This in-depth comparative examination of the derivative action in Asia provides a framework for analysing its function, history and practical application and examines in detail how derivative actions law works in practice in seven important Asian jurisdictions (China, Hong Kong, India, Japan, Korea, Taiwan and Singapore). These case studies allow an evaluation of a number of the leading Western comparative corporate law and governance theories which have come to define the field over the last decade. By debunking some of these critically important theories, this book lays the foundation for an accurate understanding of the derivative action in Asia and a re-examination of the regulation of the derivative action around the world.
This Article uses the derivative action in Asia as a lens for re-evaluating the foundational theories of Asian and comparative corporate law. It begins by demonstrating that the cultural theory of “Asian non-litigiousness” provides scant explanatory or predictive value for either the evolution or function of the derivative action in Asia's leading economies. As such, this Article suggests that the theory of Asian non-litigiousness should be relegated to the dustbin of academic history. Without the black box of Asian culture to erroneously explain away potential differences between “Asian” and “Western” derivative actions, the reality of the derivative action in Asia's leading economies becomes markedly more important. It allows evidence from the derivative action in Asia to be used as a valuable litmus test for three of comparative corporate law's most important theories which all claim universal applicability (the three “grand universal theories”). This Article demonstrates, using evidence from the derivative action in Asia, that the claim of universal applicability, which under-pins the grand universal theories, is erroneous. Indeed, this Article turns the grand universal theories on their heads by demonstrating that they not only fail to explain the derivative action in Asia but also terribly mislead. As such, this Article concludes by suggesting that comparative corporate law should replace its lust for grand universal theories with a quest for understanding (rather than avoiding) the complex reality that is inherent in comparative corporate law.
Context matters. Take a step back and look at some 170 years of history of derivative actions and at the pertinent developments on three continents, and you will see a seemingly endless regulatory quest for what we have termed the 'Holy Grail' of derivative actions regulation (i.e., the appropriate balance between the necessary incentives to ensure that derivative actions are pursued effectively and the indispensable safe- guards to prevent their abuse). Few, if any, legislatures or courts have been able to grasp this elusive goal; perhaps, like the Holy Grail itself, it may never be grasped. This book's analysis of the foundational jurisdictions of the United States, the United Kingdom, Germany and France and our seven major Asian jurisdictions illustrates that, whether in the East or the West, local context is critically important. Local context matters because it varies, in unpredictable ways, from jurisdiction to jurisdiction and within each jurisdiction over time. Each jurisdiction's local context is defined by a myriad of unique features, including its law, economy, institutions and sociopolitical environment. The limitless permutations of how these contextual features can combine is what uniquely shapes the functionality of derivative actions in each jurisdiction, makes the quest for the 'Holy Grail' so elusive and causes the derivative action to be so complex. In this sense, it is the complexity of each jurisdiction's unique and evolving local context that forms the core of our comparative and functional understanding of the derivative action in this book. For some, our emphasis on local context and boundless complexity may disappoint. Local context and boundless complexity do not lend themselves to large overarching universal theories; and this book, unapologetically, does not provide one. There is no one answer for how the derivative action functions in Asia. Rather, the reality is that he derivative action in Asia is very much local, very much contextual and, we suspect, very inconvenient for comparative corporate law scholars who lust for grand theories. The inconvenient truth is that the derivative action in our seven jurisdictions does not lend itself to being coded, plugged into a regression analysis and revealed through statistical significance. It also does not lend itself to a neat taxonomy of rules or strategies. Rather, it is a phenomenon that, in all probability, can be properly understood only through an in-depth understanding of a myriad of local, highly contextual, factors that shape how the derivative action actually functions in practice. To add to the inconvenience, once the contextual factors are measured they have to be remeasured in the future, as they constantly evolve and do not necessarily progress in a predictable way along any 'dependent path'. This observation may sound obvious - perhaps because it is. It is still meaningful, however, as the field of comparative corporate law has developed a proclivity for chasing grand theories. This book seeks to quell that proclivity by squarely challenging a number of the foundational comparative theories that have been used to explain derivative actions, shareholder litigation and corporate governance in Asia and around the world.
