5.4.3.2.2 Interpretation problem

The first problem concerning this remedy is how to define the general terras in the articles, such as `abuse of rights'. It is inarguable that a remedy with a broad and flexible nature is indispensable to regulate the majority's and director's conduct. It was a move in the right direction that Company Law 2006 filled the blank in this area. But in China, subject to the legal culture introduced in the foregoing part, a new and vague article without any guidance easily gives the impression that it is easier to lay down than to enforce.

The main difficulty of Article 20 is the interpretation of the scope of `abuse': is this confined to illegal actions? If legal actions are also subject to court scrutiny, for instance excluding a member from the company or amending the articles of association according to law? How far could the Chinese court intervene in corporate autonomy? Should the good intention of the majority be taken into consideration? In a word, the crucial point in this article is to establish standards for judging abuse of rights. A lack of the basic principles and standards that govern the proper behaviour of shareholders is very cumbersome not only for the court to judge but also for minority shareholders to sue under Article 20. Hence, recommendations for this interpretation problem will be given in the following part based on the comparative study.1 Besides the difficulty of the interpretation of `abuse of rights', there are many other unclear points concerning elements in Article 20, such as eligible petitioners, a dividing line between direct and derivative actions, the meaning of interests, and so on.2

Article 153 has the same problem as Article 20. It is, in general, too ambiguous to apply. According to Article 153, the shareholders may file a direct action if his interests are damaged under three circumstances, the directors: 1) violate the law, 2) violate administrative regulation, or 3) violate the articles of association. There are two fundamental areas to be clarified before this article can function effectively. The first one is how to distinguish the interests of the company from the interests of the shareholders. When damage is done directly to the company, but indirectly to the minority shareholders, can a shareholder stil file a lawsuit based on this article or must he resort to the derivative action? Without a line to define the interests of the company and the interests of the minority shareholders, it does not help to prevent the occurrence when the petitioner and the court have different opinions on whose interests have been harmed by the breach of duties.

The second area concerns the scope of the director's duties imposed by law. The Company Law stipulates in Article 148 that directors owe a duty of care and duty of loyalty. This is therefore a statutory requirement. If directors breach the duties mentioned in this article, they are subject to liability under Article 153 for violating the law. The Company Law has listed the situations of breach of the duty of loyalty.3 But as explained in Section 5.2.3.1.2, the concept of duty of care is new in China. Many issues remain undefined, for instances, the proper standard to review a breach of the duty: should it be an objective or a subjective standard? Will a minor breach also be sufficient ground for litigation? Can the directors avail themselves of the business judgement rule? If many issues concerning the application of this remedy remain undefined, it will not only be difficult for the minority shareholders to avail themselves of such a remedy, but it will also be difficult for directors to assess the propriety of their own conduct. Consequently, this will affect the development of the company in the long run. As Professor Tangxin said, issues revolving around the duty of care have posed a new research topic for scholars in China.4

In brief, Article 20 and Article 153 together mark a new era in the Chinese company law history for the protection of minority shareholder's interests. Legislators can sigh with relief, for there is finally a remedy to rely on for claims in this area. The lack of guidelines is, however, the main problem in the oppression remedy in China, which may do more harm than good considering the legal tradition, expertise, and a huge group of judges across unevenly developed areas. The law should reflect reality. When the legal community is not well prepared for concepts and issues with such a new remedy and a new approach, the People's Supreme Court should be of help by publishing relevant interpretations to help to define the scope.5 On this point, experiences and principles in the UK and US where such a remedy has long been applied are of special interest to the Chinese legislators for reference. The recommendations summarized will be presented in the next section.