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SHPC Issued Chinese & English Versions of White Paper on Trial of Financial Cases in 2019
[2020-05-15]

 

 

 

 

On May 15, 2020, the Shanghai High People's Court (SHPC) held a press conference to report on the trial of financial cases by Shanghai courts in 2019 (hereinafter referred to as the White Paper), and the trial of cases over liability for false statement in securities by Shanghai courts from 2015 to 2019 (hereinafter referred to as the White Paper on False Statement in Securities), and release ten noteworthy financial cases in Shanghai courts of 2019. Mao Ronghua, deputy secretary of the Party Leadership Group and vice president of the SHPC, Lin Xiaonie, vice president of the Shanghai Financial Court (SFC), and Zhu Changyun, chief judge of the Financial Court of the SHPC, attended the press conference, which was hosted by Sun Jing, deputy director of the Political Department and spokesperson of the SHPC, and answered questions from reporters.  

The press conference was conducted in the mode of "offline release + online interaction." Some 30 reporters attended the press conference offline. Lin Huachang, director of the Legal Affairs Department of the People's Bank of China in Shanghai, and Chen Yicong, general manager of the Legal Department of the Shanghai Stock Exchange, joined the conference online.

According to the White Paper, in 2019, courts in Shanghai accepted 192,559 first-instance financial cases and concluded 191,365, up 12.72% and 13.56% year-on-year, respectively; and accepted 1,995 second-instance financial cases, a surge of 91.46% compared with 2018. Following the record-setting RMB 100 billion in 2018, the amount involved in first-instance financial cases exceeded RMB 200 billion to reach RMB 221.841 billion, up 57.26% year-on-year.

Of all the financial cases accepted, the top five types involve bank cards, financial borrowing contracts, finance lease contracts, insurance, and securities and futures, accounting for 98.14% of the first-instance financial cases. The cases over finance lease contracts and securities and futures saw a rapid increase.

Mao Ronghua said that Shanghai courts were confronted with new problems in the trial of financial cases in 2019, such as how to identify the legal relationship for anonymously holding others electronic bills, how to determine the compensation when a logistics company "wrongly" insured for cargo losses, and whether the judicial interpretation of false statement in securities applies to the NEEQ (National Equities Exchange and Quotations). In such cases, judicial decisions play an important role in the formation and recognition of financial trading rules.

Meanwhile, the proportion of cases involving non-bank financing methods has been increasing along with the rapid development of non-bank financing means such as finance lease and factoring. In the past five years, the number of first-instance cases over finance lease contracts handled by Shanghai courts has increased by 3.24 times, and the amount involved has increased by 3.68 times; the number of cases involving factoring companies has increased by 1.19 times, and the amount involved by 19.2 times. The figures reflect a booming demand for financing and the diversity of financing means. Compared with banks, non-bank financing means entail a better system, enhanced supervision, and more regulated operations.

The number of financial cases concerning the capital market such as stock and bond is also on the rise. In particular, after rigid payment was broken in the bond market, the number of cases concerning corporate bond transactions increased from 4 in 2017 to 147 in 2019, and the amount involved increased from RMB 221 million to RMB 10.63 billion.

To solve those problems, courts in Shanghai have regulated market behaviors and promoted the formation of trading rules by performing their duties in accordance with the law, issuing noteworthy cases, publicizing judgment documents, and making judicial propositions. The ten cases released today, which cover banking, insurance, securities, factoring, finance lease and other financial sectors, are newly-emerged types of cases crucial to the formation of rules and exert great social influence.

Lin Huachang said during online interaction that the White Paper and the Noteworthy Cases could serve as inspiration and reference for the financial regulators to strengthen supervision, and he hoped that courts in Shanghai could dig into the international treaties, the rules of international organizations, trading practices, and relevant judicial precedents in the financial sector, so as to promote the alignment between justice and the rules of the international financial market.

According to the White Paper, from 2015 to 2019, a total of 9,879 investors were involved in the first-instance cases over the liability for false statement in securities handled by Shanghai courts, with the number increasing year by year. The defendants involve 21 listed companies, including Founder Technology and Potevio, and the cases concern the main board of the Shanghai Stock Exchange, the main board of the Shenzhen Stock Exchange, and the NEEQ. The average amount involved for the 21 listed companies is RMB 108 million; and that figure for the investors, which is much smaller and sporadic, is RMB 228,400.

Such cases are all filed by investors who have suffered losses due to the false statement of the listed companies, and claim compensation for the loss of investment margin, commission and stamp duty, etc. The false statement involved is mainly about inflated profit, accounting for 38.09%.

According to Lin Xiaonie, with the short-term surge and long-term steady increase in the number of cases concerning false statement in securities, the traditional way of filing, trying, and settling one civil case at a time no longer adapts to the judicial practice in such cases. In recent years, courts in Shanghai have been working to make the trial of cases more intensified and convenient by reforming the trial mechanismfor example, combining cases, entrusting mediation on the basis of model judgment, and exploring the representative action mechanism.

