All posts by Supreme People's Court Monitor

Susan Finder has been observing the PRC Supreme People's Court for over 20 years, and was the first person to engage in a close analysis of its operations. She taught Chinese law and other subjects in the Law Department of the City University of Hong Kong, before putting her knowledge to work in the China practice group of Freshfields Bruckhaus Deringer, one of the first international law firms to recognize the importance of the China market. She had the good fortune to study with three of the early pioneers of Chinese legal studies: Jerome Cohen, R. Randle Edwards, and Stanley Lubman and to have many leading practitioners and legal academics among her classmates at Harvard Law School (J.D.) and Columbia Law School (LL.M). Susan Finder speaks and reads (Mandarin) Chinese and Russian and some German.
bankruptcy law, big data, Uncategorized

Supreme People’s Court releases 2016 bankruptcy data

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7427ea09324917a26ee719The Supreme People’s Court (SPC) issued 2016 data on bankruptcy cases on 24 February: 5665 cases were accepted by the Chinese courts while 3602 were closed.  This is up substantially from 2015, when 3568 cases were accepted.  This is an increase of 53.8% over 2015.   Of these, 1041 were bankruptcy reorganization cases, up 85.2% over 2015. As this blog has previously reported,  long delays in filing bankruptcy cases have meant that practically all bankruptcy cases have been liquidation rather than reorganization cases. This is contrast to the downward trend in bankruptcy cases 2005-2014, shown in the graph published on this earlier blogpost. These numbers represent only a tiny proportion of what the Chinese government terms “zombie enterprises,” but it does show that the SPC has been doing its part to serve the nation’s major economic strategies.

What has the SPC done to support this important government strategy highlighted in the 5th Plenum?  In reverse chronological order, a quick list of some of the highlights:

  1. In February, 2017, the SPC issued guidance  to the lower courts on transferring cases that are in debt enforcement proceedings into bankruptcy, so that bankruptcy reorganization has a chance of working. Justice Du had flagged the importance of this a year ago. The Zhejiang Higher People’s Court piloted measures because the courts of that province are piloting bankruptcy reforms. As reported in a December, 2016 blogpost, close to half (40-50%) of the unsatisfied enforcement cases are ones that are wholly unsatisfied, with a goodly portion involving corporate judgment debtors. Judge Du pointed out that unsatisfied judgments because of local protectionism have led to conflicts between creditors and “fierce” conflicts between courts. He called for courts not to engage in “buck passing” on enforcement cases that are transferred to another court for bankruptcy procedures.
  2. In December, 2016, the SPC and lower court judges (as well as Chinese bankruptcy practitioners and scholars) were involved in dialogue with American bankruptcy judges and practitioners on bankruptcy issues, under the framework of US Department of Commerce initiative
  3. On 1 August 216, launched a bankruptcy electronic information platform  (it harmonizes with President Zhou Qiang’s promotion of information technology in the Chinese courts). According to the SPC’s press release, close to 9000 cases are in the database. The platform has assembled relevant documents on some high profile cases, such as Dongbei Special Steel. This platform has received a good market response with 9,760,000 page views as of early February, 2017 (likely to be primarily bankruptcy professionals).
  4. In June, 2016, as this blog has reported earlier, the SPC has required lower courts to establish specialized bankruptcy divisions (4 on the provincial level, 47 intermediate courts, and 22 basic level courts).  One of the aims of the SPC is to create a corps of more competent judges to handle bankruptcy cases. Given the link between the bankruptcy of large state owned enterprises and social stability highlighted by judges writing on this topic previously, serving as a bankruptcy judge in China requires a set of skills unneeded in other jurisdictions.
  5. As more and more companies go into bankruptcy, (as highlighted in this blogpost), more labor litigation can be expected. Senior SPC judges have highlighted that people are increasingly aware of their rights. Those with the means are going to court to try to protect them. The SPC is likely to work on technical issues highlighted in the report such as: how to characterize labor claims in bankruptcy, and whether they should be treated as labor disputes or claims against the bankruptcy estate; whether labor disputes needed to be submitted first to labor arbitration; how the courts can better obtain files from labor arbitration authorities and can ensure labor disputes are addressed and not avoided; and how to ensure that bankrupt enterprises pay social insurance payments for their employees.
  6. Expect to see the SPC focus on bankruptcies (or reorganization) in important areas of the Chinese economy, such as real estate.  This analysis published by a member of the Shanghai Bar Association highlighted some of the complex interests relating to the bankruptcy reorganization of real estate companies : is it practicable;  the workers; the lender, who are often private (shadow) lenders; the individual purchasers. These cases generally involve a string of companies.

    images
    ©Evan Eckard 
Communist Party and the Courts

Results of inspector findings at SPC

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In November, 2016, this blog reported on Central Inspection Group (CIG) #2 inspecting the Supreme People’s Court (SPC) ’s Communist Party group.  Recently, CIG #2 came back with feedback on its inspection.  SPC leadership was in attendance and circuit court leadership participated by videoconference. A rough translation of the problems identified follows:

During the tour, the inspection team found…some problems, mainly: “four consciousnesses” need to be further strengthened; political discipline and political rules are not implemented strictly enough; the leadership role of the Party group is insufficiently developed;  there are some gaps in the coordination of the advancement of the system of judicial system reform; the implementation of responsibility system for ideological attitude (意识形态责任制落实不够有力); there are weak links in Party construction; organizational construction is not systematic enough; internal Party political life is not strict enough; relevance of ideological political work is not strong; some Party leading cadres’ Party thinking is diluted (有的党员领导干部党的观念淡漠); the role of the basic level Party organization as a fighting fortress is insufficient; comprehensive strict governance of the Party is not strong, the implementation of the central eight point regulations is not strict enough; formalism and bureaucratic issues still exist; tourism using public funds, abuse of allowances and subsidies still occurs; personnel selection is not standardized; cadre management is not strict enough; there are some areas of clean government risk.

The report revealed that some cases have been referred to CCDI and the Party’s Organization Department for further handling.

President (and Party Secretary) Zhou Qiang accepted the criticism and promised to deal with it. A separate report revealed that a rectification strategy has been adopted and an office established to implement measures to respond to the criticism.

Comment

It is difficult, if not impossible for this observer to have independent sources of information on the implementation of political discipline, political rules, and ideological work in the SPC.

It does appear (to the outside observer) from the constant flow of judicial reform documents, judicial interpretations, judgments (and rulings), and the many other documents released by the SPC, that the large number of SPC judges and other support personnel have been professionally extremely productive.

One criticism that I had heard before was about coordination in the judicial reforms. As to why some reforms were rolled out before others, the reasons are likely complicated and relate to what was ready to go and generally accepted.  As to the implications one reform has on other reforms or the existing system, that is much more difficult to analyze, particularly if (as I suspect), the SPC’s judicial reform office does not have enough people to cope with the complexities of implementing judicial reforms in a highly bureaucratic state.

On the cases of violation of Party discipline revealed, it would appear that they were limited in number and apparently limited (for the most part?) to minor infractions, such as fiddling with subsidies and using government cars for private purposes.  In a large bureaucracy such as the SPC, it seems fair to assume that a few infractions are likely to occur. It seems reasonable to surmise that these cases will be wrapped up swiftly, before the upcoming National People’s Congress session, and we will learn more about the specific cases.

 

Court Reform

China’s #2 Circuit Court “Nine” & criminal petitions

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＃2 Circuit Court’s “Nine”

The nine presiding judges of the #2 Circuit Court are whom Chief Judge Hu Yunteng calls “The Nine.” It could be: 1) Judge Hu is a fan of the Jeffrey Toobin book on the (US) Supreme Court, which has a Chinese translation thanks to Judge He Fan; or 2)he wants others to know that he has some basic knowledge about the US Supreme Court. (For the avoidance of any doubt, this does not mean Judge Hu is looking to transport the US judicial system to China).

The role and utility of China’s circuit courts have moved into public focus with the establishment of four additional circuit courts (discussed earlier).  Some have commented that they have been established just to divert petitioners from Beijing.An article published by a European think tank commented that the circuit courts weaken the power of local judges and courts in the provinces.

But when analyzing what Chinese courts do and how they operate, moving away from grand theory and into the specifics of what they do provides (to this foreign observer and I trust Chinese ones as well) more nuanced insights. It helps to understand better what the circuit courts are doing, how Chinese courts operate, how Chinese judges think, and what practical solutions Chinese judges evolve in the context of their political, legal and social environment. What exemplifies this is a report that the #2 Circuit Court did on petitioning appeals related to criminal cases (第二巡回法庭刑事申诉来访情况分析报告). The report concerns petitions for retrial made under the Criminal Procedure Law’s trial supervision procedure.

While the full report does not seem to be easily available, Chief Judge Hu Yunteng summarized some of what appear to be the main findings of the report in a June, 2016 interview with  中国审判 (China Trial), a SPC journal and Wechat account. The audience for China Trial is primarily his brother and sister judges, so his comments were relatively frank and the legal context about which he was speaking would be taken for granted. His comments, which I am summarizing below, reflect the insights of someone who lived through the Cultural Revolution, and has worked at the intersection of legal research and judicial practice for many years. (His Chinese profile is more complete than the English one).

He said that his remarks  were drawn from his experience in hearing nearly 200 cases at the #2 Circuit Court, the majority of which were criminal petition cases (刑事申诉)(cases retried under trial supervision procedures). The cases, he said, reflect issues with criminal cases both at first instance or on appeal, as well issues all courts face coping with criminal petitions.  Moreover, he said, the #2 Circuit Court (and SPC headquarters) have more and more petitioners seeking redress, plus an ever increasing backlog of cases.  People have been petitioning for a little as 3-5 years, long as 10-18 years, or even 20-30 years, clocking over a hundred visits.  Over 700 petitioners visited the #2 Circuit Court with grievances about the decisions of the Liaoning Higher People’s Court.

Judge Hu gave his views on why are there so many of these cases and what should be done.

Why so many cases?

(Graph tracking petitioner visits to the #2 Circuit Court (not from the interview):

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Graph of group petitioner visits (persons), Feb. 2015-Aug. 2016 ©中国审判

A summary of Judge Hu’s analysis follows below, with some comments in brackets.

