Provisions of the Shanghai Financial Court on the Representative Action Mechanism for Securities Disputes (Trial)

Chapter I         General Provisions

Article 1 To properly settle mass securities disputes, safeguard the legitimate rights and interests of the parties concerned, and resolve disputes timely and effectively, these Provisions are formulated based on the realities of Shanghai Financial Court (the ¡°Court¡±) and in accordance with the Securities Law of the People¡¯s Republic of China (hereinafter the ¡°Securities Law¡±), the Civil Procedure Law of the People¡¯s Republic of China (hereinafter the ¡°Civil Procedure Law¡±), and the Interpretation of the Supreme People¡¯s Court on the Application of the Civil Procedure Law of the People¡¯s Republic of China.

Article 2 The representative actions referred to in these Provisions are divided into ordinary representative actions and special representative actions.

An ordinary representative action is initiated in accordance with Article 53 and Article 54 of the Civil Procedure Law, whereas a special representative action is initiated in accordance with Article 95 (3) of the Securities Law.

Article 3 If a securities case is brought as a representative action, efforts shall be taken to properly protect the litigation rights of the investors concerned, seek alternative resolutions to the dispute, and enhance the ability to hear the cases collectively in a more efficient and cost-effective way.

Article 4 If a securities case is brought as a representative action, information technology shall be leveraged to improve efficiency, such as developing an online platform for representative actions to facilitate rights registration, representative selection, announcement and notice, electronic service of process, and other procedures.

Article 5 An electronic trading data transmission system shall be established between the Court and the securities depository and clearing institution to support calculation of compensation for losses and verification of eligible investors.

Article 6 These Provisions apply to mass disputes over civil compensation liabilities arising out of acts such as misrepresentation, insider trading, and market manipulation that fall in the jurisdiction of the Court.

The articles regarding the ordinary representative action mechanism in these Provisions may apply mutatis mutandis to other mass disputes over financial or commercial matters.

Chapter II        Ordinary Representative Action Mechanism

Section 1         Filing and Rights Registration

Article 7 If a certain number of parties bring an action, and review shows the criteria for joint litigation are met, the parties shall be registered as co-plaintiffs.

Article 8 If an uncertain number of parties bring an action on a same type of objects, the Court may, after accepting the action, issue an announcement on rights registration to notify the investors concerned to register with the Court within the announcement period.

The announcement period shall be determined case by case, but no less than 30 days.

Article 9 Before an announcement is issued, the eligibility for rights registration shall be determined after examining the nature of the alleged securities-related infringement and the claimed facts.

The examination may be in the form of reviewing case files, making investigations, and inquiring the parties. In addition, a hearing shall be organized for parties from both sides.

Article 10 An announcement on rights registration shall specify the basic facts of the alleged infringement, information on the defendant, eligibility for rights registration, as well as the deadline of registration.

Article 11 The cost of an announcement on rights registration shall be paid in advance by the plaintiffs and shall be borne by the losing party as part of the litigation costs.

Article 12 Investors shall register via the online platform designated by the Court within the announcement period.

During the registration, investors shall provide identification documents as required and pass the online identity verification.

Article 13 During the registration, investors shall fill in the name of the plaintiff, information and authority of the litigation agent (if any), name of the defendant, amount claimed, method for payment collection, and address for electronic service of process.

In the event that an investor authorizes a litigation agent to act on his behalf, the registration may be performed by the litigation agent after the investor has passed the identity verification.

Article 14 If an investor lists a party that is not included in the announcement as a defendant, he shall fill in the basic information of such co-defendant and submit the corresponding supporting materials. Should the investor fail to provide relevant information of the defendant, the defendant shall be deemed unidentifiable.

Article 15 Based on the eligibility for rights registration as announced, the Court will retrieve the name list of right holders from the securities depository and clearing institution and check the investors applying for registration against the list.

Investors not eligible for registration will not be registered by the Court, but they may sue separately.

Article 16 For a plaintiff who has filed a lawsuit on the same facts and grounds before the announcement on rights registration is issued and who is eligible for registration, his opinion on whether to join the representative action shall be solicited.

