On January 11, the Shanghai Financial Court (the SFC) held a press conference and issued the Provisions on the Model Judgment Mechanism for Securities Disputes (the Provisions) Version 2.0, which comprehensively upgraded the first version released in January 2019. The press conference kicked off the press conference series on “innovative practice of professional financial trials” launched by the SFC.
The model judgment mechanism for securities disputes refers to a dispute resolution mechanism in which the court, when handling group securities disputes, selects certain typical cases, and gives priority to hearing and deciding them so as to harness the leading role of the model cases and properly resolve the disputes in parallel cases. In the past three years, the SFC has pioneered the dual-chain dispute resolution mechanism of “model judgment + professional mediation + judicial confirmation” and “model judgment + intensive trial + voluntary satisfaction” in practice, introduced three professional supporting mechanisms of independent loss assessors, expert assistants and expert jurors, and established several systems empowered by information technologies, including a judicial protection system for minority investors, an online transaction data exchange system and an intelligent case assistance system. The SFC has accumulated a series of replicable and transferable experiences. Specifically, 10,723 securities disputes have been properly resolved with an average hearing time of 17.71 days, and the total compensation for minority investors has reached RMB 673 million. The SFC has achieved excellent demonstration effects of reform, with the quality and effect of trials being greatly enhanced, and the litigation cost being significantly reduced. The first model case was included in the “15th List of China’s Top Ten Influential Litigation Cases” and “Top Ten Civil, Administrative and State Compensation Cases of the People’s Courts in 2019”, while the model judgment mechanism for securities disputes was included in the Work Report for the Two Sessions 2020 by the Supreme People’s Court. It was also rated as one of the Top Ten Excellent Cases of Rule of Law Construction in Shanghai in 2019 and won the Second Prize of Shanghai Financial Innovation Award in 2020.
With the revision of the Securities Law and the Civil Procedure Law, and the promulgation of a series of new judicial interpretations, in order to better adapt to the new situation and meet the new needs in protecting minority investors and enable the model judgment mechanism for securities disputes to play a more active role and produce better effects, the SFC has summarized effective practices and reform results during the implementation of the Provisions, solved practical issues in version 1.0, such as the chapter layout needed further optimization, the trial procedures of parallel cases needed further simplification, and the professional supporting mechanism needed to be further enhanced, and comprehensively revised the Provisions, so as to further improve the model judgment mechanism, simplify procedures and detail regulations.
The revised Provisions on the Model Judgment Mechanism consists of 10 chapters and 81 articles, with 3 newly added chapters on trial of parallel cases, interim measures and judgment enforcement, and mechanism guarantee. Additionally, 33 articles have been added and 28 articles have been amended. The revision focuses on the following three aspects:
First, trial of parallel cases.
The revised Provisions pays more attention to trial of parallel cases. It has added a chapter devoted to parallel cases, and put forward comprehensive provisions on trial principles, loss assessment, court trial methods, and decision documents of parallel cases.
Second, interim measures and judgment enforcement.
A new chapter is added to clarify some special rules and innovative explorations in terms of interim measures and judgment enforcement of group securities disputes.
Third, establishment of a mechanism guarantee system.
For the model judgment mechanism to fully play its role, comprehensive rules should be put in place, and a series of supporting cooperative mechanisms should be established. The revised Provisions has a special chapter that systematically integrates, deepens and improves guarantee mechanisms of information sharing, transaction data exchange, multiple dispute resolution methods, priority to civil compensation, and risk prevention, thus forming a synergy and enabling mutual promotion.
The revision adheres to the principles of coordinating legal compliance with mechanism innovation, integrating rights protection and efficiency improvement, and combining actual conditions with proper foresight, and promotes innovation and exploration in the following aspects:
01 Highlighting the principle of giving priority to mediation
The revised Provisions standardizes mediation procedures, improves the connection process of litigation and mediation, and requires relevant parties of parallel cases to first try resolving the disputes through mediation after the model judgment takes effect. Meanwhile, the standards for case cost reduction and exemption will be further weighted toward mediation before filing a lawsuit, so as to guide relevant parties to settle disputes through non-litigation approaches.
02 Simplifying trial of parallel cases
According to the principle of intensive trial, relevant parties of parallel cases may not provide evidence or conduct cross-examination of the facts confirmed in the model case. The decision document, which is mainly based on a template, can be rendered by filling in the compensation amount for each investor. In order to strengthen the guiding role of the model case, the loss assessment of parallel cases is entrusted to loss assessment agencies selected for model cases, and relevant parties are restricted from abusing litigation rights in parallel cases for the purpose of delaying litigation, so as to further accelerate the litigation process.
03 Deepening the reform of online litigation
According to the trial needs of parallel cases with simple legal relationship, a small claimed amount, a strong willingness for mediation, and a high proportion of non-local parties, the asynchronous trial of online litigation is extended to trial procedures of parallel cases to make litigation more convenient. The revised Provisions explores the establishment of a case registration system for securities disputes, and relies on a comprehensive online litigation service platform to achieve one-stop online handling of all litigation links from retrieval of transaction records and entrusted loss assessment to case registration, multi-party mediation, court trial and service of documents.
04 Standardizing the professional supporting mechanism
The SFC takes the lead in exploring the roster management system of loss assessment agencies across the country, and promotes standardized development of these agencies. It will soon issue rules on the management of the roster of loss assessment agencies, and clarify the qualification conditions and roster compilation procedures for the agencies. In addition, the new Provisions enhances regulation of the selection process of loss assessment agencies, and improves relevant rules of the “two-layer” expert system with loss assessment agencies and appraisers as the first layer and expert assistants as the second layer.
05 Innovating case enforcement rules
To fully ensure the realization of the rights and interests of the investors that win the lawsuits, based on the Provisions, the ex officio preservation is not limited to the amount of the subject matter of a single case, but to the total amount of the group cases. The property of the actual controller who bears joint liability will be first executed. Civil compensation will be first satisfied and then criminal and administrative penalties., Besides, compensation funds will be issued via the securities registration and settlement system, by reference to the provisions of representative litigation.
Judge Lin Xiaonie, Vice President of the SFC, said, “as an innovative practice of the trial mechanism for securities cases, the model judgment mechanism, together with representative litigation, support litigation, and public interest litigation, constitutes a securities-related civil litigation system with Chinese characteristics. The SFC will continue to optimize various innovative measures such as improving the model judgment mechanism to increase judicial efficiency, protect investors’ legitimate rights and interests, and promote the formation of a good ecology in the capital market.”
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