Shenzhen courts steer the way in divorce and shadow banking law

u=2655505232,2779536896&fm=21&gp=0 The Shenzhen courts, dealing with the “new normal” in China’s social and economic changes ahead of the rest of the country, often find current legislation and Supreme People’s Court interpretations inadequate to deal with the issues that come before them. Divorce law and shadow banking (loans made outside the formal banking system) are two types of cases inundating the Shenzhen courts (and yes, there is a connection).

At the end of last year, the Shenzhen intermediate court issued local court guidance (with an accompanying explanation–these are not “interpretations of law”), binding only on the Shenzhen courts, on two important issues:

In Shenzhen, which is wealthy and where women are relatively rights conscious (at least in divorce), the local courts found that existing rules failed to deal with the issues that came before them regularly.Some of those issues include:

  • marital property (particularly rights to real property);
  • the business that a couple may have built up together;
  • children born outside the marital relationship, and
  • issues relating to cross-border marriages.

As in so many areas of Chinese law, legislation lags behind social reality.  The 2011 interpretation by Supreme People’s Court of the Marriage Law, as it relates to marital property, has been controversial both inside and outside of China, as highlighted by many articles and books addressing the issue because it has meant that in divorce, women often lost possession to home(s) to which they or their parents had contributed substantial funds.This has been particularly true in Shenzhen. The local intermediate court highlighted that over 80% of the divorce cases that are heard locally involve disputes over real property.   In divorces, women have continued to argue that they should be awarded possession of the home.

Another issue leading to disputes in and out of the courtroom is the practice of some courts. when dealing with divorces, to split ownership of the family business. The guidance directs judges to consider the family law issues only, and have the division of the business considered in separate proceedings.  These rules also contain provisions relating to Hong Kong, where there are many cross border marriages and couples whose lives and property  crisscross  the border. The court guidance, besides setting out new legal rules, provides a deep dive look into what goes on in many local marriages, judging from the rules relating to children born outside of the marital relationship.

banks turn off funding tap, shadow banking comes

banks turn off funding tap, shadow banking comes to the rescue

Shadow banking loans, which the Supreme People’s Court has finally recognized to be valid (if they meet certain conditions) constitute about 20% of civil disputes in the Chinese courts, according to President Zhou Qiang’s report to the NPC, and the numbers are even greater in Shenzhen.  In the court in the business district of Futian, for example, the statistics are as follows:

  • 2012: 1153 cases;
  • 2013: 1627 cases
  • first half of 2014: 976 cases.

The court guidance in substance an answer to FAQs of the Shenzhen courts on  the following questions (and many more):

  • what if the loan relates to a gambling debt?
  • What if one spouse lends money to a third party without informing the other spouse?
  • How can shadow banking be distinguished from the crime of illegal fund raising?
  • What if the legal representative of a company loans out company money in his own name?
  • What are the ceilings, if any on interest, penalties and other fees?

We can expect that the Supreme People’s Court will be monitoring the success of these rules in practice when issuing its next judicial interpretation in these areas.  And with the Supreme People’s Court Circuit Court (Tribunal) located in Shenzhen, it is likely that discussion of these issues occurs from time to time behind the scenes.

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Supreme People’s Court’s Master Reform Plan for the Courts

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Case filing hall

My article on the 4th Five Year Reform Plan for the courts appeared in the Diplomat earlier this week.  It gave me an opportunity to put court reforms in their systemic context.  This blog will focus on the some of the many micro-steps needed to implement it.  One of those micro-steps occurred earlier this month, when the Shanghai #1 Intermediate Court issued regulations on implementing a registration case acceptance system for commercial cases.

Advisory committee on cross-border legal issues for Hong Kong?

My article below was published in the 17 March edition of the South China Morning Post:

P1050083

To solve the many specific cross-border legal issues affecting the people of Hong Kong and the rule of law in  the special administrative region, an independent and non-partisan advisory committee on cross-boundary legal issues should be established.

