Singapore Derivative Actions: Mundanely Non-Asian, Intriguingly Non-American and at the Forefront of the Commonwealth
in The Derivative Action in Asia: A Comparative and Functional Approach, 323 (Dan W. Puchniak et al. eds., Cambridge University Press, 2012).
Posted: 30 Apr 2013 Last revised: 30 Apr 2014
Date Written: June 29, 2012
For readers looking for Asian exceptionalism, this chapter will disappoint. The current rise of shareholder litigation in Singapore lends little support to the tired trope of the reluctant Asian litigant. Familial bonds and face-saving settlements appear to play no more of a role in Singapore than they do in the West in preventing shareholder litigation in closely held family companies or potentially embarrassing disputes. The monolithic view of Singapore as a paternalistic Asian nanny state that discourages the individual enforcement of shareholder rights also rings hollow in the face of the evolution of its derivative action and other shareholder remedies. Indeed, with a view to bolstering the private enforcement of directors’ duties and strengthening individual minority shareholder rights, Singapore’s parliament implemented a statutory derivative action, and its courts expanded the scope of its oppression remedy, long before most other Western common law countries. In short, although ‘Asian culture’ undoubtedly plays some role in Singapore society, there is little evidence that it has had a meaningful impact on the evolution or use of its derivative action or other minority shareholder remedies.
What the Singapore story lacks in Asian exceptionalism, it more than makes up for in its Commonwealth heritage and economic pragmatism. The evolution of the derivative action in Singapore has closely tracked developments in other leading Western common law countries. From the time of Singapore’s independence, court acceptance of the infamously nebulous English rule in Foss v. Harbottle substantially limited the ability of minority shareholders to make use of the common-law-based derivative action. Following the trend in leading Western common law countries, Singapore’s courts allowed for the expansion of the oppression remedy to deter corporate controllers from abusing their power and to provide a remedy for minority shareholders who suffered such abuse – an economically pragmatic solution in light of the legal lacuna created by the rule in Foss. In a similar vein, the decision of Singapore’s parliament in 1993 to model the statutory derivative action on the equivalent provision in the Canadian Business Corporations Act exemplifies the continuing and definitive role of Singapore’s Commonwealth heritage on the development of its shareholder remedies. It also exemplifies Singapore’s economically pragmatic approach of trying to stay on the cutting edge of shareholder rights in the common law world, as it implemented the statutory derivative action long before most other Western common law countries. Moreover, Singapore’s Commonwealth heritage and economic pragmatism are evident in its shareholder remedies jurisprudence, which regularly cites and analyses advancements in the shareholder remedies law in other leading Western common law jurisdictions, notwithstanding the fact that Singapore abolished appeals to the Privy Council in 1994.
Just as Singapore’s derivative action is rooted in its Commonwealth heritage and economic pragmatism, it is also intriguingly ‘non-American’. There has not been a single reported derivative action brought against a director of a public listed company in Singapore. This contrasts starkly with derivative litigation in the United States, where derivative actions against directors of public listed companies have historically been a relatively common affair. Singapore’s dearth of derivative actions against public listed companies should not surprise. For better or worse, like most other countries, Singapore lacks the high-powered financial incentives that drive attorneys to pursue derivative litigation vigorously against public listed companies in the United States. In addition, unique to Singapore, its statutory derivative action applies only to non-listed companies, which means that shareholders have to overcome the rule in Foss if they want to bring an action on behalf of a public listed company – an idiosyncrasy that originally was cautiously pragmatic but now appears to be excessively conservative, and is likely to be amended in the near future.
The corporate governance context in which Singapore’s derivative action exists is also intriguingly non-American. To start, Singapore’s public market for shares is considerably more concentrated than in the United States. Singapore’s lack of dispersed shareholdings raises questions about the highly influential and controversial legal origins theory, which paints all common law countries (especially economically successful ones) with the same brush and suggests a causal link between common law minority shareholder protections, dispersed shareholdings and economic prosperity. Indeed, Singapore’s strong common law heritage, concentrated shareholdings and recent acclamation as the world’s most efficient economy turn the legal origins theory on its head. Add to this Singapore’s dearth in truly independent directors, its absence of a vigorous market for corporate control and the government’s role (through its sovereign wealth fund) as the market’s most important shareholder, and the Singapore story may even force the stubborn few who still have blind faith in the American model to open their eyes to other possibilities.
Keywords: Derivative actions, Singapore company law, Singapore corporate governance, Shareholders’ remedies, comparative corporate law, comparative corporate governance, Asian law, Asian values, Foss v. Harbottle, leximetrics, convergence, American model
JEL Classification: K00, K22, K41, E00, L50
Suggested Citation: Suggested Citation