In our annual class action report, The Review: Class Actions in Australia 2015/2016, we predicted a continuing increase in attempts to use class action mechanisms under China’s Civil Procedure Law across a broad range of claims. To help you stay a step ahead, this article provides an overview of the five stages of a class action in China and strategies when dealing with mass litigations in China.
Five stages of a class action
Once initiated under China's Civil Procedure Law (CPL), a class action - or "representative action" - goes through five stages:
1. Court Notification
Where an action with more than 10 plaintiffs is initiated and the total number of possible plaintiffs is unknown, the People’s Court may publish a notice to describe the action and the plaintiffs’ claims and notify others who have interests in the same subject matter (rights holders) to register with the People’s Court within a certain period of time (not less than 30 days).
2. Plaintiff Registration
A rights holder who wants to join the class action needs to prove his or her legal relationship to the defendants and the damage he or she has suffered. If he or she fails to so prove, his or her registration request will be rejected. The rights holder may still file a separate case.
3. Representative Selection
The registered plaintiffs may recommend a representative to take part in the trial. If the registered plaintiffs fail to elect a representative, the People’s Court may appoint a representative in consultation with the registered plaintiffs. If no agreement is reached, the court is entitled to choose a representative among the registered plaintiffs. There may be between two and five action representatives, each of which may engage one or two litigation representatives (who need not be lawyers).
4. Trial and Adjudication
All acts conducted by the action representatives shall bind the plaintiffs they represent, except for the modification or waiving of any claim, admitting the defendant’s allegations, or reaching a settlement with the defendant, each of which need the consent of all plaintiffs. A judicial decision or verdict issued by the People’s Court shall apply to all registered plaintiffs.
5. Future Binding Effect
A judicial decision or verdict issued by the People’s Court in a representative action shall apply to cases raised by unregistered rights holders within the statute of limitation. The People’s Court shall deny any claim by unregistered right holders to challenge the validity of such a judgment or ruling.
While the CPL provides for mechanisms to define and regulate class actions, they are not yet common practice in China. This is because the Supreme People’s Court (SPC) has actively discouraged the lower level courts from accepting and hearing proceedings in the form of class actions, and encourages courts to divide class actions into individual cases.
Further, securities class actions are currently prohibited in China. In the Notice of Supreme People’s Court on Accepting Tort Cases Triggered By Misrepresentation in Security Market, the SPC demands that lower courts accept and hear a securities related misrepresentation case in the form of an individual case or a joint action (with ten or fewer plaintiffs), rather than a class action.
There have been a limited number of class actions reported in the PRC since the class action mechanism was adopted in CPL in 1991. As noted in the 2013/2014 Review, the types of claims in these class actions have related to land acquisition, environment contamination, consumer protection, copyright production and financial products, although no one type of claim dominates the case list.
As a matter of practice, the SPC requires the lower courts to report the class actions they accept to their superior courts. Courts in different areas are required to communicate internally and to make unified decisions with the guidance of their superior courts.
Strategy for dealing with mass litigation
As class actions are discouraged in China, a large proportion of actions which are intended to be class actions are instead filed in the court as individual proceedings. As such, mass litigation has arisen involving plaintiffs who share the same legal relationship with, and similar claims against, the same defendants.
China is not a case-law (precedent-based) jurisdiction and a judgment made by one court has no binding force on another court which tries similar kinds of cases. Having regard however to the SPC’s requirement that different district courts make consistent judgments in mass litigations, previous judgments by other courts (and especially by courts in economically developed areas such as in Beijing, Shanghai and Guangzhou) can influence later-in-time decisions. Clients may therefore benefit from pursuing cases in courts of greater reputation and influence.
If cases are filed in different courts, it is important to communicate with the courts so that they have a full picture of the status of similar cases handled by other courts, and to seek to persuade the courts to trigger their internal mechanisms so as to report the cases to their common superior court, thereby ensuring a unified decision.
As in other jurisdictions, in China, mediation is often the most effective way to solve disputes. When dealing with mass litigation, however, settlement in one case may affect others and this impact must be taken into account when developing litigation strategy.
There are many other ways and strategies for dealing with mass litigations in China depending on the nature and merits of each case.