comments and notes a commentary on the derivative action under
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81
COMMENTS AND NOTES
A COMMENTARY ON THE DERIVATIVE ACTION UNDER THE LESOTHO DRAFT COMPANIES BILL OF 2006
A. O. NWAFOR'
I. INTRODUCTION
The rule in Foss v Harbottle1 makes it clear that a court will not ordinarily intervene
in a matter which it is competent for the company to settle itself or deal with an
irregularity which the company can ratify or condone under its own internal procedures.
Where it is alleged that a wrong has been done to a company, prima facie, the only
proper plaintiff is the company itself. The rigidity of the application of this rule and
the inherent injustice it may cause to minority shareholders has given rise to various
judicial and lately, statutory exceptions under which minority actions, not only for the
enforcement of personal rights, but also corporate rights, are recognised. Where the
personal right of the shareholder is affected, the rule does not have any application
as the shareholder could sue in his name as the plaintiff while the company is the
defendant. Similarly, a shareholder could maintain an action for himself and on behalf
of other shareholders in a representative capacity where the rights of a number of
shareholders are infringed. These types of action obviously do not pose any difficulty
as the shareholder is merely asserting his right or rights which he enjoys with some
other members of the company.
Problems often arise where the shareholder is seeking to enforce a right
which strictly belongs to the company. There is always a question of locus standi
in such a situation. The law does not debar a shareholder from enforcing company's
rights, but the shareholder must do so on behalf of the company and in due compliance
with settled prerequisites appertaining to such action, such as satisfying the court that
the wrong complained against constitutes fraud on the minority, the plaintiff comes
with clean hands and is pursuing the action in good faith, and that the wrongdoers who
are in control would not seek remedy on behalf of the company.2 The device through
Ph.D., Senior Lecturer, Faculty of Law. National University of Lesotho. (1843) 2 Hare 461. See also MacDougall v Gardner (1875) 1 Ch D 13. Edwards v Halliwell [19501 2 All ER 1064.
2 These requirements are discussed in some details below.
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which a shareholder can enforce company's rights is referred to as derivative action.
This commentary attempts to examine this judicial device which has
continued to elude the comprehension of many a practitioner and students of law
alike, as evidenced by a number of court cases which often get terminated prematurely
for lack of locus standi by the plaintiff who is seeking to enforce company's rights
without complying with the requirements for doing SO.3 The emphasis is however on
the draft Companies Bill, 20064 of Lesotho which attempts to codify certain aspects
of this rule.
2. CONCEPT OF DERIVATIVE ACTION
The derivative action is an action instituted by one or more shareholders seeking to
enforce a right which belongs to the company and not to the individual shareholders.
The action is referred to as a derivative action because the right of action belongs to
the company and the power of the shareholder to institute the action is derived from
the company.
This type of action was formerly referred to as minority shareholder's action
in England until 1975 in the case of Wallersteiner v Moir No.25 where the court
adopted the American courts' description of the same as a stockholders' derivative
action. Lord Denning, MR in that case said:
"The form of action is always A.B.(minority shareholder) on behalf of
himself and all other shareholders to the company against wrong doing
directors and the company."6
The essence of joining the company and the wrongdoers as defendants is to enable
the company benefit from any judgment which may result from the action. It has been
described as highly misleading to find that an action to enforce the company's rights
takes the form, apparently, of an action against the company. The justification for this,
however, is that the company cannot be made a plaintiff unless the board of directors
3 See for instance Danish Mercantile Co Lid v Beaumont [1951] Ch 680; Airways Lid v Bowen [19851 BCLC 355 where the coun had to suspend proceedings for the meeting of the shareholders to be convened to decide whether litigation should continue.
4 Hereinafter called the Bill. 5 [19751 QB 375 Scarman, U observed that the American description of a minority shareholder's action brought to
obtain redress for the company as a stockholders' derivative action is apt. 6 Ibid at p. 390.
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COMMENTS AND NOTES 83
or the general meeting have consented to the proceedings.7 Where such consent is
given, which is not likely, there cannot be a derivative action as the company will
then maintain the action in its own name as the proper plaintiff under the rule in Foss
v Harbottle. It is in realisation of the fact that the company is the direct beneficiary
of such an action that the English Court of Appeal in Wallersteiner's case recognised
that in appropriate cases the shareholder should be indemnified by the company for the
cost of bringing the action on the company's behalf.
