The dispute in the case arose between Tianrui (International) Holding Company Ltd (“Tianrui”), a minority shareholder in China Shanshui Cement Group Ltd (“China Shanshui”), a company incorporated in the Cayman Islands and listed in Hong Kong. Tianrui alleged that the board of directors of China Shanshui (the “Board”) engaged in misconduct, including breaches of fiduciary duties and self-dealing. Tianrui sought to bring proceedings to address the alleged misconduct.

The history of the case involved a “prolonged battle” for ultimate control of China Shanshui whose core business was the production, distribution and supply of cement and other construction materials throughout The People’s Republic of China. Following the allotment of shares to the holders of certain convertible bonds in China Shanshui, Tianrui alleged that the recipients of those allotments were connected to other shareholders who were competing with it for ultimate control of China Shanshui. The allotment of shares in question resulted in Tianrui’s shareholding being materially diluted (following the dilution, Tianrui was no longer able to block the passing of a special resolution as its shareholding dropped below 25%) and Tianrui therefore argued that this amounted to an improper exercise of the Board’s power to issue shares.

China Shanshui’s counter argument was that Tianrui was not entitled to bring its claim directly, on the basis that any claim should be brought as a derivative claim on behalf of China Shanshui against the Board. Under Cayman Islands law, derivative actions are an exception to the general rule that only a company itself can sue to remedy wrongs done to it – often referred to as the rule in Foss v Harbottle.

The Privy Council (the last court of appeal for Cayman Islands legal proceedings) was asked to determine:

1. Whether Tianrui could bring a derivative action: Tianrui needed to show that the alleged misconduct amounted to a “fraud on the minority” and that China Shanshui itself was unable to act because the Board was complicit in the alleged wrongdoing.
2. Fiduciary Duties of Directors: The case scrutinised the Board’s duties to China Shanshui, particularly their obligation to act in its best interests and their duty to avoid conflicts of interest.
3. Corporate Governance Principles: The Privy Council had to balance shareholder remedies with the fundamental principle of corporate autonomy, which dictates that companies should generally control their own business and affairs without interference.

Against the above matters, the Privy Council had to consider many decades of prior jurisprudence on derivative actions. Whilst some of the cited cases provided that a perceived improper dilution of a shareholder’s interest could form the basis of a derivative action, the established case law was either vague, contradictory or silent on the legal basis of a claim being brought by a shareholder directly.

Derivative actions are a unique aspect of corporate law designed to protect shareholders in exceptional circumstances. To succeed in bringing such an action, a claimant must satisfy the following strict criteria:

1. Fraud on the Minority: The claimant must prove that the directors of the company in question engaged in fraudulent or oppressive conduct, harming the company and its shareholders.
2. Control of Wrongdoers: The claimant must show that the wrongdoers in question have effective control of the company, leaving it unable to bring the action itself.

The Court must also consider the overarching principle of corporate personality, ensuring these actions do not undermine the company’s governance structure and fundamental autonomy as a body corporate in its own right.

Tianrui argued that the Board misused their powers for personal gain and failed to act in China Shanshui’s best interests. Specifically, Tianrui alleged that certain decisions taken by the Board unfairly diluted its shareholding (as described above) and improperly favored other shareholders in China Shanshui.

In resisting Tianrui’s submissions, the Board contended that their actions were lawful and had been made in good faith to safeguard China Shanshui’s stability and prospects. The Board further argued that the derivative action that Tianrui was attempting to bring was an inappropriate means for Tianrui to challenge decisions taken by the Board.

