Jérémie Balbous
English Law and French Law student at King’s College London and Paris-Panthéon-Assas University, Master 2 in General Private Law
As new players in the financial markets, activist funds are often portrayed as anti-passive investors. Typically, these activist investors are hedge funds that acquire a minority stake in a company to change how it is run.[1] Their goal is simple: to identify weaknesses in economic strategy, governance, or even potential fraud within publicly traded companies and exploit them for profit. This practice has been facilitated by financial scandals that have eroded market confidence. The case of the Enron accounting fraud scandal serves as a notable example; it was once hailed as “still the best of the best” by Goldman Sachs the day before the scandal broke.[2] Should we not reflect on the disastrous consequences for countless Americans who lost their retirement pensions? By holding merely a fraction of a company’s capital, a shareholder can influence its policies. However, in capital markets, shouldn’t power correlate with the amount of capital invested? As Bruno Oppetit remarked, is this not a form of capitalism without capital? While an active shareholder role can be viewed as positive, it should not come at the expense of market rules and corporate stability.
Defining shareholder activism can be challenging, as it is not a strictly legal concept. The report by the Club des Juristes offers some key insights: “The behavior of an investor using the prerogatives granted to minority shareholders in order to influence the strategy, financial situation, or governance of the issuer, primarily through a public stance.”[3] Three main elements are highlighted: (i) the use of shareholder rights (such as management expertise or the submission of a resolution to the agenda), (ii) the intention to influence the company’s strategy, and, most importantly, (iii) the public disclosure of these positions. The primary tool of activist funds is media pressure, which can manifest through internal financial reports, personal letters that may be coercive or even offensive, and leaks to the media. The consequences can be severe: for example, we can recall the dismissal of Emmanuel Faber from his position as CEO of Danone, under pressure from the Bluebell Capital fund, which managed a fund of only 70 million euros and held just 20 million euros in Danone shares, out of a market capitalisation of 41 billion euros — representing just 0.05% of the capital.[4]
The case of activist sellers, also known as ‘short-sellers’ due to their short positions, serves as a notable illustration. The hypothesis is simple: a fund identifies a target company that it believes is overvalued by the market. For example, if a stock is trading at 10 but should only be worth 3, the fund takes a short position by borrowing these shares from a financial institution. It then sells the shares on the market, hoping to repurchase them later at a lower price, return them to the lender, and pocket the profit. This is a risky operation, as the short-seller’s exposure is unlimited: once the position is taken, the stock can rise indefinitely, forcing the investor to repurchase the shares at a high price.
Short-selling is controversial by nature, as it involves betting against the health of financial markets, with the short-seller’s goal being for the stock price to fall. This is particularly true in the context of short activism, where active investors intentionally aim to drive down the stock price of their target companies. A recent example is the attack by the Muddy Waters Fund against the Casino Group. A scathing report was published in December 2015, highlighting the alleged debt of the group’s holdings, which future cash flows would not be able to support.[5] The report also criticised the lack of transparency in the group’s accounts, suggesting potential abuses. Yet financial rating agencies like Standard & Poor’s confirmed the quality of Casino Group’s credit. The report had the intended self-fulfilling effect: Casino’s stock price dropped by 20% — since then, it has plummeted by 95%. Under pressure, the company was unable to recover. In an interview with Le Monde, Casino’s CEO Charles Naouri stated, “For eight years, we have been the subject of regular attacks from shorts. By spreading negative rumors, in a legal environment that does not protect us, they eventually suffocated our financing.”[6]
While it is undeniable that shareholder activism generally enhances market efficiency and promotes greater oversight of publicly traded companies, the potential for abuse and market destabilisation is clear. Activist funds position themselves as a new militia of the markets, on the lookout for fraud.[7] However, how can their abuses be sanctioned under the law? The methods employed by activist funds — particularly the communications they issue about target companies — can be addressed through the general law of civil liability. A significant decision from the Paris Court of Appeal upheld the conviction of an activist shareholder for the abusive use of their right to criticise (I), a legal basis that raises questions (II).[8]
I – The doctrine and limits of the right to criticize
The liability of activist funds for their communications presupposes an abuse in the exercise of this right. Activists are justified in critiquing a company’s management when they are shareholders. This stems from their active participation in the company strategy, which could even be considered an element of affectio societatis.[9] And even when the activist is not a shareholder, their right to express criticism is protected by the European Convention on Human Rights (ECHR), which guarantees freedom of expression for both individual and legal entities. This protection is especially pertinent in the context of publicly traded companies, which are inherently public. The proper functioning of these companies and the provision of accurate information to the public, whose savings are at stake, are matters of significant public interest.[10]
However, like any freedom, the right to criticise is not without limit. According to the theory of abuse of rights, a fundamental principle in the law of obligations, no right is immune from potential abuse. When the intent to cause harm undermines the lawful exercise of a right, it becomes unlawful and subject to penalties, particularly if the right is misused contrary to its function.[11] Therefore, an activist cannot use its right to criticise solely for personal gain, as opposed to a business or common shareholder interest that would be harmed.[12]
The right to criticise is primarily restricted to matters concerning the management of the company: the ECHR distinguishes between criticism directed at the individual manager and criticism aimed at the company’s operations. In a significant judgment, Petro Carbo Chem, the Court prohibited any sanction, even a symbolic one, against a minority activist shareholder who had publicly criticized a major listed Romanian company, leading to its decline.[13] The court deemed the criticism non-abusive as it did not target the manager personally and was part of a general interest debate, without being defamatory or lacking a factual basis. Conversely, it must be understood that activist criticism can be abusive; the Court even acknowledged the competing interest of safeguarding the commercial success and viability of companies, which benefits not only the shareholders and employees but the economy at large.
