Haworth & Lexon Law Newsletter
No.1, 2003 (Total:No.17)    February20th, 2003
Edited by Haworth & Lexon

Guidelines

Rules over How to Handle Civil Compensation Cases Led by False Statements in the Securities Market, made by the Supreme Court of the P. R. China, has been handed down
 Significant breakthrough--------Qualified domestic natural Person could be permitted as investors of foreign invested enterprises on Chinese side
Interpretations over the Procedure Law for Marine Affairs in P.R. China, made by the Supreme Court of the P. R. China
Latest Laws and Regulations
 Notice on Capital Contribution Issues of Futures Broking Companies in P. R. China has been effective since 14 Jan. 2003
 Regulations on Handling of Infringements on New Plant Species, made by the Ministry for Agriculture, became enforceable on 1 Feb. 2003

Rules over How to Handle Civil Compensation Cases Led by False Statements in the Securities Market, made by the Supreme Court of the P. R. China, has been handed down

The above-said rules, as much concerned by most individual small and medium-sized investors in recent years, has gone into its effectiveness since 1 Feb. 2003. The purpose of making such rules is to help courts properly deal with those cases led by false statement in the securities market, as well as to regulate civil activities and safeguard investors' legal interests. These rules have been divided into the following parts: general principles, jurisdiction, methods of suits, judgments of untrue and fraudulent statement, responsibility and exemption, contributory torts, discretion of losses and auxiliary provisions etc. Among others, the following aspects might be important to pay much attention to:

1) As a significantly important principle, courts shall handle such cases through means that are primarily dominated by mediations and re-conciliations.

2) These cases shall be adjudicated by intermediate courts situated in the cities, such as municipals, capitals of provinces, autonomous regions, and others directly under the central government.

3) The defendant should be the person who made false statements, such as the following: a) promoters, controlling shareholders and other actual controllers; b) issuers or listed companies; c) securities contracting sellers; d) list recommending bodies; e) accounting firms, law offices asset assessing firms and other broking bodies; f) directors, supervisors, managers and directly responsible persons; g) other individuals or bodies who are responsible for the untrue and fraudulent statements.

4) The evidence must meet the strict requirement. In accordance with these rules, when filing cases to the court, the plaintiff should, besides submitting executive decisions and judicial judgments, provide a) individual identification or certificate of legal person or other entities. In case of inability to present original one, they must show the copy which has been publicly notarized; b) documentary transaction evidences which indicates investment losses.

5) Definition of false statement. According to the Rules, when the followings have occurred, such statements will be legally established: 1) violation of the regulations governing securities, some untrue records, misleading statements against significant events, or large incompleteness, improper disclosure of information.

6) Discretion of legal causation. Such causation should be constituted when the followings are established: a) direct connections between the securities and the false statement; b) bought during the period, from the date on which false statement occurred to the date on which such acts are disclosed or corrected; and c) the loss has been caused by the selling or continuous holding of the just above-said securities, on the disclosing date or after.

7) Denial of legal causation. When the defendant can prove that the following situation appeared, the court shall deny the existence of legal causation between false statement and loss: a) the investor has sold the securities before the disclosure or correction; b) the investment is made after the disclosure and correction; c) intend to invest in case of knowledge of false statement; d) losses or part of is caused by other factors, such as the inherent systematic risks; e) investment in bad faith or manipulating the pricing of securities. It should be highly noted that, if the investor is clever and has rich experience in managing risks, he should have no entitlement to compensation in case he has in advance sold his securities before disclosing and correcting of the false statement.

8) Verification of losses. The losses of plaintiff should be limited to direct ones, those are the followings: a) the pricing difference between buying and selling; b) commissions and stamp duties levied on the parts of losses, in case of interest incurred on the investment principal, the amount should be calculated based on the corresponding banking rates from the date of buying or selling or stipulation.