Reasons for these cases

“The reasons are complicated.”  He believed that the number of mistaken/unjust cases were small in number, and 90% of the petitioning cases involved cases decided properly, with 9% with some errors, but only 1% with errors serious enough for the case to be re-tried.  The reasons, he believed, lay deeper.

  1.  Defects in the criminal procedure system.  It has a two instance system, with the second instance as final; time limits on hearing criminal cases; and criminal petitioning system.  With societal change and ordinary people have greater legal consciousness and demands for justice. This criminal procedure system is incompatible with current societal demands (这些制度已经不能适应新时期的需要).  In some areas of China, there are more petitions from second instance decisions than appeals.

Most jurisdictions, whether common law or continental (including Hong Kong and Macau) have a three-instance system, and if China does not change this and have a limited third instance system, the criminal case petitioning problem will not be solved. The strict time limits mean facts are not clarified, a good job is not done at trial, and case quality is not maintained, creating errors that causing petitioning. The lack of time limits on petitioning is a major reason that it exists. [Note: Judge Hu saying this does not mean the Chinese government will change its system immediately or in the near future. His voice is a powerful and persuasive voice identifying this as a core reason for so many petitions, but this must be understood within the context that he said it.  This is his analysis, not a signal that the Chinese government will change its criminal justice system immediately.  

Implementing a [limited] three-instance system is a major criminal justice policy change, with social stability, financial and personnel implications (as seen from the government’s perspective). Proposals to make such a fundamental change to criminal procedure law would come after a great deal of analysis and consultation with the authorities involved. Judge Hu does not elaborate on what he means by a limited third instance system, but research shows this concept is being explored by a variety of thinkers and scholarship on the topic dates back over 10 years. Those following Chinese criminal justice system reforms should be aware that the renown Professor Chen Guangzhong revealed (in an interview in June, 2016) that amendments to the Criminal Procedure Law are under consideration, although the details are not yet known. ]

2. Problems in judicial practice.  There aren’t enough staff to hear the cases carefully, and cases are no longer limited to traditional crimes, with cases more complicated and evidence harder to assemble.  More sophisticated defendants no longer passively accept the sloppy work being done by people handling these cases (办案人员)(referring to police/prosecutors/judges, as appropriate).  It causes errors in: collection of evidence; forensics; determinations; incomplete compliance with legal procedures; inappropriate legal explanations; cases handled inappropriately. Moreover,the cases reflect problems in the way a significant proportion of those handling cases think about law: failure to correctly understand basic legal relationships such as fighting crime and protecting defendant’s rights; the relationship between public security, procuratorate, and courts; the relationship between handling criminal cases and resolving social conflicts, etc. All these things cause an increase in the number of petitioners. [Again, this his analysis reflecting his many years of experience and observation.]

3.  Changes in the legal and social environment. These are another set of reasons for so many criminal petitioning cases.Judge Hu said, actually, the increase in criminal petitioning isn’t an entirely bad phenomenon. It is part of the process in improving the rule of law. The state respects human rights more and people are more aware of their rights and are increasingly daring to defend their rights.Moreover, societal public opinion has encouraged people after they have read in the media that mistaken/unjust cases have been corrected. Moreover, criminal punishment for the same offense has varied greatly, depending on whether it was during the “Strike Hard” or other campaigns, so when people look from today’s perspective at these cases, they feel it is unfair.

What to do about it?

Judges dealing with these cases need legal knowledge and political wisdom.

  1. Respect petitioners.  Petitioning is a basic human right. Judges should not think that petitioners are making trouble from nothing. In the #2 Circuit Court Judge Hu requires judges receiving petitioners to be patient in explaining the law.  So treating petitioners’ litigation rights seriously is a way to deal with them
  2. According to law, petitions should be submitted to the court that heard the case originally. The case filing or trial supervision departments of these courts should seriously review the cases, if there is an error, retry the case on the court’s own initiative.  If the case lacks errors, the facts and law should be explained to the petitioning party. This is assuming responsibility to the facts, law, parties, and people.
  3. The higher courts need to do a better job of supervising the lower courts. Courts need to balance respect for effective judgments with a party’s petitioning rights. Courts should determine whether the issue is procedural or substantive. Cases can’t be rushed–some can be dealt with quickly and others not. Higher courts should take on more difficult and complicated cases themselves.
  4. Petitioning cases should be heard by three judge collegial panels, by reviewing the file and questioning persons if needed, questioning the party and if he (she) is in custody, summoning him for questioning, hearing the views of the party’s lawyer if one has been appointed and making contact with the party and his lawyer an important way to deal with these cases. Moreover, the lower courts should appoint more qualified and experienced people to handle criminal petitions, as it is often not currently the case.
  5. As some of these cases relate to a specific time period, sometimes it is necessary to work with the higher or lower courts, or seek support from the government or Party to deal the matter.  For example, some cases were correctly decided at the time, but the decision is no longer appropriate under current circumstances. Retrial is not possible but coordination is possible through the implementing authorities [presumably the jail] or procuratorate.

Connection with judicial reform

Presumably Judge Hu’s report and analysis are part of a project connected with larger judicial reform issues. See Article 36 of the 4th Five Year Court Reform Plan:

36. Reform the system for petitioning involving litigation.Improve mechanisms for the separation of petitioning and litigation work, clarifying the standards, scope and procedures for separating litigation and petitioning. Create finality mechanisms for petitioning involving litigation, standardizing the sequence for petitioning involving litigation in accordance with law. Establish mechanisms for steering and receiving petitioners at their source, and innovation networks for handling petitioning. Promote the establishment of a system for lawyer representation of in complaint appeals cases. Explore the establishment of mechanisms for lawyers to participate as third-parties, increasing the diversity of joined forces for resolving conflicts in petitioning related to litigation.

Effect of these comments

Presumably Judge Hu has sought to implement some of his own recommendations, such as requiring his own judges to do a better job receiving petitioners, and expecting the lower courts to do the same.  It is likely that Judge Hu has made his views known in meetings with judges from Liaoning, Jilin, and Heilongjiang. So this appears to be one piece of evidence that the circuit courts are having an effect on the quality of justice delivered.

Since petitioners “vote with their feet,” it appears that one indicator would be a downturn in the number of petitioners with grievances about criminal cases in the Liaoning Courts.  How his report and recommendations will be considered nationwide remains to be seen.  As a member of the SPC’s judicial committee, his full report and more detailed recommendations are likely to have an impact on the thinking of SPC colleagues.  As to the larger issues Judge Hu has raised, we are unlikely to see any immediate or short term impact because of the complex politics linked to those reforms.

bankruptcy law, Commercial law, Labor law, Uncategorized

Liaoning high court looks into labor issues in bankruptcy

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While Zhou Qiang’s statements on  judicial independence, mistaken “Western” thinking, and separation of powers continue to be discussed inside and outside of China, others in the Chinese legal community face more prosaic and difficult issues of how to protect workers when companies go into bankruptcy.  This is a particular issue in the northeastern provinces, particularly in Liaoning.

According to statistics released in the past month (January, 2017), there were 345 other bankruptcy cases accepted by the Liaoning courts, aside from the bankruptcy of Dongbei Special Steel, which has received the lions share of attention outside of China. While strikes are regularly reported in the English language media , what is not known that in many of these bankruptcy cases, employees have gone to court.

A research report by the Liaoning Higher People’s Court (Liaoning High Court) recently released in the People’s Court Daily (the Supreme People’s Court’s )SPC) newspaper, giving the report the SPC’s semi-official imprimatur) drilled down on 79 labor cases related to enterprise bankruptcy that arose in 2015-16. The Liaoning High Court did not specify the overall number of bankruptcy-related labor cases the provincial courts accepted.  A quick search reveals several hundred, the exact number depending on how the search is framed.

The research report provides a glimpse into the concerns of the judiciary, involvement of counsel in these disputes (a more general report on representing workers was recently published, available here), inadequacies of related legislation, and chaotic record keeping of these companies.

Research report reveals several major issues

The report identified the top issue to be the re-employment of workers, citing two large scale bankruptcies, the Hongmei Group (MSG manufacturer) and Badaohao Coal Mine. (A 2014 social media posting criticized the Hongmei Group’s violation of labor law).

A second issue was that bankruptcy caused group labor litigation, particularly by senior staff, who were more highly paid, and older, but faced difficulties being reemployed (and likely had the funds to hire a lawyer).  The report noted that this group had overly high expectations from litigation and if their individual claims were not supported by the court, they would resort to group litigation or petitioning.The research report mentioned, with a positive spin, that labor lawyers were involved  to resolve disputes.

The litigants raised more varied claims rather than simply wages, including: damages; determination of a labor relationship; social insurance; work-related injury; wages and status; etc., as shown by the chart below.

screen-shot-2017-02-02-at-8-50-40-amUnlike ordinary labor cases, most cases were decided by court judgment, not mediated. In 66% of the cases, the plaintiff’s claim was upheld in whole or part, with a dismissal of the plaintiff’s claims in 28% of cases.

The report also illustrates the importance of social stability related procedures.  Although a Chinese law firm partner criticized as quite vague and incompatible with the existing labor law system  the requirement in a 2016 State Council policy document that a worker resettlement plan (for certain industries)  be approved by the workers’ congress or all workers, this is not new and is taken seriously by local judges.  The requirement is contained in Liaoning provincial level legislation (and other legislation) and compliance was noted by the research team. (The team noted that after the resettlement plan was approved (for Hong Mei Group and Badaohao Coal) was approved by the workers congress, it was reported to the local labor and union authorities authorities.

Compliance with labor law related formalities, by both  companies and employees created problems for judges hearing these claims, such as in work-related injury cases, where companies failed to pay legally required wages to employees and employees failed to submit needed documentation.  Some of the companies continued to pay employees under old “planned-economy” systems rather than comply with current labor law, requiring employees to work overtime without overtime pay, a particular issue in the Badahao Coal Mine bankruptcy.

Inadequacies of legislation highlighted by the team included: how to characterize labor claims in bankruptcy, and whether they should be treated as labor disputes or claims against the bankruptcy estate; whether labor disputes needed to be submitted first to labor arbitration; how the courts can better obtain files from labor arbitration authorities and can ensure labor disputes are addressed and not avoided; and how to ensure that bankrupt enterprises pay social insurance payments for their employees.

