Introduction

It was argued in Chapter 4 that lack of clarity over client identity can deprive minority shareholders of the opportunity to protect their interests in a company ex ante and thus contribute to corporate governance problems in owner-managed firms. This chapter builds on that discussion and examines the uncertainty surrounding the role of lawyers in intra-corporate litigation, which is an important ex post means of protecting shareholders. When intra-corporate disputes break out a number of actions are often launched, not all of which are thought of as shareholder remedies. For example, when directors are removed, they may present both unfair prejudice petitions and a claim for breach of their contracts of employment, while company controllers may retaliate with actions against them on the company's behalf for breach of fiduciary duty. However, this discussion focuses on the two primary shareholder remedies: the unfair prejudice remedy under section 994 of Companies Act 2006 (formerly s. 459 Companies Act 1985) and the derivative claim.

Shareholder litigation is rare in public companies: shareholders are less likely to litigate, since it is usually more efficient to sell their shares and exit. Furthermore, the courts have restricted the ambit of the unfair prejudice remedy in public companies and have generally been hostile to derivative claims. In contrast, in owner-managed companies, shareholders cannot readily exit the company, as there is no market for their shares and there is usually a restriction on their disposal which makes them vulnerable to oppression.