Shine light on draft judicial interpretation on “twisting the law in arbitration”!

images-1The Supreme People’s Court and Supreme People’s Procuratorate are together drafting a judicial interpretation on Article 399a of the Criminal Law, the crime of “twisting the law in arbitration.”  My understanding is that one of the criminal law divisions of the Supreme People’s Court is involved in the drafting, rather than the #4 civil division, well-known internationally for its expertise in arbitration issues. According to an article published by the Guiyang Arbitration Commission, in late April, the State Council Legislative Affairs Office distributed the draft to some arbitration commissions for comment.  Given the many legal issues it raises for domestic and foreign arbitrators (and the Chinese government’s international/regional obligations), it should be issued publicly for comment.

What is Article 399a of the Criminal Law?

Article 399a, is part of  Chapter IX:  Crimes of Dereliction of Duty.

Where a person, who is charged by law with the duty of arbitration, intentionally runs counter to facts and laws and twists the law when making a ruling in arbitration, if the circumstances are serious, he shall be sentenced to fixed-term imprisonment of not more than three years or criminal detention; and if the circumstances are especially serious, he shall be sentenced to fixed-term imprisonment of not less than three years but not more than seven years.”(依法承担仲裁职责的人员,在仲裁活动中故意违背事实和法律作枉法裁决,情节严重的,处三年以下有期徒刑或者拘役;情节特别严重的,处三年以上七年以下有期徒刑.)

Article 399a,  (which seems to have been drawn from analogous provisions in Japanese and Taiwan law), was promulgated despite protests from the arbitration community. Harsh criticism continues to be published (in Chinese), such as Professor Song Lianbin’s Critical Analysis of the Crime of Deliberately Rendering an Arbitral Award in Violation of LawRecently, Duan Xiaosong, a Chinese law lecturer, published an article in a US law review on Article 399a, but the article apparently did not catch the attention of international practitioners.

Issues include:

  • Article 399a is a duty crime (one committed by officials). How is it that Chinese arbitrators who are not officials, or foreign arbitrators can commit this crime?
  • The procuratorate investigates duty crimes.  This means that the procuratorate must review an award to make a decision whether to investigate whether an award has been intentionally rendered “in violation of facts and law.” Will a procuratorate be able to conduct this review applying foreign law?
  • If a procuratorate prosecutes a case under Article 399a, it also requires a court to undertake a substantive review of an arbitral award.
  • Judicial interpretations of both the Supreme People’s Court and Procuratorate raise important issues.  As suggested in several earlier blogposts, part of the judicial reforms should include greater requirements for public comment on draft judicial interpretations. Depending on how familiar the US and EU bilateral investment treaty negotiators are with the details of Chinese law, this may be raised by negotiators.

Comment

Because this judicial interpretation has implications for China’s obligations under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) and the analogous arrangement with Hong Kong, the draft should be made public so that the greater arbitration community, domestic and foreign, is able to provide detailed analysis and commentary on it. This is the interests of the international and Chinese legal communities.

New docketing procedures come to the Chinese courts

local court case filing office

local court case filing office

New docketing procedures (case filing) (立案) have come to the Chinese courts.  Chinese courts have a separate case filing divisions, which up until 1 May of this year acted as gatekeepers to courts.  They exercised their approval authority over cases in a non-transparent manner, which meant for litigants in Chinese courts that their cases could be and were rejected without having the opportunity to argue why they should be accepted.  Case filing divisions also were known to put troublesome filings aside, without issuing a rejection, or repeatedly asked for supplementary documents, seeking to drive away litigants by repeated formalistic demands.

More background is given in these blog posts and law review article.  It has been an ongoing problem for many years, provoking endless complaints and articles by ordinary people, lawyers, academics, and NGOs, and has been one of the issues driving petitioners to the streets.

