Multiple Derivative Actions

Abstract

The modern tendency is for companies to have subsidiaries and associated undertakings. This tendency gives rise to the issue of whether a shareholder in a parent company may bring a derivative action on behalf of a subsidiary or associated company within the group. Logically an action by a shareholder of a parent company on behalf of a subsidiary is called a 'double' derivative action and, if on behalf of a 'second tier' subsidiary, it would be called a 'triple' derivative action. It is therefore easier to refer to all these actions as 'multiple' derivative actions. Such an action may be appropriate where a shareholder in one company A can show that the directors of company A and of a subsidiary B or related company C (which may not be a direct subsidiary or a direct investment of company A), have wrongly prevented the enforcement of a cause of action vested in subsidiary B or related company C .

The Court of Final Appeal of Hong Kong in Waddington Ltd v. Chan Chun Hoo Thomas and others (FACV 15/2007) is the first reasoned decision of a higher court in any common law jurisdiction outside the US, which allows multiple derivative action. The purpose of this Case Comment is to discuss this case and its ramifications.

Keywords: Multiple derivative actions, Hong kong, case law

JEL Classification: G34, G38, K41, K22