Comments

The research team (at least on the version publicly available) did not further explore the reasons for the failure of these bankrupt companies (likely many SOEs) to comply with basic labor law requirements, why local labor arbitration authorities avoided hearing cases, or why the Liaoning High Court needed to issue the recommendation that  “labor administrative departments should also strengthen the daily management and supervision of the enterprises before their bankruptcy.”

This report contains a disturbing signal about the disposal of assets of bankrupt companies.  This is significant because the government is promoting the use of bankruptcy. The report recommended that the liquidation group effectively dispose of tangible and intangible assets of the bankrupt companies such as coal mines and well-known trademarks, and implement better supervision and management, to ensure that the realization of bankruptcy assets to maximize the protection of the employees.

Liaoning bankruptcies may be an illustration of what an bankruptcy lawyer recently commented in Caixin:  “falsifying financial reports and asset transfers has often occurred in SOE bankruptcy cases to escape obligations. Meanwhile, local governments’ intervention has also often disrupted the fairness of such cases.”

It appears that employees of the bankrupt companies are the ones who suffer the most when these cases are not handled fairly.As the research team recognized, employees are the weaker party. The team recommended that local government provide a coordination mechanism and funding to secure the workers’ claims against the company, so that the company can withdraw from the market but overall societal interests are balanced.  Whether local Liaoning governments do so remains to be seen.

bankruptcy law, Commercial law, Monitor

How Zhejiang courts support its economy

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zhejiang

My apologies to blog followers for my absence.  I will address Zhou Qiang’s comments on judicial independence in a later blogpost, for which I want to do some more detailed research than is possible at this time.

This blogpost will look at a less contentious question–what does the profile of civil and commercial disputes in Zhejiang province mean for the Zhejiang/Chinese economy and the role of the courts (in civil/commercial disputes).

Judge Zhang Hengzhu, head of the #2 civil division of the Zhejiang Higher People’s Court (High Court), spoke in early January at a conference organized by Tiantong & Partners, the boutique litigation law firm on civil and commercial disputes in his province.

What is special about Zhejiang?

The Zhejiang economy is dominated by small and medium enterprises (SMEs), many integrated with the global economy.  These companies are private, family-owned companies. Judge Zhang noted that these companies tend to have irregular corporate governance, with vague lines between property ownership by the company founder, the company, and affiliates.

Civil & commercial litigation in Zhejiang

Zhejiang (and Jiangsu) are the two most litigious provinces in China. The Zhejiang courts accepted over a million cases (1,112,900) in the first nine months of 2016, up 11% over 2015, of which over half (572,300) were civil and commercial cases, up 7% year on year.  [Comment–year-end numbers will be even higher.]

A significant proportion of those cases during that period were bad debt-related. About 17% of those cases (136,500) were private (shadow) lending disputes, involving total amounts in disputes of RMB 78.366 billion (almost USD 11.4 billion).  Private/shadow lending in Zhejiang is a supplement or replacement for bank financing. During the same period, about half as many financial disputes were accepted (85,400), up almost 20%, but the total amounts in dispute were RMB 232 billion, or USD 33.79 billion).  [Comment–year-end numbers will be even higher.]

How Zhejiang courts support SME economy

Judge Zhang commented on what the Zhejiang courts have been doing to support the province’s SME-dependent economy.  Those actions, which appear unusual those unused to the Chinese judicial system, include:

  • Taking the lead to generate judicial guidance on private (shadow) lending.  In 2009,  the High Court was the first to issue provincial level guidance. which it updated in 2013.
  • In 2013, it issued a concurrence (in the form of a meeting summary) with the provincial procuratorate and public security department on criminal law issues relating to collective fundraising.
  • The High Court is working with the provincial financial institutions on the disposal of non-performing assets.
  • It was one of the first provincial courts to take steps to generate judicial guidance on bankruptcy law and to take steps to deal with zombie enterprises (after raising it with the provincial Party secretary and government, who issued written instructions (批示）。
  • In late 2016, establishing a joint mechanism with fourteen departments of the provincial government to advance the use of bankruptcy and related issues, such as re-employment of workers, use of land formerly used by bankrupt enterprises, generating bankruptcy-favorable tax policies (document on the mechanism found here).

 

 

 

criminal law, State secrets

Asset recovery, Chinese style

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unnamedThe Supreme People’s Court (SPC) and Procuratorate (SPP) issued their first judicial interpretation of 2017, Provisions on Several Questions Concerning the Application of the Procedure of Confiscating Illegal Gains in Cases Where the Criminal Suspects or Defendants Absconded or Died (Asset Recovery Interpretation). It went into effect on 5 January. It is possible that the timing is related to the Central Commission for Discipline Inspection annual conference.

It is an important piece of quasi-legislation enabling the Chinese authorities to recover assets that are the proceeds of corruption and other crimes within China and internationally, where the criminal suspect or defendant has absconded, left the jurisdiction, or died.   If your jurisdiction is one that already has in place treaty arrangements with China that will enable the Chinese authorities to seek recovery of assets, the interpretation bears close review.   Canada, for example, has supplemented its criminal judicial assistance treaty with a specialized asset recovery agreement.

Background

The recovery and forfeiture of the proceeds of corruption and other crimes has become a priority issue because the anti-corruption campaign under Xi Jinping has made it so.  Although the Criminal Procedure Law was amended in 2012 to enable the authorities to confiscate assets of persons who had or were suspected of committing certain major crimes (see Articles 280-283), in the view of the SPP and SPC, the Asset Recovery Interpretation was needed because the law itself was inadequate. The drafters identified four issues:

  1. the range of crimes to which asset recovery could be applied was too narrow;
  2. major disagreements existed concerning procedures and standards of evidence;
  3. local authorities lacked experience with asset recovery;
  4. procedures and relative responsibilities of different authorities were unclear, making it difficult when negotiating with foreign governments.

The actual drafting of the Asset Recovery Interpretation began shortly after the 4th Plenum and before the Skynet operation was launched.The drafting of this interpretation was a high-profile project for the two institutions. The SPP and SPC worked with the CCDI,  the Central Political-Legal Committee, National People’s Congress Legislative Affairs Commission, Ministry of Foreign Affairs, Ministry of Public Security, Ministry of Justice, and other authorities to produce a draft a practicable system that could be used when negotiating with foreign countries, meet the policy targets of the Party, and contain legal standards specific enough for the procuratorate and courts.

The Asset Recovery Interpretation also draws on the interactions the SPP and SPC have had as part of multi-institutional dialogues on the recovery of the proceeds of corruption with a variety of multilateral institutions, such as the World Bank, Asian Development Bank, as well as bilateral interactions such as with the United States government, for example, through the US-China Joint Liaison Group on Law Enforcement Cooperation.

The drafting of the Asset Recovery Interpretation was flagged in the Fourth Plenum Decision:

Strengthen international cooperation on anti-corruption, expand strength to pursue stolen goods and fugitives overseas, as well as for repatriation and extradition.

Asset recovery through the courts was included in the SPC’s 4th Five Year Plan:

16. Standardize judicial procedures for disposing of assets involved in a case.Clarify the standards, scope, and procedures for people’s courts’ disposition of property involved in the case. Further standardize judicial procedures in criminal, civil and administrative cases for sealing, seizing, freezing and handling of assets involved in a case.

…expand the scope covered by regional and international judicial assistance. Promote the drafting of a Judicial Assistance Law in Criminal Matters.

The drafting of the interpretation was the responsibility of the #2 Criminal Division of the SPC and the Law and Policy Research Office of the SPP.

 Some important provisions

This blogpost cannot provide a comprehensive description of the interpretation which expands/further details the procedures set out in Articles 280-283 of the Criminal Procedure Law and related law, but notes the following provisions.

1. The Asset Recovery Interpretation expands the scope of the crimes to which asset recovery applies. Article 280 of the Criminal Procedure Law authorizes a people’s procuratorate to apply to a court  for confiscation of illegal gains and other property related to the case in serious crimes (重大犯罪案件) such as corruption, bribery or terrorist activities where the criminal suspects or defendants have absconded and have not been found one year after the public arrest warrants were issued, or where the criminal suspects or defendants have died.

Article 1 of the interpretation expands the term “such as” (等) by specifying that confiscation can be applied to the following crimes among others:

  1.  Corruption; embezzlement of public funds; possessing huge amounts of property from unknown sources; concealing overseas savings; privately dividing state-owned assets; privately dividing assets that had been confiscated;
  2. Bribe-taking; exploiting influence to take bribes; bribery by an individual or entity; giving bribes to persons with influence; introducing bribery;
  3. Organizing, leading, or participating in terrorist organizations; helping terrorist organizations, preparing to carry out terrorist activities; advocating terrorism or extremism, and incitement of carrying out of terrorist activities; using extremism to sabotage the enforcement of laws; forcing others to wear clothing and signs that advocate terrorism or extremism; illegally possessing articles that advocate terrorism or extremism;
  4. Endangering state security; smuggling; money laundering, financial fraud; mafia-type organizations, and drugs.
  5. Telecommunications and internet fraud.

As many others have written in other contexts, some of the crimes listed above have been over-broadly applied in China–some to persons who disagree with the government and others to private entrepreneurs.

Language in extradition treaties is flexible enough to enable foreign governments to refuse to extradite or assist in the recovery of assets from persons that the host government considers a political dissident rather than a criminal. However, those persons can anticipate that their domestic assets may be the subject of confiscation procedures.

2. The definition of assets of crime draws on relevant language in the UN Corruption Convention on proceeds of crime, and so include proceeds of crime that have been transformed or converted, in part or in full, into other property, as well of proceeds of crime have been intermingled with property acquired from legitimate sources.

3.The Asset Recovery Interpretation sets out needed details in the procedure by which assets can be confiscated, including detailing the evidence the procuratorate has to provide to a court in the application for confiscation, matters to be set out in the notice issued by a court that accepts the application; persons to whom the notice should be serviced and media outlets where the notice should be published.  (Under Article 281 of the Criminal Procedure Law, the notice concerning the application needs to be in effect for six months.)

Under Article 281, close relatives and interested parties (and their representatives) can apply to attend the court hearing at which the confiscation of assets application is reviewed, but “interested parties” had not been defined, nor had the details of how the first instance and appeal procedures were to be conducted.

