Mapping Types of Shareholder Lawsuits Across Jurisdictions

Abstract

Shareholder litigation has been a prominent topic in the comparative corporate governance literature for decades. However, scholars trained in a particular jurisdiction often tend to look for types of lawsuits familiar from their home turf. In particular, the English-language literature has typically focused on derivative litigation, often from a somewhat US-centric or UK-centric perspective, in spite of the fact that derivative suits constitute only a minority of shareholder actions even in these jurisdictions.

To broaden the functional perspective in the comparative analysis of shareholder litigation, this chapter attempts to create a (likely incomplete) taxonomy of shareholder lawsuits across countries. While the distinction between derivative suits and direct class actions in the US is largely familiar, many other jurisdictions employ different types of shareholder lawsuits. In doing so, we can identify some patterns that may in part reflect influence between jurisdictions reflecting legal families or legal origins. The derivative suit has risen to prominence in the United States as a frequently used mechanism, from where it has spread to a number of Asian civil law jurisdictions. In the United Kingdom and other “Commonwealth” countries, where it also has a long tradition, it is often eclipsed by the “unfair prejudice” or “oppression” remedy. In the civil law world, derivative litigation and close equivalents exist, but often another form of shareholder litigation takes a more prominent role, namely litigation regarding the validity of shareholder resolutions.

After setting up the taxonomy, this chapter explores the main reasons that explain why specific types are pervasive in particular jurisdictions, analyzing especially standing requirements, allocation of cost and risk between plaintiffs and defendants, and access to information by plaintiffs. Finally, the chapter discusses lawsuits seeking to rescind shareholder decisions in Germany as an example for a frequently used type of litigation outside the American dichotomy of derivative and direct suits.

Keywords: Corporate Governance, Comparative Corporate Law, Shareholder Lawsuits, Derivative Suits, Direct Suits, Unfair Prejudice, Inquiry Proceedings, Rescission, Nullification, Courts, Discovery

JEL Classification: K22, K41