The Supreme People’s Court (Court) leadership identified case filing as one of the needed reforms (and as one of the many contributing factors to the low prestige of the Chinese judiciary), even before the Third Plenum. Because of that, the Communist Party’s 4th Plenum Decision and the 4th Five Year Court Reform Plan flagged this as a priority.  (Unsurprisingly), the language in the two documents is almost identical:

  • Reform systems for courts’ acceptance of cases, change the case filing review system to a case filing registration system, and in cases that should be accepted by the people’s courts, ensure parties procedural rights by requiring filing when there is a case, and requiring acceptance where there is a lawsuit.
  • Change the case filing review system into a case filing registration system, making it so that for cases that should be accepted by the people’s courts, where there is a case it must be filed, and where there is a suit it must be accepted; safeguarding the parties’ procedural rights.

Litigants in line at the #1 Circuit Tribunal

In late April, the Court issued case filing regulations which address many of the longstanding problems that litigants and their lawyers faced:

Case filing divisions

  • refusing to accept complaints;
  • refusing to issue notices rejecting complaints;
  • repeatedly asking for supplementary materials.

The new rules require case filing divisions to accept filings of civil and criminal private prosecution cases (brought by the victim of a crime if the state refuses to prosecute, generally relating to minor crimes) on the spot if possible, provide templates for frequently used types of cases, and to respond within statutory deadlines.  Case filing divisions are directed to make requests for supplementary materials once. (The new administrative litigation law judicial interpretation, described in this earlier blogpost, contains similar provisions.) Litigants who encounter noncompliant behavior can file a complaint with the relevant court or the court above it.

Cases that the courts must refuse:

  1. Matters that endanger national security;

Rights activists have likely noticed that these carveouts are broad and flexible enough to keep out some cases that they might want to bring.

The take-up on the reform: some “Big Data”

According to Court statistics, in the first month since the regulations went into effect, there was a 30% jump in the number of cases accepted,(1.13 million), with most of them accepted immediately. The Jiangsu, Zhejiang, and Shandong courts accepted over 80,000 cases, with Beijing, Hebei, and other areas accepting over 40,000.

In particular:

  • the number of civil cases was up about 28%.
  • the number of administrative cases accepted was up 221% in comparison to last year (starting from a low base), with Tianjin cases up 752.40%,Shanxi, 480.85%,and Shanghai 475.86%, reflecting both the new case registration and new Administrative Litigation Law going into force.
  • Courts in Zhejiang found that fewer litigants were mediating their cases before filing suit (down 17%), and the success rate of mediation was down by 14%.  Does this mean a better outcome for litigants?  Closer analysis is needed.

Much of the press coverage has been about litigants filing cases themselves, rather than with the assistance of a lawyer or other legal personnel, but I haven’t seen statistics that address this.

Some more detailed data from Jiangsu province:

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Case filings in Jiangsu Province, by city

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Civil 60791, enforcement 25438, administrative 1980, private prosecution 256, state compensation 56

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May, 2015 cases accepted, by location

An evaluation after six weeks

Some thoughts about the case filing reform

  • It will mean more cases in the courts and greater stress for fewer judges and other judicial staff, to assist the many pro se litigants.
  • It should reduce the dissatisfaction level of some proportion of litigants with the court system, such as the anonymous staff from a Guangzhou car finance company quoted in a press report.
  • Violence against court personnel (like medical personnel), is another factor driving qualified and experienced people away, as described in these recent articles.  Will the reforms reduce the level of frustration of ordinary people with the court system, and reduce physical and verbal attacks on judicial personnel?  It is early days to say.
  • It does not resolve underlying issues such as local courts not wanting to offend local government or locally state-owned enterprises.  The 4th 5 Year Court Reform Plan identifies cross-jurisdictional courts as a solution, and pilot projects have started on this in various locations, including Beijing, but a comprehensive framework is not yet in place.
  • For the numerically small number of foreign litigants in the system, it does not change all the documentary requirements needed, such as notarization and legalization of documents and powers of attorney. It should make it easier for foreign invested companies to litigate.
  • As a Court spokesman suggested,  the rejection of many cases could come later, leading to greater pressure on the courts later on, from appeals, more requests for cases to be re-tried, and not ultimately reduce the number of petitioners.
  • It will inevitably lead to abuse of process and frivolous cases, such as the over-publicized case of a Shanghai man suing because of the stare of a TV star caused him spiritual damage. The Court is working on rules to address this.

