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Abstract of research研究摘要
本文主要研究香港公司条例下的股东派生诉讼制度。整个研究分为六个部分，以详细阐述主要观点。第一部分介绍了本研究的原因和意义。第二部分是香港派生诉讼概述。第三部分是普通法中的衍生诉讼，突出了其历史背景。第四部分论述了香港公司条例下派生诉讼的批判与改革。第五部分对衍生诉讼进行了评估和建议。最后得出了整个研究的结论。
This dissertation focuses on shareholder’s derivative litigation under Hong Kong Company Ordinance. The whole study is divided into six sections so as to develop the main opinions in detail. The first section introduce the reason and significance of this study. The second section is an overview of derivative litigation in Hong Kong. The third section refers to derivative litigation in the common law and highlights its historical background. The forth section discusses criticism and reform of derivative litigation under Company Ordinance in Hong Kong. In fifth section, this study intends to make assessments and suggestions to derivative litigation. Finally it draws conclusion of the whole study.
1. Background背景
衍生诉讼是现代公司法最非凡的改革之一。本文旨在对《香港公司条例》第2014条的衍生诉讼行为进行批判性分析，试图提出改进建议，使之更加有效、灵活。
在现代社会，衍生诉讼是保护股东特别是少数股东利益的主要救济措施之一。在FOSS诉Harbottle案中，一些重要的概念，如“少数人欺诈”和“不法分子控制”已经被界定。保护股东利益至关重要，衍生诉讼是公司法不可分割的组成部分。然而，在现代公司法的历史发展过程中，关于最小限度地干涉管理和适当的投资者保护的争论却引起了人们的广泛关注。正如Reisberg（2007）所说，衍生诉讼无法避免挑战，即过度依赖诉讼救济和对股东的司法追索，以及对公司管理事务的不合理干预之间的中间过程。
Derivative action is one of the most extraordinary reforms of modern company law. This dissertation aims to conduct a critical analysis on the statutory of derivative action under Hong Kong Company Ordinance 2014, trying to put forward suggestions to improve the remedy, and make it more effective and flexible.
In the modern world, derivative action is one of the major reliefs to protect the shareholder’s interests, especially minority shareholders. In case Foss v. Harbottle, some important concepts such as “fraud on the minority” and “wrongdoer control” had already defined. It is so important to protect shareholder’s interests, therefore derivative action is an integral part of company law. However, the debates about minimum interference with management and appropriate investor protection attract a lot of attention in the historical development of modern company law. Just as Reisberg (2007) says, derivative action cannot avoid the challenges, that are, a middle course between excessive reliance on a litigation remedy and judicial recourse for the shareholders, and unreasonable interference in the management affairs of the company.
In different jurisdictions, the requirements to shareholder to initiate a derivative litigation are various. I have researched on some typical jurisdictions so as to make a solid theoretical foundation of this study. In the United States, corporate laws of states are different, and some of these states, such as California, Delaware, Nevada have instituted a lot of barriers to derivative litigation. American Bar Association set up complicated procedures for derivative litigation. Under the procedure, shareholders must file a demand on the board. Only when shareholders’ demand has been rejected, shareholders can file suit to the court. In the United Kingdom, it sets pre-existing rules. And according to corporate law in the United Kingdom, the purpose of derivative litigation is not to protect the shareholders, but to protect the corporation itself. In Europe, the derivative litigation are extremely rare. In many European countries, a minimum share is required to file a derivative litigation, and laws tend to prevent small shareholders from bringing lawsuits at the beginning. In New Zealand, it requires that the benefits to company must outweigh the costs of taking derivative action. And in India, under the clauses of oppression and mismanagement, derivative litigation can be brought out.
It is a must to reach a balance between minority shareholders’ protection and company governance. In the UK, the Law Commission suggests to simplify and modernize the law. Scholars also have their own concerns. They thought two much derivative actions would potentially increase the claims against directors, and that might cause another problem that overusing the derivative action may also increase the litigation cost and resources. As a way of shareholder remedy, derivative action is an effective approach to protect shareholder’s interests, we cannot ignore the weakness of derivative action. To be short, derivative action cannot prevent shareholders from abusing it, the the misuse of this action will definitely influence the business and management of companies. Therefore, under Hong Kong Company Ordinance, the key points of this dissertation is: how to achieve a balance between management freedom and shareholder protection?
2. Literature Review
In this dissertation, it will introduce the concept, features, as well as the major functions of derivative litigation.