4.  The Asset Recovery Interpretation details the procedures for seeking international cooperation in the recovery of assets, including the type of order the lower court should issue and documentation that the lower court must prepare.  The bundle of documentation must be reported up to the SPC and after the SPC reviews it, the SPC prepares a request letter, the contents of which are specified in the interpretation.  These request letters generally are transferred abroad via the Ministry of Justice, which is usually designated the competent national authority under treaty or convention arrangements.

Next steps

The SPC anticipates that the Asset Recovery Interpretation will lead to an increase in cases, but are aware these issues and procedures are new to the lower courts, so it is requiring lower courts to designate certain judges to hear these cases and for these judges to undergo training on the Asset Recovery Interpretation and related issues.

The SPC calls on cooperation with related departments on the recovery of proceeds of crime from abroad, saying that it cannot fight the battle alone. (不能依靠某一个部门单兵作战).

Foreign jurisdictions can anticipate an increase in requests from China and it is likely that the mainland will request that the Hong Kong authorities negotiate a related arrangement. It will raise further concerns for those former Chinese officials accused of the crimes described above living in jurisdictions with an extradition or mutual legal assistance in criminal matters treaty. For lawyers in China and abroad, it represents a new practice opportunity.

 

 

About Me

2016 Supreme People’s Court Monitor year-end report

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ornate-1045572_1280In 2016, the Supreme People’s Court Monitor published 67 posts and had close to 30,000 page views, from 150 countries (regions), primarily from:

  • United States;
  • Hong Kong;
  • (mainland) China; and
  • Australia.

with the United Kingdom, Germany, and Singapore trailing. Unfortunately too many “Belt & Road” countries are at the bottom part of the list of 150 jurisdictions.

Over half of the Monitor followers use Twitter to follow the Monitor.Although Twitter is not accessible in mainland China without a VPN, 26% of the Monitor’s Twitter followers are based there.

I am often asked about the profile of my blog followers. Like my sister blog, China IPR, my followers include academics, students, journalists, government officials, judges (current or retired), staff of international organizations as well as practicing attorneys (in private practice, in-house, government service and with NGOs).  The Monitor has some email followers in (mainland) China but they generally keep a very low profile.

I am honored to have my blog listed as a Chinese law resource by law schools and other institutions around the world, including: Harvard and Yale Law Schools, and Oxford’s Bodleian Library.  Many thanks to those professors who have recommended the Monitor to students.  Thank you also to those journalists and scholars writing about the Chinese judiciary who have cited the Monitor.

Many thanks to those professors who have recommended the Monitor to students.  Thank you also to those journalists and scholars writing about the Chinese judiciary who have cited the Monitor.

I am honored to be a Distinguished Scholar in Residence at the School of Transnational Law of Peking University (in Shenzhen).  We have outstanding students and I have excellent colleagues.

I am honored to have been invited to speak at quite a few conferences in 2016:

  • one in Xiamen, organized by the Xiamen Maritime Court, sponsored by the Supreme People’s Court and Fujian Higher People’s Court, with support from the British Consulate General Guangzhou. It was not only international (with the London Maritime Arbitration Association) but included judges, in-house counsel, lawyers and academics.
  • several conferences sponsored by the University of Hong Kong; one by the City University of Hong Kong; and one by the Chinese University of Hong Kong;
  • University of Southern California’s US-China Institute’s China Card Institute (I recommend host Clay Dube’s presentation and Robert Schrum’s presentation in particular, available on the USC website and Youtube, both looking at the demonization of China and Chinese people in the US;

I was very happy to a be a guest lecturer in classes at:

  • University of Hong Kong;
  • Chinese University of Hong Kong;
  • NYU Shanghai;
  • Shanghai Jiaotong University and
  • Fordham Law School.

Also it was a special honor to engage in dialogue with Professor Jerome Cohen at NYU Law School’s US-Asia Law Institute.

Finally, a particular thank you to certain members of the Chinese legal community:

  • administrators of the Wechat public accounts that have published my articles;
  • those who have translated those articles into Chinese;
  • those Chinese judges and lawyers who shared their insights with my classes and with me; and
  • those judges who arranged for me to visit their courts.

Please use the comment function if you have special requests concerning content.

circuit courts, Communist Party and the Courts

Supreme People’s Court adds four more circuit courts

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Meng Jianzhu meeting circuit court judges

The latest National People’s Congress Standing Committee (NPCSC) gave formal approval to the Supreme People’s Court (SPC) to establish four more circuit courts, located in Nanjing, Zhengzhou, Chongqing and Xian.  The Leading Small Group on Comprehensive Reform had given the nod to the SPC and its preparations at the beginning of November, so approval by the NPCSC was a foregone conclusion. The four new circuit courts held ceremonies on 28 and 29 December to inaugurate their operations. This means that circuit courts now cover the entire country. As discussed in my earlier blogpost, these are actually subdivisions of the SPC rather than being separate courts.

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Map of new circuits (thanks to Chinalawtranslate)

This blogpost looks at:

  • What the official reports signal about the Chinese judiciary; and
  • What these circuit courts mean for the Chinese judiciary now and in the future.

Signalling in official reports

The official reports related to the circuit court celebrated the circuit court judges and the courts themselves as both “red and expert.”

In this report, on their meeting with Meng Jianzhu, secretary of the Central Political Legal Committee, a subheadline has him meeting with circuit court “cadres” (孟建柱在会见最高人民法院巡回法庭干部…), while the first line of the report uses the phrasing “judge and other staff”  (全体法官和工作人员).  Meng Jianzhu stressed that close [flesh and blood] ties between the Party and the people in the judicial field is the important mission of the Supreme People’s Court Circuit Courts the circuit courts are under the leadership of his committee], while at the same time saying that “we should adhere to the [policy] direction of the judicial system reform,..create a professionalized trial team…”

Other reports note that of the 54 judges, 41 have either master’s or doctorate degrees. An infographic with photos of the senior judges and a map of the jurisdictions of the circuit courts can be found here.

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3rd circuit court judges receiving petitioners

Are the circuit courts just reception offices for petitioners?

This blogpost will draw on the insights of Zhou Yibin, one of my students at the School of Transnational Law of Peking University, located in Shenzhen, where I am privileged to teach some of China’s best and brightest.

Analyzing the documents related to the establishment of the circuit courts, she comments the circuit courts’ function of “trying important cross-administrative civil, commercial and administrative cases to ensure justice is repeatedly emphasized, while  diverting petitioners’ visits away from Beijing [as reported in this blogpost], reducing the workload for SPC .

Although the SPC knows that the pressure of petitioners’ visits is the direct reason to establish circuit courts, the SPC still wishes that the circuit courts will function more as courts to deal with the judicial localization [local protectionism] problem rather than another petitioners’ reception office. She notes that the huge pressure of dealing with petitioners visits and complaints  with small elite teams, means that they are working very efficiently.

Statistics are available for 2015 for the #1 and #2 Circuit Courts, and in 2016 for the #2 Circuit.In 2015, the #1 Circuit Court accepted 898 cases and closed 843, while the #2 Circuit Court accepted 876 and closed 810.  For the #2 Circuit Court, about half were civil and commercial cases (of which about 20% were transprovincial), while the remaining half was split between criminal and administrative cases.  The #2 Circuit Court dealt with 33,000 petitioners, while the #1 Circuit Court dealt with fewer than 11,000.  Through end September, 2016, the #2 Circuit Court had accepted 907 cases, and the number of petitioners had dropped considerably in 2016 to an average of 70-80 persons per day, down from almost 180 per day, with fewer petitioners complaining about injustices in litigation. It is understood that the number of cases accepted by the #1 Circuit Court has also increased in 2016 in comparison to 2015, although statistics are not yet available.

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Petitioners visiting the #2 circuit court, per month

 

 

 

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opening of 3rd & 4th circuit courts

Zhou Yibin notes the following issues, among others:

  1. First, limited by territorial jurisdiction and subject amount in controversy, there aren’t enough cross-jurisdictional cases for the circuit courts to try. She found that the head of the #1 Circuit Court had said the same.
  2. Mid-career SPC judges may be reluctant to be assigned to the circuit courts, when they have family in Beijing.
  3. Having circuit courts may lead to more inconsistencies among SPC judgments.

She wrote: the circuit courts are not likely to be an effective barrier to judicial local localization/protectionism. That local protectionism happens when the local courts abuse their adjudication power to protect local litigants’ interests. Judicial localization is the caused by the administration of judicial system and unconstrained exercise of administrative and political power.When it comes to judicial activities, local Party/government officials  tend to unduly influence the judges by leaving notes or giving direct instructions when they want to protect local interests. That is exactly why in 2015, the general office of the Central Committee of the CCP and the general office of the State Council jointly issued a notice requiring judges and clerks keep a record if any officials interfere cases in any form [see this earlier blogpost].

From this aspect, when the real concern is abuse of power and lack of institutional design to rein power, judicial reform in any form, would only be a “back-end pain killer”, rather than real surgery that can directly solve the source.

Conclusion

She concludes: as to whether circuit courts should continue to exist, people who are pessimistic about circuit courts characterize it as window-dressing. They believe circuit courts would not be the real key to deal with judicial localization and there exist better alternatives to deal with petitioners’ visits than circuit courts; therefore, the circuit courts should be eliminated before it creates further inconsistency and chaos to judicial system.

Zhou Yibin thinks circuit courts should continue to exist for the following reasons.

First, in 2015, SPC altered the amount in controversy and lower the barrier for case acceptance. Therefore, we can expect circuit court to play a more important role in providing neutral venue so as to fight with judicial localization.

Second, there are other efforts to curb judicial localization collectively. At the same time with setting up circuit courts, SPC is also exploring to set up cross-administrative courts. Currently, this experiment is steadily progressing in Shenzhen, Shanghai and Beijing. This wave of judicial reform has just started, and we need to allow a little bit more time for the circuit courts and cross-administrative courts to grow, to engage in trial and error and to mature.

Third,  aside from dealing with judicial localization, the circuit courts serve as pilot for SPC to improve the quality of its legal policy role by research into local legal issues and greater interaction with local legal communities. This is an important institutional function that is totally left out in the opponents’ objection. There are certainly institutional costs to maintain circuit courts, but we cannot ignore the institutional function of innovation that circuit courts serve.

I would also add to this that from the statistics provided above, the effect of the #2 Circuit Court’s work related to administrative cases can be seen in the reduction in the number of petitioners, particularly those complaining about injustices in the lower courts.

