Research On The Litigation System Of Special Representatives In Securities Disputes

With the rapid development of China’s securities market,there have been numerous cases of securities disputes and many cases of securities violations that have attracted attention,and such violations often tend to cause losses to the vast number of small and medium-sized investors who are in a vulnerable position.Article95(3)of the Securities Law provides for a special representative litigation system,which has become a powerful backstop to protect investors and combat securities violations.2021 saw the first application of the special representative litigation system in the Kangmei Pharmaceuticals case,which successfully obtained compensation for a large number of small and medium-sized investors scattered across the country,drawing widespread attention from the public and bringing special representative litigation into the public eye.China’s special representative litigation system for securities disputes is a representative litigation system whereby an investor protection agency accepts special authorisation from more than 50 investors to bring civil claims by way of "implied entry and express withdrawal".The special representative litigation takes into account the actual situation in China and makes the investor protection agency the sole special representative,achieving an innovative breakthrough in the "party doctrine",which is known as the "Chinese version of group litigation".The suitability of the investor protection agency as a party can be interpreted by applying the statutory litigation role in the litigation role system,in which it participates in litigation in its own name for the benefit of others,and the final judgment is effective for investors who have a direct interest.Special representative litigation can have a deterrent effect on securities violations such as misrepresentation,and has advantages that ordinary representative litigation does not have,and can make up for the limitations of investor protection agencies in supporting litigation.However,combined with the analysis of the Kangmei Pharmaceutical case,there are still some problems in the application of the special representative litigation process.First,the criteria for the selection of cases are unclear,and the criteria for the selection of cases are not in line with the latest judicial interpretation,and the criteria for the definition of "significant" and "typical" are not yet clear.Secondly,the procedural design of the proceedings is unreasonable,as the initiation of special representative proceedings must be premised on the filing of ordinary representative proceedings,and the relationship between ordinary representative proceedings and special representative proceedings is not parallel,but progressive.Thirdly,the manner of notice was not adequate,the notice of announcement could not ensure that all investors were informed of the existence of the special representative action,and investors who wanted to withdraw,could not truly express their wishes.Fourthly,the judgment effect is not expansive enough,the judgment effect of the special representative action can bind all participating investors,investors who declare to withdraw can sue separately,but the facts and reasons of the separate lawsuit are basically the same,which can easily lead to the waste of judicial resources.Fifth,the lack of corresponding litigation incentives,lawyers in litigation representation can not fully guarantee due diligence,which is not conducive to the protection of investors’ rights and interests.In the United States of America’s declaration of withdrawal system,British recognition of membership,Germany’s model litigation system to be examined,to get thinking and inspiration,combined with China’s judicial practice in the application of the special representative of the process of problems,and put forward proposals to improve.First,improve the criteria for the selection of cases.Match the rules of practice of the investor protection agency with the latest judicial interpretation,and clarify the criteria for defining "significant" and "typical" cases.Second,adopt a parallel approach to the initiation of proceedings.The IPA can intervene earlier in the ordinary representative proceedings,and the procedure can be initiated in a parallel manner instead of a progressive manner,so that the conflicts in the transferred cases can be resolved together.Thirdly,additional means of notification of proceedings.A multi-channel approach to notification allows investors to decide early on whether to participate.Fourth,establish a model judgment mechanism.Extend the effect of judgments in special representative actions to investors who sue separately to ensure that investors can obtain reasonable compensation in a timely manner.Fifth,establish an incentive mechanism to encourage lawyers to participate.Broaden funding channels to collect an equal amount of lawyers’ fees from the compensation received by investors,while introducing experienced and professional social lawyers to increase the motivation of lawyers to participate in litigation.