ARTICLE
1 February 2012

Arbitration And Derivative Actions

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Soteris Pittas & Co LLC

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In a recent decision of the Supreme Court of Cyprus, it has been held, that a derivative action filed by a minority shareholder of a Cyprus company, did not fall within the ambit of an arbitration clause contained in a Shareholder Agreement executed only by the shareholders of a Cypriot company and not by the company, which provided as follows:
Cyprus Litigation, Mediation & Arbitration

In a recent decision of the Supreme Court of Cyprus, it has been held, that a derivative action filed by a minority shareholder of a Cyprus company, did not fall within the ambit of an arbitration clause contained in a Shareholder Agreement executed only by the shareholders of a Cypriot company and not by the company, which provided as follows:

"In the event of any dispute between the shareholders, it shall be put before a vote of all shareholders. If there is no majority decision following votes being cast by the shareholders within 30 days then the shareholders will appoint Intersolve Holdings Limited, Tower 42, 25 Old Broad Street, London EC2N 1HN OR another arbitrator if unanimously agreed".

The Supreme Court decided that:

  1. The above arbitral clause was not binding on the Cyprus company, because the latter, was not a contracting party to the Shareholders Agreement.
  2. The derivative action filed by the minority shareholder, did not fall, within the ambit of the above arbitral clause, because it was not a dispute between the shareholders of the company.

The derivative action is an action raised by the minority, to redress wrongs committed against the Company.

COMMENT: In view of the above position of the Supreme Court of Cyprus, it is prudent and wise, the arbitration clauses inserted in Shareholders Agreements, to be wide in order to cover all contractual and tortuous claims, as well as to have the Cypriot Companies as contracting parties to the Shareholders Agreements.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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