Securities Dispute Resolution in China

Sanzhu Zhu

• Publisher: Routledge
• Year: 2018
• ISBN:
  9781351149587
• Edition: 1
• Topic: Law
• Subtopic: Law Theory & Practice
• Index: Law

Securities Dispute Resolution in China is a comprehensive and detailed study of the increasingly important issue of how cases involving securities are dealt with by Chinese courts, commissions and other administrative authorities and by arbitration and mediation in the PRC. The work identifies the nature and types of securities disputes and the various procedures, including alternative dispute resolution, used to address them. This timely, groundbreaking book is particularly relevant at a time of growing foreign investment in China's securities market. The volume will be an invaluable resource for researchers and practitioners in developed as well as emerging markets.

Chapter 1
The Legal, Regulatory and Judicial Framework

Introduction

The legal, regulatory and judicial framework for securities dispute resolution in China is part of China's post-1978 legal system, built during the process of China's economic and legal transformation.¹ The year 1979 witnessed the first wave of legislation of seven important laws.² This was followed by the enactment of the Constitution of the People's Republic of China in 1982.³ In 1986. the General Principles of Civil Law of the People's Republic of China (hereinafter the 1986 GPCL) was enacted, which laid down the fundamental principles of civil and commercial law.⁴ In 1988, the 1982 Constitution was amended for the first time, which, inter alia, paved way for the significant rise of private sectors in later years.⁵ During the 1980s, the people's courts and other judicial institutions were restored and an active legal profession re-emerged;⁶ civil, administrative and criminal procedure laws were enacted one after another.⁷

Moving into the 1990s, as China's economic reform was gaining momentum, China's legal reform was stepping up and a comprehensive legal system was gradually emerging. In 1993, 1999 and 2004, the 1982 Constitution was further amended three times respectively, coinciding with the stages of China's economic, social and legal reforms.⁸ Crucially important in the area of civil and commercial law, the 1999 Contract Law has transformed the previous separate system of contract laws into a unified system of contract law.⁹ Apart from contract law, a group of important civil and commercial law were promulgated during the 1990s.¹⁰ In the area of procedural law, the 1982 Civil Procedure Law (for Trial Implementation) was replaced by the current 1991 Civil Procedure Law¹¹ and the 1979 Criminal Procedure Law was amended by the 1996 Criminal Procedure Law.¹² Towards the end of 1990s and early 2000s, and with China's entry into the WTO in 2001, there have been positive impacts not only on the law of foreign trade and investment but also on the general standard and quality of China's legal system.¹³

All these developments have contributed directly and indirectly to the development of the legal, regulatory and judicial framework for the resolution of disputes involving shares, bonds and other types of securities. The general principles of civil law, agency law, tort law, contract law, security law and civil procedure law form a basic and important part of the legal rules, in accordance with which the people's courts deal with securities-related cases. In the area of securities and company law, the Company Law of the People's Republic of China was enacted in 1993¹⁴ and the Securities Law of the People's Republic of China was enacted in 1998,¹⁵ both which were significantly amended in 2005.¹⁶ Following the establishment of Shanghai and Shenzhen stock exchanges in 1990 and 1991, the Securities Committee of the State Council (SCSC) and the China Securities Regulatory Commission (CSRC) were established in October 1992, and the institutional development of China's securities regulatory system entered into a new stage.¹⁷

Over the years, the National People's Congress and its Standing Committee, the national and local governments, securities regulators have promulgated a growing number of the laws, regulations and rules relevant to securities market regulation and securities dispute resolution.¹⁸ In the process of resolving securities-related cases, the Supreme People's Court has also issued a group of judicial interpretations and guidelines specifically concerning procedural issues arising in the resolution of securities dispute cases.¹⁹ This chapter outlines some important basic legal, regulatory and judicial rules commonly applicable to all types of securities dispute cases while the rules, including special trading rules applicable only to cases in certain specific securities markets, will be outlined in the following relevant chapters.

