On The Improvement Of Settlement Mechanism In Shareholder Derivative Suits In China

in civil litigations, settlement is a legal right of the parties and embodies the principle of autonomy will of private law. The parties can end the litigations quickly through settlements. The settlement procedure can enhance the efficiency of litigations and save judicial resources. Therefore, in general civil litigations such as shareholder’s direct suits, the plaintiff shareholders can freely dispose their own civil rights and release themselves from the burden of litigations through reaching settlement agreements with the defendants. However, as a right to sue provided by "Company Law", shareholder’s derivative suit has its special characteristics different from general civil litigations.Its particularity lies in:In general civil litigations, the subject of substantive rights and the subject of the right of action is identical, i.e. the subject of the right of action bring the lawsuit to protect his/her own substantive rights; instead, in shareholder’s derivative suits, the subject of the right of action is different from the subject of the substantive rights, the shareholders bring the suit to protect the substantive rights of the corporation. As a result, it is very possible that the subject of the right of action will give up or even damage the rights of the subject of the substantive rights for their own interests through settlements. The currently available researches in China regarding shareholder’s derivative suit have rarely discussed the settlement procedure in shareholder’s derivative suits, even though there are some research literatures in which the settlement procedure in shareholder’s derivative suits are discussed, those researches have not put the research focus on the issue of protecting the rights of the subject of substantive rights, i.e. the corporation’s substantive rights. This issue shall be brought to our attention.The author of this article tried to do the research in the following aspects:First, starting from the theoretical foundation of settlement procedure in litigation, the author analyzed the basis of settlement procedure in substantive law and procedural law and further found out the paradox existing in the application of settlement procedure to shareholder’s derivative suits, i.e. if the nature of settlement procedure lies in that the parties have the rights to dispose their own private rights and shareholder’s derivative suits were filed by the shareholders to protect the interests of the company, allowing the parties to freely settle in shareholder’s derivative suits will be equivalent to allowing the shareholders to dispose the interests of the corporation freely. This logical deduction obviously does not conform to the basic concept of the independence of corporate personality.Second, From the above theoretical paradox existed in applying the settlement procedure to shareholder’s derivative suits, the author deduced the two major shortcomings of shareholder’s derivative suits at current stage, i.e. the lack of judicial oversight by the court and the lack of the stakeholders’right to object.Third, through detailed examination of the settlement mechanisms in shareholder’s derivative suits in major representative countries of civil law legal systems and common law legal systems, this article revealed that it is the notable common feature of the legal systems of major countries and regions in civil law legal systems and common law legal systems to emphasize the protection of related substantive rights of corporation itself and other shareholders and to give the right of judicial review to the court and to give the right of objection to relevant stakeholders.This indicates enhancing the system of supervision and examination for the settlement mechanism in shareholder’s derivative suits in China is an important direction in our work of modernizing of our legal system.Fourth, on the basis of analyzing the status and the responsibilities of court in settlement procedure in shareholder’s derivative suits, the author concluded the court should conduct judicial review for the settlement procedure in shareholder’s derivative suits using the following criteria:(1) whether the parties to the settlement have adequately notified others about relevant matters concerning the settlement (2) whether the corporation can gain net benefits through the settlement agreement (3) whether the corporation can obtain material compensation (4) whether the amount of compensation is positively correlated to the probability of winning the lawsuit by the plaintiff (5) whether it is the corporation that will obtain the money compensated through the settlement agreement (6) other standards. Meanwhile, the author analyzed the issues about the necessity of stakeholder exercising their right to object and the means and methods of exercising the right of objection.The innovativeness of this article lies in:(1) Its research regarding shareholder’s derivative suit were not confined to traditional fields, instead, it focused on the settlement procedure of the shareholder’s derivative suit which had not been paid enough attention in previous literatures. Starting from the paradox of application of settlement mechanism in shareholder’s derivative suits, the article explored the deficiencies of this mechanism as existing within the framework of current legal systems (2) Its research paid attention to localization of legal transplants. Having investigated the related mechanisms of major countries in civil law legal systems and common law legal systems, this article suggested we should improve related systems on the basis of current situations and limitations of the settlement mechanism in shareholder’s derivative suits in our country, so that we could improve the pertinence and practicability of legislation.(3) As a legal practitioner, the author did not stopped at the level of discovering problems only, instead, the author proposed original solutions for the problems discovered.The major shortcomings of this article lies in:Limited by research resources, although the author always tried to collect the relevant cases related to the settlement procedure in shareholder’s derivative suits and select typical cases as examples to conduct empirical analysis in the process of writing the article,the efforts did not pay off. This negatively influenced the value and significance of the research result in a certain degree.