The US Supreme Court has overturned a Californian court ruling that would have made it easier for disgruntled shareholders to sue companies for a sudden fall in share price.

The ruling, which will be welcomed by Irish companies facing such actions in the US such as Elan and AIB, said shareholders will have to prove a direct link between fraudulent statements by a company and the loss in shareholder value to succeed in such claims.

The Supreme Court ruled unanimously that shareholders could not sue Dura Pharmaceuticals - a company bought by Elan in 2000 after the lawsuit began - for misleading corporation statements that did not directly lead to a loss of share value.

The case stems from a November 1998 statement by Dura in which it announced that an asthma drug dispenser didn't receive Federal approval. Shareholders claimed the company misled investors about sales and the prospects for government approval of the asthma treatment.

Business groups and the Bush administration had supported Dura in its appeal of the San Francisco ruling and warned it could encourage attorneys to file bogus class actions. The US Commerce Department told the court that there are 190 such shareholder cases filed every year.

Shareholder rights groups argued that requiring losses to be strictly linked to the fraud would help companies like Enron evade legal liability.

Even the most liberal judges on the bench, including Justice Ruth Baden Ginsburg, ruled in favour of Dura.

The decision overturned a San Francisco appeal court ruling which was criticised by corporate lawyers for departing from previous law.

Justice Stephen Breyer said in his ruling that any misstatement by a corporation must be directly linked to an economic loss by the shareholder.