The committee, which ideally would draw its membership from current or retired senior members of the legal profession,  would provide policy guidance to a working group drawn from the legal community. The idea would be to draw together people familiar with  the Hong Kong and mainland legal systems.  They would work together to propose options for practical solutions to problems involving  complex legal issues.

These problems could be issues in the news, such as parallel trading, and other serious problems not in the news such as cross-boundary pollution, criminal justice or domestic violence. The members of the working group must be able to reach out to those with the right expertise or background, regardless of political views.

One example of an important issue not in the news is domestic violence. Grenville Cross SC has recently written about the need for improving Hong Kong domestic law on this front.  I have  written about domestic violence on the mainland, highlighting new guidance by the Supreme People’s Court and others for dealing with this serious social problem.  Hong Kong social trends, such as cross-border marriages and Hong Kong elderly people settling on the mainland, mean that cross-border domestic violence is  an unrecognised problem.

Another issue concerns cross-border cooperation in criminal matters. The South China Morning Post reported last  autumn that the Supreme People’s Procuratorate had announced that it would focus on establishing ways to bring suspects home, including extradition and repatriation, with Hong Kong as the first target.  If the government is being asked to conclude a rendition agreement or criminal law judicial assistance arrangement, this touches on a broad range of legal issues for individuals, companies and other organisations.

A Hong Kong foundation  can consider investing some resources to fund the necessary research and analysis on which the advisory committee will need to rely. Such  foundations have been generous in funding research on law and Chinese studies in universities elsewhere.  The proposed advisory committee and working group are intended to provide practical results and are sure to provide value for money.

©SCMP

Supreme People’s Court president says court reforms in “deep water area”

566929On 12 March 2015, Zhou Qiang, president of the Supreme People’s Court (Court) delivered his work report to the NPC, putting the best face on where the Chinese courts are and where they’re going. He described court reforms as being in a “deep water area” (深水区)(a high risk area).  This blogpost will highlight issues that other commentators (outside of China) have so far missed:
  • the mismatch between the focus of the work report and the work of the courts;
  • what the work report (on other than criminal cases reveals); and
  • the challenges to the Court leadership in the year ahead.

What is the mismatch?

charts for SPC

© Tiantong & Partners; charts illustrating SPC report

The primary focus of the work report (as always) is law and order, as seen from the perspective of Communist Party leadership, particularly state security related offenses (including terrorism and “splittism”) as well as ordinary crimes.  A big difference in this year’s report is that President Zhou Qiang apologized for previous miscarriages of justice and highlighted efforts to prevent future ones.  Other commentators have already focused on these both of these important developments and and other issues related to the criminal justice system.
2014 cases in chinese courts

bar chart: 2010-2014 increase in cases resolved by courts (in 10K) Pie chart: civil/commercial/IP; admin; re-trial/govt compens/enforcement/; parole; other/criminal

What the work report reveals is that most cases heard in the Chinese courts are not criminal and that the number of cases heard by the courts is rising.

What are cases are the Chinese courts hearing?

The pie chart (distributed as an attachment to President Zhou Qiang’s report at the NPC), illustrates that over 63% of the cases heard in the Chinese courts are civil cases (including commercial, family law and intellectual property cases), not criminal. Criminal cases (including parole related cases) account for something over 10% of cases (as others have discussed, many minor offenses are handled as administrative, rather than criminal offenses).

A closer look at civil cases in the Chinese courts

 A bit of arithmetic reveals (unfortunately the authors of the Report did not set out a corresponding chart), that 34% of civil cases (2,782,000) in 2014 were commercial cases (up 8.5% year on year), while 66% were what classified as civil cases (in the narrow sense, described below).

