On the afternoon of 26 November, the Shanghai Financial Court (SFC or the Court) conducted a public trial of the test case concerning default disposal of FTZ offshore bonds. This is the second test case tried since the release of the Rules of the Shanghai Financial Court on Financial Market Test Case Scheme.
The judicial panel comprised four judges of the SFC and three external experts. The external experts included a law professor from a university in the Hong Kong Special Administrative Region of China and domestic finance professors well versed in the international financial system and bond principles, providing strong intellectual support for precise determination of the disputed issues. Before the hearing, a number of legal and financial experts conducted in-depth research on the case and submitted third-party opinions.
During the trial, the judicial panel fully heard the applicant’s submissions and the respondents’ and the third party’s defenses. The issues in dispute focused on whether FTZ offshore bonds issued via blockchain book-entry are lawful and valid; whether individual investors enjoy independent standing to sue; whether the FTZ offshore bonds in question constituted cross-default and anticipatory breach; and whether the onshore collateral disposal procedures and disposal prices were reasonable. Counsel for the parties conducted multiple rounds of debate by reference to the facts, relevant legal provisions, and judicial practice. As the bonds in question were stipulated to be governed by the law of the Hong Kong Special Administrative Region of China, the panel, upon the applicant’s application, permitted two Hong Kong-qualified lawyers to appear as expert witnesses to give professional opinions on the applicable law, and to accept inquiries from the parties and the judicial panel on issues including whether individual investors may exercise rights directly and the standards for bond default.
The trial of this case is of significant importance to building an offshore financial system commensurate with Shanghai’s status as an international financial center. Centring on the core disputed issues, the test case organized comprehensive debate among the parties and conducted a systematic legal risk stress test of the current FTZ offshore bond rules. Against the backdrop of institutional opening-up, the case seeks to enhance the compatibility of China’s financial market infrastructure rules with international standards, provide solid rule-of-law safeguards for the development of the offshore RMB market, and play an important institutional supporting role in preventing cross-border financial risks and promoting high-level opening-up of the financial markets.
The judicial panel will, following the principles of independent voting, majority decision and reservation of dissenting opinions, make determinations on the substantive issues in the test case on the basis of the case facts and issue a judicial opinion.
The transcript of the trial and other materials will be published on the official website of the SFC (http://www.shjrfy.gov.cn).
More than 40 persons, including representatives of financial regulatory authorities, financial market infrastructures, and financial legal institutions, as well as university experts and scholars and news media reporters, attended the trial.
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