Class action lawsuits in China
The article is devoted to class action lawsuits in China. Joint lawsuits, representative lawsuits and public interest lawsuits existing in China are being investigated. The specifics of the Chinese way in relation to the development of collective procedures are analyzed. It is concluded that the Chinese regulation of representative claims is in its infancy and needs to be adjusted. One of these changes, investigated in the article, is related to the reform of the Law "On the Securities Market" 2019-2020. In general, China has borrowed the rules on class action from Western countries and Japan, but they have received a national coloring. Some of the ideas that have been implemented in China and have been tested in it may well be borrowed by our country.
Keywords: China, class action, joint action, representative action, securities market regulation.
The regulation of class actions is of great interest in all developed countries. And what about the situation in the first economy in the world, which China rightfully began to represent? It's no secret that the legal superstructure follows the economic basis. That's what the classics of Marxism-Leninism taught us. Following this logic, one can expect that the most developed legal system is emerging in China, which, of course, cannot but touch on such a complex issue as class actions. Here, China has just embarked on the path of step-by-step improvement of its legislation, and we must assume that its experience in regulating class actions will be interesting for us as well.
1. The history of the development of a class action in China
The emergence of the modern civil procedure system in China dates back to the period of modernization, more commonly known as the policy of "reform and openness" <1> in the late 70s of the XX century. In 1982, the country's first Civil Procedure Code was adopted, namely the Civil Procedure Law of the People's Republic of China. Although this law regulated both individual lawsuits and joint lawsuits, it was not enough to regulate collective disputes arising in connection with the introduction of market-based economic transformations. Chinese courts have begun to receive an increasing number of collective complaints. The courts had to go through procedural experiments in order to resolve these complaints effectively enough, which prompted Chinese procedural scientists to study in depth the foreign experience of dispute resolution involving a large group of individuals. The experience of the USA and Japan was chosen as a model for the study. As a result, based on the practical work of the courts and the research of scientists, a new civil procedure code was developed - the Civil Procedure Law of the People's Republic of China in 1991. (hereinafter referred to as the GPP of the People's Republic of China). And already in 1992, the interpretation of the new law was adopted by the Supreme Court of the People's Republic of China in the Resolution "On certain issues regarding the Enactment of the Civil Procedure Law of the People's Republic of China". The specified act contains clarifying assessments developed by the court of the highest judicial instance on collective claims. The GPP of the People's Republic of China is an effective regulatory act up to the present time and is basically quite well preserved, although it has undergone a number of significant amendments and changes that were introduced by the legislator. One of these changes was the introduction of organizational lawsuits to protect public interests. The Resolution of the Supreme Court was also modernized, its latest version came into force on February 4, 2015 (hereinafter referred to as the Resolution to the GPP of the People's Republic of China).
--------------------------------
<1> The policy of reform and openness (kit. Gaige-Kaifang, literally "reforms and openness") is a program of economic reforms undertaken in the People's Republic of China aimed at creating so-called socialism with Chinese characteristics, or a socialist market economy, and openness to the outside world.
On December 28, 2019, the Law of the People's Republic of China "On the Securities Market" was revised (the amendments entered into force on March 1, 2020). These amendments to the law for the first time introduce an independent procedure for representative proceedings in disputes related to the regulation of the securities market.
At the moment, the legislation of the People's Republic of China assumes a fairly developed arsenal of collective defense tools: 1) joint lawsuits; 2) representative lawsuits (with or without a set number of participants); 3) lawsuits in defense of public interests.
2. Joint lawsuits
The procedure for considering joint claims in China is very close to the institution of complicity. By analogy with the institution of complicity, where two types of it are distinguished: mandatory and optional, two types of joint claims are also distinguished here: substantial and ordinary (ordinary). Both types are regulated by Article 52 of the GPP of the People's Republic of China. Although the text of the Chinese law does not describe the types of joint claims so clearly, in the doctrine they are distinguished as independent procedures with a significant difference in the definitions of the subject of the dispute, the conditions for initiating joint proceedings, internal relations between the co-participants in the process, methods of conducting legal proceedings, and the consequences of a court decision. What unites these two types of joint lawsuits is that they both require that at least two co-plaintiffs or co-defendants participate in the proceedings.
A significant joint claim is characterized by the fact that the subject of dispute of each of the co-plaintiffs or co-defendants is the same. Since they have the same rights and obligations, they must conduct court proceedings jointly, and each party is considered integral in the claim. If one of the parties does not participate in the claim or does not respond to the claim jointly, the court adds the missing party to the process as a participant in the proceedings both at the request of the party and on its own initiative. The court considers the whole case and makes a single judicial decision. Any procedural actions taken by one of the parties entail legal consequences for all other co-plaintiffs or co-defendants, provided that they are approved by them. The understanding of the "sameness" of the subject of dispute in China is quite broad in the practice of its application by courts, the following situations may fall under this concept: 1) co-authors or co-defendants who have common and inseparable interests in relation to the other party; 2) proceedings arising from a joint loan or debt obligation; 3) a joint claim is based on the same facts and legal grounds, such as compensation for damages resulting from joint participation in a tort. According to a number of researchers in China, the term "the same subject of dispute" in the strict sense only applies to the first described situation <2>.
