Heading 4. “Fraud on a Minority,” where the Wrongdoers have “Control.”
It was stated above, in the discussion of ultra vires, that actions falling under the fourth Heading of the “exceptions” to Foss v. Harbottle must be “corporate” and not “personal” actions. That is why a minority action brought on the grounds of “fraud” has usually been regarded as a real “relaxation” of the Rule. It is a special procedure, only allowed to the minority in order to avoid “an action in the name of the company, and then a fight as to the right to use its name” in which the minority must lose because the wrongdoers control the company. As such, it is “an excellent illustration of the golden principle that procedure with its rules is the handmaid and not the mistress of justice.” The representative form of the minority shareholders' action must not be permitted to obscure the fact that the “only relief possible in this action is corporate relief.” For this reason, those cases establishing a personal right to prevent any alteration of the articles which would be a fraud on the minority, do not fall under this Heading, and were placed under Heading 3. In the cases now to be discussed, all the rules appropriate to corporate actions apply —notably, that the plaintiff must sue in representative form and cannot join a personal claim; can attack wrongs anterior to his own membership; must join the company as a party; and can join the wrongdoers to assert the company's rights against them.