II – The legal basis establishing the abuse of criticism rights
In the Altamir Investment case, an activist criticised the lack of accounting transparency, excessively high management fees and the poor performance of the company compared to its competitors. The activist published these criticisms through paid advertisements, newspaper articles, and letters addressed to shareholders, as well as to the presidents of the French Financial Markets Authority (AMF) and the Association for the Defense of Minority Shareholders (ADAM).
The Paris Court of Appeal noted the “persistent criticism against Altamir’s management, casting doubt on the transparency and reliability of the company’s governance, thus damaging its reputation.” The company, Moneta, was therefore found responsible for “reputational damage that must be repaired.”[14] The excessive nature of the criticism was characterised by the repetition of “systematic” critique.[15]
While this decision, the first of its kind, opens the door to the civil liability of activist funds, it should be interpreted with caution. The Court of Appeal did not rely on the usual domestic legal grounds for abuse of the right to criticize, such as defamation and disparagement, which are generally mutually exclusive.[16] Defamation, rooted in criminal law targets statements that harm the reputation of a person whereas disparagement, based on Article 1240 of the Civil Code, applies to statements harming a company’s products or services.[17] However, the defendant, Moneta, had argued that its actions, if anything, could constitute defamation but not disparagement, as there was no “intent by a competing company to divert the clientele of the disparaged company.”
The legal basis for this ruling remains open to interpretation, given the damages awarded under Article 700 of the French Code of Civil Procedure. The Court of Appeal may have implicitly classified the statements as disparagement by interpreting the harm to Altamir’s reputation as criticism of its products and services — a view which was upheld in some contested case law (having an equivalent effect as obiter dictum statements).[18] Alternatively, the court could be establishing an independent basis for liability grounded in the abuse of rights. The ruling’s ambiguous reasoning, and repeated references to “harassment” suggest this possibility. Did the Court of Appeal adopt A. Couret’s theory that there exists a form of harassment in corporate law, akin to moral or sexual harassment?[19] However, harassment requires intent, which, as one scholar noted, “requires that the will is directed not only toward the harmful act but also toward the consequences of that act, namely the harm itself”.[20]
The legal grounds needed to establish the misuse of the right to criticise remain unclear, but it is clear that this ruling provides a powerful legal tool for companies targeted by activist funds. This highly factual litigation must be clarified to ensure legal certainty, which is essential in this matter. It is particularly important as the right to criticise, which is a restriction on freedom of speech, must be permitted by a clear, precise, and detailed norm, according to the European Court of Human Rights’ requirements.
[1] Will Kenton, ‘Activist Investor: Definition, Role, Biggest Player’ (Investopedia, 14 February 2024) < https://tinyurl.com/2rpyxhxh>
[2]Jean-Jacques Pluchart, « L’étude du cas Enron » in L’éthique des affaires : portée et limites de l’approche fonctionnaliste – La Revue des Sciences de Gestion 2005/6 (n°216), p. 17 à 32
[3] Rapport Club des juristes, « Activisme actionnarial » (novembre 2019)
[4] Financial Times, « Culture wars: Danone board sours on CEO after activist pressure » (15 mars 2021)
[5] Muddy Waters, « Muddy Waters is Short Groupe Casino », 27 décembre 2015,
[6] Le Monde, « Carson Block : “Jean-Charles Naouri avait le temps de redresser Casino” » (11 juillet 2023)
[7] Carson Block, « Distorting the Shorts » (23 février 2022)
[8] Cour d’appel de Paris, Pôle 5 – chambre 9, n° 20/07397 (16 septembre 2021)
[9] Viandier A., La notion d’associé, Th, LGDJ, n°174, 1978 ; cf. sur ce point, Lecourt A., « Le droit de critique de l’associé », in Mél. Urbain-Parléani I., Dalloz 2023, p. 155
[10] CEDH, 7 février 2012, n° 40660/08, Von Hannover c/ Allemagne, AJDA 2012. p. 1726, chron. Burgorgue-Larsen L. ; D. 2012. 1040, note Renucci J.-F
[11] Routier R., « De la représentation logique dans l’abus – Essai en droit des affaires » in Mél. en l’honneur du Professeur Le Cannu P., LGDJ, 2014
[12] D. Schmidt, « De l’intérêt commun des associés » JCP G 1994 p. 404
[13] CEDH, 30 juin 2020, n°21768/12, Petro Carbo Chem c/ Roumanie, JCP E 2020, 486
[14] Cour d’appel de Paris, Pôle 5 – chambre 9, 16 septembre 2021, n° 20/07397
[15] Civ 2ème, 3 avril 1979, Bull. civ. II, n°113 « l’arrêt retient que l’appréciation est portée sans esprit de dénigrement systématique ». ; adde Lécuyer G., Traité de droit de la presse, préc. n° 1262
[16] Viney G., « La sanction des abus de la liberté d’expression », D., 2014, p. 787 ; Traullé J., « Exclusivisme de la loi du 29 juillet 1881 : la fin justifie-t-elle encore les moyens ? », D., 2020, p. 1368
[17] A.P., 12 juillet 2000, n° 98-10.160 et n° 98-11.155, D. 2000. p. 218, et p. 463, obs. Jourdain P. ; JCP G 2000, I, p. 280 note. Viney G
[18] Passa J., Lapousterle J., J-Cl. Concurrence – Consommation, fasc. 240, n° 56 ; adde Larrieu J., « Dénigrement ou diffamation : le nuage noir de la discorde », Prop. industr. 2024, comm. 28
[19] Couret A., « Le harcèlement des majoritaires », BJS 1996 n°2, page 112
[20] Tardif A., « Les potentialités du contrôle de conventionnalité en matière d’abus de la liberté d’expression », Resp. civ. et ass. n° 2, Février 2020, étude 2