Some quick thoughts on Shanghai’s financial court

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Financial cases (accepted/closed) in the Shanghai courts, 2010-16, 2017 cases totaled 179,000

Recently the Wall Street Journal ran a story on the proposed Shanghai financial court, which was approved on 27 April.  The topic of the Shanghai financial court deserves a greater drill down than media reports are able to provide.  Some quick thoughts follow on the proposal and what it means for Chinese court reform:

  1. Shenzhen was actually the first Chinese court to establish a specialized financial trial institution (a tribunal, 法庭) in December, 2017 at the Qianhai Court, but presumably because the Supreme People’s Court (SPC) has greater flexibility in experimenting with new institutions in Qianhai, the SPC did not need to obtain approval from the National People’s Congress to establish it. The Shanghai financial court will be established as an additional intermediate court in Shanghai and the first financial court.
  2. The concept of a financial court in Shanghai has been mooted in Shanghai for almost 10 years (not two years, as stated in this press report), with Lv Hongbing, chair of the Grandall Law Firm (Deputy
    Director of the All China Lawyers’ Association) Gui Minjie, former chair of the Shanghai Stock Exchange among its proponents.
  3. Although President Zhou Qiang mentioned the need to bolster the international influence of Chinese justice in finance, Belt & Road, and the goal of establishing Shanghai as an international financial center by 2020, a white paper (from which the charts in this post are taken) issued by the Shanghai courts in 2017 indicates that three quarters of Shanghai’s financial cases in 2016 involved bank cards.  According to my informal discussions with lawyers in the market, more sophisticated financial institutions/funds often include arbitration clauses in their contracts, as can be seen from reports on arbitral enforcement actions in China.
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76.51% bank card disputes; 15.27% financial loan disputes;3.14% finance leasing disputes; 2.37% insurance disputes; 1.65% securities/futures disputes; 1.06% others

4.  The proposal is linked to last year’s financial work conference and the SPC policy document (关于进一步加强金融审判工作的若干意见, Some opinions concerning the further strengthening of financial trial work) to implement it, which called for work on establishing specialized financial institutions within the courts (the reporter who wrote it “is unlikely that other parts of China will have specialised financial courts” was likely unaware of this. This is part of the increasing professionalization and specialization of the Chinese courts.  Point 28 of the SPC policy document stated:

28.  According to the special characteristics of financial cases, explore the establishment of specialized financial trial institutions. According to the location of finacial institutions and the numbers of financial cases, in areas where financial cases are relatively concentrated, select some courts to establish financial divisions (tribunals), explore implementing centralized jurisdiction of financial cases.  In other intermediate courts where there are a relatively large number of financial cases, according to the case situation, more specialized financial tribunals or financial collegiate panels may be established.

28 . 根据金融案件特点,探索建立专业化的金融审判机构。根据金融机构分布和金融案件数量情况,在金融案件相对集中的地区选择部分法院设立金融审判庭,探索实行金融案件集中管辖。在其他金融案件较多的中级人民法院,可以根据案件情况设立专业化的金融审判庭或者金融审判合议庭。

5.   Also indicating that the SPC looks to foreign jurisdictions when establishing Chinese institutions, in his statement to the NPC Standing Committee, President Zhou Qiang explicitly mentioned financial dispute resolution in the United States, United Kingdom,  UAE (Dubai), and Kazakhstan (从世界范围来看,英美等发达国家和阿联酋、哈萨克斯坦等新兴市场国家均建立了专门的金融司法体系).

6. The proposal is linked to the SPC’s diversified dispute resolution policies, particularly in strengthening links between stock exchange and other financial institution dispute resolution and the courts.

7. Judges for the court are to be selected from existing judges in Shanghai and possibly from the legal profession.  As I wrote late last year and last month, recruiting lawyers and other legal professionals to the judiciary mentioned as one of the judicial reforms, has proved to be more difficult than it would otherwise appear to an outsider.  It is unclear what the turnover of middle ranking judges with expertise in the financial sector in Shanghai is, although they would fit the profile of judges who leave the judiciary. The court may be able to retain judges with expertise who might have otherwise decided to leave, because there will be additional promotions available as court president, vice president, etc.

8.  In his statement to the NPC Standing Committee, President Zhou Qiang mentions that the new financial court will have centralized jurisdiction over financial disputes (civil, commercial and administrative, not criminal), foreshadowed in the SPC policy document mentioned above and describes the court’s jurisdiction in some detail. The NPC Standing Committee decision states that the SPC will issue a detailed document on the jurisdiction of the Shanghai financial court, that the financial court will hear civil, commercial and administrative financial cases previously heard by the city’s intermediate court and that appeals will be to the Shanghai Higher People’s Court.

Big data update on contested divorces in China

Recently, the Supreme People’s Court (SPC) Judicial Cases Research Center (最高人民法院司法案例研究院)(affiliated with the National Judicial College) issued a big data report on contested divorces in 2016-17, a follow up to their report of 18 months ago (the charts below are from the report). The report was done in conjunction with the SPC’s big data center. The Judicial Cases Research Center publishes big data reports occasionally, some in the form of this report.