The derivative action, also known as the derivative suit (in the United States), Aktionärsklage (Germany), kabunushi daihyo sosho (Japan), action sociale ut singuli (France) and paisheng susong (PRC) (among others), is a global phenomenon. It originated in the common law world and is regarded by some as 'one of the most interesting and ingenious ... accountability mechanisms for large formal organizations'. As a potentially powerful elixir for corporate governance ills, the derivative action has captivated lawmakers for well over a century. It is also a subject that has long intrigued academics - and rightfully so. The beauty of the derivative action is truly in the eye of the beholder, making it ripe for scholarly debate. Depending on one's vantage point, it can be seen as either a functional necessity for meaningfully enforcing directors' duties, which mitigates agency costs, or a corporate governance mechanism inherently vexed by a litany of complex procedural problems, which stifles entrepreneurship. We suspect that, after reading this book, you will conclude that the truth about the derivative action in Asia lies somewhere in between these two extremes. This chapter provides a general theoretical framework for the book and links the ongoing international discussion about the pros and cons of the derivative action with the seven jurisdiction-specific chapters in this volume. The balance of this chapter is organized on the basis of three perspectives from which derivative actions can be analysed. It starts, in section II, by providing an economic perspective, which identifies the primary features and functions (including the functional deficits) of the derivative action as a mechanism for improving the efficiency of corporate governance. It then examines a striking paradox in the economic incentives that drive derivative actions: most empirical evidence suggests that derivative actions normally result in a net economic loss for the plaintiff shareholder pursuing the action (and even for the individual company involved), but they are still commonly viewed by most legislators and judges as an indispensable deterrent against reckless behaviour by directors, controlling shareholders and others who may owe a duty to the company. In a similar vein, this section pays special attention to the difficulty of designing a derivative action that incentivizes shareholders to pursue derivative actions, which enhance corporate governance efficiency, while at the same time preventing their abuse (i.e., the Holy Grail). Next, in section III, this chapter examines the derivative action from a historical perspective, by tracing its modern origins to the common law jurisprudence of the United States and the United Kingdom in the nineteenth century. The German historical experience is also briefly considered, so as to highlight its long history of rejecting the introduction of a US-/UK-style derivative action (until 2005), instead relying on functionally equivalent corporate governance solutions. This historical overview provides an important context for understanding the derivative action in Asia, as most leading Asian jurisdictions have transplanted some or all of the legal framework governing their derivative actions from the United States, the United Kingdom or Germany. This chapter concludes, in section IV, by viewing the derivative action from a practice-oriented perspective, which focuses on how the derivative action is actually working in selected major non-Asian jurisdictions. This section includes an examination of the United Kingdom (with a focus on the statutory derivative action, which was recently implemented in the Companies Act of 2006), the United States (with a focus on Delaware corporate law and the Model Business Corporations Act), France (with a focus on its role as a forerunner in derivative actions legislation in continental Europe) and Germany (with a focus on its recent introduction of a statutory derivative action that was ambitiously, but not necessarily successfully, designed to avoid the pitfalls of the US system).