Commercial cases:

(These cases are illustrated in the chart to the left that has the ¥ sign.)
1. Finance cases (824,000)(a broad category including various types of loans, credit cards, securities, futures, insurance etc.).
2.  Sales contracts disputes (664,000).
3.Intellectual property (110,000, up 10% year on year)(I  the detailed analysis of this can be found here, by my fellow blogger, Mark Cohen, at the ChinaIPR blog);
4. Corporate disputes (12,000) (shareholder, merger and acquisition, creditor initiated bankruptcy);
5. Maritime cases (12,000).
Foreign-related cases (5804), )these, although a focus of foreign law firms alerts and the press, are a tiny drop in the sea of Chinese civil cases.  Many cases involving foreign companies actually involve their China incorporated subsidiaries.
The number of finance cases suggests a large number of disputes relating to loans by financial institutions.

Civil cases

(These cases are illustrated in the chart that has two people standing next to one another and the pie chart below.)
2014 civil cases in the Chinese courts

2014 civil cases in the Chinese courts

In 2014,  5,228,000  civil cases were heard in the Chinese courts (up almost 6% year on year):
1.  Family law cases (1,619,000),(this category includes  contested divorces, inheritance, support cases), accounting for about 30% of civil cases. The chart above 13% year on year increase in inheritance cases (showing an increasing number of people have assets worth fighting in court over, and perhaps also inadequate estate planning).
2.  Loan cases not involving financial institutions (between individuals, company and individual, or two companies) (1,045,600), accounting for almost 20% of civil cases. (The categorization has changed, making a year on year comparison not easily possible).
3. Labor cases (374, 324), accounting for 7.16% of all civil cases.  These include appeals from labor arbitration as well as cases that can be directly brought in the courts).
4.  Environmental tort cases (3331) (up 51% year on year).
5. Product liability cases are up 44%, but the base or total number for 2014 is not set out.
6.  Cases involving rights of rural residents (219,00)(rights to rural residential land, transfer of contracted land) migrant laborers seeking unpaid wages).
7.  Construction disputes are up almost 18% (base or total number for 2014 not set out).
These numbers speak to:
1. changes to the Chinese family;
2. a large number of loans that are under the radar of the financial authorities;
3. employees who are increasingly rights conscious;
4. continued litigation risk for foreign companies doing business in China (including through subsidiaries), because as perceived “deep pockets”, Chinese litigants often target them in product liability cases.

Administrative cases

 First instance administrative cases (companies or individuals suing the government) (131,000) continue to be a tiny number, although up 8.3%, and it remains to be seen whether the amended Administrative Litigation Law (Administrative Procedure Law) will lead to an increase in cases.

 Enforcement cases

Enforcement cases (compulsory enforcement of court judgments or orders, arbitral awards, etc) account for 3,430,000, a 14% increase year on year.  This suggests that fewer people (companies) are complying with dispute resolution voluntarily.
10% increase in cases accepted (will be a challenge to the courts if this trend continues because the intent is to cut the number of judges), amount in dispute is up 15%.

Court reforms already in a “deep water area”

Zhou Qiang highlighted that court reforms are already in a “deep water area” (high risk area) and the courts:
  • need to penetrate interest group barriers;
  • have the courage to move their own “cheese”;
  • need to use “the knife” against itself (presumably to cut out corrupt, poorly or non-performing judges);
  • deal with many deep-seated problems;
  • make progress on a long list of reforms:
    • continue and expand pilot reforms on changing the financing and personnel appointments of the local courts to all provinces/directly administered cities;
    • implement hearing-centered litigation reforms;
    • make progress on case filing reforms (to resolve the long term problem of litigants facing obstacles when they file suit);
    • put in place a system with dealing with assets seized and confiscated by the courts (to avoid violation of property rights and further judicial corruption in this process);
    • implement the prohibition against defendants wearing prisoner’s garb in court;
    • further implement judicial reforms related to petitioning;
    • promote alternative dispute resolution, such as arbitration, people’s mediation, administrative mediation etc.
    • continue work on pilot projects on expedited criminal procedures (for minor matters);
    • improve the people’s assessors system.