2.1 Concept of derivative litigation
As a special system, the concept of derivative action first emerged in the countries of common law. Alan Dignam and John Lowrys (2006) suggests, when the controlling shareholders, senior managers and directors hurt company interests, the rest shareholders, especially minority shareholders, are entitled to file litigation against the wrongdoers on behalf of companies to protect company interests.
As an important concept in modern company law, derivative litigation was derived in Britain in 1843 from case Foss V. Harbottle. In Foss V. Harbottle case, directors sold land which are owned by company at a high price, however the minority shareholders are not happy with the selling decision because they thought it damaged the company interests. Two of the shareholders filed litigation against the inappropriate actions of directors, but their appeal was rejected by the court. In the viewpoint of the court, the selling decision was appropriate because it was supported, accepted and affirmed by most of shareholders. To some extent, rules set up by the case Foss v. Harbottle were reasonable, to some extent, such rules are good to company management. However, it also revealed a fatal weakness of company governance, that is, if a small number of directors, senior managers and shareholders are in complete control of companies and majority shareholders, who and how to protect the legal interests of minority shareholders？
In the United States in 1975, derivative litigation was first termed in case Wallersteiner v Moir. In this case, it told the difference between derivative litigation and representative litigation. As Alan Dignam & John Lowrys (2006), in derivative litigation, wrongdoers may have the power and the chance to prevent companies from suing. This case also told the difference between derivative litigation and general civil litigation. In the former litigation, a pre-litigation procedure is a must so as to prevent the abusing of derivative litigation which might lead to necessary judicial cost. It is acceptable that cautious attitude, and the exhausted of internal relief are the premises of derivative litigation.
2.2 Features of derivative litigation
Normally, companies are entitled to initiate derivative litigation by themselves as independent entities. But if the wrongdoers are in the controlling position of companies, they may not want to exercise their rights positively. Under the circumstances, shareholders who think their legal rights are damaged can exercise their subrogation rights to file the litigation as as to protect their own rights. It’s worth to point out, derivative litigation are initiated on behalf of the companies’ interests, so as to further protect minority shareholders’ interests. In different countries, requirements of plaintiffs in derivative litigation are different. In the United States, the major concern is to own shares of the company; while in Japan, it has some restrictions, that are, the plaintiffs numbers and the exhaustion of internal remedies.
In derivative litigation, shareholders files lawsuit against wrongdoers on behalf of the company. Even the shareholders win the lawsuit, they cannot enjoy the compensations because the compensations are supposed to belong to company. Only within the scope of their shareholding proportions they can get their benefits. Also, since there are possibilities that minority shareholders of company are complicit to pursue private interests, a number of restrictions are set by many countries to prevent the malicious litigation, including cost of commitment, eligibility parties, and so on. (Tony J. Boyle, 1997)
2.3 Functions of derivative litigation
To provide remedy to company when the company is suffering from wrongdoers with controlling position is a major function of derivative litigation. Directors, senior managers might damage the company interests, under that circumstances, they will not want to initiate any actions against themselves. So the court allows other shareholders to file litigation to protect company interests, as well as the interests of shareholders. (Andrew Keay, 2006) The rights exercised by shareholders in derivative litigation derived from companies. #p#分页标题#e#
Derivative litigation compensates the deficiencies of governance structure of companies, and it is also an effective method as a shareholder remedy. Firstly, derivative litigation can protect interests of minority shareholders. When directors, senior managers, and other high level wrongdoers conspire to damage company interests, and result in direct or indirect losses of small shareholders. It is really hard for company to initiate litigation because these wrongdoers are in the controlling status in the company. Through derivative litigation, external judicial relief, financial compensations and shareholders’ rights and interests can be realized. Although to some extent the function of derivative litigation is limited, at least it make judicial supervision involve. (Tony J. Boyle, 1997) Secondly, a sound governance structure of company is expected through derivative litigation. Wrongdoers often play critical roles in decision-making, throgu derivative litigation, shareholders have a new channel to restrict wrongdoers’ rights and bring external judicial supervision to the companies’ operation and management, which make the governance structure of companies become more reasonable.
3. Research Questions
Law analysis of derivative litigation under Hong Kong Company Ordinance;
The analysis of modern company governance and shareholder protection;
The analysis of ways of shareholder remedy;
How to achieve a balance between management freedom and shareholder protection?
Legal protection of derivative litigation under Hong Kong Company Ordinance.