--------------------------------
<2> World Class Actions. A Guide to Group and Representative Actions around the Globe / edit. by Karlsgodt Paul G. 2012. P. 494 - 496.
In ordinary (ordinary) joint claims, the subject of dispute of each co-plaintiff or co-defendant is not the same, but the same category (kind) of claim (in English translations of the law, the terms category, kind of claim are used). The latter means the nature of the legal relationship in a dispute with the opposite party or the sameness of the requirements of each co-participant. Since there are no common rights and obligations among ordinary co-plaintiffs or co-defendants, any party to the dispute is interchangeable. The court has discretionary powers regarding the decision on the participation of the party in the claim. If a party participates in a joint claim, the court issues a court decision separately for each party. Any procedural actions taken by one of the parties entail legal consequences only for that party itself and do not affect other co-plaintiffs or co-defendants.
3. Representative claims
Representative claims are a combination system of joint claims and representation, since the GPP of the People's Republic of China and its Resolution clearly indicate that the procedure for representative claims is based on the procedure for joint claims. According to Article 53 of the GPP of the People's Republic of China, representative proceedings are joint proceedings in which the number of litigants on each side of the proceedings is large. In accordance with the clarification of Article 75 of the Decree containing the interpretation of the GPP of the People's Republic of China, a large number of litigants means 10 persons or more. Although the requirement to transfer to representative proceedings after reaching the number of co-plaintiffs or co-defendants of 10 or more persons is not mandatory. In this case, it is possible to apply both the procedure of joint claims and representative ones. It all depends on the choice of the parties and the preferences of the court.
Representative claims are divided into two types: 1) representative claims with a set number of participants and 2) representative claims without a set number of participants. The latter type is called by some a Chinese class action, by analogy with the American version (class action). At least in the legal literature and the press, they are intentionally designated by the same hieroglyphs <3>. The differences between the two types of procedure are not fundamental: the second type is characterized by the notification and registration procedure, otherwise they are similar. A separate procedure is worth mentioning representative lawsuits in disputes related to the regulation of the securities market. We will touch on them below.
--------------------------------
<3> Liebman Benjamin L., Class Action Litigation in China // Harvard Law Review. 1998. Vol. 111. P. 1523.
3.1. Representative claims with a fixed number of participants
A large number of participants on the side of plaintiffs or defendants presupposes the choice of representatives in the mechanism provided for by law for a representative claim. The procedural actions taken by the representative have legal consequences for the represented parties. Nevertheless, any changes to the claims, waiver of the claim, recognition of the claims of the opposing party or conclusion of a settlement agreement are subject to approval by each party represented.
The use of a representative claim with a fixed number of participants requires compliance with five conditions: 1) the party must consist of a plurality of persons; 2) the number of litigants is established at the time of filing the claim; 3) the subject of dispute of each litigant participant in a multilateral process is the same or the same category; 4) individual cases of litigants affect common claims or objections to the claim; and 5) there are qualified representatives to represent a party with a plurality of participants. In addition to compliance with the specified conditions specific to the representative claim, the court checks the filed claim for compliance with the general provisions of the procedural law on claims. If the representative claim does not meet all these requirements, it is rejected with the right for the participants to file an individual claim afterwards.
According to the GPP of the People's Republic of China and the above-mentioned Resolution, a party consisting of many persons includes either significant co-plaintiffs or co-plaintiffs or co-plaintiffs. If the participants in the multilateral process cannot reach consensus on the requirements or approaches to protection, a subgroup may be established to conduct legal proceedings. Each such subgroup appoints its own representative.
A party consisting of many persons chooses a representative after the court approves the claim as representative. Qualified representatives must be members of the multi-stakeholder party they represent. In addition, they must meet the requirements of legal capacity and conduct the process in the interests of all members (no conflict of interest). After negotiations between each other, a party consisting of many persons has the right to choose from 2 to 5 representatives. If the election of representatives fails, the election of representatives is carried out through negotiations with the participation of the court. If the number of persons in the representative claim is so large that all negotiations regarding the identity of the representatives have been unsuccessful, the court, on its own initiative, appoints representatives from among the plaintiffs. If these plaintiffs do not object to this, they become representatives for the representative claim. If the election of representatives has failed and cannot be resolved by the court, numerous persons on the plaintiff's side have the right to apply to the court in the form of a joint claim, substantial or ordinary.
In case of death of a representative, deprivation of his legal capacity, inability to perform representative duties, the participants in the representative claim have the right to re-elect a representative. At the same time, the actions of the old representative remain valid for the ongoing process in the order of procedural succession.
3.2. Representative claims without a fixed number of participants
Article 54 of the GPP of the People's Republic of China regulates a representative claim without a fixed number of participants. The procedural mechanism of this type of representative action is similar to a representative action with a fixed number of participants in many ways. The main difference is that the number of litigants has not been established at the time of filing the claim. The main difference between the two types of representative action is in the requirements for the procedure for initiating a case: a representative action without a fixed number of participants assumes that the subject of the dispute of a party consisting of many persons is of the same category of claim, and not the same claim. In other words, the basis of the internal relations of a representative claim without a fixed number of participants is only an ordinary joint claim. If the internal relations form a substantial joint claim, and the number of co-plaintiffs is uncertain, the case cannot be considered as a representative claim <4>.
