Study On China's Shareholder Derivative Suits

The thesis is on improving China's shareholder derivative action with an eye on American class action.In a shareholder derivative action,the plaintiff shareholders sue in a representative capacity on a cause of action that belongs to the corporation but which for some reasons the corporation is unwilling to pursue; In effect, the shareholder is suing as a champion of the corporation. At the meanwhile, the plaintiff shareholder is in effect representing the interests of a class consisting of some or all of the other shareholders in the corporation. So, the derivative action should include the subdivision that the plaintiff shareholder will fairly and adequately protect the interests of the corporation and other shareholders, which can avoid overcharging. Besides, it must be efficient to keep many shareholders from unnecessary action and save judicial resource, for fear that it will inhibit the legitimate litigation.However, our new Company Law and Civil Procedure Law of PRC do not have the subdivision of fairness and adequacy. And the procedure is far from efficient. In America, a derivative suit usually have aspects of class action, and is subject to the same potential abuses as a class action, so that it avoid multiplicity of suits and the plaintiff shareholders will fairly and adequately protect the interests of other shareholders and the corporation. Therefore, we can take class action as a good example to improve our shareholder derivative action.The thesis includes three parts.The first part is about joint action in our country and American class action in general.In our country, according to Civil Procedure Law of PRC, the plaintiff shareholder have to sue by themselves, or may elect representatives to sue on behalf of them, which probably lead to multiplicity of suits. Besides, whether the plaintiff shareholder will fairly and adequately protect the interests of the company and other shareholders is unknown. Other shareholders have to go to court to check in or sue in time, so that the judgment will include all of them, in other words, they can only"opt in"the class, which is very unefficient.In America, Shareholder derivative suit is one kind of class actions. In general, there are four prerequisites to a class action: firstly, One or more members of a class sue or be sued as representative parties on behalf of all only if the class is so numerous that joiner of all members is impracticable; secondly, there are questions of law or fact common to the class; thirdly, the claims or defenses of the representative parties are typical of the claims or defenses of the class; and fourthly, the representative parties will fairly and adequately protect the interests of the class.An action may be maintained as a class action if the prerequisites are satisfied, and in addition to creating some risks; or the party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby making final injunctive relief or corresponding declaratory relief with respect to the class as a whole; or the court finds that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy. Compared to joint action, the members of the class can opt out of class action. The judgment, whether favorable or not, will include all members who do not request exclusion. The representative parties will sue or be sued on behalf of all members, at the same time they will fairly and adequately protect the interests of the class. These rules are quite helpful to make derivative suites by shareholders more fair and efficient.In the second part of this thesis is predicament of shareholder derivative action when all shareholders must sue together or sue by representative parties in our country. First, it may lead to unfair result. There are two reasons: firstly, whether the representatives will fairly and adequately protect the interests of all shareholders and company is unknown, because no rules about fair and adequate representation can be found; secondly, although shareholders can figure out representatives, the rule of voting is too general. Besides, according to our new Company Law, fairness and adequate representation can not be satisfied.Second, all shareholders sue together or sue by representatives parties is not efficient. Because they can only"opt in"the class not"opt out". When they have to join the whole procedure, multiplicity of suits cannot be avoided. Or they have to elect their representatives and go to the court to check in, or they must sue in time, so that this derivative suit on the merits has res judicata.The last part of thesis is about how to improve shareholder derivative action in our country. We'd better take class action as a good example. Yet, we know that class action is far from perfect and is very different from joint action of our Civil Procedure Law. So we can only use some factors of class action for reference, that is adding the following subdivisions: first, the representatives will fairly and adequately protect the interests of all shareholders and the company; second, in any shareholder derivative suit, the court shall direct to every shareholder but for the plaintiff, the best notice practicable under the circumstances; third, any shareholder who does not request exclusion may enter an appearance through the counsel; fourth, dismissal or compromise; and the last one, the judgment, whether favorable or not, will include all shareholders and the company.