[For those who want to visit the circuit courts, detailed information about their location can be found here. As part of its efforts towards greater transparency and outreach to the foreign legal community, perhaps in the new year the SPC will publish clearer guidance on how foreigners can visit Chinese courts (although this is not likely to be a priority matter).]

 

arbitration, big data, Family Law

Supreme People’s Court & big data

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On 22 December, the Supreme People’s Court (SPC) posted four big data reports drafted jointly by its Information Center and the Judicial Cases Research Center (affiliated with the National Judicial College).

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The bar chart above, from the divorce report, shows the number of divorce cases heard in the courts in 2014-September, 2016, stating that the 2016 cases have increased almost 11% over the same time the year before. A subsequent chart shows that domestic violence as the cause for divorce in 27.8% of cases.screen-shot-2016-12-27-at-7-11-32-am

The reports appear to be products of the recently established SPC big data company.  The analysis in the reports is restricted to bullet points, rather the more detailed analytical reports that are found on the websites/Wechat public accounts of courts and lawyers.  (Suggestion to (any) readers from the SPC–  translations of these reports would be a useful addition to the English version of the SPC’s website).

Anyone looking for more than current statistics and basic analysis is advised to search for more detailed analysis done by law firms, local courts, some of the legal media companies, and some of the other divisions of the SPC.  On the topic of divorce, for example, an SPC judge published this analysis earlier this year, generally considered to be the most authoritative summary of the issues in Chinese divorce law.

The 4th Five Year Court Reform Plan (Court Reform Plan) flagged the SPC’s big data company and the stress that the SPC is placing on big data:

22. Deepen reforms of 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. (translation from @Chinalawtranslate)

The Court Reform Plan signals that the stress is on judicial statistics and using big data for internal use rather than for public access, as “complete information” is not provided to the public, with death penalty statistics the best-known example. Although judicial transparency is greater before (especially for those of us with a historical perspective), from time to time SPC media sources reiterate that judicial personnel are required to keep state secrets (as the Judges Law and other legislation require).

At the moment, transparency of judicial statistics and analysis varies greatly across provinces. Jiangsu Province’s high court, for example, has judicial statistics on its homepage:screen-shot-2016-12-26-at-9-27-32-pm

Many law firms publish big data analysis of specific types of cases in their area of practice, such as this analysis of credit card fraud cases in Guangzhou (22% of the defendants were represented by counsel) and drug cases in Guangzhou (less than 15% represented by counsel). An analysis of drug cases in Guangdong (Jieyang, a center for the  methamphetamine business) by the local court, has important insights into the routinization of criminal justice, the inadequacy of court judgments, and the way that the trial itself and the role of defense counsel (if hired) is marginalized.

Big data analyses can be found in a range of substantive areas, ranging from finance disputes to construction disputes, some by law firms and others by local courts.  My fellow blogger, Mark Cohen, recently highlighted the data analysis provided by IPHouse, a firm started by a former SIPO Commissioner.  They are useful to the lawyer/in-house counsel planning or considering litigation strategy, as well as for policy-makers and academics. Each provides a glimpse of how (and sometimes why)  the Chinese legal system works as it does.

 

Commercial law, Communist Party and the Courts, foreign-related cases, Maritime courts

What the Central Economic Work Conference means for the Chinese courts

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©China Daily

The day after the Communist Party Central Committee’s Central Economic Work Conference concluded, the Supreme People’s Court’s (SPC’s) Party Committee held a meeting to study the “spirit of the Central Economic Work Conference.”  According to SPC President Zhou Qiang, the Central Economic Work Conference has the following takeaways for the courts:

First, adhere to strict and impartial justice, and create an open, transparent and predictable rule of law business environment 

Among the points– “We must insist on protecting the lawful rights and interests of Chinese and foreign parties equally according to law and building a more competitive international investment environment.”

Note, of course, that the foreign chambers of commerce in China have other views of the current state of the business environment at the moment, but agree that rule of law, transparency, and predictability are critical for improving China’s economic performance.  The following is from the European Union Chamber of Commerce in China’s  Business Confidence Survey 2016 

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AmCham China: “Respondents now cite inconsistent regulatory interpretation and unclear laws as their No. 1 business challenge.”

Second,  use the rule of law to actively promote the supply side structural reform

Zhou Qiang called on the lower courts to work better on bankruptcy cases, give full play to the role of the information network of bankruptcy and reorganization of enterprises, actively and safely deal with “zombie enterprises”, to optimize the allocation of resources to resolve the excess capacity.

But actually, bankruptcy cases remain fraught.

According to SPC Senior Judge Du Wanhua, charged with making bankruptcy law work better, in China bankruptcy requires a unified coordination mechanism  with government and courts, under Party Committee leadership.

In recent high profile corporate bankruptcies, such as LDK Solar, the local governments say that they cannot afford to rescue the companies, and so the burden must fall on creditors. The LDK case has drawn complaints from bankruptcy practitioners that the local government-led restructuring was designed to force banks to swallow the losses. Another lawyer commented that local governments’ intervention in bankruptcy cases has often disrupted their fairness.

It is likely that we will see more developments in 2017 concerning bankruptcy.

The third is to further increase the protection of property rights

Among the points Zhou Qiang made:

  • We must strengthen the protection of property rights of various organizations and natural persons;
  • We should have the courage to correct a number of mistaken cases concerning infringement of property rights.

These statements relate to three documents issued in late November and early November on protecting property rights, linked to the Central Committee/State Council’s November 4 document on the same topic, following the document issued in late October (and describe in my recent blogpost). They include:

All three relate to (well-known) abuses of China’s justice system, including:

  • turning business disputes to criminal cases (a risk for both Chinese and foreign businesses);
  • courts freezing assets far exceeding the amount in dispute (this is one example);
  • court confiscating the personal property of the entrepreneur and his (her) family, failing to distinguish between corporate and personal property;
  • courts failing to give parties opposing freezing or confiscation order a chance to be heard;
  • courts failing to hear disputes between government and entrepreneurs fairly.

The first document (apparently drafted by the SPC Research Department, because its head explained its implications at the press conference at which the first two documents were released) repeats existing principles that state-owned and private litigants, Chinese and foreign litigants should be treated equally.  It repeats existing principles that public power must not be used to violate private property rights.

The Historical Property Rights Cases Opinion (apparently drafted by the SPC’s Trial Supervision Division, because its head explained its implications at that press conference) calls on provincial high courts to establish work groups to review mistaken cases and to avoid such tragedies in the first place, focusing on implementing the regulations restricting officials from  involving themselves in court cases and the judicial responsibility system.

The third document seeks to impose better controls on the use of enforcement procedures by the lower courts.

Comments

It is hoped that these documents can play some part in improving the quality of justice in China, despite the difficulties posed while the local courts remain under local Party/government control, and may lead to the release of unfairly convicted entrepreneurs and the return of unfairly confiscated property. Perhaps these documents may provide some protection to local judges seeking to push back against local pressure.  On the historical cases, the SPC Supervision Division should consider appealing to current or retired judges who may have been involved in these injustices to come forward (without fear of punishment), as they likely to be able to identify these cases. A defined role for lawyers would also be helpful.

On the equal protection of enterprises, it should be remembered that the SPC itself has issued documents that give special protection to some parties, such as “core military enterprises.”

It appears that these documents respond to the following:

  • years of criticism of  differential legal treatment of and discrimination against private entrepreneurs;
  • academic studies by influential institutions on the criminal law risk faced by private entrepreneurs;
  • Downturn in private investment in the Chinese economy;
  • Lack of interest on the part of private enterprise in private-public partnerships;
  • Increase in investment by private enterprise abroad, most recently illustrated by the Fuyao Glass investment in Ohio;
  • articles such as this one describing Chinese entrepreneurs as either in jail or on the road to jail.

Fourth, proactive service for the construction of “one belt one road” 

This section repeats many of the themes highlighted in the SPC’s earlier pronouncements on One Belt One Road (OBOR or Belt & Road), the maritime courts, and foreign-related commercial developments. The Chinese courts continue to grapple with the increased interaction and conflicts with courts in foreign jurisdictions. The OBOR jurisdictions are handicapped by a dearth of legal professionals with familiarity with the Chinese legal system.

We should expect to see more developments directly or indirectly linked to OBOR, including a more standardized approach to the judicial review of arbitration clauses.

Fifth, strengthen the judicial response to the risks and challenges of the economy

Among the issues that President Zhou Qiang mentioned

  •  Internet finance;
  • Internet fraud;
  • illegal fund-raising and other crimes;
  • real estate disputes;
  • cases involving people’s livelihood, increasing the recourse of migrant workers and other cases of wage arrears.

These are all ongoing, difficult issues for the courts. Legislation does not demarcate clearly the line between legal and illegal forms of financing as discussed here. Migrant workers, particularly in the construction industry, are often not hired under labor contracts but labor service contracts, which reduces their entitlements under the law. As the Chinese economy continues to soften, it is likely that complex real estate disputes (of the type seen in 2015) will burden the lower courts.

We are likely to see further developments in these areas.

President Zhou Qiang told the courts to make good use of judicial “big data” to detect trends and issues so the courts can put forward targeted recommendations for reference of the Party committee and government decision-makers. He has made this point repeatedly recently.

For foreign observers of China, judicial big data is in fact a useful source of indicating trends across the Chinese economy, society, and government.  This blog has flagged some analyses, but there is much more than can and should be done.

bankruptcy law, big data

Updated data on Chinese bankruptcy law

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Senior Shanghai Maritime Court judges participating in video conference 

Senior Judge Du Wanhua, tasked with making Chinese bankruptcy and corporate restructuring law work better (see these earlier blogposts), spoke recently on a video conference held by the Chinese courts, where he released a few points of big data on Chinese bankruptcy law and highlighted (in this version) current and forthcoming court policy on bankruptcy.  The data he released can be expected to be part of the conversation when the 21st US-China [or China-US, depending on your perspective] Legal Exchange takes place in Beijing and Shanghai on 13 and 15 December 2016 on bankruptcy law.

The video conference concerned one of the vexed issues of Chinese bankruptcy law, how to transfer cases from enforcement to bankruptcy proceedings, but Du Wanhua’s talking points as released were more general. Some of his points are highlighted below.

