The Rule In Foss v Harbottle and The Majority Rule; Legislative Drafting In Nigeria

The minority rights protection serves as an exception and protection from the harsh effects of the principle of Corporate Law established in the English case of Foss v Harbottle. This article will be looking at the legal rationale established in that case and its application in Nigeria today as a Common Law jurisdiction itself.

What is the principle of majority rule?

It is a well established principle that a company is a separate legal person from its members. Once it is accepted that the company is a legal person, it follows that if a wrong is done to the company, the company is the proper person to bring an action. 

Therefore,as a rule, when a company is incorporated and is a going concern, the wish of the majority must prevail as it is important that the principle of democracy should prevail.

A company must therefore, act in accordance with the decisions taken by the majority of its members willing and able to vote.

Also, it is part of the rule that once powers have been delegated to directors, the majority cannot derogate from the powers of the directors for the day-to-day management of the company. However, the power of the majority rule extends to every facet of the company’s affairs. The majority of members have the power to :

1. Alter the Memorandum and Articles of Association of the company.

2. They appoint and dismiss the directors.

3. If they so desire, they can put an end to the business.

What is the rationale for the rule in Foss v Harbottle?

In the English case of Foss v Harbottle, the court in a suit between a company’s shareholders and directors over a secret profit allegation held that the company’s board of directors was still in existence, and since it was still possible to call a general meeting of the company, there was nothing stopping the company from obtaining redress in its corporate character and that the action of the claimants who were shareholders in the company could not be sustained.

This principle has been held to apply not only to incorporated bodies but also to unincorporated associations and has been adopted in Nigerian cases like Abu Bakare v Smith (1973) 6 SC 31.

The rationale of the rule in Foss v Harbottle is based on the following :-

1. If every individual member of a company were permitted to sue anyone who had injured the company through a breach of duty, there could be as many actions as there are shareholders, that is, it prevents the multiplicity of suits.

2. Legal proceedings would never cease and there would be enormous wastage of time and money.

3. A defendant in a corporate litigation matter will be better protected if the company is the main plaintiff because the defendants rights like counterclaim, set-off,etc, are preserved if the company is sued.

4. If an individual member could sue a person who had caused loss to the company and the company then ratified that person’s act at a general meeting, then a legal proceeding would be quite useless, for a court will naturally hold that the will of the majority prevails. This is essentially based on the Partnership doctrine that the court will not interfere in matters of internal management. Courts will generally not act in vain. This is based on one of the maxims of Equity that ” Equity will not act in vain”. This has been established in many common law cases so far. 

Legislative Drafting In Nigeria 

This article will be looking at the practice of legislative drafting which is the process of creating a law(legislation) through the legal skill of  preparing a bill(proposed law) through draftsmanship. 

What are the stages of legislative drafting? 

1. Receiving and understanding the instructions to draft a bill. 

2. Analyzing the instruction, areas of danger, and practicability of the proposed law. 

3. Designing the draft. 

4. Composition/actual preparation of the bill using precedents where available.

 Further scrutiny.

What are the parts of a legislation? 

– Legislations are divided into sections containing one idea, and if long, it should be broken into subsections dealing with related ideas. 

– Sections are numbered in unbracketed Arabic numerals. 

– Subsections in bracketed Arabic numerals. 

– Paragraphs in bracketed small alphabets. 

– Subparagraphs in bracketed Roman numerals. 

– Punctuation marks form part of a legislation.

In summary, legislations are divided into 4 segments : 

1. Preliminary provisions. 

2. Principal segments. 

3. Miscellaneous provisions. 

4. Final provisions. 

What are the components of the preliminary provisions of a legislative draft? 

1. The long title 

2. The preamble 

3. The enacting clause 

4. The short title 

5. The commencement  

6. The interpretation clause 

7. The application clause.

What are the components of a legislative draft’s principal provisions? 

1. The substantive provisions 

2. The administrative provisions

What are the components of the miscellaneous section of a legislative draft? 

1. The offenses and penalties clause 

2. Supplementary provisions on making of subsidiary legislation 

3. Indemnity clauses 

4. Services of notices 

5. Powers of entry clauses 

6. Search, seizure and arrest clause 

What are the components of the final provisions chapter of a legislative draft? 

1. The transitional provisions 

2. Repeal & consequential amendments 

3. Schedules. 

What are the tools of judicial interpretation necessary for understanding the intention of a legislative draft? 

Courts cannot invite lawmakers to explain the law, they must find their intention. Where there are mistakes, the court can correct them, and where there are gaps/lacunae in a law, the courts cannot fill these gaps.  

The available tools of judicial interpretation revolve mainly around the following:- 

1. The Interpretation Act/laws of Nigeria/various states. 

2. Definition clauses in a law 

3. Law dictionaries 

4. Case Law (Stare Decisis).  

5. Rules of interpretation (the mischief rule, the golden rule, the literal rule, the Ejusdem Generis rule, etc.,).