Financial court's innovative measures a boon to investors
The Shanghai Financial Court, which was established five years ago in accordance with a national initiative aimed at transforming the city into a global financial hub, has demonstrated a commitment to safeguarding investor interests through innovative measures that prioritize efficiency and fairness.
It recently released a report detailing its efforts to address investors' concerns, particularly in cases involving foreign litigants and individual securities investors in the financial market.
Online mediation and trial
One notable accomplishment is the launch of an online case-handling system. This innovative platform allows litigants to resolve their problems remotely, instead of in-person courtroom appearance.
In one such case, the parties involved in litigation – one in Shanghai and the other in Jilin Province in northeast China – utilized online platform to submit evidence and execute pertinent documentation.
Ultimately, the dispute was amicably settled through judicial mediation, facilitated by video conferencing, involving both the court and a mediator. The complete mediation procedure was documented by the online system for future reference.
According to judge Yang Lizhuan, who ruled over the case, saving time and financial resources is advantageous for both parties involved in litigation.
Umbrella for small and medium-sized investors
The court has implemented various judicial measures to enhance the protection of private investors. China has the world's largest and most vibrant group of individual investors.
In recent years, the court has introduced a novel framework for class action lawsuits specifically tailored to accommodate the interests of small and medium-sized investors.
Under this framework, only those investors who actively engage in the litigation process are eligible to receive compensation subsequent to the issuance of the final judgment.
This is a novel alternative to class actions in other nations.
In those countries, individual investors may join a class action lawsuit without formally withdrawing. Their participation might generate problems for investors with varied needs.
Depending on their needs, investors in the Chinese market have a choice between the novel model and the traditional one.
A green channel will be open for investors who submit the same facts and reasoning as in a previously resolved case. A prompt trial can be conducted utilizing the court's precedent.
The Shanghai Financial Court, the first of its kind in China, is located in Huangpu District.
A first case
The court resolved China's first investor-initiated security dispute in 2021 under the new class action mechanism.
Shanghai Feilo Acoustics Co was sued by nearly 300 investors. Feilo, the first joint-stock listed company in China, overstated its operating revenue and total profit in its financial statements, misleading investors and causing their losses.
After the hearings, the court sided with the plaintiffs. The company was compelled to pay the plaintiffs about 123 million yuan (US$16.88 million) for their losses. According to the court, each person might receive more than 390,000 yuan on average.
The court also created a securities investor protection mechanism, which is unique to China. Individual investors get one-stop, paperless, interactive litigation services. The court claimed such services had been used over 9,100 times.
With the user's permission, it can access investment data like securities transaction records. It can advise investors on whether they can sue over financial disputes and estimate the amount of compensation owed to claimants.
With big data, it's effective for similar class-action cases against the same corporation, the court noted.
The Securities Investor Protection Chamber was established by the Shanghai Financial Court in 2020.
Equal protection for foreign investors
The court's unique practices safeguard international investors as well. Zhao Hong, the court's president, said it has worked hard to develop a fair trial, efficient procedures, convenient litigation, and predictable judgment in the international financial judicial system.
Despite the legal issues with the litigants' agreement, the court protected the legitimate interests of a Japanese and a Chinese investor in a shares income distribution lawsuit in 2019. The court stated that judges must examine fairness and legal terms in a proper market order.
The court determined the Japanese investor bought 880,000 shares of a company from the Chinese in 2005. The agreement stated that the Chinese would administer the shares under the foreigner's direction but might exercise shareholder rights under his own name. The income would go to the Japanese.
The company was listed on the Shanghai Stock Exchange in 2017. The Chinese shareholder repeatedly stated that he didn't hold shares for others. It is illegal under Chinese securities law to conceal the genuine shareholders of a publicly traded corporation.
The Chinese investor had over 1.2 million shares the next year. However, the Japanese dragged the Chinese to financial court over shares-revenue allocation.
The court ordered the two claimants to negotiate a shares sale. If they can't reach an agreement, the foreigner is allowed to sell or auction the shares. The funds had to be allocated based on the investment returns and risks.
Both sides earned their interest and did not appeal the sentence.
Zhao stated that the court has actively pursued jurisdiction over foreign-related financial problems. Financial institutions from Singapore and Australia, as well as numerous foreign enterprises in China, are increasingly turning to the financial court for dispute resolution.
It has also created a smart interpretation system for court cases based on AI to help both domestic and international parties. It is the first of its kind in China.
Zhao noted that the mechanism will help overseas market players better comprehend China's financial legal system.
A recent transnational case hearing in the Shanghai Financial Court makes use of the smart interpretation system.
Challenges ahead
The court acknowledged issues with new businesses. For instance, more people are now working in the express and food delivery sectors, but insurance services are not standard for them. Online insurance products can potentially cause issues due to policyholder anonymity.
The court stated it would collaborate with other departments to ensure market order and fair competition.
It said that the court would work to make Shanghai an international financial judicial center. It aims to meet different financial judicial needs and boost Chinese-style modernization through greater financial judicial protection.
The court received 41,000 cases between 2018 and 2023. Before the financial court was founded, all intermediate courts in the city heard 2.6 times the number of financial cases between 2008 and 2018.
