A foreign company which is a shareholder in an Israeli public company sought to file a derivative suit on behalf of the company which aledgedly compromised in a settlement not in the best interests of the Israeli company.
The Supreme Court rejected the motion of the Israeli company for the foreign corporate claimant to deposit a guarantee for its costs as a precondition for the procedure and determined that there is no obligation to deposit such guarantee for the process to approve the derivative suit. In order to justify granting shareholders the right to pursue a lawsuit on behalf of a company which did not exercise its right to sue due to a conflict of interest between the interest of the company and the interests of its directors, there should be a reviewas to whether there is a cause of action for the company, whether the pursuit of the derivative lawsuit is in the best interest of the company and whether the shareholders are acting in good faith. While foreign companies are usually required to deposit a guarantee, in the case of a derivative suit, a balance must be made between the desire to ensure the company's ability to be reimbursed if the suit fails and the public interest of removing obstacles for shareholders wishing to act on behalf of the company, if necessary. There is a public interest in granting shareholders the right to act on behalf of the company in the appropriate cases and to sue third parties on its behalf in order to create a deterrent that encourages office holders to observe the norms established by law and especially when the company is a public company (as opposed to a private company which is a kind of partnership in which the shareholders can generally also file lawsuits personality against each other). However, when the plaintiff is a foreign company, the main difficulty does not arise from its financial situation, but from the burden involved in the need to recover the expenses - if they are ordered - from a company that is not in Israel, and therefore the emphasis should be on the possibility of recovering from the non-Israel company the expenses from assets it has in Israel. Here, when examining the usual tests for justifying the demand for a guarantee, it is evident that the foreign shareholder has a clear financial capacity, and in light of the public interest in removing the obstacles to the filing of claims by such shareholders, there is no justification for requiring the foreign shareholder to deposit a guarantee.