holdings : corporate litigation in the uk

holding is the “legal principle to be drawn from the opinion of the court.”


Carlen v Drury (1812) 35 ER 61
The court generally does not allow litigation by members where a procedure for redress is set out in the articles of association. If there are disagreements between the directors and shareholders about whether to pursue a claim, this was thought to be a question best left for the rules of internal management in a company’s constitution, since litigation could legitimately be seen as costly or distracting from doing the company’s real business.

Foss v Harbottle (1843) 67 ER 189
The rule in Foss v Harbottle states that in any action in which a wrong is alleged to have been done to a company, the proper claimant is the company itself. The board of directors invariably holds the right to sue in the company’s name as a general power of management, and as a general rule only the board could bring claims in court. A majority of shareholders would also have the default right to start litigation, but the interest a minority shareholder had was seen as relative to the wishes of the majority. Aggrieved minorities could not, in general, sue. Only if the alleged wrongdoers were themselves in control, as directors or majority shareholder, would the courts allow an exception for a minority shareholder to derive the right from the company to launch a claim. In practice very few derivative claims were successfully brought, given the complexity and narrowness in the exceptions to the rule in Foss v Harbottle. This was witnessed by the fact that successful cases on directors’ duties before the Companies Act 2006 seldom involved minority shareholders, rather than a new board, or a liquidator in the shoes of an insolvent company, suing former directors.

Allen v Gold Reefs of West Africa Ltd [1900] 1 Ch 656
Concerning alteration of a company’s articles of association. Lord Lindley MR held the alteration of the company’s articles was valid to introduce a lien on fully paid up shares, even if they only impacted one shareholder. So long as the resolution was done bona fide for the benefit of the company as a whole, restrictions on freedom of a company to alter its articles are invalid. Alterations could not be interfered with by the court unless a change was made that was not bona fide for the benefit of the company as a whole. This rule served as a marginal form of minority shareholder protection at common law, before the existence of any unfair prejudice remedy.

Brown v British Abrasive Wheel Co [1919] 1 Ch 290
Concerning the validity of an alteration to a company’s constitution, which adversely affect the interests of one of the shareholders. British Abrasive Wheel Co needed to raise further capital. The 98% majority were willing to provide this capital if they could buy up the 2% minority. Having failed to effect this buying agreement, the 98% purposed to change the articles of association to give them the power to purchase the shares of the minority. The proposed article provided for the compulsory purchase of the minority’s shares on certain terms. However, the majority were prepared to insert a provision regarding price which stated that the minority would get a price which the court thought was fair. Astbury J held that the alteration was not for the benefit of the company as a whole and could not be made. One reason for this was that there was no direct link between the provision of the extra capital and the alteration of the articles. Although the whole scheme had been to provide the capital after removing the dissenting shareholders, it would in fact have been possible to remove the shareholders and then refuse to provide the capital.

Sidebottom v Kershaw, Leese & Co Ltd [1920] 1 Ch 154
Concerning the alteration of a company’s constitution, and the rights of a minority shareholder. The company’s articles were changed to allow for the compulsory purchase of shares of any shareholder who was competing with the company. One shareholder was competing with the company and challenged the alteration. He argued that in Brown v British Abrasive Wheel Co where a change for compulsory share purchase was held invalid as not being bona fide for the benefit of the company as a whole, should be applied here too.  The Court of Appeal held that the article alteration was clearly valid, and very much for the benefit of the company. The court made clear that in Brown v British Abrasive Wheel Co, Astbury J had been wrong to regard good faith alterations and the company’s benefit as two separate ideas. The important question was whether the alteration for the benefit of the company as a whole.

Southern Foundries (1926) Ltd v Shirlaw [1940] AC 701
In the field of contracts this case is well known for MacKinnon LJ’s decision in the Court of Appeal, where he put forth the “officious bystander” formulation for determining what terms should be implied into agreements by the courts. In the field of company law, it is known primarily to stand for the principle that damages may be sought for breach of contract by a director even though a contract may de facto constrain the exercise of powers to sack people found in the company’s constitution.

Shuttleworth v Cox Bros and Co (Maidenhead) [1927] 1 Ch 154
Concerning alteration of a company’s constitution. Cox Bros and Co (Maidenhead) had appointed a board of directors for life, and had fixed this under its articles of association. Then it proposed to amend its articles so that a director would lose his position if the other directors requested in writing for him to resign. Mr Shuttleworth, who was targeted by the changes, brought a claim alleging that the alteration of the articles was not bona fide for the benefit of the company as a whole. The Court of Appeal dismissed the appeal holding that the alteration of the articles was bona fide for the benefit of the company and was valid. It reaffirmed the bona fide test laid down in Sidebottom v Kershaw, Leese & Co.

Greenhalgh v Arderne Cinemas Ltd (No 2) [1946] 1 All ER 512; [1951] Ch 286
case concerning the issue of shares, and “fraud on the minority”, as an exception to the rule in Foss v Harbottle. Mr Greenhalgh wished to prevent control of the company going away, and argued that the article change was invalid, a fraud on him and the other minority shareholders, and asked for compensation.

Wallersteiner v Moir (No 2) [1975] QB 373
replaced the exceptions and the rule in Foss v Harbottle, is now contained in the Companies Act 2006 sections 260-264

Citco Banking Corporation NV v Pusser’s Ltd