Foss v Harbottle revisited: Debunking the myth of member personal right as an exception

I. INTRODUCTION

As in any area of governance, corporate governance involves a struggle for power, necessitating checks and balances to prevent the usurpation of powers by the majority against the minority. Thus, the question arises — how are the powers of the majority checked when a wrong is done against the company?

In Foss v Harbottle (1843) 2 Hare 461, the court developed a two-fold rule:

The proper plaintiff rule — the proper plaintiff in actions alleging wrongs done to the company is the company itself.

The majority rule — if the alleged wrong is one which the company may lawfully settle or ratify through its internal structures, no individual member may bring an action.

This article reviews Foss v Harbottle alongside Edwards v Halliwell [1950] 2 All ER 1064, arguing that the so-called exception of “personal rights being invaded” is not a genuine exception to the rule.

II. AN OVERVIEW OF THE RULE IN FOSS v HARBOTTLE

A. Origin and Application of the Rule

In Foss v Harbottle, two minority shareholders sued the company’s directors for misapplying company property. The court held that:

The company itself, being a separate legal entity (Salomon v Salomon & Co Ltd [1897] AC 22), is the proper plaintiff.

The court will not interfere where the company can ratify the alleged wrong.

The rule was affirmed in cases such as Mozley v Alston (1847) 1 Ph 790 and McDougall v Gardiner (1875) 1 Ch D 13.

In Ghana, it was applied in Appenteng v Bank of West Africa [1961] GLR 196 and Pinamang v Abrokwa [1991] 2 GLR 384 (CA), where the courts refused to intervene in the internal management of a company.

B. Exceptions to the Rule

Although courts avoid interfering in corporate affairs, the strict rule often leads to hardship. Hence, exceptions have evolved.

(a) Common Law Exceptions (Edwards v Halliwell [1950] 2 All ER 1064)

Jenkins LJ set out four exceptions:

Ultra vires acts — where the act is wholly beyond the company’s powers.

Fraud on the minority — where the wrongdoers control the company.

Matters requiring special majority — when the proper procedure is ignored.

Personal rights invaded — where individual rights of shareholders are infringed.

(b) Ghanaian Statutory Exceptions (Companies Act, 2019 – Act 992)

The Act relaxes the rule, notably in P.S Investment Ltd v CEREDEC [2012] 1 SCGLR 611. Key statutory exceptions include:

Injunctions against illegal or irregular activity (s.218).

Remedy against oppression (s.219).

Derivative actions (s.201).

Enforcement of the company’s constitution (s.29), as affirmed in Adehyeman Gardens Ltd v Assibey [2003-2004] 2 GLR 1016.

III. THE “PERSONAL AND INDIVIDUAL RIGHTS INVADED” EXCEPTION

A. Overview

This supposed exception protects members whose personal rights (e.g. voting, dividends, attendance at meetings, inspection of registers) have been unlawfully interfered with. Examples include:

Right to attend meetings (s.34, Act 992)

Right to vote

Right to dividends

Right to inspect registers (s.36, Act 992)

Right to appoint or remove directors

B. Analysis: Is It a True Exception?

The article argues that this is not a true exception because:

Personal right suits benefit individuals, not the company.
Such actions do not involve the company’s assets or interests; hence they fall outside the scope of Foss v Harbottle.

They are not brought on behalf of the company.
The proper plaintiff rule concerns company wrongs, whereas personal right suits concern private grievances.

They fail the two legs of the rule.
The directors’ actions in such cases do not harm the company per se but individual members.

Thus, these suits are not exceptions to Foss v Harbottle because the underlying rationale — protecting the company’s collective interest — is absent.

IV. CONCLUSION

On careful analysis, the “personal and individual rights invaded” category is not a true exception to the Foss v Harbottle rule. The rule is meant to safeguard corporate interests, not individual entitlements.

While Edwards v Halliwell listed it among exceptions, this article challenges that inclusion, calling for judicial reconsideration and doctrinal clarity. The author advocates for a refined interpretation that distinguishes corporate wrongs (where Foss v Harbottle applies) from personal wrongs (which stand independently).

NB: Kindly note that views and perspectives expressed or canvassed in articles are solely those of the authors and do not reflect the views of DL News. They are published purely for academic purposes.