Edwards v Halliwell

Facts

• The National Union of Vehicle Builders had a rule requiring a two-thirds majority to increase membership subscriptions.
• The executive committee purported to increase subscriptions without obtaining the requisite two-thirds majority vote.
• Individual members (Edwards and another) brought an action challenging the increase.
• It was argued that under Foss v Harbottle, only the union itself could bring such a claim.

Issue

1. Whether individual members can maintain an action challenging a corporate/union decision where the rule in Foss v Harbottle would ordinarily require the entity itself to be the plaintiff.

Held

• The Court of Appeal held that the plaintiffs could maintain the action. Jenkins LJ catalogued the exceptions to the Foss v Harbottle principle: (1) Ultra vires or illegal acts that no majority can ratify; (2) Acts requiring a qualified (special) majority where only a simple majority was obtained; (3) Fraud on the minority where wrongdoers are in control; (4) Infringement of personal rights of individual members. The case fell within exception (2): the prescribed majority was not obtained.

Ratio Decidendi

While the rule in Foss v Harbottle establishes majority rule and the proper plaintiff principle, these are subject to well-established exceptions. A member may bring a personal action where: (i) the act complained of is ultra vires or illegal, being beyond the company's capacity and thus incapable of ratification; (ii) the act requires a special or qualified majority which was not in fact obtained; (iii) the majority has perpetrated a fraud on the minority and the wrongdoers control the company, preventing it from suing; (iv) the member's individual right (as opposed to corporate right) has been infringed. In such cases, the minority member has locus standi to sue.