Costs in Derivative Actions


Derivative Actions Defined -

A derivative action occurs where a member of a company, usually a minority shareholder, pursues a cause of action on behalf of the company. S184(c) of the BVI Business Companies Act 2004 (BCA) provides that a member of a company can apply for leave to (i) bring proceedings in the name of and on behalf of the company; and (ii) intervene in proceedings to which the company is a party for the purpose of continuing, defending or discontinuing proceedings on behalf of the company.

It is only under this section that members of the company are permitted to bring an action on behalf of the company. In all other circumstances the position is that the company is the proper claimant to sue in relation to its own causes of action.

A derivative action is brought where a wrongdoer, most commonly a director of the company, has caused the company loss through their wrongdoing. The cause of action is the company’s and so is the relief. The relief is confi ned to the action to recoup those monies lost from the company through this wrongdoing and no relief is due to the shareholder bringing the claim.

The BVI courts will also apply the principle of reflective loss. Even if a shareholder can establish an independent cause of action, a shareholder cannot recover for loss he or she has suff ered if that loss is refl ective of the company’s loss.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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