5.4.3.2.4 Problem of discretion

Closely related to the problem of interpretation is the issue of judicial discretion which needs to be exercised by the Chinese court. A flexible scope of a remedy and the judicial discretion to enforce it are actually two Bides of the same coin. Such a remedy as that offered by Article 20 requires experienced courts with sufficient resources and confidence to fulfil this task. As stated, however, the situation does not seem to be so in China today. In China, we expect the detailed conditions for exercising a remedy to be clearly defined so as to avoid excessive judicial discretion.

Nevertheless, we cannot turn back the clock and exclude a remedy of such a nature merely because we do not feel comfortable with it or we lack expertise.

By introducing such a remedy, we are moving in the right direction and keeping pace with the international trend. The way to improve minority shareholder protection is in the process of convergence: the common law countries are moving in the direction of more codified remedies for legal certainty and clarity, like the codified derivative action in the UK Company Act 2006; and the civil law countries are making efforts, both statutorily and judicially, to accommodate discretion in statutory remedies, such as the remedies of withdrawal and expulsion in Germany.1 Even though Germany is a civil law country and tends to have the most formalistic corporate structures and most exact remedies, it has developed an equitable remedy of a highly discretionary nature to resolve shareholder disputes in close companies (GmbH).2 So if China refuses such a remedy which is extremely important to protect minority shareholders just because of lack of experience and unwillingness to depart from the civil law tradition, progress can never be made, which will only result in more problems and manipulation in close companies. Moreover, a weak system to protect minority shareholders will affect foreign direct investment as well. In my opinion, it is sensible to keep the discretional nature of the remedy, but meanwhile, we can make adaptations in order to make it more feasible for this time. Based on the comparative study, the following section will offer recommendations to mitigate the problem.