The difference between a derivative action and a representative action is that
the shareholders derivative action involves the assertion by a shareholder of a corporate
cause of action against persons, either within or without the corporation, who have
allegedly wronged it, where the corporation has failed to enforce such claim directly.
On the other hand, the representative action involves the enforcement by a shareholder
of a cause of action which accrues to him and other members of the company, except
the wrongdoers, against the company and possibly the wrongdoers.s
3. CONDITIONS FOR INITIATING THE DERIVATIVE ACTION
Derivative actions are not lightly initiated as the shareholder seeking to maintain such
an action must fulfil some basic requirements to establish his locus standi to pursue
a relief which ordinarily should be sought by the company in its own name. The two
basic requirements are that the shareholder must show: (i) that fraud is being committed
against the minority of the shareholders;9 (ii) the wrongdoers are in control of the
affairs of the company and would not allow any action to be brought by the company
against them in the company's name.1O The Nigerian Court of Appeal restated both
requirements in Sparks Electrics Ltd v Ponmile ll where Nnaemeka Agu, JCA said:
"All I wish to say is that it is not every case of fraud on a company that
comes within the exceptions. What comes within the exceptions is an
7 P.L. Davies and D.O. Prentice, Gower's Principles of Modern Company Law, 6'" ed., London. Sweet & Maxwell Ltd (1997), p. 666. This assertion accords with the Nigerian Court of Appeal decision in Mokwe v Ezeulw [20001 14 NWLR (pl.686) 143 that only the board or the general meeting can maintain action for the company. See also Ladejobi v Odutola Holdings Lld [2002]3 NWLR (pI.753) 121.
8 See K.E. Barnes. Cases and Materials on Nigerian Company Law, Nigeria, Obafemi Awolowo University Press Ltd (1992). p. 387.
9 Wedderburn suggests that this should more appropriately be referred to as fraud on the company. See J.H. Farrar and B.M. Hannigan, Farrar's Company Law, 4'" ed., London, Butterworths (1998). p. 435.
10 Farrar's Company Law, ibid. II [19861 8 NWLR (pI.23)516.
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act which constitutes a fraud on the minority and the wrongdoers are
themselves in control of the company."12
3.1 Fraud on the Minority
What amounts to fraud on the minority has been the subject of diverse judicial and
academic opinions. In Yalaju Amaya v A.R.E.C. Ltd13 the Supreme Court of Nigeria
observed that the word "fraud" is difficult to define and then proceeded to attribute to
it a very wide definition in the following terms:
"It at least appears clear that any act which may amount to an infraction
of fair dealing, or abuse of confidence, or unconscionable conduct,
or abuse of power as between a trustee and his shareholders in the
management of a company, is fraud."14
Farrar had also observed that fraud in the context in which it is used here
includes not just fraud at common law but also fraud in the wider equitable sense of
an abuse or misuse of power. 15 Orojo similarly expressed the view that "the fraud
on the minority for the purpose of the exception lies in the directors' use of their
voting power and not in the character of the act or the transaction giving rise to the
claim."'6 Fraud has been found where directors appropriated to themselves a business
opportunity which the company was actively pursuing,17 self-serving negligence such
as selling the companies property at an under value to one of the directors. IS What is
obvious from these cases is that the term "fraud" as used here demands very little onus
in terms of proof. All that is required of the shareholder in this respect is evidence of
deprivation of the company of an existing opportunity, or that directors have benefited
. from the company's opportunity or property.
12 Ibid al p.422. 13 [1990]4 NWLR (pt. 145)422.
14 This definition seems to have been derived from the combination of decisions in Daniel v Daniel [1979] 2 All E.R. 89. EslifTumco (Kitner House) LId v Greater London Council [1982]1 All E.R. 437. Re A Company [1982] 132 NJL 830.
15 Farrarelal.op.cir.,at436. 16 O. J. Orojo, Nigerian Company Law and Praclice. 3'" ed .• Nigeria, Mbeyi & Associates Nig. Ltd (1992). p. 356.
But this may not be SO in all cases as the charncter of the transaction matters especially as relates to the power of the majority to ratify such transactions. See Hog!! v Cramphorn (1967) Cll 254. Bamford v Bamford (1970) Cll 212.
