Corporate law, derivative actions: a comparative approach

Abstract

This thesis is a culmination of a research of a particular branch of Corporate Law, which has grown in several major parts of civilized jurisdictions. The thrust of the study was to evaluate the past, present and the future of a particular type of action known in Corporate Law under the umbrella of shareholder remedies - the ‘Derivative Action’ with emphasis to develop the law in one jurisdiction profiting from another. The research thus reveals how, when and where the so called action originated, the initial effects these actions had on the corporate world including shareholders, companies and related persons natural or juristic. Though much has been written by way of books, treatises and articles and several researches have dealt with the common topic shareholder remedies in its broad perspect, there is no separate study carried out on this topic in its global context with a comparative focus. This study has therefore given me the drive, initiative and courage to look at the conceptual view or the macro view of the so called ‘Derivative Action’ with of course special emphasis on the Australian and Sri Lankan jurisdictions in its micro aspects. This, I believe is the first time anyone has undertaken such a task. The study thus travels through distant roads of common law action to the statutory form of the action in the relevant jurisdictions and finds it driving with much purpose in jurisdictions such as Australia and Sri Lanka which are both in the transitional era from the common law action to the statutory action.

The research is based on the collection of material namely, case law - Australian, Sri Lankan and international on the matters in issue, Legal treatises on the subject matter local and international, Law reform material - Australian, Sri Lankan and international on the topic, Bills and Statutes available on the topic in Australia, Sri Lanka and other countries.

I have met resource personnel with regard to Law Reform in several jurisdictions on the matters in issue and visited the Australian Stock Exchange and the Colombo Stock Exchange.

The research findings depend mainly on the electronic data available in addition to resources available at the University of Canberra, the Australian National University, Colombo Law Library, The Colombo Law Society Library and the Sri Lanka Supreme Court Judges’ Chambers Library and the Sri Lanka Attorney General’s Department Library. Visits to the McGill University in Montreal, Canada and the corporate law sector in New Zealand, including Universities and Law Offices in Christchurch and Auckland too has helped me considerably in the process.

Review of the literature of the proposed statutory Derivative Action in Australia and the proposed statutory Derivative Action in Sri Lanka, are based mainly on; Enforcement of the duties of directors and officers of a company by means of a statutory derivative action (Report No. 12) Companies and Securities Law Review Committee. (November 1990 ), Corporate Practices and the Rights of Shareholders (Report of the House of Representatives Standing Committee on Legal and Constitutional Affairs) Parliament of the Commonwealth of Australia. (November 1991), Report on A Statutory Derivative Action Companies and Securities Advisory Committee. (July 1993 ), Corporate Law Economic Reform Program (CLERP) Proposal Paper No 3 (1997), the CLERP draft legislative provisions (1998), Australian case law on the application of the common law Derivative Action, both in the High Court and in individual States and Australian articles on Derivative Action as a common law remedy and on the introduction of the statutory action. In the Sri Lankan context, the proposals in Sri Lanka for the statutory Derivative Action and the case law in Sri Lanka on the application of the common law remedy has been referred to. Other literature include, material available on the Canadian formula of Derivative Action, including Statutes, Rules, case law, articles and other relevant data, material available on the Derivative Actions in the United States, material available in New Zealand on Derivative Actions, material available in England on Derivative Actions, namely on the common law approach, case law, articles, Bills, Rules and other connected material, Statutes on Derivative Actions in other jurisdictions at present and Hong Kong proposals for a statutory Derivative Action, to name some.

The aforesaid material and the review of the same have assisted the study as follows:
-To place the past, present and the future of the common law Derivative Action.
-Examine the objectives of the Derivative Action.
-The operation of the common law aspects of the action.
-The benefits of the statutory form of the action.
-Experiences of other countries in the recent past on the subject.
-The Australian reform process presently underway.
-The best experiences in Australia with regard to case law.
-To evaluate whether the remedy should be limited to fraud on the minority or whether it should be extended further even to negligence.
-How best Sri Lanka could benefit from the Australian formula of the statutory form of the action.
-To evaluate whether the proposed model of the statutory action in Sri Lanka is adequate in view of the Australian and other accepted formulae on the subject.
-Whether the common law action should be expressly abolished in Sri Lanka.
-Consider the possible introduction of the best methods to Sri Lanka.

Finally, the research speaks for itself the need for a statutory Derivative Action for Sri Lanka in the future, to be an improvement on the Canadian, New Zealand and Australian models. The research findings, especially in its conclusions and recommendation in Chapter 8, will no doubt help to improve the proposed statutory Derivative Action in Sri Lanka in a small way.

Date of Award	1999
Original language	English
Supervisor	Roman Tomasic (Supervisor)