Clarkson v Davies

In *Clarkson v Davies*, the Supreme Court of New South Wales considered a dispute between minority shareholders and the majority shareholders of a company. The minority shareholders sought to compel the company to enforce its rights, alleging that the majority shareholders were attempting to benefit themselves at the expense of the minority.

The central legal issue before the Court was whether the minority shareholders could, in the circumstances, initiate legal proceedings in the name of the company to enforce its rights, particularly where the company itself, controlled by the majority, had refused to do so. This involved an examination of the rule in *Foss v Harbottle* and its exceptions, specifically concerning situations where the majority's actions amounted to a fraud or oppressive conduct against the minority.

The Court applied the principles established in *Foss v Harbottle*, which generally holds that the proper person to sue on behalf of a company is the company itself. However, the Court recognised that an exception exists where the alleged wrongdoers are the majority of shareholders, and their actions constitute a fraud on the minority. In such cases, minority shareholders may be permitted to bring a derivative action. The Court considered the nature of the alleged benefit to the majority and the detriment to the minority, and whether this amounted to a breach of the majority's fiduciary duties to the company and its shareholders.

The Court ultimately found that the circumstances warranted the minority shareholders bringing proceedings in the name of the company. The majority's actions were deemed to be of a nature that prevented the company from acting in its own best interests, thereby justifying the intervention of the minority shareholders through a derivative action.