Category Archives: alternative dispute resolution

What’s on the Supreme People’s Court’s financial law agenda?

Justice Liu Guixiang Speaking

This year, the Supreme People’s Court (SPC) has not released its judicial interpretation agenda to the general public, so observers concerned about what the SPC is doing in specific areas of law must be attentive to what SPC leaders mention in either speeches in major conferences or articles in the media.  Justice Liu Guixiang, a member of the judicial committee with deputy ministerial status, spoke in early September at the 4th Annual  Conference on Serving Small and Medium Sized Investors .  His speech was one of many leader’s speeches  (visible in the link领导人讲话) delivered at this conference sponsored by the China Association for Public Companies, Securities Association of China and other securities industry associations. (For the careful listener (or reader) his speech provides insights on what can be expected from the SPC in the near future in the area of financial law.  It is linked to  China’s development of its securities market and dealing with the increasing number of financial fraud cases and civil disputes. Some of what he told the audience illustrate, in the area of financial and securities law,  how the SPC operates in the New Era.  Those include:

  1. the SPC plans to issue a new conference summary on financial trials (金融审判座谈会纪要) before the end of the year, to unify trial standards. This is linked to government policies on the prevention and resolution of financial risks;
  2. the SPC plans to amend the 2003 interpretation
    Some Provisions of the Supreme People’s Court on Trying Cases of Civil Compensation Arising from False Statement in Securities Market, as it is outdated, particularly the requirement of an administrative penalty before investors can file suit. The interpretation is inconsistent with the amended Securities Law;
  3. the SPC will guide the lower courts on the hearing of securities group cases  (证券集体诉讼制度), particularly focusing on financial fraud, providing better relief to investors, and assisting to stabilize the market in its transition to a registration based listing system.  He stressed that the SPC would require lower courts to apply the principle of harmonizing standards for fault and administrative penalties in financial fraud cases, distinguishing different types of fault, and “striking hard” in cases of intentional financial fraud (要求人民法院在处理财务造假等案件中,基于“过错与处罚相一致”原则,区分过错类型,依法严厉打击故意造假行为过错与处罚相一致);
  4.  The SPC will provide guidance to the local courts on strictly applying new rules (in the Civil Code and the SPC’s judicial interpretation) on guarantees provided by listed companies and will also provide further guidance on the bankruptcy (and reorganization ) of listed companies.  
  5. The SPC will cooperate further with relevant government organs and other institutions to further develop non-litigation solutions to securities disputes. One example Justice Liu likely had in mind was the recently promulgated notice jointly issued by the General Office of the SPC and the China Securities Regulatory Commission (CSRC) on establishing an online system for linking the CSRC’s electronic platform with the SPC’s mediation electronic platform, to enable mediated settlements within the securities and future mediation systems to become enforceable through judicial confirmation online (在线申请司法确认或出具调解书等诉调对接工作) This August 2021 document is entitled Notice on Establishing a Linkage Between Mediation and Litigation “General to General” Online Securities and Futures Disputes Mechanism  最高人民法院办公厅 中国证券监督管理委员会办公厅关于建立“总对总”证券期货纠纷在线诉调对接机制的通知.  That document, which implements the Party Center’s concept — social governance pattern of co-construction, co-governance and sharing (建立共建共治共享社会治理格局)includes a joint meeting system between the two institutions and affiliated organizations, with the CSRC’s Investor Protection Bureau and the China Securities Small and Medium Investor Service Center Co., Ltd. taking an important part. The linkage between mediation and litigation is part of diversified dispute resolution. It calls for analogous linkage at the local level between offices of the CSRC and the courts. The SPC has issued other documents previously,  particularly the Supreme People’s Court and the China Securities Regulatory Commission of Issuing Opinions on Comprehensively Advancing Establishment of Diversified Resolution Mechanism of Securities and Futures Disputes. The SPC’s 2021  bilingual report on its diversified dispute resolution reforms (2015-2020) provides more details on this and other reforms.
  6. Finally, Justice Liu called for promoting the securities representative litigation mechanism (mentioned in Article 95 of the Securities Law and further developed in a 2020 judicial interpretation, Provisions of the Supreme People’s Court on Several Issues Concerning Representative Actions Arising from Securities Disputes). The Shanghai Financial Court has taken the lead in these cases. What Justice Liu means is using the results in representative litigation to resolve outside of the courts other similar securities & futures disputes, particularly group disputes. This is an example of implementing the SPC’s diversified dispute resolution policies. This mechanism is can also be characterized as linking to the Party Center’s current policy of mediating first and resolving disputes at their source to reduce the quantity of litigation  (党中央关于“将非诉讼纠纷解决机制挺在前面,从源头上减少诉讼增量), as discussed in greater detail in the bilingual report.

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Those with more specialized knowledge in Chinese securities law should provide corrections or comments by using the blog’s comment function.

Brief comments on the China International Commercial Court

On 29 July, I spoke briefly at an American Society of International Law  webinar entitled “Charting the New Frontiers of International Dispute Resolution in the Asia-Pacific.” The post below is the (slightly edited) text of my comments on the China International Commercial Court (CICC). I have made some of the same points in earlier blogposts and this version includes those links.

Thank you for this opportunity to provide my thoughts on the CICC.  As some people know, I am on the CICC’s international expert committee, but nothing I have to say should be attributed to the Supreme People’s Court (SPC) or the China International Commercial Court (CICC). I’m not going to comment on the numerous articles I have seen either in both English and Chinese but instead focus my remarks on what I understand the focus of the work of the CICC to be now, suggest some reasons, and identify some trends.

The CICC has thus far accepted 18 cases in the three years since it was established.  Although I have never seen official confirmation of this, it appears that when the CICC was approved, it was approved as a part-time court.  It can be seen from the biographical description of each judge that each of them has at least one other full-time responsibility additional to being a CICC judge.  Some of the judges have two other full-time responsibilities.  The Intellectual Property Court of the SPC, is instead is a full-time court—it is unclear whether they have additional headcount. I have not seen a discussion of why one was approved as a part-time court and the other a full-time court—perhaps the leadership decided that the Intellectual Property Court was the one that would make a more important national and international impact, given the critical importance of intellectual property at this stage at China’s development and the range of intellectual property law issues in contention between China and certain of its trading partners.

In my view, the fact that the CICC is not a full-time court—means that the SPC’s #4 Civil Division, which provides leadership for the  CICC, must be strategic about what the CICC does.  Based on the language in some of the recent SPC documents,  particularly the September 2020 policy document on the Open Economy, I surmise that the #4 Civil Division is considering the best way forward with the CICC, as there is this language–“promote the construction of the CICC” (推进最高人民法院国际商事法庭建设). Additionally, the SPC has designated two senior Chinese academics (Shan Wenhua of Xian Jiaotong University and Liu Xiaohong of the Shanghai University of Political Science and Law), who are expert committee members to provide research on this topic.

Based on the type of cases that the CICC has accepted and the language in the end 2019 2nd Belt & Road Opinion and the 2020 Open Economy document, my understanding that the short-medium focus of the CICC is to be a model or guide for China’s lower courts in unifying “foreign-related” substantive and procedural law —it is currently domestically focused, rather than focusing on hearing large numbers of foreign-related cases.

So far, most of the cases that the CICC has accepted have been referred from the lower courts. The CICC will take the cases if it meets its criteria and it can see that the case involves issues regarding which existing law and judicial interpretations are unclear and that involve issues that frequently arise in practice. This can be seen in Articles 22 and 25 of BRI Opinion #2 “and the role of the CICC in providing models and guidance shall be developed… the role of cases in determining rules and guiding behavior shall be leveraged  (发挥国际商事法庭示范引领作用_…,发挥好案例的规则确定和行为指引作用).  Therefore the CICC has accepted and decided at least 5 cases related to arbitration—filling in gaps in Chinese arbitration law and judicial interpretations—and has accepted two more related to demand guarantees/standby letter of credit fraud disputes.  It has also issued a judgment on an issue related to product liability.

A second and it seems underappreciated aspect (outside of China) of the role of the CICC is in providing “models and guidance”– 示范引领作用– to guide the lower courts and to pilot reforms that are replicable (a Chinese judicial reform concept), as stated in Article 22 and 25 of BRI Opinion #2. That can be seen from reports on certain local courts:

  1. The Beijing #4 Intermediate Court—promoting one-stop diversified dispute resolution (多元化解纷纠纷中心), with links to local arbitration (CIETAC & the Beijing Arbitration Commission) & mediation organizations, the goal being for this court to come up with new ideas in international commercial dispute resolution to focus on Beijing’s advantages;
  2. The Suzhou International Commercial Court (approved by the SPC, and involving cooperation with the Singapore government through the China-Suzhou Suzhou Industrial Park );
  3. Haikou/Hainan also—the SPC’s policy document supporting the Hainan Free Trade Port mentions an international commercial court, although it seems to be less developed.

I would like to mention also that it is possible that whatever guidance is developed may also draw on the memoranda concluded and other best practices discussed at the Standing Forum of International Commercial Courts, of which the SPC is a member.