The tidal wave of Chinese shadow banking disputes

the "pyramiding" private lending  (potentially crushing the banks)

“Pyramiding” private lending (potentially crushing the banks)

My article in The Diplomat on shadow banking disputes was recently published. It highlights what few outside of China have noticed–that shadow banking/private lending disputes account for a substantial proportion of civil/commercial disputes in Chinese courts, creating a particular burden on the courts.  In some places, the percentage hovers close to 50%!  These disputes raise a range of issues and the law is particularly unclear.  Although some provincial (and municipal) courts have issued guidance in the absence of a more detailed judicial interpretation, the lower courts are looking to the Supreme People’s Court for a more comprehensive national legal framework.

Supreme People’s Court’s new policy on drugs

ceb176df44f7c0a32fc56771bb9ba2c9This short blogpost follows up on the recent report on the same topic in the  Diplomat.

In late May, the Supreme People’s Court issued a conference summary on drug crimes (全国法院毒品犯罪审判工作座谈会纪要) setting out further guidance to the lower courts on trying drug cases (for those diving deeper into the subject, a transcript of comments by an official of the #5 criminal division follows the text of the conference summary).

Conference summaries are what the Court entitles “normative documents” and often address new issues or areas of law in which the law is not settled.   “Conference summaries” are also a form of Communist Party/government document.  Conference summaries are not considered “judicial interpretations” and are not required to be made public.  The full text was not generally issued in the legal press but has appeared in social media. This blogpost will look further into the conference summary and what it implies.

The conference summary

A national drug crimes court conference was held in December, 2014, with delegates both from the military and civilian courts.   Although the actual number of drug cases heard in the military courts is unknown, they do occur, as indicated by a press report of a man sentenced in Anhui for selling drugs, who had previously been convicted by a military court in Lanzhou for selling drugs (and other offenses).

The Court organized the conference to ensure that the lower courts were trying drug crimes in line with the latest national policy on the matter and to harmonize lower court practice.  That national policy is set out in the first Central Committee/State Council policy document on drug crimes, issued in July, 2014, and the content appears to be sensitive enough that the full text has not been published. “Harmonizing court practice” means in  Chinese judicial parlance that judges are applying the law similarly. As explained earlier, judicial conferences are an important way of doing so. The conference summary, which was circulated among conference participants (and the Court leadership) sets out guidelines for judges on difficult issues, including the death penalty.

Death penalty

A good analysis of prior law on drugs and the death penalty can be found here. The conference summary provides guidance on how to apply the death penalty, and is consistent with the Court’s general principles on applying the death penalty–in a minority of cases and to the worst offenders.  The conference summary provides guidance in relation to three issues:

  • Trafficking of illegal drugs–the death penalty is most appropriately applied to the head of a drug enterprise, who organizes, ships illegal drugs with armed guards, hires others, etc, and executing 2 or more persons in the same case should be very carefully considered.
  • Illegal drugs supply chain–the death penalty should be applied to the worst offenders.
  • New types of drugs-meth, ice, ketamine–similarly, the death penalty should be applied to the worst offenders.

Who commits drug crimes?

According to a 2011 Court research report, the profile of those committing drug crimes is:

  • Unemployed (51% in 2011), with about 90% peasants and unemployed (this has implications for the government’s urbanization plans;
  • Greater proportion (11%) of women in comparison to other crimes;
  • Many recidivists;
  • Generally low level of education;
  • Involving high level of profits when trafficked away from border areas; and
  • Increasingly involving new types of drugs.

Comment

As Chinese people become wealthier (and the economy becomes more internationalized), drug use (and the illegal drug industry) is growing correspondingly.  As in legal goods, some illegal drug  manufacturing has moved to China.  Although last July’s high level document calls for a three year plan to control illegal drugs, it seems more likely that we will continue to see an increase in drug cases heard in the Chinese courts and capital punishment applied to the most major offenders.

Supreme People’s Court releases big data on civil litigation in 2014

The Supreme People’s Court (Court) recently issued a report on civil litigation in the Chinese courts in 2014 with some big data and analysis. (The graphics in this blogpost are from the report.)  What are the trends relating to commercial disputes and what do they mean?

