Collective Redress & Class Actions 2023 Comparisons

In China, cases of collective redress arising from the same or similar facts occur frequently in various fields, and various litigation mechanisms have gradually been established under laws and regulations to resolve such disputes: mainly the joint action mechanism, the ordinary representative action mechanism and the special representative action mechanism.

Joint Action

In 1982, the first Civil Procedure Law (for Trial Implementation) of China was promulgated, which introduced the joint action mechanism. Where a party or both parties to a lawsuit comprise(s) two or more persons, and the subject matter of the litigation is the same or the subject matters of the litigation are of the same type, the court deems that the lawsuit may be tried as a joint action, upon consent by the litigants.

This mechanism has been in use until now, plays an important role in improving the efficiency of the courts and reduces the litigation burden on the parties. The joint action mechanism is currently the most widely used collective redress mechanism in China’s courts.

Ordinary Representative Action

With the “reform and opening up” and the gradual activation of the market economy in China, the number of collective redress cases arising from same or similar facts has been on the rise, and in some cases the number of parties has reached hundreds or even thousands. In the face of collective redress cases with a large number of parties, some courts in China first carried out an attempt at the representative litigation mechanism in practice. In 1986, the Primary People’s Court of Anyue County of Sichuan Province tried out the representative action mechanism in the trial of a purchase and sale contract case of 1,569 farmers from Yuanba Township and Nuli Township of Anyue County against the Anyue County Seed Company. In this case, some persons were selected as representatives of the 1,569 farmers to participate in the proceedings and express their opinions. Academically speaking, this case is generally regarded as the starting point of the representative action mechanism in China.

Given the positive effects of such practice, after years of proposals and discussions, the Civil Procedure Law (1991), for the first time, provided for the ordinary representative action mechanism, which covered representative actions with a certain number of persons and representative actions with an uncertain number of persons. In 1992, the Supreme People’s Court (SPC) issued the Opinions on Several Issues Concerning the Application of the Civil Procedure Law of the People’s Republic of China, which set out detailed provisions on the procedure of an ordinary representative action. This mechanism is also in use today.

Special Representative Action

After the Civil Procedure Law provided for the representative action mechanism in 1991, the SPC and relevant institutions encouraged China’s courts to apply the representative action mechanism in fields such as environmental protection, consumer rights protection and labour protection. However, for a long time, the mechanism was not widely applied.

In the field of securities litigation, in 2003, the SPC formulated the Several Provisions on Trying Cases of Civil Compensation Arising from Misrepresentation in the Securities Market (the “2003 Judicial Interpretation on Misrepresentation”), stipulating that the joint action mechanism and the representative action mechanism shall also apply to collective redress cases arising from misrepresentation in the securities market.

In the 20 years after the promulgation of the 2003 Judicial Interpretation on Misrepresentation, China’s courts have tried hundreds of civil claim cases arising from securities misrepresentation, and have gradually accumulated experience in handling such complicated cases. Meanwhile, China’s government has:

• gradually strengthened its crackdown on illegal conduct such as misrepresentation, insider trading and market manipulation in the securities market, which proposed a “zero tolerance” principle for such illegal conduct in the securities market; and
• gradually emphasised the function of securities class actions in protecting the interests of small and medium-sized investors.

Against this background, the Securities Law, amended at the end of 2019 and effective as of 1 March 2020, provides for the special representative action mechanism similar to the “opt-out” class action mechanism under US law. On 31 July 2020, the SPC promulgated the Provisions of the Supreme People’s Court on Several Issues Concerning Representative Action in Securities Disputes, setting out detailed provisions on the special representative action mechanism, such as the implementation procedures, trial methods and validity of judgments.

It is particularly noteworthy that the special representative action mechanism (especially the opt-out mechanism) is set forth in the Securities Law rather than the Civil Procedure Law. As a result, this litigation mechanism is only applicable to cases of collective redress in the securities market governed by the Securities Law. Furthermore, China’s legislation does not name this mechanism a “class action”; but instead classifies this mechanism as a special category of the representative action mechanism.

Joint Action

The joint action mechanism is essentially a mechanism for the joint trial of several lawsuits arising from the same or similar subject matter, in a manner similar to that set in the civil procedure laws of many other countries.

Ordinary Representative Action

The ordinary representative action mechanism in China has some of its origins in the Japanese litigation mechanism of the “selected litigant”, the representative action mechanism in the UK and the class action mechanism in the USA, but it is also has distinct local characteristics. Experts involved in the formulation of the Civil Procedure Law (1991) point out that the ordinary representative action mechanism in China has the advantages of the class action mechanism and the selected litigant mechanism but is also innovative, ultimately forming a system with Chinese characteristics.