From what I can see from these local initiatives, the themes may include:

  1. promoting mediation (also in line with SPC policy on mediation taking priority);
  2. Centralizing case acceptance;
  3. Addressing additional arbitration-related issues;
  4. Possibly considering rules regarding more complex commercial disputes.

From my own research and discussions with some local judges, it appears to be early days to see any further guidance coming out of these local courts.

I wouldn’t be surprised to see the CICC eventually developing further rules, for example, related to mediation, drawing on the work of the lower courts, as this is a pattern I have seen before in other areas of law with the SPC because it appears CICC regulatory infrastructure is less fully developed in comparison with other commercial courts in other jurisdictions.  Experience from the lower courts could accelerate matters in part.

I surmise that either the CICC or local “international commercial courts” will eventually provide greater legal infrastructure related to what I call “invisible BRI disputes”–the increasing number of cases between two Chinese companies involving projects overseas, particularly in the area of construction engineering, often heard in the Chinese courts—that involve issues such as how to:

  1. find and apply foreign law;
  2. provide information and expertise about foreign technical standards; and
  3. improve the role of expert witnesses (with the necessary expertise) in construction engineering disputes.

These types of disputes raise several of many areas of law that need further work as Chinese companies operate internationally but want to have related disputes heard at home, and China seeks to progress domestic and foreign-related legislation.  I surmise that the Beijing #4 Intermediate Court will eventually come up with some guidance through its collaboration with the Beijing Arbitration Commission and other institutions.

Turning to the expert committee…the expert committee is an institution different from a user committee in jurisdictions such as US, Canada, the UK, Australia, New Zealand, Kenya etc. where they are often required by law and are primarily focused on incorporating input from users, including those practicing lawyers in evolving court rules.  I note that Taiwan involved a user committee in working on its new commercial & intellectual property court. Court rules in China are entirely within the authority of the SPC, and lower courts in practice issue them as well, and there is no compulsory requirement in Chinese legislation for incorporating public input in the course of drafting court rules. The CICC expert committee and other Chinese court expert committees (such as that established by the Beijing Financial Court appear to be established to enable courts to access expertise among the experts on a flexible basis, and it appears intentionally not involving lawyers practicing in China.  The link between the role of the expert committee members and the subject matter competence is weaker than with user committees, and thus far the few formal meetings of the entire expert committee have included speeches making general statements about international commercial dispute resolution in contrast to the more technically focused user committees in the jurisdictions I have mentioned.

From the BRI documents mentioned above that the SPC has issued, it appears that the SPC is still trying to determine a proper role for the expert committee (at least on the foreign side) as I don’t believe the roles mentioned in CICC regulations have turned out to fit with the SPC’s actual needs and the varied backgrounds of the experts. I’ve been in touch with several foreign members of the expert committee, none of whom has been approached by the CICC individually to provide expertise. One of many issues (as I’ve written about before) is that mediation outside China is considered to be its own type of expertise, different from arbitration (an area in which a number of experts are well known). Another question is whether the expert committee is made known internally within the SPC as a platform through which others in the SPC can access foreign expertise.

For all these reasons—the limited time that CICC judges have to devote to specific CICC matters, the focus on progressing Chinese substantive & procedural law through CICC decisions, the possible use of the lower courts to assist the CICC to evolve international commercial rules appropriate for China, and the flexible use of the expert committees–in the short to medium term I see the work of the CICC as more domestically focused, as the SPC does its part to progress Chinese domestic and foreign-related legislation, or as the current slogan has it “统筹推进国内法治和涉外法治.”

 

Invisible Belt & Road Disputes

slide from my presentation

In academic and many professional discussions of Belt & Road Initiative (BRI) disputes, the focus is on disputes between the Chinese and foreign parties.  Few mention disputes between two or more Chinese parties but linked with a BRI project.   (Professor Vivienne Bath of the University of Sydney Law School is one of the few exceptions.)   These are what I call “invisible  BRI disputes,” because few in the academic world and a small group in the professional world have noticed them.

I mentioned these type of disputes during my keynote speech at the University of Pittsburgh School of Law and Asian Studies Center’s “Deals and Disputes: China, Hong Kong, and Commercial Law” webinar when I spoke about the role of the Supreme People’s Court (SPC) in developing “Chinese international commercial law” (as I defined the term).–as can be seen in the slide above.

Although I made inquiries with some authoritative persons in the world of Chinese arbitration and the judiciary,  they were unable to give even a vague estimate of the number of these invisible BRI disputes, but all had the sense that they have been increasing and will continue to increase, both in arbitration and in the courts, as more projects undertaken by Chinese contractors overseas encounter unanticipated problems and enter into dispute settlement proceedings with one or more foreign counterparties and thereafter seek to claim their losses from their Chinese subcontractors (or sub-subcontractors) or suppliers or prevent their banker from paying out under a demand guarantee (or counter-guarantee).

The Belt and Road Initiative: Legal Risks and Opportunities Facing Chinese Engineering Contractors Operating Overseas (Engineering Contractors Book), written by a group of highly experienced Chinese legal advisers to major Chinese contractors, identified some of the risks to Chinese companies when doing contracting projects overseas.  As this and other sources have written, Chinese contractors are often engineering, procurement, construction (EPC) contractors in BRI jurisdictions.

This blogpost looks at three types of business risks leading to invisible disputes, as identified by the authors of the Engineering Contractors Book and others advising Chinese engineering contractors.  I look forward to others taking this topic forward.

Invisible Dispute #1

The Engineering Contractors Book said of the risks of subcontracting to other Chinese companies: “illegal subcontracting and multilevel subcontracting has become one of the biggest risks to Chinese contractors nowadays…[T]he choice of subcontractor is very important, which will result in one honors all; one damns all.” The book gives this example of invisible dispute #1.

 Company A is a large [Chinese] international contractor… Company A undertakes the general contracting, and completes sets of equipment, engineering consultation and engineering design, project management and engineering supervision, installation and debugging and technical services of various domestic industrial projects. A project in Country F in Southeast Asia was developed and executed by two subsidiaries of Company A: Company B and Company C. Company B is a trading company. This was the first time that it carried out foreign projects. Previously, Company B had no overseas project experience and personnel with relevant experience. Company C is an enterprise whose main business is project design, debugging and tests. In the selection of equipment suppliers, materials suppliers and other suppliers, Company B chose enterprises that had cooperated with Company A in other projects. Problems concerning these enterprises occurred during the installation, debugging and operation process, resulting in project delay, repeated procurement and increased costs. In the stage of commissioning and trial, Company C subcontracted the work to Company K, and Company K subcontracted to Company P, which was also a subcontractor of the employer. This subcontracting mode caused many problems, which led to project delay and triggered the employer’s claim.

According to a recent article in the Chinese press, about 70% of these disputes are heard in Chinese domestic arbitration.  A legal adviser to a provincial-level state-owned engineering contractor wrote recently about several of such cases heard in the courts.

In correspondence, an arbitrator who has heard these cases commented:

subcontracting and multilevel subcontracting are common phenomena, especially overseas. When the contractor cannot finish on time, the employer looks to the local construction team….

these cases are troublesome.  The problem is obtaining the crucial evidence, not because of any local restrictions, but because after projects go into operation, there are major changes to the site [of the construction project], so loss is difficult to determine. [In one case[ there were several boxes of peripheral and circumstantial evidence, in English, Arabic, and Chinese, but they did not form a chain of evidence.

Invisible Dispute #2

The authors of the Engineering Contractors Book wrote about demand guarantee risk.  In their view, fraudulent claims by the employer (and beneficiary of a demand guarantee) in a construction project are a significant risk because some employers may make claims in bad faith; international legal harmonization on the issue of fraud in demand guarantees is insufficient.  Invisible dispute #2 arises when an employer seeks to draw on the demand guarantee and the Chinese contractor files a claim against its bank, requesting the court to issue an injunction to stop payment under the demand guarantee on the basis of fraud.  Sometimes the project owner’s overseas bank is added, involving demand guarantees given by a Chinese contractor operating overseas and its bank. One example was mentioned in an earlier blogpost and another example is found in the deal list of a leading Chinese disputes lawyer:

Represented Beijing xxxx International Engineering Technology Co., Ltd. in an overseas construction letter of guarantee dispute before the ….. High People’s Court (first instance) and the Supreme People’s Court (second instance)–

The hearing of cases involving demand guarantees (standby letters of credit) appears to be an important area in which Chinese style case law will supplement the principles in the Civil Code, its relevant judicial interpretation, and the SPC’s 2016  judicial interpretation on independent (demand) guarantees.  At the end of last year (2020), the Shanghai Higher People’s Court issued a policy document on improving the hearing of foreign-related financial cases  (上海法院服务保障进一步扩大金融业对外开放若干意见), one point of which calls for the courts to improve the hearing of demand guarantees. The policy document was accompanied by typical cases (典型案例), one of which was a demand guarantee case heard by the Shanghai Financial Court.

I expect two further authoritative decisions will harmonize how legal and finance professionals understand Chinese law related to demand guarantees.  Those decisions will be made in two cases that the China International Commercial Court (CICC) has heard but has not yet decided. The cases involve demand guarantee (standby letter of credit) issues and the question of the standard for fraud and the issuance of an injunction.  If the SPC takes a case as a CICC case, it means that the legal issue is considered important enough to require a panel of five Supreme People’s Court (SPC) judges to hear the case.  The decisions will be soft precedents, ones that fill in a gap in statutory law and judicial interpretations.