# of civil/commercial cases accepted (in 10,000s)

Trend #1–the number of civil and commercial cases has almost doubled in the past 10 years, despite obstacles to filing law suits, well documented elsewhere in blogposts and academic articles (and recognized as a major issue by the Court).

According to the commentary provided by Ma Jian of the Court’s research office, it reflects:

  • Dynamics and fluctuations in society and the economy;
  • Multiple effects of the government’s macro-control policies;
  • Outcomes of implementing legislation regulating the economy and society.
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55.8% contracts; 25.47% ownership etc., 18.63% family/inheritance law

Over 9 million civil/commercial cases were accepted by the Chinese courts in 2014, up 7.41% compared to 2013.  1.2 million cases were carried over to 2015, reflecting a change in performance indicators for the courts, described in this earlier blogpost.

In recent years, civil and  commercial cases have constituted 63% of all litigation in the Chinese courts.  As the Court report noted, the enormous growth in the caseload places even more pressure on the judges.  The large caseload, poor pay, lack of respect, and responsibilities unrelated to hearing cases have motivated a significant number of judges to leave (as this recent article highlights).  The personnel changes announced in the judicial reforms have exacerbated these trends (and were anticipated by the drafters).

Contract disputes

Trend #2.  In 2014, contract disputes constituted more than half of all civil/commercial disputes in the Chinese courts, far outweighing any other category.The proportion of contract disputes in proportion to other civil/commercial disputes has been rising. In 2014, the Chinese courts accepted 4.5 million contract cases, an increase of 11.36% in comparison to 2013. The top five types of contract disputes, accounting for 73% of first instance cases were:

  • loans;
  • sales;
  • labor;
  • service; and
  • real estate development & management cases.

The following types of contract disputes have increased most quickly:

  • credit card;
  • construction;
  • loans;
  • insurance.
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1st instance loan contracts (in 10,000s)

Loan disputes

Trend #3. Loan disputes have more than doubled in the past 10 years.  In 2014, they increased by almost 18% in comparison to 2013, to reach 1.7 million cases, Since 2012, loan disputes have exceeded divorce cases. Reasons for this according to the Court:

  • the government’s prudent money policy;
  • monetary/funding tightening;
  • impact of the new company law reforms [more small companies coming onto the market needing funding];
  • effects of changes to capital market system;
  • large amount of private lending [民间, generally known as shadow lending outside of China], leading to many more disputes. (I will publish an article on these disputes in the near future).

Other contract disputes

In 2014, the courts accepted almost 700,000 sales contract disputes, an increase of 12.28%. According to Court research, many of these cases involved small companies (SMEs). Many of these cases involved small family companies, with inadequate contract templates, leading to disputes.

New real estate construction cases accounted for 118,700 cases, an increase of 18.7%, while 173,000 real estate development cases were accepted by the courts, a increase of 5.53%。  The large increase in real estate construction cases is related to the tightening of funding for real estate development and the hot and cold in the real estate development market.

Other ownership disputes

New first instance ownership disputes accepted in 2014 reached 2 million cases, an increase of 3.67%.  Tort cases accounted for 1.6 million of those cases.  New shareholder disputes accounted for about 26,0000, an increase of almost 37%, with a smaller number of commercial paper disputes (48000), an increase of 15.46%.

The Court commented that SMEs have been most affected by the overall macro-economic downturn, which has indirectly led to all sorts of shareholder disputes.  The new Company Law has made it possible for funds to come in and out easily, but because many of these companies lack secure sources of operating capital and have to depend on private lending (shadow banking), if one party to these transactions has a funding problem, it causes a multi-party chain reaction and creates many complex shareholding disputes.

Mediation

Mediation/withdrawal of case rate for civil/commercial 1st instance cases

As can be seen from the above bar graph, the rate of settlement of first instance civil (and commercial) cases by mediation or other settlement is now back to 2007 levels.  The Court did not set forth reasons for the significant drop in cases resolved by mediation. In my view, two of the factors include:

1) the rate of cases resolved by year end had been an important performance indicator for the courts. Since December, it has no longer been the case; and

2) The Court has moved away from a simplistic policy of “mediation first” to a more nuanced approach to dispute resolution, as indicated by its initiative regarding diversified approaches to dispute resolution.