Generally, the Chinese ordinary representative action mechanism has three important similarities with the British representative action mechanism and the Japanese selected litigant mechanism. First, the litigants must actively choose to participate in the proceedings. Second, one or several parties with common interests must be selected to participate in the litigation as the representatives. Third, the validity of the judgment is to apply to all the represented litigants.

However, there are also obvious differences among the three mechanisms. For example, under the selected litigant mechanism in Japan, when the representative is selected, the other litigants withdraw from the proceedings and lose their status as litigants, and their legal interests only lie in the result of the proceedings. In China’s ordinary representative actions, after selecting the representative, the other litigants will not withdraw from the proceedings and will continue to have the status of litigants in the proceedings. Therefore, in China’s ordinary representative actions, the representative’s status is more similar to that of an agent of all the litigants, whose exercise of litigation rights needs to be authorised by those represented, and whose exercise of disposal is subject to the consent of all those represented.

Special Representative Action

The special representative action mechanism in China is mainly borrowed from the class action mechanism in the USA but also learns from the Verbandsklage mechanism, the model action mechanism in Germany and the securities class action mechanism in Taiwan. Like the class action mechanism in the USA, the special representative action mechanism in China also adopts the approach of opting out. Meanwhile, the special representative action mechanism in China limits the litigation representatives to statutory non-profit organisations, which is similar to the altruis-tische Verbandsklage mechanism in Germany and the securities class action mechanism in Taiwan.

Based on the experience of different countries and regions, China’s special representative action mechanism has strong localised characteristics in terms of its applicability, initiation conditions and representative selection.

• The special representative action mechanism in China is currently only applicable to securities disputes and not applicable to cases in other fields.
• The conditions for initiating a special representative action in China are relatively strict. The premise for initiating a special representative action is that the court has initiated an ordinary representative action involving an uncertain number of persons. Moreover, other factors, such as the defendants’ solvency and the demonstrative significance of the case, shall be taken into consideration in determining whether the special representative action can be initiated.
• The representatives in China’s special representative actions shall be non-profit investor protection institutions, rather than litigants in the case.

There is no applicable information in this jurisdiction.

Laws

Article 55 of the Civil Procedure Law of the People’s Republic of China (amended in 2023, effective as of 1 January 2024) provides for the joint action mechanism, Article 56 provides for the representative action mechanism with a certain number of persons, and Article 57 provides for the representative action mechanism with an uncertain number of persons.

The Securities Law of the People’s Republic of China (amended in 2019) is the substantive legal basis for securities disputes. Paragraphs 1 and 2 of Article 95 of the Securities Law restate and specify the ordinary representative action mechanism, and paragraph 3 of Article 95 provides for the special representative action mechanism for the first time in China.

Judicial Interpretations and Judicial Opinions

Articles 73 and 74 of the Interpretation of the Supreme People’s Court on the Application of the Civil Procedure Law of the People’s Republic of China (amended in 2022) provide detailed provisions on the joint action mechanism; Articles 75 to 80 provide detailed provisions on the conditions for initiating an ordinary representative action and the method of determining the representative.

Articles 5 to 31 of the Supreme People’s Court on Several Issues concerning Representative Action in Securities Disputes (effective as of 31 July 2020) provide detailed provisions on the ordinary representative litigation in securities disputes; Articles 32 to 41 specify the implementation details of the specific representative action in securities disputes.

Several Provisions of the Supreme People’s Court on Trying Cases of Civil Compensation Arising from Misrepresentation in the Securities Market (effective as of 22 January 2022) (the “2022 Judicial Interpretation on Misrepresentation”) repeals the aforementioned 2003 Judicial Interpretation on Misrepresentation. The 2022 Judicial Interpretation on Misrepresentation amends the relevant substantive adjudication rules and introduces some new procedural rules (such as the rule of jurisdiction and the rule of interruption of the limitation of action in representative actions concerning securities disputes) for collective redress cases arising from securities misrepresentation.

Local Judicial Documents

Currently, the Shanghai Financial Court, Xiamen Intermediate People’s Court, Qingdao Intermediate People’s Court and other courts have promulgated local judicial documents concerning the representative action mechanism in securities disputes, providing specific rules on the representative action mechanism in securities disputes within their respective jurisdictions.

Other Relevant Rules

The China Securities Regulatory Commission (CSRC) has promulgated the Notice on Effectively Conducting the Work Relating to the Participation of Investor Protection Institutions in Special Representative Action in Securities Disputes – this provision further stipulates the investor protection institutions that have the right to initiate a special representative action.

