Miss

1.1 Background

• Background: Always Win Securities Ltd. (“AWS”) (Patrick – 51% / Qunicy – 49%) Rita – Managing Director

Jun 08 • Patrick commenced legal action in the name of AWS against CC • No concrete evidence • Patrick suspects Compact Computer Ltd. (“CC”) failed to provide the latest computer models to AWS, leading to breach of contract • Rita has an affair with the managing director of CC

May 08

Identification: Internal management rule Proper plaintiff rule (Separate legal entity) Derivate action

1.2 Description and Explanation

• Relevant case: Foss v Harbottle (1843)

Internal Management Rule (“IM rule”) Proper Plaintiff Rule (“PP rule”) In any action which a wrong is alleged to have been done to a company, the proper claimant is the company • • Court reluctance to interfere with internal irregularities which are capable of being ratified by ordinary resolution at a general meeting (Burland v Earle 1902) • General meeting can ratify breaches of fiduciary duties, instruct the board to take legal action to protect its Companies Ordinance (“CO”) s168A: Any interest

member of a company, who complains the company has been conducted in a manner unfairly prejudicial to the interests of the members generally, may make an application to the court by petition for an order SFO Cap 571: SFC may apply for relief if it is unfairly prejudicial to the interests of some of its shareholders of the listed company Derivative action: Lawsuit brought by a shareholder on behalf of a corporation against a third party because of misfeasance

1.3 Exceptions to the Rule in Foss v Harbottle

Exceptions Ultra vires and illegality Relevant cases Smith v Croft (no.2) Cockburn v Newbridge Sanitary Steam Laundry Co (1915) Edward v Halliwell (1950) Description • Directors of a company, or a shareholding majority may not use their control of the company to paper over actions which would be ultra vires the company, or illegal • If some SR would be necessary under the CO, it...