17 CookY Decks [1916] lAC 554. 18 Daniels v Daniels [1978] eh 406.
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COMMENTS AND NOTES 85
3.2 Control by the Wrongdoer
The next thorny question is the issue of "control" by the wrongdoer. Control was
initially seen as voting control, that is, control attained by virtue of the number of
shares held by the wrongdoer. 19 But in Prudential Assurance Co Ltd v Newman
Industries Ltd (No.2)20 Vinelott J extended the meaning of control to include those
who do not have actual voting control, but who by their position in the company are
capable of manipulating the affairs to ensure that the majority would not allow a claim
to be brought against them.
Establishing that the wrongdoers are in control and would not seek redress
will certainly require the shareholder to show the effort made by him to persuade the
directors to sue in the company's name. This is fulfilled by serving a reasonable notice
on the directors demanding that they commence action in the name of the company to
seek redress for wrong done to the company. Their failure to comply is the root of the
minority shareholder's action.
The issues of wrongdoer control and fraud on the minority are so interwoven
that proving the existence of one will almost invariably lead to the establishment of
the other. This inference is apparent in the statement of Vinelott J in Prudential's case
where he said:
"If the control is being exercised so as to deprive the company of power
to sue for money due to it by way of damages or compensation, this
would seem to be a fraud on the minority."21
4. THE PROCEDURE FOR INITIATING THE ACTION
In order to appreciate the inadequacies of the Lesotho Bill in this regard, it will be
compared with similar provisions under the Nigerian Companies and Allied Matters
Act of 1990 (CAMA) which provides a procedure for commencing a derivative
action. To ensure that the courts are not inundated with cases seeking to enforce the
company's rights by minority shareholders when the company as a juristic person
ought to sue in its own name and guarantee judicial control over such actions, the law
requires that leave of the court must be obtained before such action is commenced
19 See Burland v Earle [1902] AC 83 at 93 Lord Davey held that an exception would be made 10 the rule in Foss v Harbottle "where persons against whom relief is sought themselves hold and control the majority of shares in the company and will not pennit an action 10 be brought in the name of the company."
20 11980]2 All E.R. 841. 21 Supra at 850.
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86 UNIVERSITY OF BOTSWANA LAW JOURNAL DECEMBER 2007
by the shareholder.22 The application for leave, which is usually made by motion ex
parte,23 must satisfy four conditions discussed below:
4.1 Disclose a Prima Facie Case
Prima facie means "of first appearance; on the face of it; based on a first impression,"24
"so far as can be judged from the first disclosure."25 The shareholder must allege
sufficient facts which, if true, would prove a breach of duty to the company which
is likely to go unremedied unless the action is allowed to proceed. Such facts are
usually disclosed in the pleading (statement of claim) annexed to the affidavit in
support of the motion. The facts as stated must be adequate to show acts of control
and wrongdoing by the directors. This is usually the appropriate test whether or not
specifically provided for by the statute.26
4.2 Notice to Directors to Seek Redress in Company's Name
The power to sue in the name of the company is part of the management powers
usually conferred on the board of directors. The shareholder seeking leave to sue must
show in the supporting affidavit that he has given reasonable notice to the directors
informing them ofthe need to pursue such a claim.27 Jt is the directors' failure, refusal
or neglect after such notice that gives justification to the minority shareholder's action.
The notice need not take any particular form so long as the substance is clear. In
Armstrong v Gardiner8 a Canadian Court explained the requirement of notice in the
following terms:
"Although the letters requesting action were not framed with great
particularity as to cause of action to be brought, they were directed to
a solicitor. I think that there was a sufficient demand made to bring
22 Section 303(1) of CAMA. See also section 239 of the Canadian Business Corporations Act, 1985. 23 Though neither the CAM A nor the Bill provides expressly for motion ex parte, that is the correct procedure as the
defendant is not yet before the court, unlike when the applicant is seeking to intervene in a pending suit in which caSe the application is by way of motion on notice as service is intended on the defendant. See Rule 8(4)(21) of High Court Rules of Lesotho, 1980.
24 LB. CUrlon, Dictionary of Law. 3'" ed .• London, Pitman Publishing (1989). p. 344. 25 See Northwest Forest Products Ltd, Re [1974J 4 WWR 724 (BC). 26 Bruce Welling, Corporate Law in Canada; The Governing Principles, 3'" ed., Queensland, Scribblers Publishing
(2006). p. 512. Canadian courts have used other terms such as "arguable case." Bellman and Western Approaches Ltd, Re (1981) 33 BCLR 45, "real and genuine dispute" Solanwn v Elkind (1976) 3 CPC 31, to explain what is meant by prima Jacie case. Section 303(2)(b) of CAMA.