The China Securities Investor Service Centre (ISC) has promulgated the Rules on Special Representative Action (for Trial Implementation) and the Administrative Measures for Evaluation of Securities Litigation Cases (for Trial Implementation) – these provisions clarify the rules for the ISC to initiate and participate in a special representative action.

Ordinary Representative Action

Since the ordinary representative action mechanism is directly provided for in the Civil Procedure Law (amended in 2023，effective as of 1 January 2024), this mechanism is applicable to all categories of disputes. Based on existing judicial practice in China, the ordinary representative action mechanism is mainly applied in the following fields:

• collective redress arising from misrepresentation, insider trading, market manipulation, etc, in the securities market;
• collective redress arising from bond default;
• collective redress arising from environmental pollution;
• collective redress arising from product liability;
• disputes involving the interests of farmers;
• collective labour disputes involving interests of numerous employees; and
• disputes arising from false advertising.

It is particularly noteworthy that the ordinary representative action mechanism with an uncertain number of persons is predominantly employed in securities disputes, with a particular emphasis on cases involving securities misrepresentation.

Special Representative Action

Currently, the special representative action in China is only applicable to collective redress cases arising from misrepresentation, insider trading, market manipulation, etc, in the securities market. The Kangmei Pharmaceutical Case, which was the first case of China’s special representative action mechanism, was concluded in 2021, marking the successful implementation of a Chinese-style opt-out class action mechanism. It was not until 2023 that the second special representative action (ie, the Essence Case) was initiated in China. Further discussion of the case can be found in the China Trends & Developments chapter in this Guide.

Joint Action

The joint action mechanism may be divided into two types: the necessary joint action mechanism and the ordinary joint action mechanism. A necessary joint action refers to a lawsuit that must be tried concurrently. In this type of case, one or both parties comprise two or more persons and the parties must file or respond to a lawsuit jointly. The core feature of a necessary joint action is that the subject matter of the litigation is the same. An ordinary joint action refers to a lawsuit that the court can manage as a joint trial or as several separate trials. The core feature of an ordinary joint action is that the subject matter of the litigation is of the same type.

Ordinary Representative Action

An ordinary representative action refers to a joint action in which one or more litigants may file or respond to a lawsuit on behalf of all litigants with common interests. The litigation conduct of the representative litigant affects all the represented litigants, and the judgment made by the court shall be binding on all the represented litigants. According to the Civil Procedure Law (amended in 2023, effective as of 1 January 2024), ordinary representative actions include representative actions with a certain number of persons and representative actions with an uncertain number of persons. Both categories of litigation are essentially extensions of the joint action mechanism.

Special Representative Action

In a securities collective redress case, on the basis that the court initiates an ordinary representative action with an uncertain number of persons, an investor protection institution entrusted by more than 50 investors may, in accordance with the principle of opting out, participate in the litigation on behalf of the investors who have suffered damage due to the same illegal conduct.

Joint Action

Where one party or both parties comprise two or more persons, and their subject matter of the litigation is the same or of the same type, and the court considers that the case can be tried as a joint action, a joint action may be initiated upon the consent of the parties.

Ordinary Representative Action

In the case of a joint action where one party is comprised of numerous persons, such a party may elect representatives to participate in the proceedings, and the representative action mechanism with a certain number of persons shall be initiated. Where one party is comprised of numerous persons, but the number of persons is not determined when filing the lawsuit, the court may issue an announcement of rights registration, notifying the right-holders to register with the court within a certain period, and initiate the representative action procedure with an uncertain number of persons. Furthermore, right-holders registered within the registration period may elect litigation representatives to participate in the proceedings.

The China’s Civil Procedure Law (amended in 2023, effective as of 1 January 2024) contains no specific provisions on the jurisdiction of representative actions. The jurisdiction is usually determined by the type of the dispute and the domicile of the defendant.

Specific Representative Action

China’s special representative action mechanism adopts a “progressive mode” – only after the court has initiated a representative action with an uncertain number of persons and issued an announcement of rights registration, can an investor protection institution initiate the special representative action procedure in accordance with the law. During the period of the announcement, an investor protection institution specially authorised by more than 50 investors can act as the representative and initiate a special representative action in some cases.