Invisible Dispute #3

The authors of the Engineering Contractors Book wrote about supplier (often Chinese supplier) risk:  “if contractors fail to enhance the selection and management of suppliers, they are likely to face difficulties during the project execution. In practice, there are many cases in which contractors suffer losses due to improper selection or poor management of suppliers…Some suppliers use various unreasonable means to guarantee their profits in the bidding and follow-up process, which will inevitably bring greater risks to contractors.” My comments here are limited to Chinese supplier risk.

One example that can be identified most easily is related to the construction of Justice House in Tbilisi, Georgia.  Disputes over the quality of equipment and related issues ended up in litigation in the Sichuan Higher People’s Court.

Concluding thoughts

It is understood that first and third type of disputes may be heard by Chinese arbitral tribunals or courts, depending on whether the contracts have arbitration clauses, while the demand guarantee cases are generally heard in the courts.  Chinese legal professionals have commented that these cases are challenging for both arbitral tribunals and the courts to hear, particularly if much of the evidence is outside of China and especially if technical expertise is needed. Another issue raised by one of the authors cited is the choice (application) of law, as some jurisdictions may require that local law apply to any subcontracting, but Chinese courts tend to apply Chinese law.

Two recent articles in the Chinese professional legal press by a senior Chinese construction lawyer focused on a recent initiative to establish a qualification system for expert witnesses in construction engineering disputes.  It is even more challenging for Chinese courts to hear disputes that may involve foreign technical expertise.  Yet another issue relates to evidence formed abroad.   A third issue, not mentioned in this blogpost, relates to the greater need for dispute adjudication boards in construction disputes heard in the Chinese courts. Both the China International and Economic and Trade Arbitration Commission (CIETAC) and the Beijing Arbitration Commission have such rules in place, although with different titles.

These invisible BRI disputes raise several of many areas of law that need further work  as Chinese companies operate internationally but want to have related disputes heard at home, and China seeks to progress domestic and foreign-related legislation, or as the current slogan has it “筹推进国内法治和涉外法治.”

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Many thanks to Sun Wei, partner with the Zhong Lun Law Firm, and some authoritative persons for sharing their insights. The author alone is responsible for the above views.

Supreme People’s Court’s new policy document on opening to the outside world

SPC Press conference announcing the policy document

On the afternoon of 25 September, the Supreme People’s Court (SPC) issued yet another guiding opinion providing services and guarantees, this one on providing services and guarantees in support of expanding opening to the outside world  (Services & Guarantees to the Open Policy Guiding Opinions (Guiding Opinions)) (最高人民法院关于人民法院服务保障进一步扩大对外开放的指导意见). It was approved by the SPC’s Party Group, as was BRI Opinion #2.

Senior legal officials from the Ministry of Commerce (MOFCOM) and the Ministry of Foreign Affairs (MFA) spoke at the SPC press conference, in what this observer views as a cross-institutional show of support for China’s policies of opening to the outside world. At a time that government officials are focused on “dual circulation,”  it is a reminder that the opening to the outside world policy remains in place and that one of the SPC’s many responsibilities is to handle those issues properly.  The photo is also one illustration of the place of the SPC within China’s system (体制). 

SPC Vice President Yang Wanming (杨万明) spoke first at the press conference, with the officials from MOFCOM and MFA adding comments. This signalled to the careful observer that he has assumed the responsibility for overseeing the #4 Civil Division (responsible for foreign-related commercial and maritime matters) from Luo Dongchuan (who has been transferred to Fujian Province to serve as Political Legal Commission Party Secretary).

This brief (17 articles) guiding opinion providing judicial services and guarantees (not a judicial interpretation, see this explanation of what it is) is the latest judicial policy on foreign-related (this blogpost will use the term “cross-border”, to incorporate some Hong Kong-related) legal issues (inbound and outbound) relevant to the Chinese courts, drawing on BRI Opinion #2 (issued end 2019 and BRI Opinion #1) and the June, 2020 guidance on Covid-19 and cross-border commercial issues. 

As readers of this blog could anticipate, this opinion is harmonized with the latest international and domestic developments and the latest guidance from Xi Jinping.  According to the official commentary, it is intended to be guidance for judges engaging in cross-border cases for the foreseeable future, and appears to further develop the principles related to cross-border issues in the Opinions of the Supreme People’s Court on Thoroughly Implementing the Spirit of the Fourth Plenum of the 19th Party Congress to Advance the Modernization of the Judicial System and Judicial Capacity.  

As to what those judicial services and guarantees are, Justice Yang said the following:

Wherever the national strategy is deployed, the judicial services and guarantees of the people’s courts will be there (国家战略部署到哪里,人民法院司法服务和保障就到哪里.)

How does this document relate to other Chinese legislation?

To clarify the relationship between this opinion on the one hand and legislation, judicial interpretations and other types of judicial documents (such as the two BRI Opinions), Justice Yang gave a quick summary in SPC jargon:

While maintaining consistency with existing laws and regulations, judicial interpretations, and judicial policy documents, the Guiding Opinions also strengthen the macro-guidance of the people’s courts’ services and guarantees opening to the outside world from a higher level,  and are organically linked to other SPC judicial policy documents for major opening-up decisions, major strategies, and major initiatives, to further improve the system of judicial services and guarantees of the work relating to opening to the outside world与现有法律法规和司法解释、司法政策文件保持一致的同时,从更高层面加强人民法院服务保障对外开放工作的宏观指导,与最高人民法院出台的其他司法服务保障国家对外开放重大决策、重大战略和重大举措的司法政策文件有机衔接,进一步完善了司法服务保障对外开放工作体系。

What is means is:

  1. The Guiding Opinions are intended to be consistent with current law and regulations, SPC judicial interpretations, and SPC judicial policy documents.
  2. The Guiding Opinions links with previous SPC policy documents (such as BRI Opinions #1 & #2, the FTZ Opinions, the Lingang Opinions, Diversified Dispute Resolution Opinions, etc.)(see more below);
  3. It is intended to provide comprehensive guidance and better support government policies on opening to the outside world.

The Guiding Opinions. like many of the documents analyzed on this blog, are written in SPC jargon. Decoding this language poses challenges to those are concerned or who should be concerned about the impact of how the Chinese courts interact with the rest of the world. 

Decoding the language, however, enables the careful reader to understand outstanding issues and contemplated reforms or other measures, including possible judicial interpretations.

Summary and comments

This blogpost will summarize and make some brief comments on some of the issues mentioned in each of the six sections of the documents and make a few concluding comments.  There are many more issues in this document that should be explored, but I’ve been delayed by a hand injury.

1. Political stance

The first section calls for judges to raise their political stanceThis is standard language in the New Era. The first article frames the documents in current political language, including that frequently used in Chinese foreign policy documents and to relevant political documents. Therefore the first article (and elsewhere) refers to multilateralism, equally situated parties, and creating a legalized, internationalized convenient business environment.

The second article calls for the courts to provide services and guarantees for ten crucial national strategies and policies: promoting the BRI; pilot free trade zone construction [enhancement]; Hainan Free Trade Port construction; construction of the Greater Bay area; Beijing-Tianjin-Hebei area development; Yangtze River basin development; Shenzhen model city for socialist development; China-Shanghai Cooperation Organization local economic cooperation demonstration zone; Great Maritime Power construction. 自由贸易试验区建设、海南自由贸易港建设、粤港澳大湾区建设、京津冀协同发展、长江三角洲区域一体化发展、长江经济带发展、深圳中国特色社会主义先行示范区建设、中国-上海合作组织地方经贸合作示范区建设、海洋强国建设。This second article also calls for new mechanisms for hearing cases, and improving the application of law, to create a transparent stable predictable legalized business environment. The list of ten national strategies and policies is a signal to the leadership and to the lower courts, but for those of us far outside the System,  it signals to us that these are the most important current policies related to foreign-related judicial policy. It also appears that the national strategies linked to the opening policy evolves over time.

2.  Basic principles of foreign-related litigation

The second section focuses on basic principles of foreign-related litigation–of which it sets out three: protecting the equal rights of parties; respecting the intent of the parties; and implementing (judicial) jurisdiction according to law. 

The second principle, described in Article 4, includes the right of parties to choose governing law, a court with jurisdiction and arbitration, litigation, or mediation to resolve their disputes. However, as mentioned previously, Chinese law treats choice of arbitration and litigation differently, requiring litigants choosing a (foreign court) to have an actual connection to the foreign court (see Professor Vivienne Bath’s previous scholarship on this), although there isn’t a counterpart position for arbitration. As mentioned previously, the  application of foreign law by Chinese courts is a work in process.  The SPC has given a great deal of publicity to its platform for the ascertainment of foreign law. which includes determinations of foreign law on a certain issue by certain authorized organizations and opinions given by members of the international expert committee of the China International Commerce Court (CICC). As I wrote close to two years ago, the China International Commercial Court (CICC) rules do not clarify a number of practical questions. Could a court request an advisory opinion from an expert and from a designated ascertainment center, and if so, what relative weight will be attached to each? Presumably, a court would give it greater weight than an opinion from an expert provided by a party. 