Updated data on bankruptcy cases

The Chinese courts have accepted 3463 bankruptcy cases through October of this year, up almost 30% year on year, of which 2249 have been closed, up almost 60%.  At the same time, the business registration authorities (the State Administration of Industry and Commerce (SAIC) and local counterparts), have cancelled the registration of 396,000 companies.

Transitioning from enforcement to bankruptcy procedures

Judge Du revealed that close to half (40-50%) of the unsatisfied enforcement cases  are ones that are wholly unsatisfied, with a goodly portion involving corporate judgment debtors. (As mentioned in earlier blogposts, there is no procedure to transfer cases from enforcement procedures to bankruptcy). Judge Du mentioned that the SPC had already drafted guidance which have been discussed by the SPC’s Judicial Committee and would be issued soon. He noted that unsatisfied judgments because of local protectionism have led to conflicts between creditors and  “fierce” conflicts between courts. He called for courts not to engage in “buck passing” on enforcement cases that are transferred to another court for bankruptcy procedures.

Establish coordination system for bankruptcy cases

Echoing themes in earlier statements by Judge Du and others in the Chinese courts, he calls for localities to establish a unified coordination mechanism for enterprise bankruptcy work, with government and courts, under Party Committee leadership, to plan state asset protection, safeguarding of financial safety, resettlement and reemployment of workers, and for the bankruptcy of non-state owned enterprises to proceed smoothly.

Will this coordination system improve matters?  The jury is still out.

 

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US federal courts

US Federal Judiciary Strategic Plan Attracts Thousands of Chinese Readers

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Cover of Strategic Plan for the Federal Judiciary

In September 2015, the Judicial Conference of the United States issued its updated strategic plan.  Likely much to Justice Roberts’ surprise, (but not Justice Alito, who met that month with Supreme People’s Court (SPC) President Zhou Qiang), the plan (or at least the translation of selected sections) is attracting thousands of new readers in China. (likely more than it did in the US)  The translation was set out in two 3/4 page articles published in People’s Court Daily in late September.  As the translators, headed by Judge He Fan of the SPC, said, “for Chinese judicial reforms, there is no lack of things we can draw on.” They translated all of the major issues set out below (taken directly from the strategic plan) and selected strategies and goals related those issues that resonate with the Chinese judiciary.

As the US transitions to a new president who not only will appoint a Supreme Court justice, but also fill 105 vacancies in the federal courts, the strategic plan provides food for thought for all concerned about if and how justice is delivered around the world.

Preamble

The federal judiciary is respected throughout America and the world for its excellence, for the independence of its judges, and for its delivery of equal justice under the law.Through this plan, the judiciary identifies a set of strategies that will enable it to continue as a model in providing fair and impartial justice.

Mission

The United States Courts are an independent, national judiciary providing fair and impartial justice within the jurisdiction conferred by the Constitution and Congress. As an equal branch of government, the federal judiciary preserves and enhances its core values as the courts meet changing national and local needs.

Core Values

Equal Justice: fairness and impartiality in the administration of justice; accessibility of court processes; treatment of all with dignity and respect

Judicial Independence: the ability to render justice without fear that decisions may threaten tenure, compensation, or security; sufficient structural autonomy for the judiciary as an equal branch of government in matters of internal governance and management

Accountability: stringent standards of conduct; self-enforcement of legal and ethical rules; good stewardship of public funds and property; effective and efficient use of resources

Excellence: adherence to the highest jurisprudential and administrative standards; effective recruitment, development, and retention of highly competent and diverse judges and staff; commitment to innovative management and administration; availability of sufficient financial and other resources

Service: commitment to the faithful discharge of official duties; allegiance to the Constitution and laws of the United States; dedication to meeting the needs of jurors, court users, and the public in a timely and effective manner.

Issue 1. Providing Justice

How can the judiciary provide justice in a more effective manner and meet new and increasing demands, while adhering to its core values?

Issue 2. The Effective and Efficient Management of Public Resources

How can the judiciary provide justice consistent with its core values while managing limited resources and programs in a manner that reflects workload variances and funding realities?

Issue 3. The Judiciary Workforce for the Future

How can the judiciary continue to attract, develop, and retain a highly competent and diverse complement of judges and staff, while meeting future workforce requirements and accommodating changes in career expectations?

Issue 4. Harnessing Technology’s Potential

How can the judiciary develop national technology systems while fostering the development of creative approaches and solutions at the local level?

Issue 5. Enhancing Access to the Judicial Process

How can courts remain comprehensible, accessible, and affordable for people who participate in the judicial process while responding to demographic and socioeconomic changes?

Issue 6. The Judiciary’s Relationships with the Other Branches of Government

How can the judiciary develop and sustain effective relationships with Congress and the executive branch, yet preserve appropriate autonomy in judiciary governance, management and decisionmaking?

Issue 7. Enhancing Public Understanding, Trust, and Confidence

How should the judiciary promote public trust and confidence in the federal courts in a manner consistent with its role within the federal government?

 

About Me

Chinese law “elephant”

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story25i1Thank you very much to all of my followers for following me.  I plan to tweak the type of content that I am providing, providing fewer long analytical blogposts, because I want to concentrate on writing a book on Supreme People’s Court (SPC) in the era of reform, in the style of this blog and in my free time work on income-generating projects.

The blog will continue to highlight SPC developments (& cases), but more briefly (with the exception of several articles still in draft). As before, I will speak at conferences and appear on panels, or as a guest speaker in classes touching on the Chinese court system.

It is my hope that some followers with the financial wherewithal to do so will consider supporting (in some fashion) the blogs that are enabling the English speaking and reading public to perceive (through translation or bite-sized analysis) the “elephant” that is the Chinese legal system.

Through my “brother” blog Chinalawtranslate.com, the non-Chinese reading world is able to access translations of many of the most important legal documents issued by the Chinese government (and Communist Party) institutions, with some analytical blogposts and charts or other graphics. Many of those translations are of documents that are not translated by the commercial translation services. The translations are accessed and cited by a broad range of government and academic institutions (worldwide) as well as the media, NGOs, students, and individuals.

My own blog, contrary to what a Times of India article recently wrote, is not a “state-owned publication linked to the Supreme People’s Court.”  For that, the Times of India should be looking to the Supreme People’s Court’s (SPC’s) own English language site. The link between the SPC and this blog is only in the form of careful observation on my side and recognition of the existence of a focused foreign observer on the other.  I have also been shown personal kindness by a certain number of SPC judges (as well as some of their counterparts in the lower courts). An earlier blogpost gives further background on why I am publishing this.

As before, I will be available for consultation on law/court reform topics, as well as areas in which big data (and the profile) of litigation in the Chinese courts sheds light on the Chinese economy, society, etc. Chinese law firms who recognize that their English language publications need an overhaul should also contact me.

Anyone with comments or questions should feel free to contact me at: supremepeoplescourtmonitor@gmail.com.

 

 

foreign-related cases

Why the Supreme People’s Court’s new demand guarantee interpretation is important

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On 18 November, the Supreme People’s Court (SPC)  issued the Regulations on Some Issues Concerning the Trial of Independent Guarantee Disputes  (Independent Guarantees Interpretation) (审理独立保函纠纷案件若干问题的规定). It was publicly released at a 22 November press conference.  This document is a judicial interpretation (see this explanation) that becomes effective on 1 December. The Independent Guarantees Interpretation is important because:

  • it relates to guarantees issued by the four main Chinese banks (total amount of USD 353 billion in 2015), so the amounts will be far greater when the other banks are included);
  • large numbers of commercial transactions by Chinese companies outside of mainland China.

Along with the enormous increase in Chinese companies investing and undertaking projects abroad and being required to provide a demand guarantee when doing so has been an explosion of litigation in China [to be updated with data when available] by companies seeking to prevent the bank that has issued the demand (independent) guarantee from doing so when the foreign party to which the guarantee has been issued seeks to be paid out under the guarantee because the performance by the Chinese company fails to comply with contractual requirements.  It has also led to litigation outside of China, such as in the English courts.

As Professor Vivienne Bath has explained in a recent article:

in a number of cases, Chinese courts have attempted to reinforce their own jurisdiction in multinational disputes by issuing stop orders to Chinese parties directing them not to make payment on negotiable instruments or guarantees issued in support of a principal contract which is the subject of litigation. In the case of a Chinese bank with international interests and assets and an international reputation,this puts the bank in a very difficult situation.

It is for that reason that Judge Zhang Yongjian, head of the #4 Civil Division of the SPC (responsible for foreign-related commercial/maritime issues) revealed (at the press conference at which the interpretation was released) that the China Banking Regulatory Commission (CBRC) and the China Banking Association have been lobbying the SPC to issue this interpretation quickly. (The drafting began in early 2013 and informal work began in 2012), while discussions about the issue date back to 2007 (if not before). A drafting group within the #4 civil division was responsible for drafting it).

For those with no background about what these are, a demand/independent guarantee (called an independent guarantee in Chinese (独立保函), is often used in construction, engineering and many other types of infrastructure projects (and trade, such has shipbuilding and turbines), when the owner of the project requires the performing party to guarantee his performance with a guarantee issued by a bank. It means that if the contractor fails to meet his obligations, the project owner can be easily compensated. The bank guarantee generally needs to be backed by company funds. These are extremely important with so many Chinese companies focusing on infrastructure projects overseas, under the Chinese government’s One Belt, One Road and Go Global strategies and Chinese companies seeking to produce goods with greater added value, as Judge Zhang noted.

The International Chamber of Commerce’s (ICC’s) Uniform Rules for Demand Guarantees (URDG 758) are the internationally agreed international standard on demand guarantees, having been officially endorsed by the UN Commission on International Trade Law (UNCITRAL) at its 44th annual session in June-July, 2011.  The Independent Guarantees Interpretation sets out the applicability of URDG 758 in Chinese disputes, governing law, jurisdiction, and other issues and draws on it, the United Nations Convention on Independent Guarantees and Standby Letters of Credit, and other international rules.  (Judge Zhang used the phrase “充分借鉴吸收” (fully considered and absorbed).

Maneuvering around existing domestic legislation

The language of the interpretation maneuvers around Article 5 of China’s Security (Guarantee Law) and Article 172 of the Property Law and their restrictions on independent guarantees in domestic transactions, because independent guarantees have grown to be a big business among domestic financial institutions (according to Judge Zhang) (The interpretation allows parties to agree that the provisions of URDG 758 will be applicable.).