According to the judicial interpretation of the SPC, special representative actions shall be subject to centralised jurisdictional rules and shall be under the jurisdiction of the intermediate people’s courts or the special people’s courts at the place of the stock exchanges where the securities involved in the litigation are located, or other national stock exchanges as approved by the State Council involved in the case. Accordingly, the courts that have jurisdiction over special representative actions of the first instance shall include the Shenzhen Intermediate People’s Court, Shanghai Financial Court and Beijing Financial Court. If the court that first accepts a separate action, a joint action or an ordinary representative action does not have jurisdiction over the special representative action, it shall transfer the case to the court that has jurisdiction over the special representative action.

Joint Action

If one party or both parties are composed of two or more persons, and the subject matter of the litigation is the same, a necessary joint action may be initiated. If one party or both parties are composed of two or more persons, the subject matter of the litigation is of the same type and the court considers that the cases can be tried as a joint action, then upon the consent of the parties, an ordinary joint action may be initiated.

Ordinary Representative Action with a Certain Number of Persons

In a joint action with a large number of litigants, such litigants shall have the right to elect representatives and apply to the court for a representative action.

Ordinary Representative Action with an Uncertain Number of Persons

The court may, after conducting preliminary examination, issue an announcement of registration of rights stating the facts of the case and the claims of the existing litigants, and notify the right-holders who have not participated in the existing litigation to register with the court within a certain period.

According to the SPC’s judicial interpretation, in an ordinary representative action with an uncertain number of persons, the main proceedings are as follows:

• The plaintiffs file a lawsuit by means of an ordinary representative action.
• The court conducts a preliminary examination of the facts through inspection of written files, hearing, questioning, etc, and determines the scope of right-holders; if a litigant opposes the court’s determination regarding the scope of right-holders, he or she has the right to apply to the higher-level people’s court for review once.
• The court makes an announcement of registration of rights based on the finally determined scope of right-holders, notifying other right-holders with similar claims to participate in the litigation.
• After the expiration of the registration period, the court will review the list of registered right-holders and determine the scope of the plaintiffs in the representative action.
• The qualified representative(s) will be elected by the parties through voting or will be appointed by the court.
• Once the representatives are determined, the court will make an announcement to introduce the representatives; after learning about the representatives, litigants can apply for deregistration and file the lawsuits separately.
• If the right-holders fail to register with the people’s court, they may apply to the people’s court for supplementary registration before the first-instance court trial, and the legal proceedings that have been conducted before the supplementary registration shall be binding on the right-holders.
• Cases involving the representatives shall be tried first, while non-representative actions shall be suspended.
• For cases brought by right-holders independently, the court may rule to apply the effective judgment of the representative action.

Special Representative Action

In addition to the proceedings for the representative action with an uncertain number of persons, the proceedings to initiate a special representative action also include the following:

• The court initiates a representative action with an uncertain number of persons, and issues an announcement of rights registration.
• During the period of announcement, if an investor protection institution believes it is necessary to participate in the action as a representative, it may accept special authorisation from more than 50 eligible right-holders through a public call or other means to initiate the special representative action.
• The court shall issue an Announcement of Registration of Rights for Special Representative Action, stating the scope of right-holders, the right of and the period in which investors can declare that they are opting out, basic information of the investor protection institution, the special authorisation of the investor protection institution, etc.
• After the announcement above is issued, the investors have the right to cease to be class member by declaring that they are opting out – otherwise, the investors will be deemed to have agreed to participate in the representative action.
• The investor protection institution acting as the representative requests a list of all right-holders from China Securities Depository and Clearing Corporation Limited based on the scope of right-holders announced by the court, and the court shall include all right-holders in the list of plaintiffs and notify them all.

Joint Action

As previously mentioned, if one party or both parties are composed of two or more persons, and the subject matter of the litigation is the same, a necessary joint action shall be initiated. If one party or both parties are composed of two or more persons, the subject matter of the litigation is of the same type and the people’s court considers that the cases can be tried as a joint action, then upon the consent of the parties, an ordinary joint action may be initiated. In such joint proceedings, each party shall directly participate in the litigation and express opinions.

Ordinary Representative Action

According to the Civil Procedure Law (amended in 2023, effective as of 1 January 2024), for a joint action in which one party is comprised of a large number of persons, such a party may elect two to five representatives to initiate an ordinary representative action. The Civil Procedure Law (amended in 2023, effective as of 1 January 2024) does not provide general provisions on the qualifications of the representatives.

According to the judicial interpretation formulated by the SPC, in cases of collective redress in the securities market, the initiation conditions for an ordinary representative action are that:

• there are more than ten plaintiffs in the proceedings;
• two to five proposed representatives are specified in the complaint; and
• the plaintiffs submit the relevant administrative penalty decisions, criminal judgments, materials covering the confession of the defendant, as well as preliminary evidence proving the facts of securities torts such as the disciplinary sanctions or self-discipline measures imposed by the stock exchanges and other national securities trading places approved by the State Council.

