The Rule in Foss v Harbottle is Dead; Long Live the Rule in Foss v Harbottle

Abstract

The proper plaintiff rule reflects the elemental legal principle that only the right-holder is entitled to enforce the right. At common law, as a corollary of this principle, only when the general meeting was incapable of acting in the corporate interest could a derivative action be brought. It followed from this principle that wrongdoer control of the shareholder meeting was a pre-requisite to derivative litigation. The Companies Act 2006 introduced what is considered to be a ‘new’ derivative action mechanism. Although the Act is silent about the wrongdoer control requirement, it is widely understood to have abolished it. Central to this understanding is the view that this is what Parliament intended, as supported by a view of the mischief of the Act and by several ministerial statements. However, careful attention to the extra-legislative record as well as to the rules on statutory interpretation render this view of the mischief of the Act inaccurate and these statements of ministerial intent inadmissible. Detaching our interpretation of the Act from reliance upon this record opens up unexpected possibilities when combined with observations from recent authority which suggest that the Act’s reforms were not intended to abolish the proper plaintiff principle. A compelling case can be made that wrongdoer control remains as a threshold condition to derivative litigation.