General Principles of Civil Law

The 1986 GPCL²⁰ is, in a loose sense, a 'mini civil code' in the Chinese legal system.²¹ The provisions provided for in the 1986 GPCL cover natural persons and legal persons, civil juristic acts, agency, civil rights and civil liabilities, statute of limitation and applicable law in civil relations involving foreign parties.²² Embodied also in the 1986 GPCL are general principles of civil and commercial law, such as the principle of fairness and the principle of honesty and good faith.²³ After the enactment of the 1986 GPCL, the Supreme People's Court issued in 1988 a set of detailed iuterρrelations concerning the implementation of the 1986 GPCL (hereinafter the SPC Interpretations on the 1986 GPCL).²⁴ The 1986 GPCL and the interpretations of the Supreme People's Court provide the people's courts with important general law and principles in dealing with all kinds of civil and commercial cases, including cases involving securities disputes.

Legal Requirements for Civil Juristic Acts

Article 55 of the 1986 GPCL broadly requires that a civil juristic act (minshi falű xingwei) shall meet the following three conditions. First, the actor has relevant capacity for civil acts; second, the intention expressed is genuine; and third, the act does not violate the law or the public interest (shehui gonggong liyi).²⁵ According to the SPC Interpretations on the 1986 GPCL, civil acts performed by a party in the form of audio recording, video recording, or other audio or material means is deemed valid if two or more disinterested persons act as witnesses or if there is other proof that the civil acts conform to the provision of the Article 55 of the 1986 GPCL;²⁶ an act is deemed an act of deceit if one party wilfully misrepresents to or deliberately conceals from another party facts and thereby induces the other party to make a mistaken expression of intention;²⁷ a serious error is deemed to exist where a person performing an act misapprehends the nature of the act, tire identity of the other party concerned, or the kind, quality, specification, and quantity of the subject matter, so that the consequences of his act are contrary to his true intention thereby resulting in significant loss.²⁸ These are some of the interpretations of the Supreme People's Court regarding legal requirements for civil juristic acts.²⁹ The SPC Interpretations on the 1986 GPCL provides no further provision regarding the requirement that a civil juristic act may not violate the public interest.

Failing to fulfill these requirements a civil juristic act shall be null and void. On the basis of Article 55, Article 58 of the 1986 GPCL further prescribes a list of civil juristic acts and the circumstances under which a civil juristic act shall be null and void, including those performed by a person without civil capacity or a person with limited capacity who may not perform such an act independently according to law,³⁰ those performed by a person against his true intentions as a result of cheating, coercion or exploitation of his unfavorable position by the other party,³¹ those performed through malicious collusion and detrimental to the interests of the state, a collective or a third party,³² those that violate the law or the public interest,³³ and those performed under the guise of legitimate acts to conceal illegitimate purposes. ³⁴

Civil juristic acts that are determined to be null and void shall not be legally binding from the very beginning.³⁵ The party who has received property as a result of the act must return it to the injured party; if one party is at fault, he must pay damages to the other party who has been injured as a result of the act; if both parties are at fault each must bear his appropriate share of liability; if both parties have conspired maliciously to execute a civil juristic act that is detrimental to the interests of the state, a collective or a third party, the property acquired by them shall be recovered and turned over to the state or the collective, or returned to the third person.³⁶ According to the SPC Interpretations on the 1986 GPCL, "property acquired by them" includes property that both parties have already obtained as well as property that both parties have agreed to obtain.³⁷

In relation to securities transactions, parties must fulfill legal requirements for civil juristic acts prescribed by the 1986 GPCL, the failure of which would render the trans...

Table of contents

• Cover
• Half Title
• Dedication
• Title
• Copyright
• Contents
• List of Laws and Regulations
• List of Judicial Interpretations and Provisions
• List of Cases
• Abbreviations
• Preface
• Introduction
• 1 The Legal, Regulatory and Judicial Framework
• 2 The Share Issuing and Trading Market
• 3 Government and Enterprise Bond Markets
• 4 The Securities Repurchase Market
• 5 Commodity and Financial Futures Markets
• 6 Civil Litigation Arising from False Statements on the Securities Market
• 7 The Development of Securities Dispute Resolution in China
• Conclusion
• Bibliography
• Laws, Regulation and Judicial Interpretations and Provisions Index
• List of Cases Index
• Subject Index