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Shareholder’s personal actions : a comparative study Simcock, David Keith

Abstract

Shareholders in companies have traditionally been limited in their ability to bring actions to redress wrongs which affect them in some way. Quite naturally, they have been prevented from suing when the wrong is really to the company; rather than to them. This is because of the long standing acceptance of the fact that the company is a legal entity, separate from its members and with its own rights to sue. However, even where the wrong is to the company itself, relief has been available and individual members allowed to sue on behalf of the company in certain circumstances, particularly where the wrongdoers themselves are in control of the company. Actions of this nature are now commonly called "derivative actions." Confusion has arisen and further limitations developed because of the narrow areas in which the law has accepted that a wrong has been committed to shareholders in their own right, either independently of, or together with, the company. Proceedings brought to remedy wrongs which affect shareholders individually can be called "personal actions." The purpose of this paper was to show that there should be, and to some extent already is, a wider basis on which personal actions can be commenced than was usually recognized. The need to develop personal actions had become necessary because of the common law and statutory restrictions which now surround derivative claims. These restrictions were considered in some detail and comparisons made with the procedural and substantive nature of personal actions in order to show that the latter are indeed to be preferred where a choice is available. In this regard, comparisons were also made with the position of both types of action in the United States. Derivative claims are similarly bound by procedural requirements in the States, and there too, personal actions are often favoured. However, the plaintiff in a personal claim in America will often be in a much better position than his Commonwealth counterpart. A considerable body of substantive individual rights have been developed in the States because personal actions have not been seen merely as exceptions to the rule that a company should bring an action in its own name. In fact, it appears as though a personal right to bring an action for certain wrongs, such as a breach of duty by directors, may have been recognized even before the company's corresponding right. Although it is no longer possible for the Commonwealth to adopt some of the principles governing personal actions which have been developed in the States because the laws of both jurisdictions have grown up in different ways, much can still be learned from the American experience. One area in particular was chosen for close analysis and comparison. This was the body of rights available to a shareholder to protect his proportionate interest in the company. It was chosen because American jurists have long regarded such rights as personal and because it can be argued that the Commonwealth courts are moving in the same direction if, in fact, they have not already done so. The most common form of complaint will involve the directors or majority shareholders treating themselves more favourably than the other shareholders but in order to prevent such bias, some sort of responsibility has to be owed by the former to the plaintiffs. In other words, a fiduciary duty by directors and to some extent, majority shareholders, must be owed to shareholders individually as well as to the company. It is submitted that where a member is personally affected by the action of a controlling director or shareholder, such a duty should be recognized, both in policy and in practice. If it were, the personal rights of shareholders would be greatly enhanced. In short, there has become a pressing need to make a clear distinction between personal actions and those by or on behalf of companies. Unfortunately, the traditional view has been that even where the distinction has been made, personal actions have been limited to certain narrow areas. There is therefore also a need to expand personal rights to allow them remedies wherever they have been directly affected.

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