The third principle, described more fully in Article 5, is linked to protecting China’s judicial sovereignty and repeats the statement that conflicts in jurisdiction and parallel proceedings will be resolved properly (妥善解决). This has appeared in BRI Opinions #1 and #2, but specific measures to resolve parallel proceedings have not yet been noted. Parallel and conflicting proceedings are an ongoing issue (not only between the Chinese courts and other courts outside mainland China) and will be further mentioned below.  As Professor Bath discussed, several scenarios are common. One involves situations in which parties had agreed to the exclusive jurisdiction of the courts of one country, but a party brings proceedings in the courts another country (China), which accepts the case and may issue a judgment before the original court. Another set of cases involves an alleged arbitration agreement which provides for arbitration overseas, but a party brings a case in a Chinese court nonetheless.  A variation has recently been noticed by two leading practicing lawyers in China.  In that case, an issue that had been pleaded in arbitration proceedings in Hong Kong and reviewed by the relevant Hong Kong court was not given res judicata effect in China.  The ruling by the Shijiazhuang court has been reviewed by the SPC under its Prior Review proceedings.

Although parallel proceedings in courts outside of China and in China have previously been noted primarily in maritime law (and anti-suit and anti-anti-suit orders),the parallel/conflicting proceedings issues seem to be moving to the area of Intellectual property (IP) law, likely related to the multi-jurisdiction litigation between Huawei and Conversant concerning standard essential patents, including in the UK Supreme Court and the German courts. What has been noted is one of the SPC’s research topics includes protecting China’s judicial sovereignty (national interests) through anti-suit or anti-anti-suit injunctions. The SPC Intellectual Property Court has issued an anti-suit injunction order against Conversant and the Wuhan Intermediate Court issued an anti-suit injunction order against Intel Digital (the linked article has a summary of the facts in the Wuhan case, but reserve judgment on the author’s comments on the authority of Chinese courts to issue these order).

3. Modernizing China’s foreign-related and maritime litigation systems

This third section contains four articles: application of law; fully develop the advantages of service and guarantees to cross-border trade and investment; promote the integration with the internet of foreign-related litigation; and develop diversified dispute resolution related to international commercial dispute resolution. Many of the provisions in this section repeat provisions in the BRI Opinions #1 and #2.  What appears to be new is a statement that the SPC will seek to integrate prestigious foreign arbitration and mediation organizations to be part of its one stop mediation/arbitration/litigation mechanism.

4. Increase judicial protections

Article 10 mentions foreign-related administrative litigation issues. They were mentioned briefly in BRI Opinion #2 and once in BRI Opinion #1, here seeing greater stress.  Section 11 focuses on cross-border intellectual property issues.  It has some important new content.  It mentions improving (完善涉外知识产权诉讼制度) foreign-related IP litigation procedures, putting into judicial policy previous statements by former Vice President Luo Dongchuan about the need for special IP litigation rules. It again mentions researching and responding to parallel international litigation relating to intellectual property rights and becoming a preferred place for settling IP disputes. From comments made by several leading experts in a recent webinar the Chinese courts are an important jurisdiction in IP litigation. It is unclear whether the use of anti-suit (or anti-anti-suit )injunctions by the Chinese courts will be the way that litigants are encouraged to turn to the Chinese courts to settle their global IP disputes. According to comments by several persons with expertise in Chinese IP law and related commercial issues, a number of factors are leading to the Chinese IP courts becoming an important forum for the resolution of IP disputes.  Related to this, see the analysis by Doug Clark, partner in the IP law firm Rouse in this article, in which he says that the Chinese courts are looking to take on the role of setting global FRAND rates. Also see related blogposts on Mark Cohen’s blog, Chinaipr.com.  These issues are complex and important.

5.  Prevent and resolve major risks

This section has only two articles.  Article 13 focuses on perfecting risk control mechanisms for major cases and firmly establishing an overall national security concept.  These phrases are not unique to the SPC, but reflect language in Party documents, with the “overall national security concept” attributed to Xi JinpingThis article also calls on courts to coordinate the overall international and domestic situations, adhere to bottom-line thinking and risk awareness, understand the domestic and international situation and risks and challenges facing China’s opening up.  The final phrase in this article calls on courts to resolutely defend our (China’s) judicial sovereignty and national security.  So it seems that the concept of “judicial sovereignty” (used several times in this document) is being used to protect China’s national sovereignty.

The second one (Article 14), on guaranteeing state security and economic and social order gives a different priority to possible cross-border criminal law issues from either BRI Opinion.  Neither BRI Opinion mentioned  infiltration (渗透), espionage (间谍), sabotage, subversion  (渗透颠覆破坏). Infiltration and espionage are mentioned immediately after the article heading. (the sentence is: “thoroughly participate in the struggle against infiltration, espionage, separatism, terrorism, and cults, by strictly combatting crimes of infiltration, subversion, and sabotage, and crimes of espionage, violent terrorism, ethnic separatism, religious extremism, and other crimes that endanger national security” 深入参与反渗透反间谍反分裂反恐怖反邪教斗争,严厉打击各种渗透颠覆破坏、间谍、暴力恐怖、民族分裂、宗教极端等危害国家安全的犯罪. (Many thanks to Chinalawtranslate.com for this translation). Other concerns, such as violent terrorism, ethnic separatism, religious extremism have been seen previously in the other two BRI documents. and article 14 again stresses criminal justice cooperation between China and the rest of the world. The reason for the change in priorities is unclear. What signal does this send to the international commercial and judicial world (international community) that infiltration, espionage, sabotage and subversion are being mentioned?

6. Increasing judicial cooperation, increase the international influence of the Chinese judiciary

These three articles address judicial cooperation, judicial exchanges, and training of judges who can handle foreign-related cases.  

Article 15 concerns judicial assistance treaties, encouraging Chinese judges to participate in the negotiation of bilateral and multilateral judicial assistance treaties.

Article 16, on judicial exchanges, including highlighting exchanges with the principal international legal organizations, also summarizes ongoing SPC practices in developing exchanges with BRI judiciaries, although it is not so specified.  

Article 17 calls for the better training, recruitment and promotion of persons who can deal with specialized legal issues such as cross-border finance, environmental protection, maritime law, intellectual property. Measures include joint programs with universities, exchanges with international organizations and international commercial courts, with the objective of having judges who are able to participate in the drafting or amendment of relevant international rules [a glimpse into a judiciary certain special functions] and the creation of a group of Chinese judges with an international perspective. This appears to be directed to law schools and senior personnel in the lower courts and likely involved concurrence by the SPC’s International Cooperation Bureau.  As has been mentioned in earlier blogposts, the career progression for legal professionals to become judges has slowed because of the personnel reforms in the previous round of judicial reforms, under which young professionals work as judges assistants for a number of years before applying (and passing relevant examinations)to become a judge.  From my observations, fixed quotas on the number of judges in a court can mean a talented, educated judges assistant in one court may wait significantly longer than a similarly qualified person in another court to become a judge.

A few concluding comments

Perhaps it is not realized that multiple documents conveying many of the same messages, with references that need decoding, may not convey the intended message to the international business community that the Chinese courts welcome and will treat fairly foreign commercial litigants, and that Chinese law is stable, transparent and predictable. 

The Guiding Opinions call for increasing publicity about and the international influence of Chinese justice, and international confidence in Chinese law, through translating guiding and typical (exemplary/model) cases into foreign languages.  This echoes language in BRI Opinion #2.  The international community outside of China may or may not consider those sources to be primary ones in forming a view about the Chinese courts.  In my view, it is more likely that the international community will look to decisions and rulings of the Chinese courts in several categories of cases: enforcement or other proceedings involving foreign (and Hong Kong) arbitral awards;  parallel or competing proceedings, whether with other courts or with international arbitration;  difficult commercial ones, particularly involving Chinese state-owned enterprises, or other Chinese national champions and issues related to intellectual property, particularly as it relates to “cutting-edge” technology.  This observer surmises that the international judicial community will also look for a spirit of mutual respect for foreign courts and their jurisdiction.

The Guiding Opinions repeats language about Chinese courts participating in the formulation of international rules, an ongoing theme since the 2014 4th Plenum of the 18th Party Congress decision. One example is the constructive role of the SPC negotiator as a member of the Chinese delegation that participated in the drafting of the Hague Judgments Convention. But what the international community will also look for is China’s capacity to harmonize its legislation to be able to ratify the international conventions whose drafting it participates in.

The introduction to Guiding Opinions notes that comments were sought from many sources. It is unclear whether the views of international users of the Chinese court system were solicited. Other developments in which the international community may display an interest are the creation of additional institutions within the Chinese judiciary to enable the Chinese judiciary to better understand the needs of(domestic and international) users.

__________________________________________

Many thanks to several highly knowledgeable readers who commented on earlier drafts of this blogpost.

