Analyses: Companies, Shareholders and 'Reflective Losses'

• Jurisdiction: South Africa
• Citation: (2005) 17 SA Merc LJ 195
• Pages: 195-201
• Published date: 16 August 2019
• Date: 16 August 2019

Companies, Shareholders and ‘Ref‌l ective

Losses’

JS MCLENNAN

University of KwaZulu-Natal

Introduction

Companies are – in theory at least – ‘economic democracies’: the will of

the majority prevails. One of the consequences of this is the ancient rule in

Foss v Harbottle ((1843) 2 Hare 461, 67 ER 189), also known as the ‘proper

plaintiff rule’. So, if a wrong is done to a company, the proper plaintiff is the

corporate entity itself. The rule is not only logical but essential: it would lead

to a chaotic multiplicity of litigation if any shareholder had locus standi to

sue for wrongs done to the company. Unfortunately, as in other democratic

institutions, corporate majorities sometimes act unfairly or oppressively

toward their minorities. It was realised at an early stage that, in certain

circumstances, there had to be exceptions to the rule. The most common of

these are situations where the wrongdoers are in control of the company and

COMPANIES AND SHAREHOLDERS 195

(2005) 17 SA Merc LJ 195

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