. The chapter also addresses the issue of reflective loss and the circumstances in which reflective loss will bar a claim by a shareholder. Personal actions at common law and specific statutory rights for shareholders under the CA 2006, for example, rights to information or to call meetings, are also considered.
Chapter
20. The derivative claim and the rule in Foss v Harbottle
Chapter
20. The derivative claim and the rule in Foss v Harbottle
This chapter discusses further aspects of shareholder remedies, namely the common law multiple derivative claim; derivative claims under Companies Act 2006 (CA 2006), Part 11; the reflective loss principle; personal actions at common law; and specific statutory rights under the CA 2006. At common law, a shareholder aggrieved by a breach of duty by a director could bring a derivative claim on behalf of the company, as an exception to the rule in Foss v Harbottle. That common law claim now remains as a common law multiple derivative claim whereas the ‘ordinary’ derivative claim now is a statutory claim under CA 2006, Part 11. This chapter explores both types of derivative claim and assesses their value to shareholders. An important constraint on shareholder recovery is the principle governing reflective loss which has recently been restated by the Supreme Court. This chapter considers the current position in the light of that development.
Chapter
9. Company Auditors
This chapter discusses the available remedies when a company is poorly run, including the types of issues that are legitimate subjects of complaint. Topics covered include: pursuing claims for maladministration; why shareholder litigation is such a problem; the old common law rule in Foss v Harbottle; the statutory derivative action for bringing corporate claims and limitations based on reflective loss; personal claims by members; and unfairly prejudicial conduct of the company’s affairs.
Chapter
10. Derivative claims
Titles in the Core Text series take the reader straight to the heart of the subject, providing focused, concise, and reliable guides for students at all levels. This chapter examines derivative action as a means of safeguarding minority shareholders against abuses of power and its implications for the principle of majority rule. It begins by analysing the rule in Foss v Harbottle (1843), which translates the doctrine of separate legal personality, the statutory contract, the ‘internal management principle’, and the principle of majority rule into a rule of procedure governing locus standi (that is, who has standing to sue), as well as the exceptions to that rule. It then considers various types of shareholder actions, including personal claims, representative actions (group litigation), and derivative claims. It also discusses derivative claims under the Companies Act 2006, with emphasis on the two-stage process of the application for permission to continue a derivative claim. The chapter concludes by assessing bars to a derivative action, together with liability insurance and qualifying third party indemnity provisions.