All of these reforms create tremendous challenges for the courts.  The number of cases accepted by the courts in 2014 (15,651,000) was up about 10%.  The judicial reforms to petitioning and other reforms will channel more disputes into the court system. Planned personnel reforms are leading to an exodus of young judges.  Many of the planned judicial reforms are intended to the way the courts operate internally and interact with other institutions. The 4th Five Year Court Reform Plan sets out target dates for accomplishing certain major judicial reforms.  The salary gap between what an experienced lawyer in private practice in a major law firm and a counterpart in the judiciary is large, leading many talented people to prefer the greater financial benefits and professional flexibility that comes with being a lawyer.

The political leadership has approved the 4th Five Year Court Reform Plan.  Issuing it raises expectations among ordinary people as well as those in legal profession. The pressure is on for the Court leadership to deliver on the promised judicial reforms.

Supreme People’s Court +3 attack domestic violence

Unknown-2On 4 March 2015, the Supreme People’s Court hosted a press conference, attended by officials from the Supreme People’s Procuratorate, Ministry of Public Security, and Ministry of Justice, to announce their jointly drafted and long-awaited policy document (translation  here) on domestic violence, on which the Supreme People’s Court took the lead. (The Domestic Violence Law has not yet been promulgated. The intention is to create an effective anti domestic violence system, incorporating principles common to other jurisdictions as well as international domestic violence legislation. The United Nations, the American Bar Association, the Australian government, and many other international and national institutions and organizations have worked with the Supreme People’s Court and other Chinese institutions for many years on these issues, to assist the Chinese institutions to understand domestic violence law and practice elsewhere in the world.  This blog has highlighted earlier work by the Supreme People’s Court on domestic violence. Some of the highlights include:

  • Domestic violence includes violence between family members and others who live together in relationships, such as guardianship,support, foster care,  cohabitation (it intends heterosexual relationships and may (or may not include homosexual relationships).
  • The authorities need to intervene timely and efficiently, to protect the safety and privacy of victims;
  • Collect evidence of domestic violence in a timely manner, including objects on site, undertakings by the victim, witness statements, as well as from the community obtain medical records, photos, videos, and other evidence.
  • Respect the intention of the victims;
  • Provide special protection to juveniles, the elderly, the disabled, pregnant and nursing mothers, and the severely ill through legal assistance and other measures;
  • Encourage the community to report cases, including friends, neighbors, coworkers, hospitals, schools, kindergartens, and other institutions and entities;
  • The authorities (public security, procuratorate, courts) must protect the privacy of persons making accusations or reporting domestic violence who do not want their identity revealed;
  • The authorities must make arrangements to ensure the health and safety of victims;
  • If the accused aggressor is permitted to be out on bail, the aggressor can be order to stay away from the victim and juvenile children;
  • It sets out principles concerning the abused spouse/partner defense;
  • Cases must be quickly and efficiently investigated, accepted, and transferred (to avoid the “buckpassing” that occurs, to the detriment of victims);
  • In less serious cases, the authorities should make use of undertakings by aggressors not to commit the offense, apologizing to the victims, compensating the victim, and other non-criminal measure;
  • Courts should use measures to protect the safety of victims and other dependents, such as ordering the aggressor to leave the home, forbidding the aggressor from approaching the victim, and other protection orders.

The Supreme People’s Court also issued model/typical five domestic violence cases to illustrate issues such as:

  • domestic violence includes elderly violence;
  • domestic violence includes violence to children;
  • domestic violence includes violence to persons living together who are not married;
  •  domestic violence includes maltreatment to the point of causing the victim to commit suicide.

Comments

Many of the provisions of the opinion address outstanding problems that the Chinese justice system has in dealing with domestic violence–disregarding it as a “family matter,” revealing the identities of those who report it, recognizing beatings,forced  overwork, mental and physical torture as abuse.

This opinion is intended to deal with the many domestic violence issues that have arisen and which have caused a great deal of public controversy.  Implementing it will require a great deal of hard work, including a change in attitude among many in the police, prosecutors, and courts.