Result of the “3 nos policy” when Chinese companies arbitrate abroad

f6ac33117179fe35848072c3a7ed0c69With more and more Chinese companies doing business abroad or with overseas companies, more and more Chinese companies have agreed to arbitrate outside of China.  According to a recent blogpost in one of the best known Chinese arbitration blogs (written by Lin Yifei, formerly on the staff of the Shenzhen Court of International Arbitration), some Chinese companies adopt the “three nos policy” when a foreign party initiates arbitration proceedings abroad: no participation in the foreign arbitration proceedings, no cooperation with the foreign arbitration proceedings, and no enforcement of the foreign award.

The thinking is: foreign arbitration is troublesome, so it’s best to focus on making the offshore award worthless, or (alternatively) we’re going to lose the case anyway, so it just means an additional enforcement procedure.

Do the Chinese courts support this approach?

A ruling from the Suzhou Intermediate Court in 2014 in the case of Brambill Limited (Brambill) v. Zhangjiagang Huafeng Heavy-duty Equipment Manufacturing Co., Ltd (Zhangjiagang Huafeng) set out in the blogpost provides an answer. “Three nos” companies should expect that Chinese courts will enforce offshore arbitral awards.

In 2014, Brambill filed an enforcement action in the Suzhou Intermediate Court to enforce an ICC (Hong Kong) award, under the Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the HKSAR  The dispute related to  a sales contract, in which Zhangjiagang Huafeng failed to make delivery.  In June, 2010, Brambill Limited filed a request for arbitration.  Although Zhangjiagang Huafeng was served with Brambill’s pleadings, informed of its right to file an answer, appoint an arbitrator, give views on the location and language of the arbitration, the Chinese company failed to respond. The case was heard in Hong Kong and arbitral tribunal members in the ICC case were: my former colleague Peter Thorp (chair), Professor Shen Sibao (Executive Director of the Shenzhen Court of International Arbitration and former Dean of the law school of the University of International Business in Beijing), and Mr. Hee Theng Fong.

In June, 2012, the tribunal issued its award, which was served on Zhangjiagang Huafeng.  The Chinese company did not apply to set aside the award within six months, but opposed enforcement on the grounds that the arbitration clause was unclear. The Suzhou court ruled that Zhangjiagang Huafeng should have raised the issue of the invalidity of the arbitration agreement during the arbitral proceedings or applied to set aside the ICC award in Hong Kong within six months of issuance. According to the Suzhou court, there were no public policy reasons to refuse enforcement of the ICC award, and so the Suzhou court ruled to enforce the award, and required the Chinese company should pay Brambill’s enforcement fees.

(In honor of Hong Kong’s Arbitration Week 2015)

China’s judicial legislation takes first step on road to complete overhaul

Vice President Shen Deyong

Vice President Shen Deyong

Implementing the judicial reforms in China requires an overhaul of China’s current basic legislation, the Judges Law (法官法)and the Organizational Law of the People’s Courts (人民法院组织法). The Supreme People’s Court (the Court) media outlets have recently reported that on 23 October the first meeting was held of the drafting group to amend the Judges Law, with Court Vice President Shen Deyong chairing the meeting, and senior Court judges in attendance.  The report notes that the focus is on securing the independence of the courts (but having them remain firmly under Party control). Judge Shen mentioned that issues under consideration include: criteria for the selection of judges; protection for judges undertaking their duties; evaluation of judges, judicial assistants, salaries scales, retirement and insurance, and rewards and punishments.

Part of the preparatory work for amending the Judges Law is to include field research and surveys, particularly of front-line judges in the judicial reform pilot areas.  The drafting group will designate some local courts and some universities/research institutes to assist with the drafting.  The drafting of the Judges Law will need to be consistent with the principles of the amendment of the Organizational Law of the People’s Courts and the work of the Central Leading Group on Judicial Reform.  This summer, the Court convened an initial meeting to discuss amending the Organizational Law of the People’s Courts.  How to reorganize the Chinese judiciary and what professional status Chinese judges should have and work under will affect how judicial reforms are implemented and less directly, more fundamental issues concerning China’s economy and society.

What are China’s new circuit courts doing?

#1Circuit Court Building

#1 Circuit Court Building

In January, 2015, the Supreme People’s Court (the Court) established circuit courts (actually circuit tribunals) in Shenzhen and Shenyang.  Are they doing anything more than serving as places to divert petitioners from Beijing?  In September I visited the #1 Circuit Court in Shenzhen to have a look for myself.

