This is the complete a - z note on the company law topic, you just have to go through it once and you can easily attempt the question and get A ++ grade in finals
this is a marked answer by a senior professor you just need to read it and you can even write the same just need to change it a bit ...
2011 Zone B Question#6
The question required us to advise Niall, Sabrina’s former husband with regards
to whether he can bring a derivative claim against Sabrina on behalf of Citadel Ltd
of which she is the managing director. In order to ascertain whether the Court will
allow proceedings for such a claim, it is essential to assess the rules pertaining to
the filing of such a claim, the case law relating to the development of these rules
and the criticism regarding this doctrine due to the majority rule.
A derivative claim is defined by S.260 (1) of the CA 2006 as; a member or multiple
members of a Company bringing proceedings to suing to enforce the Company
rights, the benefit of which shall solely go to the Company. A member is defined
by S.260 (50) (c) as a person who is necessarily not a member but for whom
shares have been transferred or transmitted by Law. This is primarily an exception
to the general rule in the case of Foss v Harbottle which holds that in case a
company is wronged, the claimant is Prima Facie the Company itself and if a
transaction is binding on the Company and its members by virtue of ratification by
majority shareholders, no individual shareholder can bring an action (cadit
quaestio) (Breckland Group Holdings v London). Lord Davey in Burland v Earle
held that “…Court will not interfere with the internal management of the
Companies acting within their power…” This decision was reiterated in Mac
Dougall v Gardiner. The basis for Niall, as a minority shareholder (10%) to bring a
successful derivative claim can be found since a Shareholder may sue a director
who is in breach of his director duties (171-177) CA 2006 where the company is
unwilling to.
In the case of Edward v Halliwell, Lord Jenkins stipulated four exceptions to the
rule in Foss, these include; the wrongful act is ultravires the Company/illegal thus
no ratification will take place (Prudential Assurance v Newman Industries), Court
may award injunction for noncompliance with a special procedure (Quinn and
Axten v Salmon), personal rights of members have been infringed (Pender v
Lushington) and lastly, the real exception is where a fraud has been perpetrated
against the Company by members who have control and are restricting an action
against the minority.
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