9) Time limit for suit filing. Such cases should be brought within two years starting from the following dates in different situations: a) public release date of punishment on the responsible person for the false statement by the central governing bodies of the P. R. China in charge of the securities or its agencies; b) public announcement date of punishment by the Treasury Department of the P. R. China on the responsible person of false statement; or c) enforcement date, in case of non-punishment handed down by the executive bodies, but convicted as criminal by the people's court. If one act has been punished by both executive and judicial bodies, the earlier date should be the starting date for calculation of the suit time-limit

Significant breakthrough--------Qualified domestic natural Person could be permitted as investors of foreign invested enterprises on Chinese side

As of 1 Jan. 2003, qualified Chinese individuals can be permitted as investors of foreign invested enterprises on Chinese side, according to new regulations named Notice about Strengthening Approval, Registration, Foreign Currency and Taxation jointly promulgated by ministry for Foreign Economic Cooperation and Trade, General Office of Taxation, Ministry for Administration of Industrial and Commercial and Foreign Currency Control Authority. Under the Notice, if a foreign investor purchases certain shares of various enterprises within P. R. China, and enable those enterprises to be legally recognized foreign invested enterprises, at the same time, the current Chinese individual investor has been the share holder in the original enterprise for at least one year, after approval by concerning Government Bodies, such Chinese individual investors can continue to be the investors of the new foreign invested enterprise on Chinese side.

However, under this Notice, Chinese individuals cannot become investors of foreign invested enterprises, by promoting or purchasing shares of foreign investors.

It should be significantly noted that this Notice is a big breakthrough to the Law on Sino-Foreign Joint Venture of P. R. China. According to this Law, on the whole, Chinese individuals cannot become investors of foreign invested enterprises on the Chinese side.

Interpretations over the Procedure Law for Marine Affairs in P.R. China, made by the Supreme Court of the P. R. China

These judicial interpretations have gone into its force since 1 Feb. 2003, and have a wide and much detailed provisions totaling 98 Articles, ranging from jurisdiction, preservative measure, injunctive order, preserve of evidence, marine guarantee, service, hearing proceeding, limitation procedure to marine compensation, registering of debts, compensation priority order and public announcement of ship priority etc.. in this Interpretation, exclusive jurisdiction of marine courts, forum disputes and related measures in case foreign factors are involved. Among others, the following provisions should be paid high attention to:

1) Except marine courts, any court should have no jurisdiction over the marine cases. If an enforcement of judgment made by other courts than marine courts, need to be executed by force by charging and auctioning ships, such cases should be handled through the marine courts where the ships are situated or the port where the ships have their registrations.

2) Marine preserve application, injunctive application and evidence preserve. In event a foreign court has accepted the case or the case has been submitted to an arbitration body, 1) but related property is located in China, when the parties to the dispute apply to a marine court for marine preserve measure; 2) when the parties to the dispute apply to a marine court for marine injunctive orders and produce necessary evidences; or 3) when the parties to the dispute apply to marine court for marine evidence preserve and show the evidence indicating the evidences are in the territory of P. R China, the court that receives those applications should accept.

3) Definition of new evidence. Under this Interpretation, the new evidence should be referred to such as not held by the litigant, and cannot be produced before hearing due to inability to know or obtain.

As to the General Average assessment, this interpretation has given much detailed stipulation.

Latest Laws and Regulations

Notice on Capital Contribution Issues of Futures Broking Companies in P. R. China has been effective since 14 Jan. 2003

Under this Notice circulated by Commission for Supervision and Regulation of Securities, capital contributors to a futures broking company must be Chinese legal persons, at the same time, such contributors must observe the following requirements: a) the amount of out-standing suits should not exceed 30 percent of the net property of the organization; b) the organizations such as communist party organs and government bodies, army, the people's groups and other bodies whose revenues are given by the State; c) other organizations that are forbidden to contribute to futures companies by relevant law or regulations. Stipulated by this Notice, futures companies should not hold shares each other. This Notice went into its force on 14 Jan. 2003.

Regulations on Handling of Infringements on New Plant Species, made by the Ministry for Agriculture, became enforceable on 1 Feb. 2003

In purpose to effectively handle infringement cases, which relate to new plant species, this Regulation states that such cases should be under the jurisdiction of agricultural executive authorities at the provincial level or above within their executive regions. This Regulation has made much practical provisions to governing the following fields: conditions for applicants, certificate of entitlement, demanding contents, filing procedure, hearing ways, mediation and conciliation, punishment such as prompt stop of production, sales, forfeiting of illegal earnings, penalty of five times earning up, executive appeal and enforcement procedure, and compensation methods. As to the suit time limit, it reads, such limit should be two years starting fro the date on which, the right holders or interesting persons were aware or should be aware of the infringement.