Comment

Chinese civil litigation reflects what is going on in the real economy and society (this will be even more the case when the effects of case filing reforms are documented) and the effects of government policies and controls on both.  Although the US and the European Union are negotiating bilateral investment treaties (BITs) with China, it appears from news reports that no one in either negotiating team has considered the impact of the current state and ongoing reforms of the Chinese judiciary on those BITs.  These issues deserve more serious attention. Foreign investors (or more often, subsidiaries of foreign investors) in China are increasingly finding themselves in Chinese courts and this trend is likely to continue.

Senior Chinese judges speak out on preventing injustices in China’s criminal justice system

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Confess quickly!

Although the Human Rights Watch report on the use of torture in the Chinese criminal justice system is capturing the attention of the media outside of China (and overshadowing a forthcoming report of an investigation done by the China University of Political Science and Law (CUPL) on the same subject), the report that may be more persuasive to the Supreme People’s Court (Court) in reducing injustices in China’s criminal justice system is one coming out of a symposium held recently in Henan Province.

The symposium on mistaken cases and “hearing centered criminal procedures”was sponsored by the Henan Higher People’s Court and CUPL,  Participants at the symposium included the president of the Henan Higher People’s Court (Zhang Liyong), the head of the #5 criminal division of the Court (Gao Guijun), several leading academics, including one from the Communist Youth League’s training school, and two from the legal press (Legal Daily and the People’s Court Daily). The detailed report from which this blogpost is taken was published in the Court’s media outlets, and a more abbreviated version on the Central Political Legal Committee’s websites).

The criminal prosecution of senior management of GlaxoSmithKline (GSK)’s Chinese subsidiary and many other lower profile cases (such as this one about a Swedish teenager) serve as a reminder that criminal justice issues are relevant to the (foreign) business as well as the human rights community.

The comments from the participants were fairly consistent.  Those from the judges who participated are particularly significant, because their remarks reflect reforms set out in the 4th Five Year Court Reform Plan that may be eventually implemented and they are the ones who can advocate directly these points in internal discussions with other participants in the criminal justice system.

Judge Zhang Liyong, President of the Henan Higher People’s Court

Judge Gao Guijun, head of the #5 Criminal Division of the Court

Comments from the judges

  • Put substance into trial procedure by requiring witnesses to appear in court and implement the exclusion of illegal evidence;
  • Improve judicial supervision of the investigation process, to ensure that the standard of the investigation process meets the standard at trial.  This comment is liked to an unnoticed phrase in the 4th Five Year Court Reform Plan Outline, which calls for “Improving judicial supervision of judicial (i.e. justice system) measures and investigative methods which limit personal freedom.”   Publications within the court system, such as this detailed study in Chongqing advocating better judicial controls over the investigatory stage) reveal that some judges are looking to Germany and Taiwan for examples in other civil law systems, in which detainees have the right to be brought before a court during the investigation process;
  • More effective curbs must be established on procuratorial authority;
  • Torture still exists to some extent, and measures must be taken to prevent it;
  • The procuratorate and defense must be on an equal footing;
  • The defendant is not a criminal until after sentencing, and he must be allowed to sit with defense counsel;
  • The presumption of innocence in doubtful cases must be implemented (疑罪从无原则).

Comments from the academics

  • The new [pre-trial] detention center law being drafted by the State Council’s Legislative Affairs Office should incorporate obligations on detention center staff to cooperate with courts in reviewing illegal evidence;
  • A system should be established to require criminal investigators to appear in court and for the investigation agencies (public security and procuracy) to provide full recordings of interrogations;
  • The hearing must become the center of proceedings, not the investigation file, and the trial (first instance hearing) is the foundation for preventing miscarriages of justice;
  • There are defects in the system of correcting miscarriages of justice–there should be a system under which a convict can apply for DNA testing, also the standard for exculpatory evidence in re-trials is too high;

Comments from the media:

  • To prevent mistaken cases, media monitoring is needed;
  • News must be made public, to satisfy the public’s right to know;
  • The justice system must be more transparent.