If he agrees to join the representative action, he shall be listed as a plaintiff of the representative action; otherwise, his shall continue to be heard separately.

Article 17 Upon expiration of the registration period, investors who have passed the online identity verification and the review of the Court shall be put on the list of plaintiffs of the representative action. The list shall be published via the online platform.

Article 18 If the litigation claims and the defendants registered by the plaintiffs differ widely, the case may be divided into more than one representative actions as necessary.

Article 19 Where a representative action involving an uncertain number of parties is heard in accordance with these Provisions, these parties shall not be required to pay the case acceptance fee in advance, which instead shall be borne by the losing party in pro rata to the amount in controversy after the case is closed.

Section 2         Determination of Representatives

Article 20 If a certain number of parties bring an action, all or some of them may elect representatives; should they fail to do so, they may sue separately.

If an uncertain number of parties bring an action, they shall elect representatives; should they fail to do so, the Court shall recommend several candidates and consult with the plaintiffs; should the consultation fails, the Court shall, ex officio, appoint representatives for the action.

Article 21 Both the election and consultation shall be conducted through voting via the online platform under the ¡°one person one vote¡± principle.

In case of election, each party may vote any of the plaintiffs as representative. In case of consultation, the parties shall vote representatives from candidates recommended by the Court.

Article 22 To be recommended by the Court as representative, a candidate shall:

(1)   volunteer to act as a representative;

(2)   possess the procedural capacity and corresponding litigation knowledge;

(3)   have representative litigation claims; and

(4)   occupy a certain share of the benefits claimed.

Article 23 The votes of each representative shall not be less than 50% of the number of voters. The number of representatives shall be two to five, depending on their rankings by the number of votes.

If the voting result fails to meet the criteria of the preceding paragraph, the election or the consultation shall be deemed to have failed.

Article 24 If the Court appoints representatives ex officio, factors such as the voting results, the procedural capacity, the representativeness of litigation claims, and the share of benefits claimed shall be taken into consideration, and the consent of the appointed representatives shall be obtained.

Where an investment protection agency initiates a lawsuit as an investor or assigns, under the entrustment of other investors, a staff member or a litigation agent to join a case, the investment protection agency or the parties it represents may be appointed as representatives.

Article 25 If a representative loses the procedural capacity or is otherwise unsuitable to join the trial of the representative action, a new representative may be elected with the permission of the Court.

Article 26 Representatives determined shall be announced to all plaintiffs via the online platform.

A plaintiff may apply to the Court to withdraw his rights registration within ten days from the date of the announcement and has the right to sue separately.

Section 3         Authority of Representatives

Article 27 During registration, investors shall expressly give their special authorization to the representatives. Investors who refuse to give special authorization may sue separately.

Article 28 The representatives may, on behalf of the plaintiffs, attend case trial, add, change, or waive any litigation claims, settle or reach a mediation agreement with the defendant, institute or withdraw an appeal, and apply for enforcement.

Each representative may engage one or two litigation agents.

Article 29 Representatives shall exercise their litigation rights in a prudent and proper way and protect the legitimate interests of all plaintiffs.

In the event that the representatives have different litigation opinions and cannot reach a consensus, a decision may be made in accordance with the principle of serving the best interests of the plaintiffs as a whole.

Article 30 If the representatives may settle or reach a mediation agreement with the defendant, the content of the settlement or mediation agreement shall be examined and confirmed by the Court.

The settlement or mediation agreement shall be announced via the online platform. Within ten days from the date of announcement, a plaintiff may declare his withdrawal. The settlement or mediation agreement shall have no effect on such a plaintiff.

Article 31 The Court may uphold the representatives¡¯ claim for the reasonable expenses incurred in the litigation process against the defendant.

Section 4         Trial of Representative Actions

Article 32 Where the Court accepts private cases in addition to representative actions, the trial of representative action shall in principle be prioritized.

Article 33 Unless otherwise required by law, the trial of a representative action may be broadcast live on the Internet.

Article 34 If necessary, experts may be selected to join the jury in trial.