The #1 Circuit Court It is located in the former Shenzhen Intermediate Court building, but an annex contains the reception area for petitioners and separate area with courtrooms.  Visitors, including petitioners, enter through the entrance in the photo below. The burdensome security checks that Chinese lawyers have complained about for many years still operate, with security personnel (and the system under which they operate) who seem to be unable to distinguish between professional visitors and persons who may be a security threat.

The circuit courts are not separate level of courts, but a branch of the Court, but have a narrower jurisdiction, as set out in the regulations governing their operation, primarily civil, commercial, and administrative.

Part of the goal of the circuit court is to implement the personnel and structural reforms that the Court is promoting.  There are 12 judges, plus 12 judge’s assistants, who come from areas outside the circuit.  The twelve judges are  profiled on the Court’s website.  The judges do not serve in fixed collegiate panels, but each serves as presiding judge, with cases assigned randomly, and hearings in appeal cases focused on the issues in dispute on appeal, rather than a re-opening of the entire dispute.

The #1 Circuit Court occasionally “rides circuit”– hears cases outside of its headquarters.

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Caseload

As of early September, the #1 Circuit Court had accepted close to 500 cases.  The hearing that I attended was an appeal from the Hainan Higher People’s Court, a dispute over shareholding between a Hebei and Beijing companies.  The presiding judge was Gao Xiaoli, formerly of the #4 civil division, who often writes and speaks on arbitration, private international law, and judicial review of arbitration.  She, like her other colleagues is highly experienced.

Petitioners

As described in a blogpost by Ivy Chen, a former intern with the circuit court:

In the Court, the interns first review the petitioners’ materials. If these materials fulfill the procedural requirements, the petitioners then would talk to the judge’s clerks and the clerks would decide whether to recommend the case for a further review by the judges. The judges would make the final decision of whether to grant a retrial. The clerks in the Court were actually sitting judges from the High People’s Court and Intermediate People’s Court from provinces other than Guangdong, Guangxi and Hainan. My job there included: 1. to review the cases filed by petitioners and decide whether their cases have fulfilled the procedural requirements stipulated in the procedure laws, and whether the cases belong to the 11 categories of case stipulated to be handled by the Court; 2. to assist the clerks to document each petitioner’s case; and 3. to review the letters written to the Court, categorize the letters by their subject matter (criminal, civil, administrative or non-litigation), geographical associations and procedural status, and decide whether the letters should be resent to the High People’s Court of Guangdong, Guangxi or Hainan, or be resent to the SPC in Beijing or stay with the Court for the judges to review…..during the work, people realized that many petitioners have difficulty in finding good legal assistance and then the Court set up place for lawyers to offer free legal advice to the petitioners in late July.

Window to the world or window dressing?

The  #1 Circuit Court isn’t window dressing, although it seems to receive foreign delegations regularly.  What it does is provide the Court with more headcount to hear more cases, pilot  structures promoted in the judicial reforms in a environment under the Court’s direct control, seek to improve the quality of its legal policy role by research into local legal issues and greater interaction with the local legal communities.  Shenzhen is often on the leading edge in China in legal matters, particularly in commercial law.

Comments on cooperation between the US and China on judicial reform

One of the lesser known outcomes of Xi Jinping’s trip to the United States is the commitment by the United States government to work with China on judicial reform.

The official White House press release (mirrored in statements by the Chinese Ministry of Foreign Affairs) states:

the United States and China commit to conduct high-level and expert discussions commencing in early 2016 to provide a forum to support and exchange views on judicial reform and identify and evaluate the challenges and strategies in implementing the rule of law.  U.S. participants are to include leading members of the U.S. judiciary, U.S. government legal policy experts, and officials from the Departments of Commerce and Justice and the Office of the United States Trade Representative.  Chinese participants are to include officials from the Central Leading Group on Judicial Reform, leading members of the Chinese judiciary, and Chinese government legal policy experts.  This dialogue is to result in an improvement in the transparency and predictability of the business environment.  This dialogue does not replace, duplicate or weaken existing regular bilateral legal and human rights dialogues between the United States and China.