Comment

Implementing many of the recommendations of the participants of the symposium cannot be done solely by the Court.  They will require approval by the political leadership, acting through the Central Committee’s Central Leading Group for Judicial Reform because they relate to other criminal justice institutions.  Because many of the issues raised, such as Improving judicial supervision of the investigation process, instituting an effective system for excluding illegally obtained evidence are part of the 4th Five Year Court Reform Plan Outline, it is likely that progress will be made towards implementing these measures in the next few years, perhaps once the  reforms mandated for the public security authorities have a had measurable impact. The leadership is unlikely to be willing to implement these reforms if it perceives a negative effect on “law and order” and social stability. The rights of a large number of people can potentially be improved if they are.

Medical malpractice law–a heads up from the Supreme People’s Court

5d1f900037c306e744c72f9d2b511837Medical malpractice law is the elephant in the room for those considering investing in China’s healthcare sector. In March, the Chinese government issued a large scale plan for reforming  medical institutions. Part of those reforms include attracting private and foreign capital to invest in hospitals, clinics, and other medical institutions (as the Communist Party Central Committee highlighted in the Third Plenum Decision), but a few other phrases highlight doing a better job of resolving medical disputes.

According to the head of the #1 Civil Division of the Supreme People’s Court (Court) in 2014, the Chinese courts heard almost 20,000 medical malpractice cases, and over the last seven years, there has been 81% increase. Chinese patients (and families) are increasingly aware that litigation may result in a more favorable outcome than other methods.  In a recently issued document (still in draft, but already published on the Internet), the Supreme People’s Court has signalled that it is working on:

  • a body of medical malpractice law rules; and
  • better systems to resolve disputes involving the medical system.

Some background

In recent years, disputes between doctors, hospitals and patients in China have been in the news, in policy reports, and scholarly articles, with descriptions of  beatings, brawls, and killings occurring in Chinese hospitals.  The current problems have been highlighted (in English, at least) on this blog, in the press, in NGO reports, and analyzed in several law review articles, including a detailed study by Professor Benjamin Liebman, of Columbia Law School.

What issues is the Court looking at?

Chinese medical malpractice law (and related institutions) are inadequate for dealing with increasingly litigious Chinese patients (and their families) (as highlighted in this earlier blogpost). In the document, the Court announced:

  • it is working on new ways of trying medical malpractice cases;
  • high on its priority  is more detailed rules on the burden of proof and the standard of proof in medical malpractice cases (the new interpretation of the civil procedure law does not add significant details on this, leaving earlier rules in place);
  • the concept is to strike a balance between protecting the interests of the patients and enabling normal operation of medical institutions.

The document sets out some rules that are likely to be incorporated into a judicial interpretation:

  • a plaintiff seeking to bring a medical malpractice cases must provide evidence of the doctor-patient relationship (evidence could include registration card, medical history, hospital discharge certificate), payment receipts;
  • a medical institution has the burden of proof when asserting that it should not be liable because medical personnel had taken all reasonable medical efforts, or the state of medical development, or other such issues;
  • in a medical dispute, if a party is found to have been tampering with the medical record, as a result of which it is not possible to determine causation or the extent of damages, the party who has tampered should bear the adverse legal consequences, and the party who cannot explain internal inconsistencies and errors in the medical record should also bear the advertise legal consequences.

Concluding comments

A press report in January, 2015 mentioned that the Court has started work on drafting a judicial interpretation on medical malpractice issues.  If previous legislation is any guide, it is likely that the drafters will be looking to foreign jurisdictions with developed medical malpractice legislation when considering these issues.  The Court will consult with the relevant regulatory institutions, such as the China Food and Drug Administration and the National Health and Family Planning Commission. Will the Court solicit public opinion?

Investors considering investing in Chinese medical institutions (or doctors practicing in China), should anticipate a more robust medical malpractice system, although not immediately.