Take the model judgment as an example. In January 2019, the SFC issued the Provisions on the Model Judgment Mechanism for Securities Disputes, which provide for the selection and trial of the model cases, the professional support required, the effectiveness of the judgment, and the trial management. In August 2019, Chinas first model judgment for group securities dispute, which was made by the SFC in the first instance and upheld by the SHPC in the second instance, came into effect, which provides reference for similar cases in future and improves the diverse mechanism for settling securities disputes. By April 20, 2020, 98.49% of the Founder Technology cases, to which the model judgment mechanism applies for the first time, had been resolved through mediation or withdrawn, with a total of 1,311 investors settling disputes through various ways, and the amount involved reaching 162 million yuan.

In March 2020, the SFC published the Provisions on the Representative Action Mechanism for Securities Disputes, which is the first of its kind to be issued by a court on the implementation of the representative action system, and proves to be useful for further improving the civil litigation system for securities in line with China's national conditions.

Chen Yicong said that in recent years, courts in Shanghai have responded to the demand for judicial guarantee in the reform and development of the capital market by making effective and pioneering efforts to crack down on illegal acts in the securities market, protect the legitimate rights and interests of investors, and guarantee the pilot registration system in the Sci-Tech innovation board (STAR Market). The linkage between administrative law enforcement and judicial adjudication needs to be deepened as the punishment for illegal acts in the capital market is intensified. He suggested that more communications should be carried out when coping with illegal acts in securities, such as defining the subject and the degree of liability and calculating the amount of losses, so as to promote the alignment between "precise supervision" and "precise justice," achieving better enforcement and judicial results.

Following the pilot registration system in the STAR Market, the new Securities Law introduces a comprehensive reform of the stock issuance and listing system, which poses new challenges for courts to handle cases involving false statement in securities. At the press conference, reporters were informed that Shanghai courts will meet the demand for reform and promote the normative development of the capital market by further improving their handling of cases concerning false statement in securities, setting up strict standards for the obligation of information disclosure, strengthening the civil liability for compensation for violating the obligation of information disclosure, and establishing a sound civil litigation system for securities in line with the registration system.

According to the press conference, since the beginning of 2020, China's social and economic development has been hit hard by COVID-19, and the financial market is no exception. So far, courts in Shanghai have handled 10 financial cases related to the COVID-19 pandemic. Most of them involved designated hospitals for the prevention and treatment of COVID-19 cases and businesses supplying daily necessities with their bank accounts frozen, which requested the court to cancel the property preservation order.

The SHPC expects more COVID-19-related financial disputes to be filed to the courts, including financing disputes in financial borrowing, financial leasing and factoring caused by beleaguered enterprises; and other financial disputes where investors have suffered losses due to a drop in the prices of stocks and futures because of the pandemic.

To properly handle the relevant cases and help facilitate the reopening of economies, in February this year, the SHPC issued the Guidelines for Providing Legal Services and Guarantees to Battle COVID-19 by Playing the Judicial Role, which states that in handling disputes over financial loans involving businesses hit hard by the virus, the court should carefully review the proposals made by the financial institutions such as unilaterally terminating the contract due to acceleration of maturity, encourage financial institutions to settle disputes through negotiations, for example, by extending the loan or reaching an agreement on installment repayment, and help reduce the cost of financing and settling disputes for businesses. The court also published Q&As to unify the application of laws in financial cases related to the pandemic.

Meanwhile, as Shanghai's financial sector picks up its pace in opening to the outside world, especially with the introduction of the pilot financial measures in the Lingang New Area, an improved law-based financial environment is essential. The SHPC expects the number of financial cases involving cross-border investment and financing, cross-border guarantee, cross-border payment and settlement, and cross-border financial services to keep growing, the structure and business models of financial innovation products to be more complicated and specialized, more problems to emerge, such as alignment with the international financial trading rules, and financial trial to be more international.

According to Zhu Changyun, in 2019, courts in Shanghai began to launch multiple special research projects to work on the complicated legal issues in the foreign-related cases involving the letter of credit, independent guarantee, foreign-related insurance, cross-border investment and financing, cross-border payment and settlement, focus on solving, according to the legal requirements of the new pilot free trade zone, procedural problems concerning foreign jurisdiction, service abroad of documents, authentication of evidence, and proof of foreign law, explore the judicial reform in the jurisdiction of cross-border or offshore financial transactions, and promote the terms to demonstrate how foreign-related financial disputes should be settled, so as to ensure that foreign-related financial cases are handled effectively.

Mao Ronghua said that the construction of a law-based environment in Shanghai, which aims to build itself into an international financial center, requires the joint efforts of the government, financial regulators, financial institutions, industry associations and the general public. In the next stage, we need to strengthen coordination in our work, increase alignment with the international financial rules, improve the mechanism for resolving financial disputes in multiple ways, cope with COVID-19-related problems in the financial sector, thereby providing better judicial services and guarantees for building Shanghai into an international financial center.

C&E C Report on the Trial of Financial Cases by Shanghai Courts in 2019 .pdf

C&E C Report on the Trial of Cases over Liability for False Statement in Securities by Shanghai Courts (2015-2019) .pdf

C&E C Ten Noteworthy Financial Cases in Shanghai Courts of 2019 .pdf

 

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The English version of this article, which is translated from the Chinese version by CTPC, is for reference only and shall be subject to the corresponding contents on the Chinese webpage.
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