This statement deserves more attention from the legal community than it has received so far.  Some brief comments below:

  • It is good for China and the rest of the world for Chinese judicial reform to be the subject of inter-government dialogue aimed at positive results.  Whatever improvements eventually result from this dialogue will eventually benefit both Chinese and foreign litigants.
  • The Communist Party’s Central Leading Group on Judicial Reform is explicitly named as one of the participants from the Chinese side.  It approves major Chinese judicial reforms (the text of the 4th five year judicial reform plan evidences that), so it makes sense for it to have one or more representatives involved in future dialogue (although technically it is not a “judicial institution.”
  • It is likely to include leading members of the Supreme People’s Court, but is unclear what other institutions will be involved.  Do the legal policy experts of the Chinese government also include the State Council’s Legislative Affairs Office?
  • The question is what issues the dialogue will focus on.  It is clear that the intent is to focus on technical legal issues, but which ones?  Perhaps the Law Committees of Amcham China and Amcham Hong Kong can draft a list of issues for the US government agencies involved in the dialogue to consider.
  • Among the issues I would nominate would be those related to better integrating the Chinese courts with its counterpart institutions in the rest of the world.  The Supreme People’s Court One Belt One Road (OBOR) opinion (see my earlier blogpost) mentioned that China was looking to expand bilateral and multilateral mutual judicial assistance arrangements, for better delivery of judicial documents, obtaining evidence, and recognition and enforcement of foreign court judgments.  My fellow blogger, Mark Cohen, recently wrote about the issues relating to the problems of litigants in the US courts seeking evidence relating to Chinese counterfeiters. The number of cases in foreign courts involving Chinese commercial activity is likely to increase and better judicial assistance structures should be put in place.
  • Related to the previous issue would be improving the international standing and influence of the Chinese courts (as the OBOR opinion states is a goal) in a positive way, by being a more neutral forum for cross-border disputes.  Statements such as the one made by Chinese judges in the Huawei vs. InterDigital case (pointed out by Mark Cohen in a recent presentation) do not give foreign litigants confidence that their cases will be heard fairly in Chinese courts.  The judges wrote: “Huawei is good at using antitrust laws as a counter-weapon, which other Chinese companies should study…. domestic enterprises [should] break through technical barriers in the development of space for their own gain, through bold use of antitrust litigation.”

If you have further issues to add to the list, please use the comment function!

Judge Xi Xiaoming and his vanishing assets

Although Chinese judicial reforms include establishing a trial-centered judicial system that provides better protection for human rights (including property rights), under Party disciplinary regulations senior Party officials (such as former Supreme People’s Court Vice President Xi Xiaoming, subject of an earlier blogpost),  often have property confiscated or other property punishments imposed at the conclusion of Party disciplinary proceedings. This means that confiscation of assets occurs before an official’s case is transferred to the procuracy and heard by the courts.  According to the official statement on the disposition of Judge Xi’s case:

(He) was ordered to make restitution of certain amounts that were in violation of discipline;the issues related to his suspected crimes and related amounts are transferred to the judicial organs for handing.责令退赔违纪款;将其涉嫌犯罪问题及涉款物移送司法机关依法处理.

The wording  is similar to official statements issued in relation to other senior officials investigated by the CCDI and the same language is to be found in reports on the dispositions of local Communist Party disciplinary investigations.

Han Jinping, director-general of the CCDI’s case coordination department and a former judge in the #2 criminal division of the Supreme People’s Court, provided more details on the CCDI’s authority to impose property punishments in a July, 2015 interview she gave to Chinese Central Television.

(A 2014 profile of Ms. Han reveals that she was involved in guiding some of the lower courts in recent high profile corruption cases and has been involved in some of the thinking behind China’s initiatives to pursue corrupt officials abroad).

She mentioned that more than half of the assets recovered since the beginning of the anti-corruption campaign have been confiscated by the CCDI itself (RMB 20.1 billion) and handed over to the national treasury, while 18.6 billion has been recovered through the formal legal system.  Ms. Han explained that according to applicable rules (set out below), CCDI is authorized to:

  • confiscate assets (没收);
  • recover assets(追缴);
  • order restitution (责令退赔)

relating to violations of Party and government rules and orders.

She noted the following rules guide their authority:

Related to the rules she cited are additional regulations issued by the General Offices of the Central Committee and the State Council on the handling of money and property management in criminal cases earlier this year, focused on coordination between departments (and less explicitly with CCDI).

Assets of officials determined by CCDI to have violated Party rules are confiscated in closed proceedings (subject to Party Committee approval at the relevant level), but the handling of the property must be in accordance with the above procedures. The official under investigation does not have access to counsel, and there does not seem to be a procedure by which a third party can oppose the property punishments imposed by CCDI. ( 2014 regulations of the Supreme People’s Court, by contrast, give third parties that right when property punishments are imposed in criminal proceedings.) For the family members, friends, and associates of an official subject to CCDI proceedings, it appears that any recourse they have is very limited.  A good proportion of the assets recovered in the current anti-corruption campaign have been recovered by skirting the procedural protections of the persons involved under the Chinese Criminal Procedure Law.  It appears to be a modern day version of the traditional legal system’s punishment of officials.

