Abstract
Shareholder's derivative action in China came into existence only a few years ago, thus laws and regulations about this type of lawsuit are limited, and specific applications are not well recognized by the law-making body. As revisions to the relevant laws and judicial interpretations are not to be made overnight, how to resolve the emergent problems resulting from the shareholder's derivative actions is in urgent need by the judiciary. For the judges, how to apply the law poses a great many problems for them to exercise their powers and to administer the justice under the present legal framework and the judicial system. Therefore, this dissertation aims at offering critical solution to the problems resulting from the shareholder's derivative action, to bring the judicial discretion along a normal track so as to handle fairly and reasonably the shareholder's derivative action, and to safeguard the substantive and procedural rights and interests of the parties to the lawsuit.There are six chapters in this thesis.
Chapter one, subdivided into three sections, introduces the significance, the methods of the research, and literature review. The writer finds that the previous research on the shareholder's derivative action is limited in manifold ways. First of all, the present research focus more on lawmaking rather than on judicial practices. Secondly, the researchers' or scholars' perspective focuses more on the some individual issue(s) arising from the corporate law or civil procedural law, disjointing the substantive issues form procedural issues in the shareholder's derivative action. Finally, the present research into the shareholder's derivative suit is consciously or unintentionally more inclined towards the protection of the shareholders' rights, while the protection of the corporate interests and the optimization of corporate governance are somewhat ignored.
Chapter two lays a theoretical foundation for the research by discussing the historical and jurisprudential issues relevant to the judicial intervention into the corporate internal affairs. From historical point of view, the contradiction and balance between corporate autonomy and judicial intervention have permeated in the derivative actions, which are accounted for by the counteracting relations between judicial authority and judicial passivity. Jurisprudentially, the integrity between the jurisdiction and the right to legal action can fairly justify the shareholders' filing derivative lawsuit on behalf of the company.
Chapter three concerns the constituents of the judge's jurisdiction, which comprises some basic concepts, the subject to exercise jurisdiction, and the scope and some fundamental rules and principles of jurisdiction. According to the writer of this dissertation, in the shareholder's derivative action, the jurisdiction vested on the judiciary shall include the right to direct the procedures, the power to adjudicate the substantive issues of the lawsuit, and the right to intervene in the parties' conduct. The entity or institution to exercise the jurisdiction over the derivative suits rests upon the people's courts and other adjudicating institutions. The general hierarchical jurisdictions can be joined by the designated jurisdiction and certiorari jurisdiction (right to move the action to the higher level jurisdiction), with high people's court at provincial level to govern these suits. In terms of the territorial jurisdiction, the people's court may exercise the jurisdiction over the lawsuit(s) arising from where the company is located. Whether a derivative suit can be filed in the people's court is to be determined by the collegiate bench composed of professional full-time judges. The trial institutions can either be the collegiate bench composed of professional judges or a mixed collegiate bench composed of professional judges and the professional people's assessors.
The right to direct the judicial procedures in Chapter four can be subdivided into five sections. Section one deals with the procedural prerequisites, seeking to find solutions to three types of problems involved in the derivative suits: review of the corporate refusal to initiate the derivative action, review of the corporate delay in bringing a derivative action, and review of the exemptions. In solving the first kind of problems, when the defendant is about “the other (s), ” differentiation is to be made by double applications or uni-modal application. As for the second type of problem, the writer holds that the corporate delay in bringing a derivative action can be determined by whether the cause of action has exceeded the cooling-off period of 30 days. As for the third type, circumstances can be classified into emergent or non-emergent situations, different rules of juridical recognition are commented upon. Section two is concerned with the subject who may file a derivative action in the people's court. The writer has discussed how the people's court will review the qualified plaintiff(s) and defendant(s) in a derivative actions, the status/the standing assumed to the company, other shareholders, including but not limited to, the shareholder status, the ratio of the share shareholding, and the length of time for the shareholding, and the impartiality. In reviewing the defendant's qualification, different determinants or criteria are to be used to handle the diversified types of the claims, and a company may be joined in the legal action in the name of an impleader (third party with limited claims, or accessory intervenor). Any other shareholder may apply for joining any proceedings of the legal action, but should the said joinder of the action has caused delay of any proceedings in the legal action, the people's court can dismiss such claim(s). Section three deals with the adjudication of the facts and the admissibility of the evidence in the derivative action, the focus being placed upon the object, the allocation of the burden, and the standard of proof. Judges shall ascertain the issue(s) and the object of the proof during the discovery, and the pre-trial conferences. Plaintiff are required to prove to the court the fundamental facts relating to the infringement to the company interests and any other violations; and the defendant is to bear the burden of proving the causation between the act and the resulting harm or loss or losses, the subjectivity in the fault or whether defendant's action conforms to the best business judgment rule. In terms of standard of proof, the writer believes that high probability may be integrated with lower-than high probability. Section four handles the judicial interpretations in different phases of the procedures. Before the case can be filed in the people's court, judges shall explain to the parties to the legal action about the particular claims, the proper parties. Before the trial stages, judges may offer legal interpretations about submission of the particularly required evidence, the fulfillment of the procedural prerequisites, and the corporate involvement in the derivative action. In the trial procedure, judges can also explain the application of the laws and the allocation of the burden of proof. Legal interpretation or judicial explanations can extend to the reasoning in the final decisions. Section five deals with other rights to direct the judicial procedures, emphasis being placed upon the joinder of actions, parties' modification of the claims, and any other matters other shareholders have raised about the appeals and de novo trials.
