Derivative Claims Were Not Claims Instituted By The Company For The Purposes Of Restrictions In A Shareholders' Agreement

Where a shareholders' agreement required consent before the company instituted legal proceedings, that did not prevent a shareholder from bringing a derivative claim. 

A recent High Court decision considers a point of practical importance for joint venture and shareholders' agreement disputes. The decision suggests that a derivative claim– ie a claim brought by the shareholder in the name of the company and on its behalf to address wrongdoing done to the company – should not be treated as equivalent to the company itself bringing a claim: Tether Investments S.A. de C.V. v Electric Solidus, Inc [2026] EWHC 1652. 

In this case, because a derivative claim is an act of the shareholder rather than the company, the court found that restrictions in a shareholders’ agreement on the company’s ability to institute legal proceedings without majority consent did not apply to prevent a shareholder from bringing a derivative claim.

This decision is significant for anyone drafting or relying on shareholders' agreements. Litigation is a common reserved matter. The decision makes clear that the fact that an agreement gives a majority shareholder the power to veto litigation brought by the company does not, in itself, mean that the parties intended to deprive other members of their statutory right to bring a derivative action. If that broader effect is truly intended, clear words will be needed. 

Background

Tether Investments S.A. de C.V. (“Tether”) held 79% of the shares in 2040 Energy Limited, a bitcoin mining joint venture company incorporated in the British Virgin Islands (the “Company”). Swan Bitcoin ("Swan") was the minority shareholder, holding 20% of the shares. The relationship between Tether and Swan was governed by a shareholders' agreement (the “SHA”).

Under the SHA, Swan undertook that no group company would, without Tether’s consent, carry out any of a list of "Reserved Matters" including to “institute, settle or compromise any legal proceedings, or submit to arbitration or alternative dispute resolution any dispute involving the company where the amount claimed (either by or against it) together with any costs incurred (or likely to be incurred) exceeds USD 20,000".

The parties' relationship broke down in mid-2024, when the Swan team responsible for managing the Company’s business resigned en masse and joined another company.

Swan filed an application in the BVI in March 2026 for leave to bring a derivative action in the name of and on behalf of the Company. The BVI court has the supervisory role for BVI companies, as the English court does for English companies. However, it was common ground that any substantive proceedings would be brought in England, due to an exclusive jurisdiction clause in the SHA. 

The proposed defendants to the substantive proceedings included Tether itself and directors it had appointed to the Company’s board. The allegations were, in broad summary: (i) wrongful sale of bitcoin mining assets (including to Tether without obtaining a suitable independent valuation); (ii) wrongful diversion from the Company to other entities of contracts and corporate opportunities; and (iii) wrongful use of confidential information and trade secrets belonging to the Company. All of these matters were said by Swan to have caused losses to the Company. 

Tether made clear that it did not, and would not, give consent for the Company to become a claimant in, or pursue, any derivative action at Swan's behest. 

Against that background, Tether and the Company sought injunctions from the English court preventing Swan from pursuing its leave application in the BVI, together with declarations that Swan’s derivative proceedings would breach the Reserved Matters provision referred to above. 

Decision

Mr Sean O'Sullivan KC, sitting as a Deputy High Court Judge in the Commercial Court, refused to grant the relief sought. He was not satisfied that bringing derivative proceedings constituted, or would inevitably give rise to, a breach by the Company of the Reserved Matters provision.

The central question was one of contractual construction: did bringing a derivative action in the name of the Company amount to the Company instituting legal proceedings, requiring Tether’s consent?

The judge considered the BVI statutory provision which permits shareholders to bring derivative actions:

“the court may, on the application of a member of a company, grant leave to that member to: (a) bring proceedings in the name and on behalf of that company ...”

This is similar to the English statutory regime in ss 260(1) and 261(1) of the Companies Act 2006, which permits a member of a company to seek relief “in respect of a cause of action vested in the company” and “on behalf of the company”, and provides that “a member of a company who brings a derivative claim […] must apply to the court for permission […] to continue it”.

Bringing and instituting a claim 

The judge found that a derivative action undoubtedly involves a claim being brought in the name of the company, but that the motive force behind the commencement of proceedings is the member – here, Swan. Reading the words of the BVI statute, he did not consider derivative proceedings commenced by Swan in the name of the Company to amount to the Company instituting legal proceedings, simply because the statute envisages those proceedings being in the name of the company. In his judgment, the key word in the BVI statute was "bring": it is the member who takes that active step, not the company. Derivative claims are brought by a shareholder precisely because the company has been disabled, usually by the majority shareholder, from bringing any claim itself. These are proceedings by the member, albeit utilising a cause of action vested in the company.

Further, the judge found that the word “institute” in the SHA was an active word, and envisaged the Company itself taking an active decision. Being named in a derivative action even as a claimant did not qualify as instituting proceedings.

It was irrelevant that the Company was party to the SHA and thus had contractually agreed to give up rights of suit absent Tether’s consent. It was also irrelevant that Tether was the sole financing party to the Company, and as such would effectively be funding any litigation of the Company. This might explain why it was granted a veto right under the Reserved Matters provision, but it was not a justification for reading the provision in an expansive way, so as to protect Tether or its directors from an otherwise legitimate claim.

Derivative claim procedure

Tether argued that the position was different because, if Swan’s BVI leave application succeeded, BVI procedure would require a fresh claim form naming the company as claimant in order to bring the derivative claim, whereas in England the shareholder commences a derivative action by a claim form naming the company as defendant and then seeks the court's permission to continue it. 

The judge rejected this argument: it would be bizarre if a form of words commonly used in English law shareholders' agreements – which he said must have been formulated with an eye to English companies – should have a completely different and much wider effect simply because the company happened to be incorporated in a jurisdiction with slightly different procedural requirements.

In neither England nor the BVI does bringing a derivative action involve compelling the company to take the relevant steps. In both jurisdictions, it is the member who takes those steps, albeit with the permission of the court to rely upon a cause of action which belongs to the company. The company would not be giving the instructions to solicitors, signing a statement of truth or paying a court fee.

Broader considerations

Finally, the judge noted that provisions such as the Reserved Matters clause in the SHA are common in shareholders’ agreements and are not aimed at limiting liability or at protecting majority shareholders or their appointed directors from derivative claims. It would be surprising if Tether and its appointed directors could do untold damage to the Company and yet Swan would be prohibited, without Tether’s consent, from pursuing the very statutory remedy available in such a case. These provisions have a more general purpose of controlling what the company does. The fact that an agreement gives a lot of power to a majority shareholder does not mean the intention was to deprive the minority shareholders of their substantive rights under the SHA, or as a matter of company law. If that was the intention, clearer words would have been used. 

Tether argued that Swan would not be deprived of a remedy because it could bring claims in its own name, including an unfair prejudice petition. The judge rejected that argument, noting that the reflective loss principle was potentially problematic in relation to losses of the Company, and that unfair prejudice petitions deal with a different type of complaint and provide for a different type of relief to a derivative action.