The Indemnity Order In A Derivative Action

The corporate governance has become increasingly of significance with the economic globalization. That the breach of directors' fiduciary duties is detrimental to the company's interests results in reflective loss of minority shareholders. However, the company, as a separate legal entity, is always unable to initiate a petition as the wrongdoers are in a controlling position. The derivative action with equitable nature enables the minority shareholder to bring litigation on behalf of the company, which gives birth to the law relevant to the derivative action that is hotly-debated in various jurisdictions.As an equitable remedy, many issues need to be further studied. A clarification of the procedural and substantive obscurities will be expeditious not only to academic research, but also to practitioners. The seminal rule in Foss v Harbottle consisting of two predominant rules, that is, the proper plaintiff rule and the majority rule, shields the wrongdoing directors from being pursued. Only under exceptional circumstances could the minority shareholder sue to redress the wrong done to the company. Nevertheless, the costly legal cost has been an intractable obstacle in the way of realising the derivative action materially.The indemnity cost order exerts a profound influence on the course of the derivative action. On the one hand, it can play a role of deterring vexatious litigation under strict judicial control, on the other hand, it will make a claimant shareholder recompensed in a case where the court thinks appropriate. Whether or not the court should grant an indemnity cost order out of the company's assets is explored in this article, so as to realise justice not only in procedure but also in substance, thus resulting in sound corporate governance system.This essay starts with a brief introduction of the derivative action, and then two typical cases of Wallerstewiner v Moir and Smith v Croft are analysed with regard to the indemnity cost order procedurally and substantially. The experiences from other common law jurisdictions like New Zealand, Australia, Canada and the US are examined, whichpurpose is to transplant something valuable into the ongoing reform of the British indemnity cost order law. This essay centres on two issues. Put differently, should a claimant bring s 459 petition combined with a derivative action be entitled to the indemnity cost order? Is it feasible to rebuild balance between the compeiny's interest and the claimant shareholder's interest under the scheme of an indemnity cost order?Last but not the least, the essay tries to make feasibility analysis as follows, the establishment of the contingency fee system, partial reward to the claimant shareholder and the pro rata contribution to the litigation cost. The suggestion on China's relevant legislation is also made on the basis of the above analysis of the indemnity cost order of the common law jurisdictions.