In its judgment, the Privy Council sought to strike an appropriate balance between the fundamental and long-established legal principles and more practical matters, and found as follows:

1. Directors to act properly: on the basis that the memorandum and articles of association of a company are a statutory contract between the company in question and its shareholders, it follows that the directors of the company must exercise the powers that are given to them (including the power to issue shares) under those memorandum and articles of association for proper purposes.
2. Fraud and Wrongdoing: The Court agreed that derivative actions require evidence of serious misconduct. The Privy Council held that Tianrui had successfully demonstrated that the alleged conduct could qualify as a “fraud on the minority”, if proven. In particular, it was noted that the dilution of shareholders, particularly where the effect of that dilution removes practical rights from minority shareholders (such as the ability to block a special resolution from being passed), can be an improper exercise of the directors’ ability to issue shares.
3. Control by Wrongdoers: The Privy Council acknowledged that derivative claims are a vital tool which is available to protect shareholders where the alleged wrongdoers dominate the company’s decision-making processes. Tianrui established that those who were allegedly responsible for the misconduct in question retained effective control of China Shansui, thus effectively blocking any other remedy that might be available.
4. Fiduciary Duties: Directors have a duty to act in good faith and to prioritise the company’s best interests over their personal interests or those of their affiliates. The Privy Council emphasised that breaches of this duty are central to shareholder protection. It follows that the ability to bring such a claim is not just the preserve of minority shareholders; if the criteria for bringing such a claim are met, any shareholder (including majority shareholders) could bring a claim.
5. Corporate Governance: The judgment highlighted the need to balance minority shareholder protections with the principle of corporate autonomy. While derivative actions are an essential remedy, the court stressed their use should remain limited to prevent interference with legitimate board decision-making.

The Privy Council ultimately ruled in favor of Tianrui, thus allowing the derivative action that was sought by Tianrui to proceed. It confirmed that the allegations, if proven, would constitute serious breaches of fiduciary duty by the Board and would justify the intervention of the Court.

This decision underscores that derivative actions are not to be taken lightly. The claimant must present clear evidence of wrongdoing and demonstrate that the company itself cannot pursue the claim.

This case offers valuable lessons for shareholders, and directors:

1. For Shareholders: Minority shareholders who are seeking such a remedy must be prepared to meet the high bar that is set in order for such an action to proceed. Those who suspect wrongdoing should carefully and accurately document evidence of alleged wrongdoing contemporaneously in a way that proves both misconduct and the company’s inability to act. Meeting only one of these standards alone will be insufficient to enable such an action to proceed.
2. For Directors: Directors should be mindful of their fiduciary duties, exercise their powers only for a proper purpose and should ensure that their decisions withstand objective, and possibly judicial, scrutiny. Transparent and well-documented decision-making processes can mitigate the risk of challenges to decisions made and/or help to defend against these challenges. Directors of companies would therefore be well advised to do the following.

1. 1. Ensure that full and accurate minutes are kept of all important decision-making processes. Such minutes should be sufficiently detailed and should contain a full and accurate consideration by the directors of the pros and cons of the proposed actions and should outline why the directors consider them to be appropriate and to be in the company’s best interests. Any finding by a Court as to whether there has been wrongdoing and whether a claim can be brought are, necessarily, subjective in each case. In the event of any challenge, these records will be valuable evidence and could ultimately be determinative.
   2. Fully and properly disclose any personal interest(s) in matters which are to be considered by them in the course of their role as director. Whilst this is both a necessary and fundamental principle of good corporate governance and required (usually) by the articles of association of the company, this can also go some way to demonstrating that the directors in question are acting in good faith. Directors should therefore familiarise themselves with the provisions of the articles of association relating to the disclosure of their interests and whether they are permitted to continue to form part of the applicable quorum and/or to vote on the matter, irrespective of such interest. They should also consider that where they are so interested, the fact that they are permitted to count in the quorum and vote on the matter, does not mean that they should do so.

The Privy Council’s judgment in Tianrui v China Shanshui serves as a significant clarification of derivative action principles in the Cayman Islands. By allowing the case to proceed, the Privy Council reinforced the importance of holding directors accountable while ensuring that shareholder remedies do not disrupt proper corporate governance.

This decision also highlights the Cayman Islands’ commitment to maintaining a robust legal framework for resolving corporate disputes, preserving its reputation as a leading jurisdiction for global businesses. Minority shareholders can take comfort in the availability of effective remedies where the require threshold is met, whilst directors are reminded of their fiduciary duties and their obligation to consider the interests of all shareholders when taking decisions.