28 (1978) 20 OR 2d 648 (Ont) at 652 per Cory. J. See section 239(2) Canadian Business Corporations Act, 1985.
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COMMENTS AND NOTES
an appropriate action by the two letters sent on behalf of the minority
shareholders."
87
Similarly in Re Bellman and Western Approaches Luj29 the court held that failure to
specify each and every cause of action in a notice does not invalidate the notice.
4.3 The Shareholder Must be Acting in Good Faith
The requirement of good faith is a reflection of the underlying equitable consideration
which gives a right of action to the minority shareholder. Such a shareholder must not
have benefited from or participated in the wrong complained against. He must honestly
be pursuing the relief in the interest of the company and not as a matter of personal
vendetta against the directors.3o The case of Nurcombe v Nurcombe11 illustrates this
principle. The plaintiff in that case held 34 per cent shares in CHN Investment Co. Ltd
and her husband had 66 per cent shares. The couple divorced but retained their shares
in the company. Mr Nurcombe negotiated a valuable property development deal on
behalf of the company and diverted the contract to another company in which he had
an interest. In matrimonial proceedings brought by the wife, Mr Nurcombe's wealth
was assessed on the basis that through his other company, he had benefited from the
diverted contract. He was ordered to pay a lump sum to his ex-wife inclusive of the
benefit of the diverted contract. After she had received the lump sum, Mrs Nurcombe
commenced a derivative action to recover for CHN Investment Co. Ltd the benefit of
the contract diverted by Mr Nurcombe. In dismissing the action, the English Court of
Appeal, per Lawton, LJ, stated the guiding principle as follows:
H[T]he court is entitled to look at the conduct of a plaintiff in a minority
shareholder's action in order to satisfy itself that he is a proper person
to bring the action on behalf of the company and that the company itself
will benefit. A particular plaintiff may not be a proper person because
his conduct is tainted in some way which under the rules of equity may
bar relief. He may not have corne with clean hands or he may have been
guilty of delay."32
29 (1981) 33 BCLR 45. 30 Section 303(2)( c ) of CAMA. 31 [198511 WLR 370. [1985J 1 All E.R. 65. 32 [1985]1 All E.R. 65 at p. 70.
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88 UNIVERSITY OF BOTSWANA LAW JOURNAL DECEMBER 2007
Applying this principle to the facts of the case, his Lordship held inter alia:
"[T]he plaintiff took her chance of persuading Rees, J [in matrimonial
proceedings] that she should benefit from the ill-gotten gains which the
first defendant had made. She succeeded and by the time this action
started she had received two-thirds of the fruits of her victory. When
she received these fruits, she knew how the first defendant had got them
and at whose expense: CHN's. In this action she is in effect saying:
'ALthough I have shared with the first defendant his ill-gotten gains,
I want the court to order that he should pay over to CHN his share of
them plus my share so that I can have a chance of getting some more
because of my status as a shareholder'. In my judgment the court should
not countenance such conduct."))
4.4 The Action Must be in the Interest of the Company
The application for leave must bear sufficient facts showing that the intended action
is in the interest of the company.34 This is a deduction which the court would make
from facts set out in the affidavit and the statement of claim. A compliance with the
above three requirements would almost invariably lead to the conclusion that the
action sought to be brought is in the company's interest. Company's interest in this
regard is synonymous with the interest of the shareholders as a whole. Thus, the action
must benefit aU the shareholders and not just the applicant or a section of them. Once
these requirements are met, the court will grant leave to the applicant to commence a
substantive action in the name of the company.
5. THE DRAFT COMPANIES' BILL PROVISIONS ON DERIVATIVE ACTION
The provisions under consideration are a novel attempt at codifying the concept of
derivative action as laid down by case law. The relevant provisions are contained in
sections 97-100 of the Bill. The draftsman apparently started from a wrong premise by
COdifying the exception without the rule. The derivative action, as pointed out earlier,
33 Ibid. (Emphasis added). See also Towers v African Tug Co. [1904]1 Ch 558 al 567 per Williams, LJ. 34 See section 303(2)(d) of CAMA.
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COMMENTS AND NOTES 89
is one of the exceptions recognised by law to the proper plaintiff principle established
in the case of Foss v Harbottle.35 Section 97 of the Bill would have stood on a more
solid ground if the basic rule in Foss v Harbottle had been statutority enacted as has
been done in other countries. for example in section 299 of the Nigerian CAMA.
