What to expect from Chinese civil & commercial courts in 2016 (I)

top-happy-new-year-2016-wallpaperIn late December, the Supreme People’s Court (SPC) held its 8th conference for civil and commercial judges, gathering together senior court leaders from around the country and from both civilian and military courts responsible for a broad range of civil and commercial issues. Speeches of two senior SPC judges responsible for civil and commercial matters, as well as a draft conference summary have been circulating among Chinese legal professionals.  What is the relevance of all of this to the world outside of the Chinese courts, particularly to the world outside of China?

It is relevant for several reasons:

  • The court conference illustrates the role of the SPC in the Chinese political legal system and its relationship with other institutions;
  • As in other legal systems, the Chinese courts are an individual or company’s  last resort for resolving disputes;
  • Those disputes highlight major issues in the Chinese economy and society.  The slowdown in the Chinese economy is already affecting the rest of the world, and the difficult issues for the courts signal where economic problems are.  Social issues have a more indirect impact on the outside world, but still affect foreign businesses and institutions.

The phenomenon of the court conference (and conference summary)

As this blog has highlighted earlier, the Chinese government regularly organizes conferences to ensure that subordinate entities are implementing the latest central policy on the matter as well as to harmonize local practice.  This is true of the courts as well as the food safety authorities.

Because the SPC is one of several central political legal institutions, the speakers included Meng Jianzhu, head of the Central Political Legal Committee, and participants included representatives from the Central Political Legal Committee, the Legal Work Commission of the National People’s Congress, the Legislative Affairs Office of the State Council, and other central legal institutions.

The conference summary, now circulating in draft form, is a type of SPC official document (see the SPC’s regulations on the subject), classified as a “normative document” and often address new issues or areas of law in which the law is not settled.  Under SPC rules, it can not be cited as the basis  of a court judgment but guides how lower courts consider the issue.

As to why the SPC organized the conference, the vast majority of Chinese court cases are civil and commercial. At the conference it was revealed that 80% of cases resolved by the Chinese courts since 2008 are civil and commercial cases. For that reason, if the goal of the SPC is to make every person feel fairness and justice in every case (under Party leadership), the focus must be on doing a good job in hearing civil disputes.

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Judge Cheng Xinwen interviewed in 2014

What are the issues facing the Chinese courts?

Judge Cheng Xinwen, the head of the #1 Civil Division spoke about the issues civil  court judges need to monitor in 2016 (some of which have been mentioned in earlier blogposts) and the current official thinking on them (set out in the conference summary):

  1. Real estate, property and construction;
  2. Family;
  3. Torts;
  4. Labor;
  5. Agriculture;
  6.  Consumer protection;
  7. Challenges to enforcement action;
  8. Private lending.

This blogpost looks at some of the issues relating to real estate, property, and construction cases.

Real estate, property and construction cases

Real estate cases account for a substantial part of the caseload of the Chinese courts.  Trying them properly, according to the SPC leadership, is linked to implementing the government’s macro-economic policies. Cases are on the increase, particularly in third and four tier cities.  The market has switched from a seller’s to a buyer’s market in some second and third tier cities:  Some of the problems include:

  • developers suing to invalidate grant contracts (under which they purchase land for development) and seek the return of the land grant fees (upon which local governments depend);
  • Developers who are short of funds and are unable to hand over properties on time;
  •  Declines in property prices causing “mass incidents.” Local courts are directed to liaise with local Party and government authorities, and take steps to prevent chain reactions.  This 2014 article mentions incidents in Taizhou, Zhejiang province, a province where many cities have seen a deflating property market;
  • Many cases involve both real property and private lending, and include developers illegally fundraising, mortgaging or selling the same property several times;
  •  Property registration, ownership in common, and bona fide purchases, are difficult issues for the courts, and the SPC will issue further guidance in the form of a judicial opinion on these soon.

Construction cases account for a relatively small number of cases (about 100,000 annually), but they tend to be complex and involve large amounts of money. Issues with construction cases indicate big problems in the industry because of funding problems, causing quality problems in construction, many unpaid migrant construction workers and an increasing number of disputes. Among the problems:

  • construction contracts that should have been let out for bidding that weren’t;
  • construction contracts illegally subcontracted;
  • construction contracts illegally subdivided;
  • contracts in which a contract party should have had a construction qualification or planning permit.
  • Contract parties to these invalid contracts that seek to minimize their payouts under these contracts and seek to avoid the payment clauses (but the SPC states that those should be respected);
  • Unless a subcontractor’s migrant construction workers remain unpaid, courts shouldn’t disturb liquidated damage clauses to expand a project owner’s liability. With unpaid laborers, the project owner’s lability could be expanded to cover the amounts owed to the actual unpaid workers.

Courts are directed to balance individual and societal interests, to uphold social public interests and an orderly construction market.

At the conference, the SPC leadership promoted six slogans (i.e.principles) of:

  • protection of  property rights;
  • respect for freedom of contract;
  • upholding equal protection;
  • upholding the unity of rights and duties;
  • maintaining honesty and keeping promises;
  • promoting procedural and substantive justice;

Litigants of all types, domestic and foreign, corporate and individual will be able to come to their own conclusions about how well the Chinese court system delivers on these broad principles.

 

 

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