Chapter five is concerned with the right to intervene in the parties' conduct, which is subdivided into four sections. Section one involves the judge's right to intervene into the parties' withdrawal from a derivative action or nolle prosequi from substantive and procedural perspectives. Procedurally, a special proceeding of notice can be conducted to inform the company and other shareholders of their objections against or continuance of the derivation actions. Substantively, the court shall be entitled to review the causes for the plaintiff's withdrawal from the derivative action, investigate the subjective malice and the prevailing rate by the plaintiff in the derivative action to safeguard the corporate and other shareholders' interests. Section two touches the court's right to reconcile the derivation action. Section three offers mediation as an alternative dispute resolution mechanism to the derivative action. The author believes that limited use of the mediation shall be practiced from procedural and substantive perspectives. A procedure of notice may be added to inform the company and other shareholders of their full and complete representation in the mediation; and the court may review the submitted mediation proposals by the company or other shareholders. Section four discusses how a court can suspend or discontinue the derivative action. Where statutory excuses for the discontinuance of the action exist, the court has to verify the circumstances for the discontinuance of the action; should the plaintiff request the discontinuance of the action, any other shareholders who have not participated in the action would have to be inquired about the willingness to continue the derivative action on behalf of the plaintiff. The court shall grant leave to the discontinuance of the derivation action after consulting the company and other shareholders, and its investigation into the specific circumstances resulting in the discontinuance.
Chapter six examines some substantive issues arising from the derivative action, comprising three sections. Section one deals with court's review standards, which can be sub-classified into three kinds: statutory duty, business judgment rule and affiliate transaction. From the perspective of statutory duty, people's court shall review whether the plaintiff has performed the statutory duty and fulfilled its obligations provided for in the corporate laws and regulations. In terms of the business judgment rule, the people's court is to evaluate whether defendant's conduct has conformed to the best business judgment rule and determine whether the related subject(s) has (have) to assume the responsibility for compensating the loss(es). In reviewing the affiliate transaction, the people's court is to discern whether any unjust or unfair related transaction has been conducted. Section two has discussed the jurisdiction exercised by the people's court in situations where the defendant's liability for damages arises when the shareholders have won the case, and where the plaintiff's liability for damages results when the defendant has prevailed in the legal action. As a general rule, in the case of the plaintiff's wining the case, the defendant is ordered to make compensations to the company, but under the following two situations, the defendant is also requested to compensate the plaintiff(s). Firstly, when the defendant happens to be the controlling shareholder or the actual controller, any compensation made to the company may happen to fall into the hands of shareholders ex maleficio, and secondly, if a majority of the shareholders are abetting or assisting the wrongdoing, any compensation made to the company can only benefit the wrongdoers. In the case of defendant's prevailing over the derivative action, the plaintiff's liability may involve the compensation made to the company or to the plaintiff, but the liability has to be reviewed on the following basis: a) the court has not found for the plaintiff in the derivative action; b) the derivative action against the company or against the defendant has materially harmed the company or the defendant(s); and c) the actual malice was found to rest with the plaintiff. Section three concerns the litigation cost and expenses, including the standard to collect the litigation cost and or expenses, the security for the litigation cost, and the dividing out the litigation cost. As a general rule, the collection of the litigation cost or expenses is to be made as in the ordinary and usual cases. The security for the litigation cost is concerned with the granted permit to apply for the security for the litigation cost (in the course of the answer, evidence as to the existence of the actual malice shall be provided) and the specific amount of the litigation cost. In dividing out the litigation cost, the people's court can guide the prevailing plaintiff to collect some compensation(s) as to the litigation cost already paid to the people's court in filing the derivative action in the said court, counsel fee, transportation expenses, charges or expenses resulting from the communication, boarding and accommodation charges, and charges for loss of the working time.
| Date of Award | 8 Sept 2016 |
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| Original language | Chinese (Traditional) |
| Awarding Institution |
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| Supervisor | Wenwei GUAN (Supervisor) |