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*J.B.L. 445 Introduction
The treatment of fees has a direct impact on the frequency of suit. The more advantageous the fee
rule is to the prospective plaintiff, the greater the employment of litigation.
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This result is significant for
policy analysis as it assists in the creation of rules that permit judicial determination of questions
deemed important to societal interests. An understanding of the economic effect of fees on the
decision to commence litigation allows the development of rules to encourage those actions which
advance policy objectives.

2
Underlying this analysis is the question whether an action should be
promoted or deterred. The determination of this question is a matter for https://www.51lunwen.org/liuxuelunwendx/legislation and judicial
innovation. Fees, nonetheless, are an important and effective method of implementing the ultimate
decision.
It is widely acknowledged that the issue of cost is a major obstacle in the path of a minority
shareholder bringing a derivative action on behalf of the company. This remains a burning issue.

3
First, the existence of two-way fee shifting with liability on the nominal plaintiff makes pursuit of the
action uneconomic. There *J.B.L. 446 is the prospect that the shareholder may have to pay the
expenses of litigation as well as the legal expenses of the defendant if the action is unsuccessful.

4
Secondly, in financial terms, a shareholder lacks any direct remedy that would make the action
worthwhile for him or her. Even if the litigation is successful, any damages recovered accrue to the
company and the shareholder will therefore receive only a pro rata share of the gains of a successful
action.

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A prospective plaintiff, being aware that the company and other shareholders will “free-ride”
on his or her efforts, has a strong incentive to leave it to someone else to sue. If all shareholders
share the same view, then no one is likely to step forward even in situations where litigation would
increase total share value.

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The question is what can be done to tackle this serious problem?
The traditional way in which most Commonwealth jurisdictions address the obstacle of funding in a
derivative action is by recognising that the plaintiff should be indemnified for costs incurred in the
proceeding, usually by allowing the court discretion on this matter. This is because the rights being
vindicated are those of the company and recovery flows to it.

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As such the entity should be liable for
payments of costs.

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In essence, therefore, a prima facie right of indemnification by the company by
means of an indemnity order arose “on the plainest principles *J.B.L. 447 of equity”.

9
It is generally
thought thathttps://www.51lunwen.org/liuxuelunwendx/ by providing such compensation for a shareholder with respect to costs a formidable
deterrent to the commencing of a derivative action is removed.

10
Similarly, it is believed that the
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