Study On "Cost-incentive" Of Shareholder Derivative Litigation

The thesis studies the relationship between the plaintiff's motivation and the mechanism of litigation costs in shareholder derivative litigation.And it further analyzes two problems when talking about and study shareholder derivative litigation:ignoring the provisions of other procedures or substantive laws about litigation costs,and statically transplanting the law in one of the historical period.The thesis,on the one hand,examines the cost-sharing mechanism of the derivative lawsuits and their historical evolution of the United States,Germany,and Japan by means of dynamic comparative law method,pointing out that there exist two misunderstandings in the process of legal transplantation: firstly,during the period of legal transplantation,the civil procedure law is always neglected.Secondly,the object of law transplantation at the certain period ignores the investigation of the dynamic development of the shareholder derivative litigation.On the other hand,it analyzes the cases of Chinese company law in practice and summarizes some of the problems caused by the plaintiff's incentive to make up for it in the process of legal transplantation in China.Subject to the Clause 26 of "Provisions of the Supreme People's Court on Several Issues concerning the Application of the Company Law of the People's Republic ofChina(IV)"(Application of the Company Law(IV))(the company shall bear the reasonable expenses paid by the shareholder for participating in the litigation).,the thesis discusses how to reduce the costs of derivative litigation.The thesis consists of three parts,including Introduction,Body and Conclusion.The Body can be divided into six chapters.The first chapter is based on the positive externality theory of law and economics,the thesis analyzes the positive externalities of derivative litigation,and the situation where the shareholders are willing to take derivative litigation as a rational person.The second chapter describes the shareholder derivative litigation system in China and points out that the company law in almost all countries restricts the quantity of shareholder derivative litigation by pre-procedures.The third chapter is based on 217 derivative litigation cases between 2012 and 2017,by empirical method to analyzes the gap between the legislation and practice of derivative lawsuits in China and the preoccupation of “prevents the abuse of lawsuits”as the precondition of legislative prejudice,which exhausts the shareholders' enthusiasm of derivative litigation.Chapter 4 analyzes the development of the US derivative litigation based on the contradiction between protecting shareholder interests and obstructing speculative litigation.This part analyzes the litigation cost burden and number of cases before and after the promulgation of the Private Securities Litigation Reform Act of the 1990 s.The comparison between China and the United States on the costs of derivative litigation assumes preliminary assumptions that litigation costs could influence the number of derivative lawsuits.The fifth chapter describes the practice of shareholder derivative litigation in Germany and Japan,caused by the transplantation of the United States derivative litigation system in different periods.This chapter also analyzes the phenomenon that the different systems of litigation cost allocation in the process of derivative litigation in such countries cause the difference of the suit quantity.Chapter 6 briefly describes the reform of the sharing mechanism of the plaintiff's reasonable costs of derivative lawsuit in the Application of the Company Law(IV).The thesis also agrees the direction of the Application of the Company Law(IV)'s reform.The basic content of this thesis is arranged as follows.The first part of the thesis describes the economic theory involved in shareholder derivative litigation,including the macro-level shareholder derivative litigation enhancing the efficiency of corporate governance and increasing the positive externalities of shareholders' equity,and the micro-perspective of cost-benefit considerations that shareholders may face when bringing derivative litigation as a rational person..It is well acknowledged that every lawsuit cause certain cost.Even though the cost may be less than the overall income of the shareholders,the income obtained by a single shareholder likely take more compensation than such cost.However,even if the lawsuit is successfully won,the company can obtain more compensation,while the shareholders will get far less benefits than the cost they paid.When we consider at the situation where the shareholders loss the lawsuit,in such case the internal of the shareholders will be complicated and shareholders will refuse to represent the company in litigation under rational consideration.As we discussed before,due to the characteristics of its positive externalities,derivative lawsuits have an appropriate increase in the number of benefits that will help the company's overall interests reach Pareto optimality.Therefore it is necessary to give certain economic compensation or incentives to the shareholders initiating the derivative lawsuit.The