Shareholders in a public corporation sought disclosure of documents in order to consider filing a lawsuit on behalf of the company against the corporation's management company, for the purpose of recovering the management fees.
The Court accepted the motion and determined that in certain cases a shareholder may file a claim on behalf of the corporation and therefore documents need to be disclosed. As a general rule, the decision whether to file a claim on behalf of the corporation rests with the bodies that manage the corporation's affairs and the shareholders have no power or ability to influence the corporation 's decisions in exercising its power of claim except within the framework of their powers in the corporate institutions. The exception to this rule is in cases where there is a concern that the corporate management will refrain from filing a lawsuit due to conflicts of interest, or when the cause of the corporation’s lawsuit concerns the breach of the duties of those managers towards it. Here, the shareholders contend that there was a flaw in the approval process of the corporation's management agreement and therefore the management company must refund the management fees to the corporation, a fact that places the management company in a conflict of interest regarding the decision to file a lawsuit against itslef. Because between a shareholder who seeks permission to file a derivative claim and the corporation there are inherent information gaps, a preliminary procedure of disclosure is required so that the shareholder may make an informed decision regarding the justification for filing the claim.