• In simple legal Parlance, the so-called rule in Foss v Harbottle (1843) is the majority rule.
• It describes the policy of courts of law not to interfere with internal affairs of companies acting within their powers.
• The rule was formulated in Foss v Harbottle (1843) and consists of three principles namely:
– proper plaintiff
– Internal management
This rule serves certain purposes or functions:
• Promotes democracy in company management.
• Prevents multiplicity of actions on behalf of the company.
• Discourages frivolous and incompetent actions.
• Re-affirms the rule in Salomon v Salomon and Co Ltd that is the company is a legal person and should thus be left alone to enforce its rights manage its internal affairs and correct internal irregularities.
Exceptions to the rule in Foss v Harbottle are circumstances in which the majority rule does not apply. They are instances in which a person other than the company may sue to remedy the wrong in questions. Such circumstances include;
– Ultravires or illegal acts
The majority rule does not apply if the company is acting or threatening to act in an ultra vires or illegal manner.
– Special or qualified majorities
Where the majority purport use a simple majority to make a decision that can only be made by a qualified majority, the rule cannot apply Bailie V. Oriental Telephoneand Electric Ltd.
– Infringement of individual membership rights
Where individual rights are violated or threatened with violation, a personal action for redress is available.
– Fraud on the minority: This is an abuse of power or misuse of a fiduciary position
e.g. breach of duty or unfair use of majority voting power Cooks V. Deeks.
– Oppression of minority:
Under Section 211 of the Companies Act, any member of the company who complains that the affairs of the company are being conducted in a manner oppressive to some part of the members including himself may apply to the court by petition for an order under this section. The petitioner must file a representative action and discharge the onerous burden of proof under this section.