second part of the thesis describes the limitations of the derivative litigation rules in China on the plaintiffs in time and space.There is a contradiction on the derivative litigation costs: if the plaintiff wins the case,the shareholders cannot directly obtain compensation,but only get the increase in the value of the shares they received in the company.In addition to the higher cost of derivative litigation,without external cost-compensation and compensation mechanisms,it's difficult for shareholders to actively initiate lawsuits.However,if external incentives are over-excessive,abuses of suits will be inevitable.In the past,the research about the limitation of derivative suits paid more attention to the pre-procedures,and the author understood that the pre-procedures for derivative litigation can deduct the quantity of suits,but can't increase the quantity.While it is difficult to explain why most of the country's legal pre-transition procedures are similar,but there are huge differences in practice.In the third part of the thesis,according to 217 cases derived in China from 2012 to 2017,the thesis summarizes the following phenomena:(1)the cost of taking derivative actions is high;(2)the possibility of obtaining relief and the remedy are both great;(3)both maintain a balance in low litigation rate.In addition,we can found in the horizontal comparison that because of the special nature of the target,the litigation costs of the derivative lawsuit are much higher than the other civil cases;this also confirms why,under the current litigation system,the cost-benefit ratio and the quantity of lawsuits for data analysis are not matching.The success of the litigation for the plaintiff's losses will increase the expected value of the litigation and,in turn,increase the number of lawsuits filed.The plaintiff's compensation in the case of winning the lawsuit also has the opposite effect: the potential defendant usually avoids the cause of the dispute.The fourth chapter of the thesis focuses on the origin of the legal transplantation of the derivative lawsuits in China,Germany and Japan—the American derivative litigation system.This part first introduced the contradictory core of the US-derived litigation system: protecting shareholders' interests and obstructing speculative litigation.In the United States since the 1990 s,restrictions on derivative litigation have come from the consideration of this point.The author points out the Private Securities Litigation Reform Act as a time when American company law tends to derive litigation laws and obstruct the function of speculative litigation.The Securities Litigation Reform Act includes controls on the possible abuse of prosecution and the direction of reform to strengthen the plaintiff's control over his lawyers greatly limits the number of derivative litigations.Japan and Germany happened to complete the reform of derivative litigation before and after the introduction of the Private Securities Litigation Reform Act.Therefore,Japanese law transplants refer more to the previous provisions of the Private Securities Litigation Reform Act,and insist encouraging litigation and protecting investment.The fifth chapter of the thesis introduced the different litigation cost sharing system between Japan and Germany.The case is rare in Japan at the beginning of the derivative litigation's transplantation.However,in 1995 after the derivative litigationwas charged as the number of cases,the quantity of cases had increased fiercely.While in Germany,even if a German shareholder derivative litigation wins,the company is not responsible for all the costs in the litigation process.The institutional differences between the two of the plaintiff's costs directly led to differences in the practice in two countries.In addition,this chapter analyzes the transplanting-time of German and Japanese lawsuits concerning American company law.It happened to be located before and after the watershed mentioned above.Both countries have studied almost the same system in the United States at different times,and their application in the country varies in effectiveness.The sixth chapter of the thesis describes in detail the provisions on the reasonable cost sharing of derivative litigations in the Application of the Company Law(IV).Clause 26 of the Application of the Company Law(IV)stipulates that the company shall bear the reasonable expenses paid by the shareholder for participating in the litigation.At the same time,the thesis analyzes the courts making In the judgment,the author noticed that if the derivative lawsuit requests for court support,the plaintiff's attorney's fees and other expenses are highly borne by the company.Compared with Japan's simply deducting the court acceptance fees,Application of the Company Law(IV)is more flexible and in essence more biased towards the mediation method of the USA's Method;However,Application of the Company Law(IV)does not mention the case acceptance fee excessively.And the definition of reasonable expenses gives the court the discretionary power,which may raise some uncertainty in the practice.Overall Clause 26 of the Application of the Company Law(IV)is worth looking forward to.