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This publication is not intended to be a substitute for specific legal advice or a legal opinion. If you require further advice relating to the matters discussed in this Briefing, please contact us. We would be delighted to assist.

E: robert.farrell@loebsmith.com

本案纠纷发生在天瑞（国际）控股有限公司（「天瑞」）之间，该公司是中国山水水泥集团有限公司（「中国山水」）的少数股东，而中国山水是一家在开曼群岛注册成立并在香港上市的公司。天瑞指控中国山水董事会（「董事会」）有不当行为，包括违反信义义务和自我交易。天瑞寻求提起诉讼，以解决所谓的不当行为。

该案的历史涉及对中国山水最终控制权的“长期争夺”，中国山水的核心业务是在中国各地生产、分销和供应水泥和其他建筑材料。在向中国山水某些可转换债券的持有人配发股份后，天瑞声称，这些配发的接收人与其他股东有关联，这些股东正在与其竞争对中国山水的最终控制权。涉案股份的配发导致天瑞的股权被大幅稀释（稀释后，天瑞的股权已降至 25% 以下，因此天瑞认为这相当于董事会不当行为使发行股份的权力。

中国山水公司的反驳意见是，天瑞公司无权直接提起索赔，任何索赔都应以代表中国山水公司向董事会提出的衍生索赔形式提出。根据开曼群岛法律，衍生诉讼是一般规则的例外，即只有公司本身可以提起诉讼以纠正对其造成的不当行为——通常被称为 Foss v Harbottle 规则。

枢密院（开曼群岛法律诉讼的最后一个上诉法院）被要求确定：

1. 1. 天瑞是否可以提起衍生诉讼：天瑞需要证明所指称的不当行为相当于“对少数股东的欺诈”，并且中国山水本身无法采取行动，因为董事会参与了所指称的不当行为。
   2. 董事的信义义务：本案仔细审查了董事会对中国山水的职责，特别是其以公司最佳利益行事的义务以及避免利益冲突的义务。
   3. 公司治理原则：枢密院必须在股东补救措施和公司自治的基本原则之间取得平衡，公司自治的基本原则规定公司通常应不受干涉地控制自己的业务和事务。

针对上述事项，枢密院必须考虑数十年来有关衍生诉讼的先前判例。虽然一些引用的案例规定，股东权益被不当稀释可成为衍生诉讼的基础，但现有的判例法对于股东直接提起索赔的法律基础要么含糊不清，要么相互矛盾，要么保持沉默。

衍生诉讼是公司法的一个独特方面，旨在在特殊情况下保护股东。为了成功提起此类诉讼，原告必须满足以下严格标准：

1. 对少数股东的欺诈：原告必须证明涉案公司的董事从事欺诈或压迫行为，损害公司及其股东的利益。
2. 对不当行为人的控制：原告必须证明，不当行为人对公司有有效控制权，公司无法自行提起诉讼。

法院也必须考虑公司法人资格的整体原则，确保这些行为不会破坏公司的治理结构和作为法人实体的基本自主权。

天瑞辩称，董事会滥用职权谋取私利，未能以中国山水的最佳利益行事。具体而言，天瑞声称董事会做出的某些决定不公平地稀释了其股权（如上所述）并不正当地偏袒中国山水的其他股东。

在反对天瑞公司的意见时，董事会辩称，他们的行为是合法的，并且是出于善意，以维护中国山水的稳定和前景。董事会进一步辩称，天瑞试图提起的衍生诉讼是天瑞挑战董事会决定的一种不适当手段。

