Study On The System Of Reimbursement Of Costs In Shareholder Derivative Actions

The enactment of the Companies Act 2005 established the shareholder derivative action regime,which is of great significance to the protection of the rights and interests of companies and shareholders.However,from the performance of the shareholder derivative action system in judicial practice,the system has not been fully utilised and shareholders are often reluctant to file lawsuits due to the serious imbalance between the cost of litigation and the expected benefits,resulting in the implementation of the derivative action system not being as effective as it should be.The issue of litigation costs has a crucial impact on the initiation of shareholder derivative litigation,and is also a powerful lever to encourage and discourage legitimate litigation,and is crucial to the full realisation of the value of the shareholder derivative litigation system.Therefore,it is necessary to conduct an in-depth study on the issue of compensation for costs in shareholder derivative litigation and establish an effective compensation system for costs,so as to enhance the practical effectiveness of shareholder derivative litigation.The introduction of the Judicial Interpretation of Company Law(IV)has put an end to the ambiguity of the attribution of the benefits of successful litigation and granted the right to claim reasonable costs compensation to the successful shareholders.The implementation of the new provisions has effectively reduced the litigation burden on small and medium-sized shareholders and to a certain extent enhanced the activation of derivative litigation by shareholders in China,but the provisions on the expense compensation system are still not perfect,and it can also be seen from judicial practice that there is a serious lack of incentive for shareholders to bring derivative litigation.There are three main reasons for the shortcomings: firstly,the existing theory only focuses on the legitimacy of the costs compensation,ignoring the judicial practice and not paying attention to the efficiency of judicial practice;secondly,the legislation attaches too much importance to judicial efficiency,which restricts the shareholders’ derivative litigation;thirdly,the lack of reasonable basis for the costs compensation under the disconnect between the system and the theory.The current theoretical research on the issue of reimbursement of costs in shareholder derivative litigation focuses on the legitimacy of reimbursement of costs to the plaintiff shareholders or the balance between the costs and benefits of litigation,and focusing only on the balance of interests between the company and the shareholders,so that the plaintiff shareholders in shareholder derivative litigation are treated fairly.However,the consideration of efficiency in judicial practice has been neglected.The interests of the company,the shareholders and the judiciary should receive equal attention and not be biased.In order to achieve unity and coordination between the legal system and judicial practice,the balance of interests theory should be the core of the shareholder derivative litigation cost compensation system for revision.The shareholder-derived litigation costs compensation system should be improved based on the perspective of the balance of interests theory.Firstly,a system of litigation costs that takes into account the interests of multiple parties should be established,with litigation costs being paid at the standard rate for non-property cases and a litigation guarantee system being established.Secondly,the legislation should improve the provisions of reasonable costs compensation,and further specify the scope of "reasonable costs",and the shareholders who lost the lawsuit in good faith should also be included in the scope of compensation.Finally,the Judicial Interpretation should add an appropriate incentive system to encourage shareholders to actively defend the interests of the company.