4.4.8 Criticism of this remedy and the CM report

Shareholders' oppressive motives are derived from human nature, and thus the forms and reasons to oppress vary in different circumstances, which requires the remedy also to be flexible, non-exclusive and broad in scope. The general and undefined wording in s. 994 meets this requirement. There are no black and white rules to predetermine the court's reasoning, and the analysis of what a court may do is often discussed in literature in order to present a general range of possible choices by the court.1 By laying down such a remedy, legislators must have placed a lot of confidence and trust in courts and judges.

The discretionary nature and broad scope of this remedy make it a popular means of minority shareholder protection by which problems beyond traditional legal wrongs to the company and to the shareholders can be assessed. 2But the very "generality of the wording" invites problems too. Under both UK and US law, this remedy is subject to criticism for two main reasons: the workload of the court and judicial uncertainty for shareholders.3 The courts were required to examine informal agreements among the shareholders. In an effort to establish what the parties originally agreed and whether the conduct of the majority has subsequently breached the agreements, the court may have to review a great deal of evidence which can go back through many years of the company's life history.4 Furthermore, the definition of unfairly prejudicial must be decided on a case by case basis, which has created a considerable degree of uncertainty regarding the resolution of shareholder disputes.5

To reduce the number of petitions filed under the general wording of s. 459 (now s. 994) and to enhance legal certainty, the CLR suggested a new "discrete remedy which would apply in restricted circumstances".6 Elements set out in the new remedy reflected statistics resulting from the review based on petitions under s. 459 in the years 1994 and 1995 at the High Court in London, where 96 per cent of the petitions related to private companies, 85 per cent involving small companies with five or fewer shareholders, and 67 per cent involving alleged exclusion from management with buyout as the most sought remedy. The CLR thus provided a remedy which presumed, perhaps refutably, that a minority shareholder with 10 per cent voting rights was unfairly prejudiced if he could prove exclusion from management in a private company with maximum five shareholders and among them there was a relationship such as that set out in Ebrahimi.7 The relief was a purchase order for his shares without discount.8 As we can see now, CA 2006 has not endorsed the recommended remedy, and CA 2006 s. 994 takes precisely the same form as CA 1985 s. 459.9 Thought not adopted, this does not mean that the Law Commission's approach has no attributes. I think there are strong arguments for it. Most significantly, a statutory list of elements and situations which are indicative of oppressive conduct give clarity and certainty to members in a small business.10 And it will not undermine the scope of the remedy if a catch-all provision with general wording is also provided. In my view, even though not adopted in the UK, the CLR offered inspiration for a new approach, namely a general wording together with rebuttable presumptions which are supported by case reviews. The author will recommend this approach for China in Chapter 5 following the introduction of the Chinese legal culture.