Section 97(1) of the Lesotho Bill states as follows:
"Subject to subsection (2), a shareholder or a director of a company
may apply to the court for leave to bring proceedings in the name and
on behalf of the company or any related company, or intervene in
proceedings to which the company or any related company is a party,
for the purpose of continuing, defending or discontinuing the proceeding
on behalf of the company or related company."36
Unfortunately, this provision doesn't really say much. For example, it doesn't state
the grounds on which an application can be brought. A shareholder cannot without
good cause suddenly assume for himself the power of initiating court proceedings on
behalf of the company. Some of the decisions discussed above show that such rights
are given to shareholders where fraud is being committed on the minority and the
wrongdoers who are in control would not take action to seek redress. These factors
ought to be reflected in this provision to add flesh to it.
The inclusion of "director" among those that could maintain derivative action
is a clear misconception of the idea of derivative action. It is purely a judicial device
to enable the minority shareholders counter the tyranny of the majority. This sort of
action is not available to a director in his capacity as such, as the power to initiate
proceedings in the company's name belongs to the board of directors which every
director is a member. If a director feels that the company should take a particular
action, he should convince the board to do so, and where he is unable. he should
commence action in his capacity as a shareholder (if he is one) and not as a director.
The extension of this right of action to directors should be expunged.
Section 97(2) states as follows:
"Without limitin.g subsection 1, in determining whether to grant leave
under that subsection, the court shall have regard to-
35 (1843) 2 Hare461. 36 This provision and others after it would have attained greater brevity if the word 'company' is defined in one sentence
as including related company for the purposes of derivative action instead of continuous repetition of the same.
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90 UNIVERSITY OF BOTSWANA LAW JOURNAL DECEMBER 2007
a) the likelihood of the proceedings succeeding;
b) the cost of the proceedings in relation to the relief likely to
be obtained;
c) any action already taken by the company to obtain relief;
d) the interest of the company or related company in he
proceedings being commenced, continued
or discontinued."37
The problems start with the opening phrase in this provision; "without
limiting subsection 1," which does not make much sense. Not just that it is too
pedestal in its wording, it is also contradictory in that it lays down conditions which
the court must adhere to while considering an application for leave. In other words,
granting of leave sought under subsection 1 is not automatic, as such, conditions set
out in subsection 2(a)-(d) are limiting factors to the application of subsection I. The
use of the word "shall" in that provision suggests that these conditions are not merely
directory but mandatory. Subsection 2 can certainly stand without the impugned
phrase. Interestingly, the opening phrase in subsection I makes it subject to subsection
2, thus making further allusion to subsection 1 in subsection 2 is superfluous.
The requirement of paragraph (a) is too strong to apply at this stage of the
proceedings. It will require the taking of evidence by the court at that preliminary stage
when both parties are not yet before the court.38 Doing so will amount to prejudging
the matter as the court would have gone into the arena of dispute before granting
application to commence the suit. What the applicant should show at this stage is
prima facie case39 not likelihood of success.
Paragraph (b) is also flawed in that it requires the court to consider the relief
"likely to be obtained" instead of claimed. In other words, the court is at this point being
asked to determine the extent of relief it will most probably award to the applicant in the
substantive suit. This cannot be right in law. Remedies are always in issue (save when
admitted) and are proved by hard facts and evidence. Such matters are determined at
the end of full trial. Why too should the cost of the proceedings be a vitiating factor
when a shareholder is seeking redress for the wrong done to the company, the ultimate
end of which will be beneficial to the entire body of shareholders? The authorities
37 Emphasis added. 38 See Cowbell AG v ICS Holding Ltd 200 I (3) SA 941 (SeA) Beecllam SOUlh Africa (Pry) Ltd v Uniliver pic 1995
(2) SA 903 al 910 where the court held that "likelihood" refers to a "reasonable probability" implying a need for proof on the balance of probability.
39 As diSCussed above.
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COMMENTS AND NOTES 91
have shown that the courts have power to mitigate the burden of heavy expenses
on the shareholder by ordering the company to pay interim cost to the shareholder
whether or not the action succeeds at the end of the proceedings.40 This is an issue that
the draftsman ought to have addressed his mind to.
Paragraph (c) also misses the point. If the company had taken steps to obtain
relief, there would not be any need for derivative action. The shareholder's complaint
is that the directors who are the wrongdoers have refused to take action to redress the
wrong done to the company. The application is made ex parte and the court grants or
refuses to grant leave based on facts placed before it by the applicant. The directors
might not have had the opportunity to be heard at the time the court is considering the
application.