The Security Law states:

A guarantee contract is an ancillary contract of the principal contract. If the principal contract is nullified, the guarantee contract shall be null and void accordingly. Where it is otherwise agreed in the guarantee contract, such agreement shall prevail.

Similarly, the Property Law states that “for the creation of a security right, a guarantee contract shall be concluded in accordance with the provisions of the law and other relevant laws. A guarantee contract is an ancillary contract of the principal contract. When the principal contract is nullified, the guarantee contract shall be null and void accordingly, unless otherwise stipulated by law.

Tightening the fraud exception

The interpretation tightens the fraud exception from the requirement to make immediate payment and specifies the conditions under which courts can issue stop orders. The SPC looked to the international agreements mentioned above, foreign legislation, and foreign cases when drafting its own provision (Article 12).  Judge Zhang admits that the misuse of this exception by local courts has led to foreign banks being reluctant to negotiate letters of credit issued by Chinese banks. (This observer suggests that one reason could be that large local companies may pressure local courts to so rule).

Consultation process in drafting

Judge Zhang noted that the drafting process was one of the highlights of the interpretation.  In my earlier blogpost on the draft interpretation, I noted that the SPC consulted with (formally or informally):

  • the Ministry of Commerce;
  • leading Chinese lawyers;
  • some of the leading arbitration commissions;
  • representatives from the principal Chinese banks and major state-owned companies.

Judge Zhang noted that they consulted with:

  • the lower courts;
  • National People’s Congress’ Legislative Affairs Commission;
  • State Council’s Legislative Affairs Office;
  • People’s Bank of China;
  • CBRC;
  • State Administration of Industry & Commerce;
  • China Banking Association;
  • China International Contractors Association; and
  • ICC China Committee.

According to an “authoritative person,” the above list is not exhaustive.

From my own contacts, and from reports of at least one conference on trade finance in Beijing attended by representatives from the ICC and the SPC, there were discussions with the ICC.

SPC judges organized research and met with financial institutions.  But Judge Zhang also said that they sought public opinion through the SPC’s website. What he did not say was that the consultation period was for nine days (as I noted in my blogpost of almost three years ago).

As I said then (and have said numerous times on this blog and to individual SPC judges), my view that it is best for the SPC to solicit public comments on important civil/commercial issues such as this one and give persons a reasonable comment period, and for bilateral investment treaties to incorporate a requirement to require this.

For anyone involved in any aspect of a project in which a Chinese contractor provides a demand/independent guarantee, reviewing this judicial interpretation is crucial. I expect the commercial translation services will translate it (and law firms, Chinese and international, will issue alerts parsing its provisions).

 

Communist Party and the Courts

Inspectors stationed at the Supreme People’s Court & Procuratorate

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CIG mobilization meeting at the SPC

Close followers of the Supreme People’s Court (SPC) media outlets will have noticed a 15 November report of a mobilization meeting of the Central Inspection Group (CIG) #2 inspecting the SPC’s Communist Party group.  A brief report on CCTV is found here. Further digging reveals that news of the inspection was released on the Central Commission for Discipline Inspection (CCDI) website in early November, and that the inspection is part of the current round of CIG inspections of 27 Party, government, and other entities.  Other legal institutions being inspected in this round include the Supreme People’s Procuratorate (SPP) and the China Law Society (a mass (government organized non-government organization)).  The Ministry of Public Security was inspected earlier this year in an earlier round,  along with the State Council’s Legislative Affairs Office, the National People’s Congress (including its Legislative Affairs Commission), the State Intellectual Property Office, and many others.

A report on CIG #7’s mobilization meeting at the SPP was released at the same as the SPC’s, and is worded similarly to the SPC report.These institutions are being inspected for approximately a two month period, from 11 November (14 November for the SPP) to 10 January 2017.

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CIG mobilization meeting at SPP

Background on CIGs and how they operate can be found in a recent New York Times article (focusing on the Ministry of Public Security’s inspection) and this scholarly article by Professor Fu Hualing of the University of Hong Kong’s law faculty.

According to these  notices, the focus is on the Party leadership of these institutions, at the highest and next highest level, and compliance with political and Party discipline.

Some comments

Matters that require the attention of the SPC’s  senior leadership (and similarly the SPP’s), of which there are many (one small example is considering whether a draft judicial interpretation is ready for passage) , are likely to find a much slower response time, as persons in the most senior positions, and those senior personnel with whom they work most closely, will most likely be preoccupied with responding to the requests of the inspectors. (This insight is derived from my personal experience (with school inspectors), my many discussions with in-house counsel facing government inspectors, and the rich professional/scholarly commentary on government inspections/audits).

I can only hope (as a long-time foreign observer of the SPC (and less so of the SPP), that the leaders of these institutions have done a good job in personal compliance, as well as signalling to their institutions the importance of complying with various types of political and Party discipline, because a well-functioning Chinese judicial system (and a prosecutorial system) is important not only for China, but the rest of the world.

One small example of the work facing the SPC that is relevant to the rest of the world is one of the Chinese government’s commitments at the Hangzhou G20 meeting, which requires the SPC to take on a major role in improving the operation of China’s bankruptcy system:

China and the United States recognize the importance of the establishment and improvement of impartial bankruptcy systems and mechanisms. China attaches great importance to resolving excess capacity through the systems and mechanisms relating to mergers and acquisitions; restructuring; and bankruptcy reorganization, bankruptcy settlement, and bankruptcy liquidation, according to its laws. In the process of addressing excess capacity, China is to implement bankruptcy laws by continuing to establish special bankruptcy tribunals, further improving the bankruptcy administrator systems and using modern information tools. China and the United States commit to, starting as early as 2016, conduct regular and ad hoc communication and exchanges regarding the implementation of our respective bankruptcy laws through forums or mutual visits.

 

Donald Trump, intellectual property

First US President (-elect) to litigate in Chinese court

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Donald Trump vs. PRC Trademark Review & Adjudication Board

President-elect Donald Trump is a person of many firsts. It is well known that he is litigious (involved in at least 3500 lawsuits in the US federal and state courts).  What is not known outside of China is that he is the first person to be elected president of the United States who has sued in the Chinese courts (and lost).  The image above is of the judgment of the Beijing Higher People’s Court (the official version in SPC case database linked here, but also available here), upholding a decision by the Beijing Intermediate People’s Court (up to 52,000+ pageviews). The Beijing Intermediate People’s Court reviewed Trump’s challenge of a ruling of the PRC Trademark Review & Adjudication Board (TRAB) on the use of the TRUMP trademark. He is one of many in the foreign business community who have been losers in China’s first to file trademark system (summarized here).

Before getting to the legal issues, a note about Trump’s name. In this case his name is translated as唐纳 川普 (his last name is the contraction for Sichuan Putonghua).  It is the translation used colloquially in China, but the official media translates his name as 唐纳德·特朗普.

Trump’s 2006 Chinese trademark application was made to the Trademark Bureau on 7 December 2006 in class 37 (Building construction; repair; installation services), while individual Dong Wei applied for the TRUMP trademark on 24 November 2006 in a subclass of class 37, for building construction supervision.

On 30 November 2009, the Trademark Bureau rejected Trump’s trademark application as it related to hotel, residential, and commercial real estate construction information.  Trump sought reconsideration of the Trademark Bureau’s decision by TRAB. TRAB upheld the Trademark Bureau’s ruling in its 2014 decision (商评字（2014）第2758号)

Will this case mean that the new administration is more or less interested in continuing judicial exchanges with the Supreme People’s Court, such as the U.S.-China Judicial Dialogue in Support of Reform and Economic Growth ?

 

big data, Case law, Uncategorized

Big data on China’s case database

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Screen Shot 2016-07-30 at 12.13.38 PMThe Supreme People’s Court (SPC) database, China Judgments Online, receives good marks from most commentators inside and outside of China and it is one of the successes of the judicial reforms that President Zhou Qiang often discusses with visiting foreign guests as well as domestic officials.  Only now has a team of researchers from Tsinghua University drilled down on the case database (but only through 2014, because the data was not complete for 2015) (short version found here and full version here). They found that there is room for improvement.

The researchers found that only about 50% of number of cases resolved in the Chinese courts (about 30.5 million during 2014-2015) have been uploaded to the case database (14.5 million).

Level and type of case

Almost 80% of the cases uploaded are from the basic level courts, with intermediate level courts accounting from almost 19%, and fewer than 1% from the SPC.

Approximately 63% of the cases are civil, with 20% criminal, enforcement 15%, and administrative cases less than 4%. 

Are courts uploading cases to the database consistently?

 

 

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Geographic distribution of uploaded judgments

 

The map above is based on an analysis of 2014 data.  Shaanxi, Zhejiang, Shandong, Anhui, and Hebei provinces were the best performers, particularly Shaanxi; Henan, Fujian, Hunan, Hubei, Guangxi, and Ningxia were in the second tier, uploading at least half.  The less transparent courts include Tibet, Xinjiang, and Guizhou.

[I personally expected that Shanghai, Jiangsu, and Guangdong would be more transparent.]

Are cases uploaded consistently throughout the year?

At least in 2014, there was a half year and year end rush to upload cases.  It appears that the uploading of cases is one of the items for judges performance appraisal.

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Issues cited

  • More than half of judicial documents have not been uploaded to the database, including judgments in some of the more controversial cases.
  • Technical issues complicate the uploading process.  Because the courts are administered locally, the IT systems are local as well.
  • The regulations set out vague standards for taking down a judgment/ruling. When objections are made, the cases are taken down with little review. [As I have commented in relation to streaming of court cases, the absence of privacy legislation is an issue, because judges lack specific guidance on what information is regarded as private.]
  • Large gaps exist between the coastal and inland provinces in uploading judgments, with long delays an issue as well, although the regulations require judgments to be uploaded 7 business days after they take effect (this provision is unchanged from the 2013 version).
  • Monitoring of the database is an issue.  The SPC has been stressing the quantity of judgments uploaded, while insufficient attention is paid to quality.  [This may have something to do with tendency of some Chinese academics to focus on theory or comparisons among jurisdictions, rather than engage in a more focused study on what their own court system is actually doing.]