Supreme People’s Court to Issue White Paper on Judicial Review of Arbitration and Related Model Cases

For a longer project, I am carefully analyzing the Supreme People’s Court’s (SPC’s) 2019 Opinions on the People’s Courts Providing Further Services and Guarantees for Belt & Road Construction (BRI Opinion #2) (关于人民法院进一步为“一带一路”建设提供司法服务和保障的意见, about which I previously wrote in January (at some length). Each phrase in an SPC Opinion has a particular meaning and usually a backstory. As I said in January, it takes knowledge of a constellation of related policies and practices to decode SPC Opinions.  Those of us outside the Chinese court system realistically can be expected to identify only a portion of the references. This blogpost focuses on two phrases in Article 25 of BRI Opinion #2–“publish typical (model/exemplary) cases on an irregular basis, issue white papers at a suitable time (不定期公布典型案例, 适时发布白皮书).  

What’s new?

In public speeches this month (August, 2020), two SPC judges revealed that the suitable time for issuing a white paper and model cases somewhat related to the BRI is “soon.”  As I (and many others) have written, the SPC has used the political importance of the BRI to improve the legal infrastructure for and personnel handling the judicial review of arbitration.  (As others have written, under Chinese arbitration law, the courts have a greater role in the review of arbitration.), Judge Shen Hongyu, deputy head of the SPC’s #4 Civil Division revealed in a speech in early August, reported in Legal Daily, that “in the future, a bilingual white paper annual report on the judicial review of arbitration in 2019 and analysis of typical cases on the judicial review of arbitration will be issued” (将发布《2019年度仲裁司法审查案件白皮书》(中英双语版)以及仲裁司法审查典型案例分析).  The same news was repeated by #4 Civil Division Judge Ma Dongxu and Judge Shen Hongyu in a recent conference (held on-line) of the Chinese Arbitration Law Society.

White Papers

Issuing a judicial review of arbitration white paper would be a first for the #4 Civil Division and a step forward in transparency about the work of the SPC and judicial review of arbitration in particular. From the title, I surmise that the white paper will be nationally focused, similar to the SPC’s annual bilingual intellectual property white paper and environmental protection white paper. Although I have previously written about difficulties in locating full text versions of Chinese court white papers, I am quite sure that this white paper will be made accessible.

Late last year, the Beijing #4 Intermediate Court (and China University of Political Science and Law) issued a big data study of cases involving the judicial review of arbitration cases (analyzed here in English) I surmise that the SPC’s white paper it will show the success of the new judicial interpretations that the SPC issued in late 2017 and related notices as well as the pro-arbitration policy of the SPC. Greater openness about the judicial review of arbitration would be welcome by all interested parties. It is unclear whether the #4 Civil Division will give consolidated information about the cases that it reviews through the Prior Approval system, which is its version of the qingshi (请示,request for instructions), about which I have previously written.  This article in the Kluwer Arbitration Blog provides a good summary of Chinese practitioner objections to the request for instruction procedures in the Prior Approval system.

Publishing typical cases

As I wrote last month and many times previously on this blog, the SPC frequently uses typical/model/exemplary cases, in several ways, including  to supplement judicial interpretations and legislation.  That was made clear by last month’s guidance on similar case search. The #4 Civil Division (the cases are issued by the SPC itself, of course) and the Supreme People’s Court Intellectual Property Court (SPCIPC) often use typical cases in analogous ways–unifying judicial standards. The press release that the SPC released in June on typical cases involving ship crew members was by SPC standards, quite blunt in pointing out the inadequacy of related law.  (“Our country has not formulated a special crew law.. it lacks more targeted regulations…Typical cases combine the characteristics of the protection of the rights and interests of seafarers, analyze the law and reasoning, and fill the gap between the norms and the facts by extracting the main points of the judgments (我国尚未制定专门的船员法…缺乏更有针对性的规定。典型案例结合船员权益保护的特点,析法说理,通过裁判要旨的提炼,填补规范与事实之间的空隙)

Justice Luo Dongchuan, formerly the SPC vice president responsible for both the #4 Civil Division and the SPCIPC pointed out the gap-filling role of typical cases more discretely. (He has since been transferred to Fujian Province to serve as Secretary of the Provincial Party Committee’s Political-Legal Commission).The SPC issued BRI-related typical/model cases in 2015 and 2017  and BRI guiding cases in 2019.   (For those interested, Stanford Law School’s Guiding Cases Project has translated the model and guiding cases (note that there is a trademark symbol for B & R cases). The legal rules in typical/model cases and guiding cases may eventually be incorporated into a judicial interpretation or legislation (explained in my earlier article).

Importance of the White Paper

I wrote in December of last year that one aspect of being in a leadership role in the SPC (referring to the president, vice presidents, division heads, deputy heads, and  their equivalents in the affiliated institutions of the SPC) is ensuring that policies, actions, initiatives, and other decisions hit the target of being politically correct (post 19th Party Congress and post 4th Plenum) while being “problem-oriented,” that is, addressing relevant practical issues.  Judge Shen skillfully hit that target in her speeches. She linked her first presentation to language in the Decision of the 4th Plenum of the 19th Party Congress, stating that “promoting external publicity on the rule of law and spreading the voice of the rule of law in China is an important manifestation of serving the overall situation of the Party and the country ( 推进对外法治宣传,传播中国法治声音,是服务党和国家工作大局的重要体现). As I asked in January, does it hit the target with foreign audiences? Is engaging special publicity for foreigners in fact useful in reassuring foreign governments, foreign state-owned companies, commercial entities, and individuals that their dispute is best heard in China?

Rather than special publicity, the bilingual white paper and model cases, aimed at both domestic and foreign audiences, are in fact better vehicles by which the domestic and foreign legal communities can assess how Chinese courts supervise arbitration, and how that compares to other jurisdictions.  Because many trade, investment, and licensing agreements involving Chinese parties have arbitration clauses, this white paper is sure to be reviewed carefully by many. 

 

Judicial services & guarantees to aid China’s economy

Justice He Xiaorong at the press conference

I am going to experiment with a shorter format, starting with this blogpost.

On 22 July, the Supreme People’s Court (SPC) held a news conference with the National Development and Reform Commission (NDRC) to announce their latest policy document providing judicial services and guarantees to accelerate the socialist market system in the New Era (为加快完善社会主义市场经济体制提供司法保障).  Justice He Xiaorong appears to be the SPC senior official in charge of the #1 Civil Division. From his appearance at the press conference, Zheng Xuelin, the head of the #1 Civil Division, must have taken the lead in drafting this document, but the subject matter reflects input from many divisions of the SPC, although none of them are mentioned. Wang Renfei, head of the NDRC’s Division of Economic Reform, also appeared at the press conference.  It is linked to a May, 2020 document of the Central Committee and State Council on improving the market economy in the New Era.

These policy documents that provide judicial services and guarantees are one of the hallmarks of the SPC in the New Era, as General Secretary Xi Jinping has called on the SPC to provide judicial services and guarantees to the important policy initiatives and strategies of the Party and state. Since Xi Jinping became General Secretary, at the annual Central Political-Legal Work Conference, he has given instructions to the political-legal institutions that the judicial organs provide “judicial services and guarantees” for major Party and government policies. For that reason, the SPC has increased the number of policy documents in which it has provided services and guarantees to the work of the Party and state. Consistent with Xi Jinping’s instructions, Party leadership, in the most recent inspection of the SPC, requested that the SPC strengthen its “services and guarantees” to the work of the Party and state.   This latest policy document has 29 articles, covering the topics of:

  • judicial protection of market entities, especially small entities;
  • judicial protection of property rights;
  • establishing a fair, just, and orderly competitive market system;
  • a legalized business environment suitable for high-quality economic development;
  • judicial protection of people’s livelihood;
  • improve foreign-related guarantees; and
  • one-stop diversified dispute resolution with Chinese characteristics.

There are a few new provisions, but most of the provisions are a repackaging of current or previous issues, many of which had been mentioned in a recent SPC New Era policy document and discussed on this blog. Some, while not new, send welcome signals.  The careful reader can pull out of the bureaucratic language of this document ongoing issues facing the Chinese courts and even some initiatives not previously mentioned.  An unscientific selection below follows:

  1. Judicial protection of market entities

This section repeats principles or raises issues such as:

  • parties being treated equally; protecting the individual and property rights of entrepreneurs (an ongoing issue–see this 2016 blogpost);
  • Absorb and transform beneficial international/foreign experience –this document uses the language “beneficial experience from legal systems with mature market entities” (吸收借鉴国际成熟市场主体法律制度的有益经验). This phrase is repeated elsewhere in the document. As I wrote in 2017–“a careful review of official statements, publications, and actions by the SPC and its affiliated institutions, as well as research by individual SPC judges [and teams of SPC judges] shows an intense interest in how the rest of the world deals with some of the challenges facing the Chinese judiciary coupled with a recognition that any possible foreign model or provision will need to fit the political, cultural, economic, and institutional reality of China, and that certain poisonous ideas must not be transplanted.”  This continues to be true (given the gaping holes in Chinese legislation, as seen from the perspective of Chinese judges), including a careful review of relevant US law.
  • Abuses by senior leaders in SOEs, causing loss of state assets (and likely benefiting private pockets), as seen in this phrase: “further clarify the relationship between state-owned property owners and agents, properly handle cases of loss of state-owned assets due to insider control, related transactions, and illegal guarantees by legal representatives, and pursue directors in accordance with the law. Supervisors and senior managers violate their legal responsibilities and obligations of loyalty and diligence. Promote state-owned enterprises to improve their internal supervision systems and internal control mechanisms, standardize  the positioning of powers and responsibilities and exercise methods, and improve the modern corporate system with Chinese characteristics.”
  • Improve the protection for small investors (relates to ongoing initiatives by the Shanghai Financial Court) and is connected with the most recent conference summary on bond disputes (全国法院审理债券纠纷案件座谈会纪要).  It mentions a forthcoming judicial interpretation on group securities litigation, apparently mentioned for the first time (及时出台证券纠纷代表人诉讼司法解释).  The Shanghai Financial Court has issued pilot regulations that will be considered by the SPC.
  • Exiting the market, the goal to be applicable to all sorts of legal and natural persons (signaling further developments relating to individual bankruptcy), establishing a better cooperative mechanism with government on bankruptcy (not new).

