The Rule in Foss vs Harbottle

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The Rule in Foss v. Harbottle Introduction The starting point for any discussion of shareholders’ actions is the rule in Foss v.Harbottle which stands for the proposition that only a company, not its shareholders, can sue for wrongs done to the company. The facts giving rise to the case which has given its name to this rule were as follows. A company known as “The Victoria Park Company” was formed to assemble and develop certain lands in Manchester, England. Foss and Harbottle were shareholders of the company. Foss alleged that Harbottle and others had made secret profits by, among other things, selling lands that they owned to the company at inflated prices, and that they had otherwise engaged in wrongful conduct to the detriment of the company. Foss and another shareholder commenced an action against Harbottle and others, “on behalf of themselves and all other proprietors of shares [of the company] except the defendants”, seeking, among other things, a decree that the defendants “make good to the company the losses and expenses occasioned by the acts complained of”. In the result, the court concluded that the plaintiffs could not sue in the name of the company, and therefore allowed the defendants demurrers, thus dismissing the action. Vice-Chancellor Wigram reasoned as follows; The Victoria Park Company is an incorporated body, and the conduct with which the defendants are charged in this suit is an injury not to the plaintiffs exclusively; it is an injury to the whole corporation by individuals whom the corporation entrusted with powers to be exercised only for the good of the corporation....[I]t may be stated as undoubtedly law that a bill or information by a corporation will lie to be relieved in respect of injuries which the corporation has suffered at the hands of persons standing in the situation of the directors upon this record. This bill,
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