As noted in earlier blogposts, the 4th Judicial Five Year Plan calls for reforms in judicial statistics:

Reform mechanisms for judicial statistics with the idea of “big data, big picture, and big service” as a guide; make a system of standards for judicial statistics that has scientific classifications and complete information, gradually building a model for analysis of empirical evidence that complies with the reality of judicial practice and judicial rules, and establish a national archive of court judgment opinions and a national center for big data on judicial information.

As I discuss in one of my forthcoming articles,  the language quoted above contains no commitment to release to the public any of this new and improved big data, but careful observation has revealed that some of the more detailed big data from the SPC big data center is being published in one of the SPC’s academic journals.

It shows that in 2017, first instance contested divorces exceeded 1,400,00, somewhat more than in 2016.

Screen Shot 2018-04-23 at 5.32.27 PMAlmost three quarters (73%)of the plaintiffs in first instance divorce cases were women.Screen Shot 2018-04-23 at 5.39.20 PM

Mostly couples sued for divorce on the basis that they no longer were compatible, and in about 15% of cases domestic violence was alleged.

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Domestic violence was alleged most often in Guangdong, Guizhou and Guangxi.

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Most of the domestic violence alleged was physical violence.Screen Shot 2018-04-23 at 5.44.43 PM

In the first instance divorce cases, 91% of the domestic violence was committed by men on women.

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Judicial interpretations & arbitration

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partial screenshot from SPC website of the most recently issued judicial interpretations

While Supreme People’s Court (SPC) judicial interpretations are unquestionably binding on the lower courts, one of the many questions that Chinese legislation does not answer clearly is the broader extent to which they are binding.  [2007 SPC regulations state that “the judicial interpretations issued by the Supreme People’s Court have the force of law (具有法律效力).  The issue poses both theoretical and practical questions and is one that I had been exploring earlier this week offline with several blog followers (and some others in the Chinese legal community), in relation to Chinese law governed arbitration.

Coincidentally on 5 April Wang Jun, former dean of the Law School of the University of International Business and Economics and senior consultant to Cyan Law (采安律师事务所) posted his analysis of a recent Chinese court case on the firm’s Wechat account that raises the issue of whether judicial interpretations are binding in a Chinese law governed arbitration (court cases, of course lack binding precedential value, as I wrote in my Tsinghua China Law Review last year).

The court case was a ruling in response to an application to cancel (set aside) an arbitral award of the Shangrao [Jiangxi] Arbitration Commission, one of the 250 or so domestic arbitration commissions, in a private lending dispute. The parties that applied to cancel  the award alleged that the arbitral tribunal’s failure to apply the cap on interest in the Supreme People’s Court 2015 interpretation on private lending evidenced that the arbitral tribunal had twisted the law in arbitration.

The court ruled:

the arbitral award is the result of the independent judgment of the arbitration tribunal. If it finally determines that there is a gap between the principal and interest of the loan owed by …[the debtor] and the judicial interpretation, that is within the scope of the arbitral tribunal’s understanding and application of law, not an act of twisting the law in arbitration. Moreover…[the applicants] did not provide this Court with evidence that the arbitrators had sought or accepted bribes, committed malpractices for personal benefits or perverted the law in the arbitration. Therefore, [the applicants] application ton cancel the arbitral award lacks a factual and legal basis. This Court does not support it according to law.

 Wang Jun (and his team) commented:

Whether the judicial interpretations of the Supreme People’s Court as a matter of course apply to arbitration cases has always been a controversial matter. We believe that judicial interpretations are what the Supreme People’s Court has promulgated regarding how specifically to apply the laws in the courts’ trial [adjudication] work. It is limited to court trials [adjudication] and does not necessarily apply in arbitration cases. And Article 7 of the Arbitration Law expressly provides that arbitration should be based on facts, in line with the law, fair and reasonable settlement of disputes. Therefore, it can be argued that arbitral tribunals do not necessarily have to be bound by the judicial interpretation of the Supreme People’s Court when hearing cases.

On the issue of applying judicial interpretations in arbitration

The initial response to my question of whether judicial interpretations are binding was that views differ among (Chinese) arbitrators, but that it is an issue arbitrators keep in mind because of the power of courts to review arbitral awards. A number of senior Chinese arbitrators, who have heard cases both inside and outside China, further shared their views with me.  One commented that because judicial interpretations in China serve as an important source of interpretation of law, as more detailed and convincing guidance on how Chinese legislation should be applied, that he usually followed (applied) judicial interpretations of Chinese substantive law in arbitration. He distinguished the rare case where he might think that the judicial interpretation was wrong.  Another arbitrator commented that in his experience in Chinese law governed arbitrations, judicial interpretations were considered binding.  A third prominent arbitrator sought to distinguish domestic arbitrations from foreign-related and international arbitrations, where the standards of review were different.

Is practice any different when non-Chinese arbitrators are sitting as arbitrators? Does it make a difference if the arbitration is seated outside of [mainland] China, or does it depend?  Those with further information, please share what you know through the comment function or by Wechat or email.