In a case of collective redress in the securities market, the representatives must:

• act as the representative voluntarily;
• have a certain proportion of interest in the claims;
• have a certain degree of litigation capability and professional experience (or their attorneys have the aforesaid capability and experience); and
• be able to faithfully and diligently perform the duty of safeguarding the interests of all the plaintiffs.

In addition, where the plaintiff who applies to act as the representative has an association with the defendant or if there exist any other circumstances that may affect the plaintiff in the performance of their duties, the people’s court shall not approve the application.

Special Representative Action

Pursuant to Article 95 of the Securities Law (amended in 2019), only investor protection institutions are entitled to act as the representatives in the special representative actions concerning securities disputes. The investor protection institution is a professional social organisation whose duty is to protect investors. For the time being, it mainly refers to the ISC or the China Securities Investor Protection Fund Corporation Limited (SIPF).

The ISC

Founded on 5 December 2014, the ISC is a non-profit financial institution and is under the direct administration of the CSRC. Its main responsibilities include:

• providing non-profit publicity and education services for investors;
• holding securities and other financial instruments in the public interest and exercising rights as a shareholder or securities holder;
• providing mediation and other dispute resolution services upon entrustment by investors; and
• providing non-profit litigation support and relevant work for investors, etc.

It was the ISC that filed the special representative action on behalf of 55,326 investors in the Kangmei Pharmaceutical Case, which was the first special representative action case in China. In 2023, the second special representative action (ie, the Essence Case) was officially initiated in China. In the case, the ISC, authorised by 58 investors, applied for the initiation of a special representative action with the Shanghai Financial Court

The SIPF

Founded on 30 August 2005, the SIPF is a non-profit financial institution funded by the State Council, subject to the administration of the CSRC. The institution performs statutory duties such as raising and managing securities investor protection funds, monitoring the risks of securities companies, evaluating the protection of investors and responding to investors’ demands. It plays an important role in preventing and mitigating financial risks and safeguarding the legitimate rights and interests of investors. As of October 2023, the SIPF has yet to be authorised by investors to initiate special representative litigation proceedings, but is currently engaged in data analysis, loss calculation, and assistance in administrative reconciliation.

Joint Action and Ordinary Representative Action With a Certain Number of Persons

Joint actions and ordinary representative actions with a certain number of persons proceed on an opt-in basis. To be able to join the aforesaid actions, the plaintiffs must meet the requirement that the subject matter of the litigation of several plaintiffs is the same or of the same type.

Ordinary Representative Action With an Uncertain Number of Persons

The opt-in rule is also adopted for an ordinary representative action with an uncertain number of persons. After the court issues an announcement of registration of rights, the right-holders who meet the requirements may become members of the representative action after applying to join the action within a certain time and having been confirmed by the court.

Special Representative Action

Special representative actions adopt the opt-out principle. Once a special representative action is initiated by the investor protection institution, all investors who meet the requirements for registration of rights and do not opt out will automatically become members of the special representative action.

Limit on Size

There is no upper limit on the number of litigants in any of the aforesaid litigation mechanisms. However, there is a minimum requirement for the number of litigants. For example:

• there should be more than two persons of one party or both parties in a joint action;
• there should be more than ten plaintiffs in a securities dispute for which the court adopts the representative action procedure; and
• in a case where the special representative action procedure is applicable, there should be more than 50 investors entrusting an investor protection institution to participate in the litigation as their representative.

Adding Plaintiffs

Except in special representative actions applying the opt-out principle, a plaintiff who has not yet joined the class action can only join by filing a lawsuit or by applying to join the representative action in other forms of class action. Additionally, in an ordinary representative action arising from securities torts, if the right-holder fails to register on time, the person may apply to the court for supplementary registration before the court hearing of the first instance commences, and the legal proceedings that have been conducted before the supplementary registration shall be binding on the right-holder.

Adding Defendants

A litigant may apply to the court to add a defendant, and the court shall decide whether to approve the application after examination.

Adding Third Parties

The Civil Procedure Law (amended in 2023, effective as of 1 January 2024) classifies third parties into third parties with independent claims and third parties without independent claims. A third party with independent claims refers to a party who has claims different from the plaintiff and the defendant with respect to the subject matter of the litigation and needs to join the action by initiating a lawsuit. A third party without independent claims refers to a party who has no independent claims with respect to the subject matter of the litigation but has interests in the result of the case, or whose participation in the action is conducive to finding out the facts of the case. Such a third party may join the action on its own or on the application of other parties, and the court may also notify such a third party to join the action if it deems necessary.