2. Judicial protection of property rights

Many of these have been discussed on this blog previously:

Better protection for property rights of private enterprises (discussed two years ago at the beginning of the anti-organized crime campaign).  It again mentions prevent the abuse of public power to infringe private property rights such as illegally sealing up, seizing, and freezing property rights of private enterprises;

Improving the hearing of cases involving land and real property condemnation (as this blogpost discussed, an underlying problem is the failure of related government departments to comply with legal requirements);

One article (#11) is devoted to improving intellectual property rights protection, but it does not flag anything not previously mentioned.

3.  Establishing a competitive market system

Article 12 re-emphasizes a concept basic to a market (oriented) economy–respect for the voluntariness and spirit of contract (尊重合同自愿和契约精神).

One provision in this section has attracted the greatest amount of attention–reducing the allowable interest rate for private lending, signaling a reversal of the provisions in the 2015 interpretation on private lending, which the document states will be amended soon.  The other provision that is repeated here (first mentioned three years ago), is stopping SOEs from using their easy access to bank capital to on-lend funds on the private market, for greater profit than their core businesses 规范、遏制国有企业贷款通道业务,引导其回归实体经济).

This section signals that the SPC will be working on more detailed provisions on taking security as a result of the Civil Code (进一步研究细化让与担保的制度规则和裁判标准).

4. legalized business environment suitable for high-quality economic development

Among the provisions mentioned here is better coordination between the financial regulators and the courts  (and legal oversight by the courts) (主动加强与金融监管机构的沟通协调,支持、促进金融监管机构依法履职,加强金融风险行政处置与司法审判的衔接,协助做好金融风险预警预防和化解工作).

5. judicial protection of people’s livelihood

This section mentions improving judicial protection for the consumer, better personal data protection, and improving protections for workers in new types of enterprises (i.e., working under algorithms).

6. Foreign-related commercial issues

Two new bits of information in this section are: the mention of exploring the establishment of a judicial review system for international investment arbitration (探索建立健全国际投资仲裁领域的司法审查机制 and issuing guidance on the recognition and enforcement of foreign commercial arbitration awards (适时出台涉外国民商事判决承认与执行的规范指引). This may evidence an expected increase in foreign arbitral awards sought to be enforced in China, in light of the (expected) increased number of Belt and Road Initiative related disputes.

7. One-stop diversified dispute resolution

This section repeats many of the current buzzwords (as discussed in my May blogpost), such as “resolving disputes from the source,” the “Fengqiao Experience,” giving mediation priority, and linking litigation with mediation.  However, as mentioned in earlier blogposts, some aspects of better mediation of disputes requires deeper reforms, such as changing incentives or evaluation of SOE executives.

Rooting the Singapore Mediation Convention in Chinese soil

Screenshot 2019-09-01 at 3.15.52 PM
tree planting in Fujian ©xinhua

The signing of the  UN Convention on Enforcement of Mediated Settlement Agreements (Singapore Mediation Convention) in early August by the United States, China, and 44 other countries is one of the significant events for international commercial lawyers, although it has been lost in the roar of more major geopolitical events.  Signing the convention appears to have been a last-minute decision by the government of the People’s Republic of China, as this post by Zhong Lun partner Sun Wei in the third week of July does not give a clear signal as to whether China would sign. In several events at which I spoke or attended this month, the topic of the Singapore Mediation Convention came up.  So I’d like to draw on the wisdom of others (and add some of my own thoughts) to talk about the challenges to be faced in rooting the Singapore Convention in [mainland] Chinese soil.

I’ll note that Professors Peter Corne and Matthew Erie have written about the same topic recently for the well-regarded blog Opinio Juris about the background and some of the challenges that China faces in implementing the Singapore Mediation Convention.  I appreciate their link to my March, 2019 blogpost on the closed-door workshop held at the International Law Institute of the Chinese Academy of Social Sciences on the Singapore Convention. They have written in detail about the lack of commercial mediation legislation, inconsistencies between the Convention and domestic PRC law, and the lack of private-sector or other robust mediation centers.  I’ll add to the analysis several (generally unrecognized) factors:

  • taking a more flexible approach to mediation legislation;
  • changing state-owned enterprise (SOE) and SOE senior manager metrics and performance indicators to facilitate mediated settlements;
  • convincing senior SPC personnel that settlement agreements (as defined by the Singapore Mediation Convention) are more likely to lessen rather than increase the workload of the courts (this has been flagged by Sun Wei in one of his posts);
  • having persons committed to making change within bureaucratic institutions.

Flexible approach to mediation legislation

A number of people have written (and even more have spoken) about the obstacles posed by the lack of a Chinese commercial mediation law or general mediation law.  But perhaps it is best to follow the usual Chinese legislative approach, and test what is needed through [possibly temporary] [State Council] regulations. Once the outlines of what needs to go into a law are clear, drafters can look to China’s own experience, the 2018  UNCITRAL Model Law on International Commercial Mediation and International Settlement Agreements Resulting from Mediation and experience abroad (characterized as beneficial foreign experience).

Implications for SOEs

On changing SOE (and manager) metrics and performance indicators, Professors Jack Coe, Jr. (Pepperdine University School of Law) and Lucy Reed (National University of Singapore(NUS)) made the comments below on investor-state mediation earlier this year in a conference in Hong Kong on investor-state dispute settlement (ISDS). Although they were not speaking specifically of China, in my view, the principles are also applicable to China and also apply to settlement agreements of SOEs with commercial entities in other jurisdictions:

Relatedly, governments ought to more fully embrace principles of resource management and prudent stewardship in considering how in a given case mediation might bring an end to a risk-laden dispute, allowing the government officials legitimately to declare victory, and then return to the State’s other business. Additionally, we need to study domestic corruption laws and other municipal disincentives to government settlements with foreign investors. State officials [and senior SOE managers] ought to be free to end disputes without fear of corruption charges later being brought against them, in turn putting the settlement itself at risk.

Professor Lucy Reed discussed a 2016 survey that NUS’ Centre for Investment Law (which she headed) conducted on obstacles to settlement in ISDS (for those who aren’t familiar with her, she is one of the leading international commercial and investment arbitrators):

the top obstacle to settlement in ISDS, by far, is the State’s desire to avoid responsibility for a settlement and to defer decision making to third-party arbitrators. The second greatest obstacle is the political risk involved. The third one is the difficulty of getting budget approval when there is a voluntary settlement instead of an arbitral award. Fourth is,as Jack Coe mentioned, a fear of public criticism, media criticism,
and even allegations of corruption in taking a bribe in order to settle a case with a potentially hated investor. Fifth was the fear of setting a precedent, meaning opening the floodgates to being sued again and again because you make a settlement. Then there are structural inefficiencies; because there are so many agencies involved, it is just hard to get approval.

The survey also looked at what might incentivize governments to invite a mediator to participate. Professor Reed said:

By far the most important factor was the desire to save time and money, so, please remember this one.  Second, obviously, is when the case is known to be weak and might be lost. Third is appreciating the certainty of a settlement, over which they have some control, as compared to the uncertainty of an arbitration decision, which you might win but you also mightlose and lose big. And the fourth factor actually was the desire to preserve a long-term relationship, if the relations are not already fractured as they often are in big investments.

All of these obstacles and incentives have their Chinese characteristics. One incentive, a variation of the fourth factor that Professor Reed identified, is that it enables a Chinese contractor that has a dispute with a host country (or state-owned company) to resolve a dispute (to its satisfaction) without losing its eligibility for future work in that market. This is a real concern for Chinese contractors, who are major players in the international construction/contracting market.

Resolving issues for SOEs is likely to require a commitment by multiple institutions involved in administering SOEs and its managers (State-owned Assets Supervision and Administration Commission (SASAC), the Communist Party’s Organization Department (组织部), and the Ministry of Finance among others. In a mock mediation session (based on an actual case) that was part of a Great Britain China Centre event that I attended this spring, the benefits of mediated settlements in achieving the goals of all parties involved in a BRI project was brought home.  Convincing the SOEs and their regulators will be an important part of making the Singapore Mediation Convention work in China.

