The derivative action
The derivative action is a procedural device utilised by the membership when the court relaxes the Foss v Harbottle rule because the association is controlled by miscreant personnel. The individual minority member ‘derives’ the right to sue from the union’s right to take action, as technically the wrong has been committed against the union itself. The right being enforced is that of the association but, because the wrongdoers have control, the association is prevented from taking action in its name and so, in the interests of justice, the rule in Foss v Harbottle is waived. The circumstances when a derivative action can be taken are summarised as follows: (a) If the act is a fraud on the minority, perpetrated by the majority in control of the
association, then the rule is relaxed to allow the minority to recover compensation. Fraud in the authorities in company law has been defined broadly, including circumstances where there has been an abuse of power which results in a tangible benefit to the majority that is denied to the minority. There have been few trade union cases on this exception.