Today, the Supreme People's Court held a press conference and officially issued the Provisions of the Supreme People's Court on Several Issues Concerning Representative Litigation in Securities Disputes (the "Provisions"). The Provisions are a strong response of the judiciary to the protection needs of investors in the domestic securities market, and an important part of implementing Article 95 of the newly amended Securities Law of the People's Republic of China and ensuring that the representative litigation system under Articles 53 and 54 of the Civil Procedure Law of the People's Republic of China is effectively implemented in the field of securities dispute litigation.

The Provisions formulated by the Supreme People's Court have made innovations in the representative litigation system in civil litigation, which are mainly reflected in the following aspects:

First, the jurisdiction of the case.

On the premise of upholding the jurisdiction of the intermediate people's court or special people's court of the province, autonomous region or municipality directly under the Central Government where the issuer is domiciled, the intermediate people's court or special people's court of the special economic zone where the special representative is located, it is stipulated that the special representative lawsuit initiated by the investor protection institution shall be under the jurisdiction of the intermediate people's court or special people's court at the location of the stock exchange involved in the centralized trading of securities involved in the lawsuit or other national securities trading venues approved by the State Council. The courts with jurisdiction under this provision are the Shanghai Financial Court (Shanghai Stock Exchange), the Shenzhen Intermediate People's Court (Shenzhen Stock Exchange) and the Beijing No. 2 Intermediate People's Court (National SME Stock Transfer System Co., Ltd., i.e. New Third Board, which is registered in Financial Street, Xicheng District, Beijing). Such a provision is more advantageous in terms of the fairness and professionalism of the trial for special representative proceedings. At the same time, it is also foreseeable that after the establishment of a special financial court in Shanghai, the establishment of a special financial court in Shenzhen and Beijing, which also have national securities trading venues, will be a natural thing.

Second, the Provisions create several new procedural provisions in response to the special requirements in representative litigation.

First, the determination of the scope of right holders. Article 6 of the Provisions clarifies that the court shall make a decision on the scope of the right holder by way of a ruling, and allows the parties to appeal the ruling.

Secondly, there are special provisions on the mediation system in litigation. In order to prevent the litigation representative from acting on his own initiative and infringing on the interests of the plaintiff, Articles 19, 20 and 21 of the Provisions stipulate hearing procedures to ensure that the plaintiff's rights are not left to the fore. Considering that there are only 41 articles in the Provisions, including supplementary provisions, of which there are as many as 4 articles on mediation, it can be seen that the judiciary attaches great importance to the mediation of securities dispute cases and how to prevent abuse of rights by litigation representatives in the representative litigation system.

Third, the appeal system breaks through the provisions of the Civil Procedure Law.

According to the provisions of the Civil Procedure Law, a party dissatisfied with a first-instance judgment shall file an appeal within 15 days from the date of receipt of the judgment. There are no special provisions on appeal procedures for representative proceedings under articles 53 and 54 of the Code of Civil Procedure. Considering the original intent of the legislation, the so-called litigation representative, that is, exercising litigation rights on behalf of all plaintiffs, requires the consent of the represented party in the disposition of substantive rights, but can make decisions on behalf of the parties in terms of procedural rights. Therefore, article 54 of the Civil Procedure Law stipulates that "the litigation acts of a representative shall be effective against the party he represents, but the representative must obtain the consent of the represented party to modify or waive the claim or acknowledge the claim of the other party and settle the claim." ”

In order to better protect the rights of the plaintiff, the Provisions break through the provisions of the Civil Procedure Law in terms of the appeal system, and do not take the receipt of the judgment by the parties as the starting point of the appeal period, but the time limit for the plaintiff to receive the notice of the first-instance judgment from the litigation representative as the starting point, and the time limit for the litigation representative to notify the plaintiff is within 15 days from the date of receiving the first-instance judgment. In this way, in a securities dispute representative litigation case, the plaintiff's appeal period can actually be up to 30 days.

Another difference in the appeal system in the Provisions is that the plaintiff who has waived the appeal is allowed to withdraw from the second-instance procedure, and the second-instance judgment is not as effective as that part of the plaintiff. We know that the representative litigation system is different from the necessary joint litigation, its essence is a measure taken by the court to facilitate the trial of the case, reduce the judicial cost and the litigation cost of the parties, in the representative litigation, the rights of each plaintiff are independent, in theory can be established as a separate case, therefore, it is logical to allow some plaintiffs who abandon the appeal in the representative litigation to withdraw from the second-instance procedure. However, this system may have a special situation in practice, that is, if there are fewer than 10 plaintiffs willing to appeal, will the second instance try the case as a representative litigation case? There is a provision in the Provisions on special representative litigation that "if the number of expressly authorized investors is less than 50 due to reasons such as declaration of withdrawal during the litigation, the qualification of the representative of the investor protection institution shall not be affected". However, ordinary representative litigation does not clarify such issues.

Fourth, in a special representative lawsuit, the investor protection agency, as the representative of the litigation, may not pay the case acceptance fee in advance, and may not provide security for the application for property preservation.

This is a special preference given by the courts on the basis that the investor protection agency is an organization of a social good nature.

Looking at the Provisions issued by the Supreme People's Court, comprehensive and complete provisions have been made on all aspects of the representative litigation system for securities disputes, providing necessary norms for local people's courts to hear such cases, and providing a powerful weapon for investors to better protect their rights in securities infringement civil cases. However, there are still some issues in the Provisions that need to be further clarified:

First, the scope of application of representative litigation in securities disputes. According to Article 5 of the Provisions, the application of ordinary representative litigation requires the plaintiff to submit preliminary evidence proving the facts of securities infringement, such as administrative punishment decisions, criminal judgment documents, defendant's self-admission materials, disciplinary sanctions imposed by stock exchanges and other national securities trading venues approved by the State Council, or self-regulatory measures taken, otherwise the people's court shall apply non-representative litigation procedures for trial. What is the rationale for this? Of course, after the plaintiff submits the above evidence, the trial of the case will become simpler, and according to the provisions of the Minutes of the Nine People, the people's court does not need to make a judgment on whether the defendant has committed securities infringement in a civil lawsuit; If the plaintiff does not have the above evidence, the two parties will have a fierce confrontation in the lawsuit about whether the defendant's securities infringement has existed, and the court will have to make a judgment on this. However, the difficulty with which the case is heard does not seem to justify the application of any system of procedure.

Second, the Provisions focus more on protecting the rights of plaintiffs and are too restrictive on litigation representatives. According to the Provisions, the representative of a securities dispute litigation is required to seek the plaintiff's opinion on every move, and it is not obvious that there is much difference between the representative and all the plaintiffs jointly entrusting an agent, but it plays a role in facilitating communication between the court and the plaintiff. It should be noted that our representative litigation system for securities disputes requires that ordinary litigation representatives should first be one of the plaintiffs, and they cannot obtain any other benefits in the case except to be able to claim their own share of damages, which is basically completely public interest, which is very different from representative litigation led by American lawyers. If the rights of the litigation representative are too restricted, it may discourage the enthusiasm of potential litigation representatives and cause some difficulties in the selection of litigation representatives.

(This article is translated by software translator for reference only.)