China’s courts have substantial power in administering the procedure of class actions. Taking a representative action arising from a securities dispute as an example, the court’s management power is reflected in many aspects, including:

• deciding whether a lawsuit brought by two or more plaintiffs can be tried as a joint action;
• deciding whether the representative action mechanism can be adopted in joint action cases;
• deciding whether to issue an announcement of registration of rights if litigants apply to bring an ordinary representative action on behalf of other investors who have the same type of claims and will apply to join the action;
• determining the scope of right-holders in the announcement of registration of rights;
• examining the qualifications of representatives and appointing representatives when the parties are unable to elect their own representatives;
• supervising and administering the litigation activities of the representatives – where the representatives change or waive claims, withdraw the action, or admit the claims of the other party, the representatives are required to submit a written application to the court and notify all represented investors, and the court shall decide whether to approve the application; and
• reviewing the mediation agreement and deciding whether the court shall prepare a mediation document, etc.

According to the Civil Procedure Law (amended in 2023, effective as of 1 January 2024), the trial period of first-instance civil litigation cases is generally six months, which can be extended for six to nine months upon approval in the case of special circumstances. The trial period for appeals is usually three months, and in the case of special circumstances, it can also be extended for three months upon approval.

In an ordinary representative action with an uncertain number of persons arising from a securities dispute, the process of determining the scope of rights-holders, issuing a notice of rights registration, examining the list of rights-holders, and selecting and determining the representatives takes roughly four to five additional months.

In practice, given the complexity of issues in a representative action, the length of time required for a trial may exceed the above-mentioned periods. Therefore, it is difficult to accurately predict the duration of a representative action, and it will generally last for more than two years if it goes through both the first and second instance.

During a legal action, the court does not have mechanisms such as acceleration of claims, summary disposal or delaying of claims, but according to the Civil Procedure Law (amended in 2023, effective as of 1 January 2024) and other provisions, the following mechanisms may delay litigation proceedings:

• the period taken to deal with jurisdictional disputes;
• the period of public announcement;
• initiating the judicial authentication procedure in the course of proceedings;
• initiating the settlement procedure in the course of proceedings; and
• statutory suspensions of litigation because, for example:
1. one party has passed away or lost litigation capacity;
2. one party cannot participate in the litigation due to a force majeure event; or
3. the outcome of the case is based on that of another case, but that case has not yet been concluded.

In cases arising from misrepresentation, according to the judicial documents published by the SPC, the people’s court may seek opinions from the CSRC and its dispatched offices, stock exchanges, securities self-discipline management organisations, investor protection institutions and other entities with regard to professional issues. The time taken to solicit opinions shall not be included in the period of trial.

Litigation fees ordered by the courts include case acceptance fees, property preservation fees incurred when a party applies for property preservation, public announcement fees incurred when a party cannot be serviced, etc. Generally, case acceptance fees, property preservation fees and public announcement fees are paid in advance by the plaintiffs when the lawsuits are filed or when the parties apply for property preservation, and they are ultimately borne by the losing parties. As for the attorneys’ fees actually incurred by the parties, there are no clear rules on how to allocate such fees. The plaintiffs may request that the opposing party bear the attorneys’ fees when filing lawsuits, but the courts have wide discretion in this regard.

In an ordinary representative action with an uncertain number of persons, no case acceptance fees need to be paid in advance, and the losing party shall pay the case acceptance fees based on the value of the subject matter of the litigation after the case has been concluded. According to the SPC’s judicial interpretation, in representative actions arising from securities disputes, the representatives may request the losing defendants to compensate for reasonable announcement fees, notice fees, attorneys’ fees and other expenses.

In a special representative action, no case acceptance fees are to be paid by the plaintiffs in advance, and the losing parties shall pay the case acceptance fees based on the value of the subject matter of the litigation after the case has been concluded. If the losing or partially losing claimants apply for a reduction of or exemption from litigation costs, the court shall decide whether to approve the application based on the economic situation of the claimants and the circumstances of the trial of the case. Where an investor protection institution, as a representative, applies for property preservation in the litigation, the court may waive the requirement of providing a guarantee.

There are no explicit evidence disclosure rule in Chinese civil procedure, and there is no obvious difference between the evidence rules applying to joint actions and representative actions and those applying to separate actions.