Implications of the Singapore Convention for the Chinese courts

As Sun Wei wrote earlier, the Chinese courts are concerned that overworked [I would add, and very studious] Chinese judges will need to deal with a flood of enforcement cases when China ratifies the Convention. He cited data to show that generally parties comply with a mediated settlement and rarely seek compulsory enforcement proceedings. Another major concern of the Chinese courts is that Chinese judges will need to review claims of fraudulent cross-border mediation as well as fraudulent litigation and mediation. But the evidence so far would indicate that the Singapore Mediation Convention would reduce rather increase the workload of the Chinese courts. But the deeper question is the reliability of that data and relevance to China’s legal environment and the legal environment outside of China in which Chinese companies operate. There are more minor issues, such as an additional cause of action (if I understand Chinese civil procedure law correctly), but those aren’t the principal concerns.

Who is committed?

Planting the Singapore Convention in Chinese soil requires work by many related government institutions.  The hard work in determining what needs to be done cannot be done one person (or even a team of people) in one institution, but requires persuasion and appeals to institutional self-interest of multiple institutions, and persons committed to making the Singapore Convention work in their regulatory area.

Many thanks to a knowledgeable person for his thoughtful comments on an earlier draft of this blogpost.

CICC Expert Committee Office Renamed

A brief notice appeared on the China International Commercial Court (CICC)’s websites on 9 August, announcing that the Office of the International Commercial Expert Committee (Expert Committee) of the Supreme People’s Court (SPC) (国际商事专家委员会办公室) had been renamed the Coordination and Guidance Office (协调指导办公室) for the CICC from 21st June 2019. The main duties of the Office are described as directing and coordinating construction, adjudication management and external exchange (负责指导协调国际商事法庭建设、审判管理、对外交流; 负责国际商事专家委员日常工作等) of the CICC, and also in charge of the routine work of members of the Expert Committee. I surmise that these functions are meant to convey that the office will not only support activities related to the Expert Committee but also be responsible for a variety of matters, such as coordinating the drafting of rules and the wide variety of administrative matters that go along with any administrative entity in China, particularly one that deals with foreigners. The notice also announced that from 23rd July 2019, Ms. Long Fei, who has a Ph.D. from China University of Political Science and Law, has been appointed as the Deputy Director (Person in Charge) of the Coordination and Guidance Office. She had formerly been the Director of Department of Guidance Service, Judicial Reform Office of the SPC. She brings to the new role many years of work on diversified dispute resolution related issues.

Singapore Mediation Convention and China

AB0B9A04-E291-42AD-8A5F-B5C99404623E.JPG
The author chairing a session of a workshop on the Singapore Mediation Convention at the International Law Institute of the Chinese Academy of Social Sciences

I was very honored (and gratified) that the workshop pictured above was able to take place on 18 March at the International Law Institute of the Chinese Academy of Social Sciences (CASS).  Unbeknownst to most of the attendees, who included persons from the Ministry of Foreign Affairs, Supreme People’s Court, and National People’s Congress, I was one of the organizers.  Other participants came from the Foreign Affairs College and Shanghai office of the Singapore International Arbitration Centre. The workshop could not have taken place if not for the efficient work of Professor Liu Jingdong and assistant research fellow Sun Nanxiang. I had previously gotten to know Mr. Wen Xiantao, of the Department of Treaties and Law of the Ministry of Commerce (MOFCOM) and official Chinese negotiator of the United Nations (UN) Convention on International Settlement Agreements Resulting from Mediation (Singapore Mediation Convention or Convention) and Sun Wei, Zhong Lun partner and participant in the Convention negotiations as part of Beijing Arbitration Commission’s delegation to the negotiations as with observer status.

The Singapore Mediation Convention is intended to complement the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention, and when it goes into force, will enable international commercial settlement agreements that result from (third party) mediation to be enforced.  A summary of the Convention can be found here, and the United States negotiator, Timothy Schnabel, who proposed the Convention, wrote (in his own capacity) a definitive overview of its text, structure, history, and purpose.  As Mr. Schnabel’s article explains, the Convention is intended to promote the use of mediation in resolving cross-border commercial disputes, because it is more likely to work faster, cost less, and preserve the business relationship. From Mr. Schnabel’s article, it is clear that Mr. Wen ”vigorously participated in the formulation of international norms,” and his views had a positive impact on the eventual text of the Convention, supporting the drafting of a convention rather than only a model law and enabling enforcement of settlements that include both pecuniary and non-pecuniary elements.

From reading Sun Wei’s blogpost on the Kluwer Mediation Blog (part 2 found here)  it was clear that multiple institutions need to come to an agreement that signing and ratifying the Singapore Mediation Convention would be beneficial for China.  I noted many misconceptions about the Convention flying around the Wechatosphere.  Messrs Wen and Sun (and I)  realized that representatives from the institutions involved needed to be in the same room to be able to hear more about the Convention, ask questions and discuss concerns in a congenial environment. As a former practitioner, I thought it would be useful to have Adrian Hughes, QC and Helen Tang (Shanghai-based disputes partner of Herbert Smith Freehills) in the room to be able to speak first hand about the process of and advantages of commercial mediation in international commercial dispute resolution, as well as the enforcement process in the courts of England and Wales.

Wen Xiantao and Sun Wei took the lead in discussing the provisions of the Convention and related issues, Adrian Hughes spoke as a highly experienced international commercial mediator and litigator, and Helen Tang contributed comments from her experience representing Chinese parties in international commercial disputes.  The closed-door and invitation-only format enabled an interactive discussion among all participants. Among the many issues discussed were the implications for the courts, preventing the enforcement of fraudulent mediation settlements, and the lack of a law relating to commercial mediation.

The official report on the workshop is found here.

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Some comments on the China International Commercial Court rules

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from the CICC website

The Supreme People’s Court (SPC) is gradually building the infrastructure for the China International Commercial Court (CICC).  An important part of it was put into place in December 2018, when the SPC issued the Procedural Rules for the China International Commercial Court of the Supreme People’s Court (For Trial Implementation) (CICC Procedural Rules). Other rules are yet to be issued. From the Chinese original of the CICC Procedural Rules, they were issued by the SPC’s General Office 最高人民法院办公厅关于印发《最高人民法院国际商事法庭程序规则(试行)》的通知 (document number (法办发〔2018〕13号).  The SPC’s judicial committee discussed the draft CICC Procedural Rules in late October, indicating the importance that the SPC leadership attaches to the CICC.  However, the SPC did not issue the CICC Procedural Rules as a judicial interpretation.

As to why they were issued with the indication “For Trial Implementation” and by the SPC’s General Office rather than as a judicial interpretation, the Monitor has her theories (readers are welcome to propose alternative explanations). As for why “For Trial Implementation,” it is likely that the SPC intends to further amend the CICC Procedural Rules once it has greater experience using the rules and has more reaction from counsel that has litigated before the CICC and the market generally.  As to why the SPC issued the CICC Procedural Rules as a General Office normative document rather than a judicial interpretation, it may be surmised that it is linked to the SPC practice of issuing judicial interpretations when judicial policy has stabilized (this practice is discussed in another article in the academic article production pipeline), and the judicial interpretation can be in place for a relatively long period.  Additionally, issuing the CICC Procedural Rules as a judicial interpretation would involve more formalities and scrutiny under the 2007 SPC rules on judicial interpretation work.

As this blog (and other commentators have mentioned), the drafters of the China International Commercial Court rules had to draft carefully to remain within the constraints of existing law and judicial interpretations,  as judicial normative documents (司法规范性文件) of which this is an example, may not conflict with either source of law. The CICC Procedural Rules reflect a number of themes seen in SPC cross-border matters:

As noted here also, The CICC Procedural Rules are not long (40 articles), with one-quarter of its provisions devoted to mediation.  In comparison, the DIFC court rules. Singapore International Commercial Court (SICC) Practice Directions,  and Netherlands Commercial Court Rules of Procedure are much longer. But the length of the CICC Procedural Rules is consistent with the length of other SPC rules.

A few specific comments and general comments follow below.

Specific comments

Case Acceptance

Article 8 lists the documents that a plaintiff needs to provide when filing suit, highlighting the new and old in Chinese cross-border dispute resolution.  The old is the documentary requirements that a foreign (offshore) plaintiff and his/her foreign agent must provide.   Because China has not yet acceded to the Hague Convention Abolishing the Requirement of Legalisation for Foreign Public Documents, an offshore plaintiff must provide notarized/certified and legalized versions of corporate or individual identification documents,

As to what is new, requiring a plaintiff to submit a Pretrial Diversionary Procedures Questionnaire (in addition to a statement of claim and other such documents) is a type of document that is often required by courts in other jurisdictions and reflects background research that the drafters had done on other jurisdictions.

Pre-trial Mediation

The CICC emphasizes the importance of mediation and promotes the concept of a one-stop integrated model through integration with the leading foreign-related mediation organizations within China. The three international commercial court rules mentioned above also encourage the use of mediation but do not limit the mediation institution used to domestic ones.