枢密院在其判决中力求在基本和长期确立的法律原则与更实际的问题之间取得适当的平衡，并裁定如下：

1. 董事应适当行事：鉴于公司的章程大纲和细则为公司与股东之间的法定合同，因此公司董事必须为正当目的行使章程大纲和细则赋予他们的权力（包括发行股票）。
2. 诈欺与不当行为：法院同意衍生诉讼需要严重不当行为的证据。枢密院裁定，天瑞已成功证明，所指控的行为若被证实，可构成「对少数股东的欺诈」。特别需要指出的是，股东股权稀释，特别是当该稀释的结果剥夺了少数股东的实际权利（例如阻止特别决议通过的能力）时，可能构成董事发行股份能力的不当行使。
3. 不当行为人的控制：枢密院承认，当涉嫌不当行为人控制公司决策过程时​​，衍生诉讼是保护股东的重要手段。天瑞证实，那些涉嫌对相关不当行为负责的人仍然控制着中国山水，从而有效地阻止了可能采取的任何其他补救措施。
4. 信义义务：董事有义务诚信行事，并将公司的最大利益置于其个人利益或其关联方的利益之上。枢密院强调，对这项义务的违反是保护股东的关键。因此，提起此类诉讼的能力并非只是少数股东的专利；如果符合提起此类索赔的条件，任何股东（包括多数股东）均可提起索赔。
5. 公司治理：此判决强调了平衡少数股东保护与公司自治原则的必要性。虽然衍生诉讼是必要的补救措施，但法院强调，其使用应受到限制，以防止干扰董事会的合法决策。

枢密院最终裁定天瑞公司胜诉，天瑞公司寻求的衍生诉讼得以进行。法院确认，这些指控一旦被证实，将构成董事会严重违反信义义务，并有理由进行法院的干预。

这项决定强调了衍生诉讼不容轻视。索赔人必须提供不当行为的明确证据，并证明公司本身无法提出索赔。

本案例为股东和董事提供了宝贵的教训：

1. 对于股东：寻求此类补救措施的少数股东必须准备好满足为使此类行动得以进行而设定的高标准。那些怀疑存在不当行为的人应该同时仔细、准确地记录所指控不当行为的证据，以证明不当行为和公司无力采取行动。仅仅满足其中一个标准不足以使此类诉讼得以进行。
2. 对于董事：董事应牢记其信义义务，仅为正当目的行使权力，并应确保其决策经得起客观、甚至司法的审查。透明且有据可查的决策过程可以减轻决策受到挑战的风险和/或有助于抵御这些挑战。因此，建议公司董事采取以下措施。

1. 1. 确保保存所有重要决策过程的完整、准确的会议记录。此类会议记录应足够详细，并应包含董事对拟议行动的利弊的充分和准确的考虑，并应概述董事认为这些行动是适当的并且符合公司的最佳利益的原因。法院对于是否存在不法行为以及是否可以提出索赔的任何裁定，在具体案件中必然具有主观性。一旦遇到任何挑战，这些记录将成为宝贵的证据，并最终起到决定性的作用。
   2. 充分且适当地揭露其在担任董事期间所考虑的事项中的任何个人利益。虽然这是良好公司治理的必要和基本原则，并且（通常）是公司章程所要求的，但这也可以在某种程度上证明有关董事是真诚行事的。因此，董事应熟悉公司章程中有关披露其利益的规定，以及是否允许他们继续计入适用法定人数和/或就该事项进行投票，而不管其利益如何。他们还应该考虑到，若他们有重大利益相关，那么即使他们被允许计入法定人数并就此事进行投票，也不意味着他们应该这样做。

枢密院对天瑞诉中国山水案的判决对开曼群岛的衍生诉讼原则作出了重要澄清。通过允许案件继续进行，枢密院强调了追究董事责任的重要性，同时确保股东补救措施不会破坏正常的公司治理。

这项决定也凸显了开曼群岛致力于维护强有力的法律框架来解决公司纠纷，维护其作为全球企业领先管辖区的声誉。只要满足要求的门坎，少数股东就可以放心获得有效的补救措施，同时董事们也要记住他们的信义义务以及在做出决策时考虑所有股东利益的义务。

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E: robert.farrell@loebsmith.com