In a Chinese civil action, a court will prescribe a time period for the parties to submit evidence, and the court will organise the exchange, presentation and cross-examination of such evidence. This exchange of evidence may take place separately before the hearing or concurrently during the hearing. If the evidence is in the possession of the other party to the litigation or a third party, the main measures that may be taken by the court include:

• obtaining the evidence ex officio;
• issuing an investigation order to a party’s attorney to obtain the evidence;
• confirming an adverse presumption where a party refuses to submit evidence under its control without justifiable reasons, and where the party bearing the burden of proof considers that the evidence is unfavourable to the controller;
• issuing an order demanding that a party submit documentary evidence if that evidence is under the control of that party and if the party bearing the burden of proof applies for such an order; and
• confirming the authenticity of the documentary evidence as alleged by the claimant if the party controlling the documentary evidence does not submit it without justifiable reasons.

In China, witnesses giving testimony is not commonly seen, and there is no rule of privilege for witnesses. In accordance with China’s law, citizens are obliged to testify truthfully to the court.

There is no difference between the remedies obtained through collective redress/class actions and separate actions. Collective redress/class actions in China are usually applicable to tort disputes or contract disputes, where the remedies mainly include cessation of infringement, compensation for damages, removal of obstruction, elimination of danger, and return of property.

In addition to litigation, the parties may settle their disputes through reconciliation, mediation or other alternative dispute resolution mechanisms.

For example, in the field of securities disputes, China is gradually building a diversified dispute resolution mechanism for securities disputes. In addition to judicial mechanisms such as separate actions, joint actions, supportive actions, model judgment and representative actions, there are also non-litigation resolution mechanisms such as reconciliation, industry mediation, professional mediation, and compensation in advance.

In practice, the dispute resolution mechanism of “model judgment + professional mediation” has been adopted in a number of cases. Under this mechanism, the court first selects typical cases with common factual and legal issues in dispute as model cases to be tried and judged first. The model judgment may be a separate action, a joint action or a representative action. After the model judgment takes effect, the court can guide the resolution of other parallel cases through mediation, reconciliation or a simplified trial based on the standards for the factual determination and legal application established in the model judgment.

In joint actions and ordinary representative actions with a certain number of persons, the judgment shall be binding on all parties concerned. In ordinary representative actions with an uncertain number of persons, the effective judgment shall be binding on all registered right-holders. Besides, if right-holders who have not been registered file a lawsuit within the limitation of actions, the people’s court may directly rule to apply the aforesaid effective judgment. In special representative actions, the judgment shall be binding on all right-holders who have not declared that they are opting out of the case and other parties concerned.

The time limit for performance of the losing party’s obligations will be specified by the court in the civil judgment in China. If the losing party fails to perform its obligations within the specified time limit, the entitled party may apply to the court for enforcement, and the obligations of the losing party shall be mandatorily enforced by the court.

Enhancing the Co-operation Between Securities Regulatory Authorities and Courts in Securities Class Actions

China’s collective redress mechanisms, especially the special representative action mechanism, are mainly applicable to securities dispute cases, and the securities regulatory authorities usually have stronger power to investigate securities torts and are likely to have a better understanding of the facts related to the cases due to their administrative enforcement procedures. In this context, it is China’s policy to encourage co-operation between the securities regulatory authorities and the courts. The securities regulatory authorities may provide more support for the courts’ fact-finding and advise the courts on professional issues in the securities field. The SPC has issued a special judicial document to regulate such co-operation. In some of the recent securities dispute cases, the courts asked the CSRC for inspection files to research the factual situation.

Encouraging the Application of Expert Opinions and Loss Assessment by Professional Third-Party Institutions in Securities Class Actions

The determination of loss in a securities dispute is a professional and complicated issue. Currently, China’s policy encourages parties/courts to apply for/appoint professional third-party institutions to provide expert opinions and calculate the investor’s loss.

Encouraging the Application of the Collective Action Mechanism in Other Fields Such as Consumer Protection

China’s policy also encourages the application of the collective action mechanism in other fields. For example, the General Office of the State Council issued the Opinions on Further Unleashing Consumption Potential and Promoting Consumption Recovery in April 2022, which explicitly proposes to explore the establishment of a consumer collective action mechanism. Currently, local consumer protection associations mainly support consumers in their collective claims by means of recommending agents, assisting consumers in investigation and evidence collection, seeking support from administrative departments, and other support. In the future, it will be possible to apply the ordinary representative action procedure with an uncertain number of persons and other mechanisms for the collective redress in the field of consumer protection.

As the collective action mechanisms continue to mature and evolve in securities disputes, Chinese courts may consider extending these mechanisms to wider areas.