Article 35 The Court may, upon the application of either party or ex officio, engage a third-party specialist to evaluate the losses.

Section 5         Judgment and Enforcement

Article 36 If the defendant is judged to be liable for civil compensation, the civil judgment may state only the total amount of compensation in the main body and list the name of each plaintiff and corresponding amount of compensation in an attachment.

The judgment or order of a representative action is binding on all the parties who have registered.

Article 37 A first-instance judgment shall be served to the representatives and announced via the online platform. Each plaintiff may, within the appeal period, express his intention to appeal or not to the Court.

Article 38 Where the defendant chooses not to appeal after the first-instance judgment:

(1)   if the representatives institute an appeal, the first-instance judgment shall enter into force between each plaintiff who has expressed his intention to not appeal and the defendant; or

(2)   if the representatives do not institute an appeal, the first-instance judgment shall enter into force between the plaintiffs other than those who have express their intention to appeal and the defendant.

Article 39 Where an investor who is eligible for rights registration but has not registered files a lawsuit, and the facts and legal grounds he alleges are consistent with the common facts and applicable legal opinions set forth in the effective judgment or ruling of a representative action, the Court may, after reviewing the specific litigation claims, directly decide to apply the effective judgment or order.

If a representative action concludes by settlement or mediation, parties in subsequent similar cases shall be instructed to try mediation first.

Article 40 Representatives may apply to the Court for enforcement on behalf of all plaintiffs. If necessary, the Court may deposit the amount of enforcement with the investor protection agency, which will then distribute the funds to winning investors via the securities depository and clearing system.

Chapter III      Special Representative Action Mechanism

Article 41 To participate in a special representative action, an investor protection agency that is established in accordance with laws, administrative regulations, or rules of securities regulators under the State Council shall obtain special authorization from more than 50 investors in advance and submit the proof of such authorization.

Article 42 The Court issues an acceptance announcement after review. According to the eligibility for rights registration as announced, the investor protection agency may retrieve the list of right holders from the securities depository and clearing institution and apply to the Court for registration accordingly.

Article 43 If an investor eligible for registration expresses his reluctance to participate in the action, he shall declare his withdrawal to the investor protection agency within the announcement period.

The Court will remove such a withdrawing investor from the list of plaintiffs of a special representative action. He may sue separately.

Article 44 As the representative of all plaintiffs, the investor protection agency is entitled to, on behalf of the plaintiffs, attend case trial, add, change, or waive any litigation claims, settle or reach a mediation agreement with the defendant, institute or withdraw an appeal, and apply for enforcement.

The investor protection agency may engage no more than five litigation agents in the action.

Article 45 If the investor protection agency settles or reaches a mediation agreement with the defendant on behalf of the plaintiffs, the content of the settlement or mediation agreement shall be examined and confirmed by the Court.

The investor protection agency shall notify all plaintiffs of the settlement or mediation agreement by way of announcement for a period of no less than 30 days. During the announcement period, a plaintiff may declare his withdrawal to the investor protection agency. The settlement or mediation agreement shall have no effect on such a plaintiff.

Article 46 A first-instance judgment shall be served to the investor protection agency and announced to all plaintiffs. Each plaintiff may, within the appeal period, express his intention to appeal or not to the Court.

Article 47 Where the defendant chooses not to appeal after the first-instance judgment:

(1)   if the investor protection agency institutes an appeal, the first-instance judgment shall enter into force between each plaintiff who has expressed his intention to not appeal and the defendant;

(2)   if the investor protection agency does not institute an appeal, the first-instance judgment shall enter into force the plaintiffs other than those who have express their intention to appeal and the defendant. The investor protection agency shall continue to participate in the second instance as the representative.

Article 48 In addition to the provisions of this chapter, relevant provisions of the ordinary representative action mechanism regarding actions involving an uncertain number of parties apply to the Court¡¯s trial of special representative actions.

Chapter IV      Supplementary Provisions

Article 49 The Adjudicative Committee of the Court is responsible for the interpretation of these Provisions.

Article 50 These Provisions shall be implemented on a trial basis from the date of promulgation.