--------------------------------
<4> World Class Actions. A Guide to Group and Representative Actions around the Globe / edit. by Karlsgodt Paul G. 2012. P. 498.
A state without a set number of participants is considered by the Chinese justice system as a generally temporary phenomenon. The specificity of this type of procedure is precisely to provide the court with a claim with a set number of participants. This means that, according to the logic of Chinese law, legal mechanisms are needed to achieve this goal. These include notification and registration. They constitute the procedural specifics of a representative claim without a set number of participants. When accepting this claim for production, the court, firstly, issues a notice containing a description of the circumstances of the case and a guide for all persons whose interests are similar to join the claim and register with the court within a certain period. The duration of this period is left to the discretion of the court, but cannot be less than 30 days <5>.
--------------------------------
<5> Article 62 of the Decision of the Supreme Court "On certain Issues concerning the Enactment of the Civil Procedure Law of the People's Republic of China", 1992
Secondly, registration of participants in a representative claim, whose interests are similar, is provided. To register, it is necessary to demonstrate to the court that the interests of a potential participant are also affected by the defendant. Those who for some reason did not do this will be denied registration and the opportunity to join the lawsuit, but this does not prevent them from going to court with their own claim.
The election and appointment of representatives in a representative claim without a fixed number of participants is the same as in a representative claim with a fixed number of participants.
A court decision on a representative claim without a set number of participants entails legal consequences not only for those who have registered their rights in court, but also extends the "prejudicial" effect to those who have not been registered in court. If these persons file a similar claim with the court within the limitation period, the court considering the case will directly apply court decisions and orders adopted in representative proceedings.
3.3. Representative action on disputes related to the regulation of the securities market
The Law of the People's Republic of China "On the Securities Market", amended in 2019-2020, introduces a separate procedure for a representative claim related to the regulation of the securities market. The ruling of the Supreme Court of the People's Republic of China "On certain Issues related to Representative Proceedings in Disputes related to Securities Market Regulation", adopted on July 31, 2020, specified many provisions of the above-mentioned Law. In particular, it divided the new representative claim into ordinary and special. In a special representative claim related to the regulation of the securities market, special institutions related to the protection of investors' rights have the right to file a representative claim and participate in the proceedings after receiving approval from at least 50 investors. Holders of rights who disagree with the claim are obliged to refuse in writing to participate in the representative claim and withdraw from the proceedings. This is given a period of 15 days from the date of the court's ruling on the registration of the claim. If such an application is not filed, the investor is considered to have joined the lawsuit. Thus, the opt-out mechanism was implemented in this issue.
At the moment, the China Securities Regulatory Commission (CSRC) recognizes two organizations as institutions for the protection of investors' rights: China Securities Investor Services Centre Co. Ltd. (CSISC) and China Securities Investor Protection Fund Corporation Limited. According to the internal rules of the CSISC, an organization may decide to join the case as a representative on its own initiative in cases where an administrative decision on a fine or a sentence in a criminal case has been issued, and the case has a negative social impact and is indicative, and the defendant has solvency <6>.
--------------------------------
<6> www.iclg.com
4. Lawsuits in defense of public interests
According to Article 55 of the GPP of the People's Republic of China, lawsuits in defense of public interests can be filed by an appropriate authorized organization in relation to actions that harm public interests, including, but not limited to, environmental pollution, violation of the rights and legitimate interests of consumers. If the Prosecutor's office, exercising its powers, discovers any activity harmful to public interests, it has the right to apply to the court, provided that there is no other body or institution ready to defend public interests, or this body or institution has decided not to file a lawsuit.
Thus, this is how the mechanism of organizational class action is implemented in China.
Conclusion
From the above, it should be concluded that the development of a class action in China has received independent features and is characterized by noticeable specifics. The regulation of class action lawsuits in China has its advantages and disadvantages. The disadvantages include the fact that a representative claim with or without a fixed number of participants is implemented in relation to joint claims, which makes it not a fully fledged institution (representative complicity). In our opinion, it needs to be adjusted according to modern achievements. The Chinese Government understands this need. Recent reforms in the field of securities market regulation have strengthened the representative claim, embodying the opt-out mechanism in it. The procedure of complicity (joint claims) has also been implemented quite fully.
In Russia, the idea of developing class actions organized in two independent forms could be borrowed: on the principle of opt-out and opt-in each. It would be useful to prescribe in the domestic law a mechanism for dividing a group into subgroups for the convenience of conducting such cumbersome lawsuits as a collective one, which, of course, is an advantage of the Chinese legal system.
A separate discussion is raised about the special procedural form of a class action related to the regulation of the securities market. It is quite possible, and this is confirmed by the experience of China, that special qualities of the collective action mechanism are needed in relation to this area.
In conclusion, I would like to express the hope that the progressive development of class actions in China will bring many more useful and valuable things for civil proceedings.