On 21 January 2022, the SPC promulgated the 2022 Judicial Interpretation on Misrepresentation, repealing the 2003 Judicial Interpretation on Misrepresentation. For cases of collective redress in the field of securities misrepresentation, the 2022 Judicial Interpretation on Misrepresentation makes the following revisions and has been guiding courts’ judgments after its implementation.

Removal of the Pre-procedure for Class Redress Cases Arising From Securities Misrepresentation

The 2003 Judicial Interpretation on Misrepresentation clearly stipulates the pre-procedure for filing a lawsuit arising from securities misrepresentation, which means the plaintiff must submit the relevant administrative penalty decision or criminal judgment for the misrepresentation when filing a lawsuit. However, the 2022 Judicial Interpretation on Misrepresentation has removed this pre-procedure, and the plaintiff only needs to submit preliminary evidence to prove the existence of misrepresentation.

However, the pre-procedure for special representative actions still exists. According to the relevant provisions of the CSRC, when filing a special representative action, an investor protection institution shall choose a case in which the relevant authority has issued an administrative penalty decision or a criminal judgment. Such pre-procedure is conducive to the prudent initiation of special representative actions by the investor protection institution.

Amendment Made as to the Courts Having Jurisdiction for Class Redress Cases Arising From Securities Misrepresentation

According to the 2022 Judicial Interpretation on Misrepresentation, cases of collective redress for securities misrepresentation shall, in principle, be under the jurisdiction of the intermediate people’s court which is in the seat of the provincial government where the issuer is domiciled. Even if the plaintiff does not list the issuer as the defendant, the case arising from the issuer’s securities misrepresentation shall still be subject to the aforesaid jurisdiction rule. Meanwhile, the 2022 Judicial Interpretation on Misrepresentation stipulates that the higher people’s court of a province, autonomous region or municipality may, according to the actual situation in its jurisdiction, designate other intermediate people’s courts to have jurisdiction over first-instance cases arising from securities misrepresentation. However, the centralised jurisdiction rule shall still apply to special representative actions.

Clarifying the Rules on the Commencement and Interruption of the Limitation of Actions

The 2022 Judicial Interpretation on Misrepresentation provides that the limitation of actions for such cases shall commence from the date when the obliged person with regard to the information disclosure corrects the misrepresentation or the misrepresentation is first publicly exposed on the media.

In ordinary representative actions with an uncertain number of persons, the litigation conduct of some investors has the effect of interrupting the limitation of actions for all other right-holders with the same claims. For the investors who fail to register their rights with the people’s court, the limitation of actions shall commence anew upon the expiration of the period of rights registration. For the investors who apply to withdraw the registration of rights after registration with the people’s court, the limitation of actions shall commence anew on the day following the withdrawal of the registration of rights.

Improvement of the Substantive Adjudication Rules

The 2022 Judicial Interpretation on Misrepresentation also has provisions on many substantive issues involved in collective redress for securities misrepresentation, which provides the institutional basis for the detailed trial of such disputes.

The 2022 Judicial Interpretation on Misrepresentation specifies the standard for the materiality of securities misrepresentation, establishes the standard for transaction causation, improves the statutory exclusion of loss causation, clarifies the standard for determining the fault, and details the rules for calculating the loss. The procedural rules for representative litigation, on the other hand, continue to apply the Provisions of the Supreme People’s Court on Several Issues Concerning Representative Litigation in Securities Disputes, which came into effect on 31 July 2020.

Brexit has not yet had any notable impact on the implementation of China’s class action mechanisms.

In the securities market, according to Articles 95 and 96 of the CSRC’s Code of Corporate Governance of Listed Companies (Revised 2018), a listed company shall disclose information relevant to corporate governance, environmental and social information in accordance with laws, regulations, and the requirements of the relevant departments. In the Guidelines for Investor Relations Management of Listed Companies implemented by the CSRC in May 2022, the CSRC has further clarified that the listed company’s communication with investors shall include the company’s environmental, social and governance information. Generally, according to the regulatory requirements of the CSRC, some ESG information must be disclosed, while other ESG information is merely encouraged to be disclosed.

On 7 September 2023, the deputy director of the CSRC’s Listed Company Supervision Department, also made a public statement that the CSRC was leading the Shanghai and Shenzhen Stock Exchanges to draft guidelines for disclosure of listed companies’ sustainable development information. The CSRC will continue to guide listed companies to improve ESG information disclosure, to practise the concept of green development, and to fulfil their social responsibilities.

It is foreseeable that if listed companies disclose ESG information with any false record, misleading statement, or material omission, there will be potential for collective redress lawsuits.

In addition, ESG is fully reflected in other laws, regulations, and the requirements of the relevant departments, which may lead to collective claims in non-securities disputes.