The Rise of Non-Profit Organizations in Global Securities Class Actions: A New Hybrid Model in China

LAUREN YU-HSIN LIN* AND YU XIANG**

Developing an appropriate legal mechanism to aggregate claims in mass securities disputes has long been a key policy issue in investor protection around the globe. The lawyer-led opt-out class action regime in the United States has generated by far the most collective securities lawsuits in the world, and yet the system remains subject to much criticism. To facilitate claims while precluding a litigious legal culture like in the United States, many jurisdictions have experimented with innovative procedural rules for collective redress. In particular, the European Union has allowed non-profit organizations (NPOs) to replace the role of entrepreneurial lawyers in representing mass tort victims. Under the NPO-led opt-out regime, the opt-out rule allows parties to resolve similar disputes all at once, while the non-profit and non-distribution attributes of NPOs suppress the filing of frivolous lawsuits.

The new Chinese hybrid model, adopted in the 2020 Securities Law Amendment, entrusts a government-sanctioned NPO, the China Securities Investors Service Center (the CSISC), to represent investors in opt-out class actions and only allows lawyers to lead opt-in collective litigation. This model takes a middle ground by combining both market-driven and government-controlled mechanisms. However, in China, the distinct policy of maintaining social stability and the political embeddedness of the judiciary will likely suppress the number of securities class actions. Indeed, the first opt-out class action shows traces of political influence and control over the whole litigation process, and the close ties between the CSISC and the government also raise doubts about the potential political influences that shape enforcement decisions. Nonetheless, the new Chinese hybrid model offers a comparative law reference for jurisdictions that are reluctant to accept a litigious legal culture, but at the same time, hope to enhance private enforcement of securities law.

* Associate Professor, City University of Hong Kong, School of Law. J.S.D., Stanford Law School.

** PhD Candidate, City University of Hong Kong, School of Law.