Comment

The Chinese government has allocated  USD $40 billion to the Silk Road Fund associated with the One Belt One Road strategic initiative, to improve infrastructure overseas.  China’s judiciary, an important part of the nation’s legal infrastructure, requires better funding as well.  Even a tiny percentage of that $40 billion would go far to contribute to improve courts’ IT infrastructure, not to mention improved salaries, and the retention of the research departments of local courts.

Investment in the courts is needed to bolster the Chinese (not to mention foreign) public’s confidence in the Chinese courts’ ability to provide a better quality of justice.

As my law school classmate, Justice John Roberts, said several years ago, when confronted by budget cuts to the US federal judiciary:

At the top of my list is a year-end report that must once again dwell on the need to
provide adequate funding for the Judiciary.I would like to choose a fresher topic, but duty calls. The budget remains the single most important issue facing the courts….

The Judiciary continues to depend on the vision and statesmanship of our colleagues in the Executive and Legislative Departments. It takes no imagination to see that
failing to meet the Judiciary’s essential requirements undermines the
public’s confidence in all three branches of government. Both A Christmas
Carol and It’s a Wonderful Life have happy endings. We are encouraged
that the story of funding for the Federal Judiciary—though perhaps not as
gripping a tale—will too.

 

 

 

blacklists, Development banks, Uncategorized

Chinese companies on World Bank’s name & shame list

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screen-shot-2016-11-03-at-5-27-48-pmThe Supreme People’s Court and other Chinese government institutions have been making increasing use of name & shame lists to call attention to illegal behavior by institutions and individuals and to prevent them from benefiting from their illegal behavior (as I discussed in this blogpost). International institutions, such as the World Bank, Asian Development Bank, African Development Bank, Inter-American Development Bank and the European Bank for Reconstruction and Development, name and shame as well.  They list firms and individuals that have been disbarred (by their own or counterpart institution) from being awarded a multilateral development bank contract because they have been sanctioned for fraud or corruption violations (the World Bank list is here and a comprehensive introduction is found here). The World Bank cooperates with other international and national regulatory and enforcement organizations, such as the European Anti-Fraud Office and the UK’s Serious Fraud Office.

I recently published a brief blogpost on the website of the Wong MNC Center, calling attention to the significant number of Chinese companies, particularly state-owned companies, that are on the World Bank (and other multilateral development banks) blacklists. I noted that there do not seem to be clear repercussions for those companies and queried whether China’s Asian Infrastructure Investment Bank (AIIB) will follow the practice of the other multilateral development banks.AIIB has recently appointed Mr. Hamid Sharif, formerly of the Asian Development Bank, to be Director General of the AIIB’s Compliance, Effectiveness and Integrity Unit, and Gerard Sanders to be its general counsel. Sanders worked for many years in the legal department of the European Bank for Reconstruction and Development. Both men would take the disbarment system as an accepted part of the international development bank regulatory system.  Some issues I didn’t have a chance to raise:

  • A significant number of Chinese companies did not participate in the sanctioning proceedings or make use of the appeal procedures. This attitude is analogous to the way some  Chinese companies view foreign arbitration and other foreign dispute resolution (the three nos–see my earlier blogpost on this).An experienced Chinese consultant that I contacted privately remarked that Chinese firms take the “Four No” approach—do not recognize, do not accept, do not commit themselves, and there are no consequences in China;
  • Some of the Chinese companies that have been or are currently being disbarred are party to major contracts (or memoranda of understanding) under various Chinese government initiatives.  According to a recent report in the Philippine press, China Road & Bridge and affiliated companies (blacklisted by the World Bank until 2017) are among the major beneficiaries of President Duterte’s recent trip to China.  Other blacklisted companies are doing projects in Africa and Central America.
  • Officials of the Supreme People’s Procuratorate, as seen in this 2014 article, are advocating better international cooperation with anticorruption efforts in the business sector and mention the international development bank blacklists as a given part of the international anticorruption landscape.  They reveal that there are major compliance issues among Chinese SOEs operating abroad, with bribery as one of many problems and a generally prevailing indifferent attitude towards legal compliance.
  • It appears there will eventually be a better integration of the multilateral development bank blacklists with the Chinese system, but this will take time and many hours of quiet advocacy to put in place. It would be unfortunate if these efforts are accelerated because disbarment of Chinese companies under the World Bank system results in further investigations or sanctions in Europe, United Kingdom, or elsewhere in the world.

 

Commercial law, Company Law, intellectual property, Uncategorized

Supreme People’s Court’s new document protecting private enterprise

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The Supreme People’s Court (SPC) recently published a policy document on protecting private (民间) enterprise, although the document itself was approved almost two months previously.  It is linked to State Council and Central Leading Group for Deepening Overall Reform policy documents of earlier this year.  The State Council policy document admitted that private companies have trouble receiving “national treatment (“难以享受同等“国民待遇”). The SPC policy document further relates to a 2014 SPC policy document on private (non-public (非公有制) enterprise.  It conveys the following messages:

  • Too many lower courts are invalidating contracts because contracts have not received government approval, instead of applying the Contract Law on this point properly;
  • Too many lower courts are causing private investors to lose ownership of their companies, particularly those that are affiliated (挂靠) with government (the affiliation system was a way for entrepreneurs to avoid restrictions on private business by affiliating their operations with government).
  • Courts are preventing private investors from transferring their shareholding;
  • Courts are not sufficiently protecting the rights of private investors  who take a minority stake with other investors (especially state-owned ones). As this blogpost pointed out, it is not unusual for majority/controlling investors to engage in illegal, unfair, and abusive acts, such as abusive related company translations, creating fraudulent or defective board resolutions, failing to distribute profits, failing to keep other shareholders informed (the SPC’s judicial interpretation on this issue has not yet been issued);
  • Courts are failing to distinguish between corporate and personal/family assets, requiring private investors to repay corporate debts with their personal assets;
  • Courts are failing to uphold lending contracts between companies, although a 2015 SPC judicial interpretation confirmed their validity (under certain conditions);
  •  Courts are failing to protect the ownership rights, intellectual property rights, and operational rights of private companies, and prevent the “illegal seizure” of private property.
  • Courts are failing to uphold the rights of private enterprises to invest abroad.
  • On labor issues, courts should seek to balance the interests of the workers with the continued survival of companies, and seek to reduce labor costs.  Especially for small and medium enterprises (this earlier blogpost highlighted how often private companies are sued in Guangdong in labor cases), courts should seek to resolve disputes through conciliation. For companies in trouble, courts should use measures such as taking security to prevent employers from maliciously harming worker’s interests.

Commentary in People’s Court Daily had this to say:

Private entrepreneurs face hidden obstacles and difficulties, both from the legal system and in practice.  There are hidden inequalities in their legal status, particularly when they are facing monopoly [duopoly] state owned enterprises (SOEs), given huge power of the SOEs. Second, the investment environment for private companies is unstable. Government policies and measures often change, such as when government signs basic infrastructure contracts with private companies, but then government changes the related urban plan.  Third, private entrepreneurs in the past have failed to receive equal legal protection, because of judicial local protectionism and inconsistencies in judicial decision-making.

A prominent legal blogger suggested that local courts frequently abuse their authority to seal up or freeze business assets of private companies, causing significant losses.

Comments

The Chinese government is promoting public private partnerships (PPP) but has not been able to attract substantial interest in the projects for a number of reasons, including regulatory risk. Private investors are also concerned that the local courts will not protect their rights in the event of a dispute.

Statistics released by the Chinese government earlier this fall reveal that overseas investment by Chinese private enterprise in 2015 surpassed investment by state-owned enterprises, accounting for 65% of outbound investment, with observers disagreeing on the extent to which it represents capital flight. The failure of private investors “to feel justice in every case” (linked to the lack of autonomy of Chinese courts hearing cases involving the rights of private entrepreneurs) will lead them to invest less in the Chinese economy, and diversify even more assets to jurisdictions more protective of private property interests.  Those other jurisdictions will benefit from an inflow of capital and entrepreneurial spirit.

On labor issues, the SPC has indicated what current government policy is and what the courts need to do to implement it. It is unclear whether these policies will be effective in reducing labor unrest.

 

 

 

 

Communist Party and the Courts, Uncategorized

Update on Judge Xi Xiaoming

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Judge Xi Xiaoming

In the run up to the Sixth Plenum of the Central Committee of the Communist Party, which will focus on “intra-Party political life in the new situation,” the Supreme People’s Procuratorate (SPP) released further information concerning former Supreme People’s Court (SPC) Vice President Xi Xiaoming.  As this blog noted over one year ago, his case was transferred from the Party disciplinary authorities to the SPP for further investigation.  According to a recent report, The SPP has finished its investigation and has transferred Judge Xi’s case to the Second Branch Procuratorate of the Tianjin People’s Procuratorate.  The procuratorate has filed its case in the #2 Tianjin Intermediate People’s Court. The authorities apparently considered these institutions reliable,  because they had dealt with other sensitive cases earlier this year. 

The charges against Xi include:  using his office and position to obtain benefits for others or using his authority and position to provide conditions [for obtaining benefits], and obtaining improper benefits through the acts of other state staff in the course of their work, illegally accepting huge amounts of money and assets.  The judgment to which the charges relate has been published.

The report repeated statements made about Judge Xi earlier by Meng Jianzhu, head of the Central Political Legal Committee, and SPC President Zhou Qiang.  In August, 2015, Meng said: “Xi Xiaoming has shamed the judiciary, as an experienced judge who has worked in the Supreme People’s Court for 33 years, who has colluded with certain  illegal lawyers, judicial brokers, and lawless business people by accepting huge bribes.” During his report to the NPC in March, 2016, Zhou Qiang said: “especially the effect of Xi Xiaoming’s case of violating law and discipline is terrible, has deep lessons” (尤其是奚晓明违纪违法案件影响恶劣、教训深刻). The report also mentioned that Judge Xi’s case has been used as a typical case by the Central Commission for Discipline Inspection.

Although the SPC and several other central criminal justice institutions have recently issued a policy document on making the criminal procedure system trial-centered, the first principle of which is “no person may be found guilty except by the lawful judgment of a people’s court,” Judge Xi’s case seems to be yet another instance in which the exigencies of the political system trump respect for the formalities of the operation of the criminal justice system.