5.4.3.1.1 Legislative structure

Compared to the remedies in the UK and US, one apparent difference is reflected in the legislative approach. In the UK and US, the accent is on 'the affairs of the company', whereby the oppression or unfair prejudice remedy is able to cover oppressive conduct of both shareholders and directors, including board decisions under the influence of majority power so long as the company's affairs are being conducted in an unfairly prejudicial manner.1

Petitions based on a breach of director's duties were traditionally in the domaio of derivative actions. Although case law in the UK and US has shown that on several occasions, shareholders are permitted to sue under the oppression/unfair prejudice remedy, the court may find in a certain case that a derivative action is the proper remedy and refuse to support a claim based on the oppression or unfair prejudice remedy.2 To accommodate this situation, the court is granted the power to direct claims to derivative actions under the oppression/unfair prejudice remedy.

In China, conduct of shareholders and conduct of directors are regulated in two separate articles. The intention of the legislators is clearly expressed in Article 153 that breach of director's duties can give rise to a direct action if the interests of shareholders are directly harmed. Owing to the legislative structure in Chinese company law, before filing a lawsuit, the aggrieved shareholders first have to decide the capacity of the defendant: is he a shareholder or a director, and did he act in his capacity as a shareholder or as a director? When the board decisions controlled by the majority shareholders have harmed the minority's interests, the minority shareholder has alternative choices, namely breach of director's duties under Article 153 or abuse of majority power under Article 20. Since the minority shareholder bears the same burden to prove the influence of the controlling shareholders on the board decisions under both remedies, it only makes sense for him to distinguish the two remedies when the relief offered by one remedy is more favourable. That is not the case under the current provisions because in both articles only compensation for damages is available. Another issue that concerns me is that Article 20 is contained in Chapter I, the chapter of general principles of company law. I think it is more reasonable to have a specific remedy in the main body of the company law.