Why Is the Rule in Foss v. Harbottle Such an Important One?

Abstract

SUMMARY The Rule of Foss v. Harbottle has established an elementary principle in the field of company law: the proper plaintiff for a wrong done to a company, is the company itself. This principle together with the ‘Salomon’ principle of separate legal personality of companies have been of invaluable importance for commerce and modern economy. On the flip side of the coin have always lain the minorities, commonly protected by derivative claims and unfair prejudice remedies. After the entering into force of the new statutory derivative actions, many scholars argued that the Rule of Foss was abolished, also that there would be an increase in shareholders’ litigation and have further expressed concerns about overlaps between both derivative actions and unfair prejudice remedies. This article argues that, irrespective of whether the Rule of Foss was amended from its original formulation, its underlying principles are still today of the utmost importance. It also analyses whether or not there has been such increase in litigation, and finally why it is of such relevance to keep the dividing line between derivative claims and unfair prejudice remedies very clearly drawn.