4. Outline
The whole dissertation is divided into six parts. The first part refers to introduction, introducing the reason to choose this topic, as well as the significance of this study. The second part refers to an overview of derivative action under Company Ordinance of Hong Kong. In this part, concept, features, functions of derivative litigation will be discussed. Part three refers to regulation of derivative litigation in the common law. In this part, some important cases would be analyzed, and the restrictions of derivative litigation will be discussed. The forth part will go back to Company Ordinance in Hong Kong, discussing criticism and reform of derivative litigation under this law. In part five, based on previous study, it will put forth assessments and suggestions of derivative litigation under Hong Kong Company Ordinance. Part six is the conclusion of the whole dissertation. The outline of this dissertation is attached in the following.
1. Introduction
2. An Overview of Derivative Action in Hong Kong
2.1 The concept and features of derivative litigation
2.2 The functions of derivative litigation
3. The regulation of derivative litigation in the common law
3.1 Foss V. Harbottle Rule and its limitation
3.2 Restrictions of derivative litigation
4. The Derivative litigation under the Companies Act in Hong Kong
4.1 The criticism of the old derivative action in Hong Kong
4.2 Reform of the derivative litigation
5. An Assessment of the derivative litigation in Hong Kong
6. Conclusion
5. Methodology
This dissertation studies derivative litigation under Hong Kong Company Ordinance, and further discusses the balance between company governance and shareholder protection.
In the analysis of legal history of derivative litigation, the historical development of derivative litigation are reviewed and analyzed, the the problems and possible solutions of balancing company governance and shareholder protection are discussed. Literature review and legal principle analysis are the major methods adopted in this dissertation. As a basic approach to conduct the study, the steps of this study include: clarify the purpose, contents, and objects of this dissertation; develop methods and strategies to carry on researches; and collect and analyze all kinds of perspectives from the literature review.
Hong Kong Company Ordinance sets forth derivative litigation system. The purpose of this system is to introduce a procedure of derivative litigation of protect legal interests of shareholders. In the modern world, the principles of laws are modern, flexible and easy to achieve, so as to the legal system of derivative litigation. An effective system of derivative litigation would not affect the existing balance between directors and shareholders, or change the limitations of derivative litigation. Based on the analysis of this dissertation, suggestions can be summarized to enhance the efficiency of company management and shareholder protection.
6. Bibliography
Anthony Boyle, Directors Duties: Personal and Derivative Actions, Comp. Law. 1999,20(2), 58-59
A. J. Boyle, The Judicial Review of the Special Litigation Committee: the Implications for the English Derivative Action after Smith v. Croft, Comp. Law. 1990, 11(1), 3-5
Buxbaum, Conflict-of-Interest Statutes and the Need for a Demand on Directors in Derivative Actions, 68 Calif. L. Rev. 1122 (1980)
Company Law Review Steering Group, ‘Modern Company Law for a Competitive Economy: Final Report’ (July 2001) URN 01/942 (CLR Final Report)
Department for Trade and Industry, ‘Modernizing Company Law’ (White Paper) (Cm 5553-I, 2002) and Department for Trade and Industry, ‘Company Law Reform’ (White Paper) (Cm 6456,2005).
Dennis Campbell (general editor), Sheila Buckley (editor), Protecting Minority Shareholders, Kluwer Law International, (1996)
James D. Cox, Compensation, Deterrence, and the Market as Boundaries for Derivative Suit Procedures, 52 Geo. Wash. L. Rev. 745 (1984)
John C. Coffee and Donald E. Schwartz, The Survival of the Derivative Suit: an Evaluation and a Proposal for Legislative Reform, 81 colum. L. Rev. 261 (1981)
John C. Coffee, Understanding the Plaintiff's Attorney: The Implications of Economic Theory for Private Enforcement of Law through Class and Derivative Actions, 86 Colum. L. Rev. 669 (1986)
L Roach, ‘An Equitable Solution for Non-Executive Directors’ (2006) 17 International Company and Commercial Law Review 117, 119
Melvin Aron Eisenberg, The Divergence of Standards of Conduct and Standards of Review in Corporate Law, 62 Fordham L. Rev. 437 (December 1993
Michael E. Brown, Comment and Note Missouri Close Corporations: Proposals to Strengthen Protections for Minority Shareholders, 68 UMKC. L. Rev. 145 (Fall 1999)
Stephen Bottomley, Shareholders' Derivative Actions and Public Interest Suits: Two Versions of the Same Story? (1992)
T. Baums and E. Wymeersch (ed.), Shareholder Voting Rights and Practices in Europe and the United States, Kluwer Law International, The Hague-London-Boston (1999)
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