(Please use the comment function if there are errors in the above analysis.)

 

 

 

 

Educating Chinese judges for new challenges

National Judges' College

National Judges’ College

Buried in the depths of documents issued in the course of this year are the outlines of the way the Supreme People’s Court (Court) intends to create a corps of judges in which litigants, domestic and foreign, have faith will provide justice.  The many measures set out in the 4th Five Year Judicial Reform Plan raise the competency bar for judges.  A more litigious and rights conscious public, the increasingly complex economy and greater number of cross-border transactions and interaction, as well as smaller number of judges to hear more cases means that judicial training is an important part of of preparing Chinese judges for the new normal.

The broad outlines of the Court’s plans for judicial training are set out in the following documents:

  • the Court’s latest 5 Year Training Plan, for 2015-2019, issued in June, the framework document;
  • the September 17, 2015 Communist Party Central Committee/State Council document on the open economy, calling for improving foreign-related competence in the judiciary; and
  • the September 25 White House press release, in which the  United States and China commit to conduct high-level and expert discussions commencing in early 2016 to provide a forum to support and exchange views on judicial reform and identify and evaluate the challenges and strategies in implementing the rule of law.

The training plan

The training plan is linked to the 4th Plenum and 4th Five Year Judicial Reform Plan Outline, the Communist Party Central Committee’s five year training plan for Party cadres (as stated in the plan itself, which means that judges are treated as a type of Party cadre), the Court’s regulations on judicial training,  as well the Court’s 2013 policy document on creating a new judicial team (队伍) in the new situation. Team (or work team) derives from “classical” Party terminology (as Stanley Lubman highlighted in an article last year)).

The Training Plan stresses ideological, ethical, and professional training, for judges and other judicial personnel.  Ideological education is required to be a part of the required training described below, so that judges will comply with Party discipline (a modern day counterpart to Confucian cultivation of virtue) and oppose the osmosis of mistaken Western values (抵制西方错误思想观点的渗透).

Who’s being trained

The focus of the training is:

  • Court leadership, particularly at the basic level. The training plan requires senior personnel of lower level courts to participate in training organized by the the Court and higher people’s courts, with newly appointed basic level and intermediate court management to participate in training session within their first year in office, and higher people’s courts to organize training for at least 20% of lower court senior management annually;
  • Front-line judges, particularly those in the basic level courts:  continuing legal education, with a minimum of 10 days a year,  and in the 2016-2018 period, a new training program is to be implemented, including the heads of people’s tribunals (branches of basic level courts dealing with minor disputes). Training materials are to be compiled by the Court.  The second aspect of the training program is to pilot a  judicial training program (apparently drawing from the practice in Taiwan and Japan) for new judges in designated areas for judicial reforms (as highlighted in point 50 of the judicial reform plan).
  • Professionally outstanding judges: the Court is to continue its program of cooperating with certain universities and research institutes to provide master’s and doctoral training (the Chinese University of Political Science and Law seems to be one of the Court’s partners); the National Judges College is to run training programs for outstanding young/middle aged judges for a minimum of one month.  Additionally, a corps of outstanding judicial trainers at the provincial level is to be created.  The September, 2015 measures to improve foreign-related competence in the judiciary are likely linked to this, as are some of the programmatic outcomes from the US-China initiative on judicial reforms.
  • Judges bilingual in Mongolian, Tibetan, Uygur, Kazakh, Korean, Yi and Zhuang.  This target was mentioned  in the Fourth Plenum and Fourth Five Year Judicial Reform Plan, and is linked to an arrangement by the State Ethnic Affairs Commission, Organizational Department of the Communist Party Central Committee, and the Supreme People’s Court to train 1500 bilingual judges by 2020.  This will also involve more and higher quality translation of legal materials into local languages. Press reports from Uighur and Tibetan areas, for example, describe civil litigants who do not understand Mandarin and find the justice system inaccessible for resolving business disputes, as well as criminal defendants who are unable to understand criminal proceedings, such as a Tibetan who did not understand what a “suspended death sentence” was.  In Xinjiang, for example, only 40% of judges described themselves as bilingual.

How training will be implemented

Judicial training is to focus on active and practical methods, including the case method (no less than 30%), moot courts, and other interactive methods.  The intellectual influence of exchange and training programs with offshore counterparts is apparent from the more interactive methods required.  Previous training programs (often funded by foreign NGOs) have enabled judges from the Supreme People’s Court and other Chinese courts to receive training in China with noted international experts while others have received training outside of (mainland) China.  Will this continue under the new normal?