The Rule In Foss V. Harbottle)

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The rule in Foss v Harbottle1 has long been seen as a significant barrier to effective shareholder enforcement action, particularly in cases of wrongdoing by a company’s own directors.2 In response to the uncertainties associated with the common law, section 303 of the Companies and Allied Matters Act 2004 was enacted introducing for the first time into Nigeria’s company law a statutory ‘derivative action’.
A derivative action is an action brought by a shareholder or director of a company in the name and on behalf of that company. Such an action is ‘derivative’ in the sense that the right to sue belongs not to the party actually bringing the action, but is ‘derived’ from that of the company. Its purpose is to achieve relief in situations where a wrong has been done to the company, rather than to its shareholders personally. Normally, the decision to take action on the company’s behalf lies with the directors, as they generally have the responsibility of managing the company. However, in some cases it is necessary that the shareholders be given the right to commence action on the company’s behalf, usually because some or all of the board are themselves responsible for the wrong that has been committed.
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It seeks to answer the question: what is the difference between its application in the cases of Daniels v Daniels and Pavildes v Jensen
Under the common law, a derivative action was generally possible only if the applicant could invoke one of the ‘exceptions to the rule in Foss v Harbottle’.
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