This dissertation, "Exploring Derivative Action in Japan and China" by Yuchen, Song, 宋雨晨, was obtained from The University of Hong Kong (Pokfulam, Hong Kong) and is being sold pursuant to Creative Commons: Attribution 3.0 Hong Kong License. The content of this dissertation has not been altered in any way. We have altered the formatting in order to facilitate the ease of printing and reading of the dissertation. All rights not granted by the above license are retained by the author. Abstract: Derivative action is a means of enforcing directors to carry out their fiduciary duties to a company through judicial resolutions. Such a private enforcement is one of the essential mechanisms that reduce agency costs in a mature market economy. The institution of derivative action originated from the British equity law, and was further developed and implemented in the United States. Japan, South Korea, Taiwan and Mainland China all introduced derivative action one after the other. Among the transplanted countries, Japan experienced a sharp increase of derivative actions in the 1990s, while the other countries had fewer derivative cases. This thesis first focuses on the popularity of derivative action in Japan in the 1990s by discussing the legal framework, social and economic backgrounds, and interconnected institutions related to derivative action, in order to determine the incentives for shareholders to sue. Professor Mark D. West, Professor Dan W. Puchniak and Professor Shiro Kawashima all conducted in-depth research and made outstanding contributions on this issue. West believed the direct benefits to Japanese attorneys led to the advent of derivative actions, while Puchniak disagreed, and indicated that shareholders and their attorneys in carrying out derivative actions are irrational and not economically motivated. Kawashima gave more attention to the social aspects of that period of time and inferred that a series of social events triggered the interest to sue. Through a study on the degree of the development in derivative actions, as well as the related features and changes in Japan, my conclusion is that the establishment of self-reinforcing and interconnected institutions led to path dependence on derivative action, which is the real reason for the popularity of derivative action in Japan. Specifically, the crucial self-reinforcing institutions that contribute to the significant increase in derivative action comprise the common fund principle, which provides indemnity for the litigation costs of plaintiff shareholders when they win a case; the contingency fee arrangement, which transfers litigation risks from plaintiffs to their attorneys; and the discovery rule, which facilitates the access of plaintiffs to corporate internal information. The conclusion is drawn from the path dependence theory, in that the consolidation of any initial path requires the support of the interconnected institutions, especially those with a self-reinforcing nature. This explanation goes beyond the case of Japan, and can also account for the case of China. Introduced in 2006, the derivative action in China has been modest, with around 10 cases per year. However, after studying the Chinese legal framework of derivative action, I have found an intriguing item, that among all of the derivative suits, only one involved a publicly held company. A cost-benefit analysis has indicated that there is a serious lack of incentives for shareholders in publicly held companies and their attorneys to sue because of the imbalance between litigation costs and benefits. Again, the reluctance to sue is found to originate from the incomplete interconnectedness of institutions based on the path dependence theory. Finally, the experience of Japan can be viewed as an example of establishing these critical self-reinforcing institutions. DOI: 10.5353/th_b5689308 Subjects: Stockholders' derivative actions - Japan
Reconceptualises the general meeting, controlling shareholders and institutional investors as fiduciaries in four leading common law Asian jurisdictions.
This book is the first comprehensive study of the statutory derivative action in Australia, using the Australian model as a reference point and comparing it with the UK, Canada, Singapore, New Zealand, Hong Kong and USA counterparts. The book includes an empirical study covering over a twenty-year period from the date the statutory framework came into operation, coupled with extensive case law analysis and comparisons with other jurisdictions. It informs the world about the uniqueness of Australia’s statutory derivative action, and what other countries can learn from it as shareholder protection and promotion of good corporate governance. While some countries have statutory derivative action, there are still countries that do not have the statutory framework that are considering introducing it into their corporate law. This book provides insights and suggestions for lawmakers, litigation practitioners and researchers worldwide in reforming their existing model.
This book examines corporate governance rules in China, and highlights the deficiencies in current company law, with the purpose of arguing for a more effective derivative action mechanism, for the benefit of shareholders and their companies.
Derivative actions were just newly introduced into Vietnamese company law in 2010. Adoption of the derivative action is a strike signal of Vietnam's affiliation to the litigation bandwagon of East Asia countries. However, differ from the Asian countries where matters of derivative actions' transplantation and their functioning are oft-debated topics of corporate governance literature, the discussion has not begun yet in Vietnam. In fact, the derivative action was adopted without a domestic academic debate to pave the way for its introduction. The lack of discussion on the one hand would troublesome those who want to review the transplantation of the derivative action to Vietnam. On the other hand, this absence would detach the Vietnamese academic debate from on-going international debate. Seeking the possible explanations for absence of such debate is the first aim of this article. Towards this end, the article proposes three assumptions which help to explain why the derivative action has never been widely discussed in Vietnam before its introduction. Such assumptions enables us to better understand the context in which the action was introduced. Moreover, the assumptions are hints for us to predict feasibility of the derivative action in the jurisdiction. The second aim of this article is giving some suggestions to improve the newly-adopted regulations of derivative actions. For this purpose, some ambiguity and deficiencies of the regulations are discussed. Based on the understanding of its surrounding context and its own deficiencies, finally the article comes up with conclusion of future for the derivative action in Vietnam.