The only relevant consideration here is that contained in paragraph (d). The
court certainly must be satisfied that the action is in the interest of the company before
it grants leave to the applicant. It is submitted that paragraphs (a) - (c) of subsection 2
will better achieve their purposes if drafted in such manner as to enable the courts to
deal fairly with preliminary matters before the actual legal battle is commenced.
Subsection 3 provides what may be referred to as alternative, if not additional,
grounds for granting application for leave in the following terms:
"Leave to bring proceedings or intervene in proceedings may be granted
under subsection 1 only if the court finds that either-
a) the company or related company does not intend to bring,
diligently continue, defend or discontinue the proceedings;
or
b) it is in the interest of the company or related company that the
conduct of the proceedings should not be left to the directors
or to the determination of the shareholders as a whole."
One is at pains to find the essence of the entire subsection 3. Paragraph (b), for
instance, repeats substantially the provisions of paragraph (d) of subsection 2. The
requirements of paragraph (a) could have been of relevance if there is provision for
pre-action notice which is one of the basic requirements for derivative action as earlier
shown in the Nigerian context. Perhaps, the draftsman considers subsection 4 which
provides for the service of the notice of the application for leave on the company as
40 See Wallersteiller v Moir No.2 [1975] QB 375.
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92 UNIVERSITY OF BOTSWANA LAW JOURNAL DECEMBER 2007
a suitable alternative. But this is not always satisfactory as the application for leave
to commence action is usually made by motion ex parte which is what the rules of
practice require at that stage of the proceedings.41 The company is not an adverse
party to the proceedings. The time the company should decide whether to take action
is not after application is made to the court by the shareholder but before such an
application, hence the need for a pre-action notice.
Subsection 5 which provides that a shareholder42 shall not be entitled to bring
or intervene in any proceedings in the name or on behalf of a company or related
company except as provided in that section, is certainly of no essence as the entire
provisions of subsections 1-4 of section 97 have substantially failed to set out the
grounds under which derivative action could be pursued by a shareholder. The usual
grounds for bringing derivative action, as earlier discussed, are fraud and the failure
of the wrongdoers who are in control to seek redress on the company's behalf. These
requirements should have been speJt out in subsection 5.43
Section 98 deals with the power of the court to order that all reasonable cost
incurred by the shareholder after the granting of leave shall be borne by the company.
That provision obviously could have been subsumed in section 99 which deals with
the powers of the court. Interestingly, section 98 commences with the phrase, "where
leave is granted under section 97, the court shall ... " indicating that the orders the court
could make under this provision are also post leave orders.
The only provision in the Bill which falls in line with the requirements of a
derivative action is that contained in section 100 which requires approval of the court
before any proceedings commenced with the leave of court can be compromised. This
will ensure that the court retains control over the action and monitors any resolution
passed subsequently by the company which may have any effect on proceedings
already before the court. Suffices to re-emphasise that the inclusion of directors in
this section is fundamentally wrong and should be deleted as this sort of action is not
available to directors in their capacity as such.
41 See Rule 8(4) of the High Court Rules of Lesotho. 1980. 42 Note that direclor is not included here. Is it an oversight or a change of mind by the droftsman? 43 See sections 300(d) and 303(2)(a) of CAMA where similar requirements are provided.
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6. CONCLUSION
Derivative action is conceived as a panacea to the rigours inherent in the majority rule
embodied in the case of Foss v Harbottle.44 The dictatorship of the majority which
is apparent in a collective decision making very often disregards the interest of the
minority. Granting a minority member an opportunity to challenge the decision of the
majority in certain respects, ensures that all members are contented with the collective
purpose of their membership. Derivative action provides such opportunity for the
minority shareholder in the company context to enforce rights due to the company
where the majority shareholders who are in control have failed or neglected to enforce
such rights.
As Lesotho moves towards codifying this well established judicial concept,
there is need for proper consultation and understanding of the concept before the Bill
is passed into law. What is presently contained in the Bill is in many respects an
aberration of what the concept stands for. This may be attributed to carelessness or
lack of respect for long established and tested judicial authorities on this concept. The
draftsman is entitled to chart a new course from the existing trend, but this must not
be done in such a manner as may defeat the essence of the entire reform by making
enforceability impossible.
44 Supra.
Rep
rodu
ced
by S
abin
et G
atew
ay u
nder
lice
nce
gran
ted
by th
e Pu
blis
her (
date
d 20
09).