Article 17 and 18, Pre-trial Mediation:   Article 17 relates to a case management conference called by the Case Management Office of the relevant CICC rather than the judge assigned to the case, as set out the SICC Practice Directions (and other international commercial courts). The institution of a case management conference appears to be a concept borrowed from outside of China. It is to be convened within seven working days from the date of the service of the plaintiff’s documents on the defendant.  In other jurisdictions, however, case management conferences are generally scheduled after the defendant has served his documents on the plaintiff.  Query whether an exchange of documents would be more conducive to effective mediation.

Article 17 mentions that the time limit for mediation should generally not exceed twenty working days. This deadline puts pressure on the mediators and parties to come to an agreement quickly.  It appears “generally should not exceed” language contains flexibility so that if parties are in negotiations, the deadline could be extended. As to what occurs in practice, Danny McFadden, Managing Director of the Centre for Effective Dispute Resolution (CEDR) Asia Pacific, well-known as a mediator (and trainer in mediation) )and former interim UN Director of Mediation) commented that in his experience: “When parties are keen to hold a mediation it can be administered and take place within a matter of days. However on average, from when CEDR is initially contacted by the parties/lawyers, the mediator and date of the mediation is agreed, mediation documents are exchanged  and to the end of the actual mediation, it takes 5 to 6 weeks.”。

Under the CICC Procedural Rules, mediation will be conducted by one or more members of the CICC Expert Committee or one of the Chinese mediation institutions designated by the CICC. The case management conference is to be held online (assuming the videolink from the CICC will be good enough).  The resulting memorandum is then issued by the Case Management Office. Under the SICC Practice Directions (and rules of some of the other international commercial courts), the case memorandum is prepared by the parties. It is not mentioned in the CICC Procedural Rules whether the parties will have an opportunity to comment on the memorandum.

Trial procedures

The section on trial procedures primarily focuses on the pre-trial conference.  Article 27 contains a long list of items that should be included in the pre-trial conference (indicating the drafters of the CICC Procedural Rules made reference to the practices of other international commercial courts.) Either the entire collegial panel or a single judge may convene the pre-trial conference, which may be held either online or in person.

Article 31 sets out the procedure under which the collegial panel can request one or more member of the International Commercial Expert Committee (Expert Committee) provide an expert opinion on international treaties, international commercial rules, or foreign law.

Trial procedures, therefore, will follow those set out in the Civil Procedure Law.

A few (and not comprehensive) general comments follow below.

Challenges for the CICC

There are no small matters in foreign affairs (外事无小事)Zhou Enlai’s saying) –both domestically and internationally, foreign-related matters, because they involve relations with other countries and the prestige of the Chinese state, are sensitive.  For the CICC judges, particularly the leaders, this imposes particular pressure to handle these disputes in a way that is acceptable to SPC leadership and to the outside world.

CICC judges have many other cases to deal with–As may be apparent from the previous blogpost on the CICC, the CICC is not a full-time job for any of the judges involved.  That means that judges need to deal with possibly complex international commercial cases on a part-time basis.

Limitations of Chinese substantive law–To the extent that the CICC needs to apply Chinese substantive law, that also presents a challenge.  As CICC Judge (and deputy head of the #1 Circuit Court) Zhang Yongjian mentioned almost three years ago: “there are numerous types of foreign-related cases, with many difficult cases. On the one hand, there are many legislative “blank spaces.”  涉外案件类型多样化,疑难案件层出不穷.一方面,会出现更多的立法空白.”  Chinese contract law (even with related judicial interpretations) is considered by Chinese legal professionals to lack insufficient detail(see comments here, for example。

To the extent that a CICC judgment needs to be enforced outside of China, it will involve enforcement issues (previously discussed on this blog).outside of China. One important development since the blogpost is the conclusion of the Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland and of the Hong Kong Special Administrative Region.  Implementing legislation has not yet been promulgated in Hong Kong.

Opportunities for the CICC

Piloting new rules and procedures–The CICC also presents the SPC with opportunities to pilot new rules and procedures in cross-border cases and to make appropriate reference to foreign beneficial experience.  (For the avoidance of doubt, the Monitor is not advocating that the SPC import foreign law wholesale (照搬外国法).)  This earlier blogpost mentions my encounter several years ago with a senior Beijing academic who made this accusation against some SPC personnel).

One important area that would be beneficial for the CICC to focus on is discovery procedures.  CICC judges are aware of US lawyers and overly broad requests for documents in discovery, but they should be able to find an appropriate solution that fits Chinese reality, perhaps using the pre-trial case management conference as a forum to require parties to provide documents and other evidence to opposing counsel.  Without some sort of discovery, foreign plaintiffs may be reluctant to use the CICC as a forum.

I plan to come back to the topic of the CICC from time to time, as more information about CICC cases becomes available (and as I have my own personal experience with CICC operations),

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The author is a member of the CICC’s Expert Committee but her views do not represent the committee, the CICC, or the SPC.

 

What to Expect in the Fifth Round of Judicial Reforms

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On July 24, the Chinese authorities held the first post-19th Party Congress national conference  on judicial reform in Shenzhen, entitled “Promoting Comprehensive Deepening of Judicial Reform.”  Holding the conference in Shenzhen is significant, because it is considered synonymous with reform and openness. The leaders on the podium in the photo above (members of the Leading Small Group on Judicial Reform) (all men), include:

  1. Secretary of the Central Political Legal Committee, Guo Shengkun (Guo);
  2. President of the Supreme People’s Court (SPC), Zhou Qiang;
  3. Chief Procurator General Zhang Jun;
  4. Central Military Commission Political Legal Committee Party Secretary;
  5. Minister of Public Security;
  6. Minister of State Security;
  7. Commander of the People’s Armed Police.

Attendees of the conference included the Party Secretaries of the Political Legal Committees of all provinces/autonomous regions/cities, and likely senior leaders from all of the systems.

Readers of this blog will not be surprised that comprehensive deepening of judicial reform was the subject of the conference as a December, 2017, blogpost flagged that the new phraseology is “deepen the reform of the judicial system with comprehensive integrated reforms” (深化司法体制改革综合配套改革) (and there is a significant overlap with some of the issues Judge Jiang mentioned). The language is found deep in Xi Jinping’s 19th Communist Party Congress Report.

The quick (and incomplete) summary below is of some of the court-related issues from the report of Guo’s speech at the conference that He Fan (head of the planning section of the SPC’s judicial reform office) posted on his Wechat public account.  He was one of the many attendees.   None of the analysis below (in italics) should be attributed to him.

It can be expected that the court-related issues will be incorporated into the next judicial reform plan outline. What is on the court-related reform list?  What issues remain unresolved?

  1. Strengthen and optimize Communist Party leadership, Scientifically position the responsibilities and boundaries of the Party Committee, Political and Legal Committee, strengthen functions such as overall coordination, planning and deployment, supervision and implementation.   This of course listed first.What does this mean in practice for judicial system and particularly the operation of the criminal justice system, such as the ongoing campaign against organized crime (see this earlier blogpost)? 
  2.  Clarify the functions of the four-level courts,–improve the SPC circuit courts’ working mechanism; establish the Shanghai Financial Court, steadily expand the Internet Court pilots; explore the deepening of the reform of cross-administrative district courts and procuratorates, and explore the establishment of a national-level intellectual property appeal hearing mechanism.

Developments have occurred on some of these. The Shanghai Circuit Court will start operations soon, with regulations on its jurisdiction just issued and well-regarded judges appointed to senior positions.  The mention of an intellectual property appeals court is significant, as that has been mentioned in earlier government documents and it is on the wish list of the intellectual property law community.  The cross-administrative district courts are mentioned in the previous court reform plan, with some pilot projects. On SPC’s circuit courts are taking on a greater percentage of the SPC’s cases, (as mentioned earlier on this blog) SPC judges work in the circuit courts while their families remain in Beijing, so at some personal cost to judges involved.

3.  Improve institutional management, promote a combination of flat management and professionalization, adhere to the simultaneous transformation of comprehensive and operational entities, and promote the return of judicial personnel to the front line.  As this blog has repeatedly mentioned (and He Xin/Kwai Hang Ng have detailed in their new book, Embedded Courts), Chinese courts (as courts and political/legal institutions) have large “comprehensive offices” (engaging in functions not directly related to judicial work).  A recent study of several courts in Zhejiang province published in an academic journal affiliated with the China Institute of Applied Jurisprudence detailed the percentages. With the reduction in the number of judges and the explosion in the number of cases, there is a great amount of pressure to allocate more judges to the “front line” of handling cases.  Judges with some measure of seniority inevitably have both administrative and judicial responsibilities.

4.  Improve the supervision management mechanism of the president and division chiefs, and standardize the functions of the judicial committee, the committee of court leaders, which has a number of functions, often serving to diffuse responsibility for difficult cases  (Embedded Courts has more insights on this, and this blog has an earlier post on proposed reforms and related problems). Improve the professional judges meeting (mentioned in last year’s SPC regulations, I hope to have something more to say on this in a later blogpost). Improve the disciplinary mechanism of judges. (It would be an improvement to have greater transparency on the results.) Accelerate the construction of an electronic file with the simultaneous generation of the case and the entire process online case handling system.  This has been an ongoing proposal.  Shenzhen is taking the lead with this. Also it would be an improvement to have greater transparency on cases filed.

6. On judicial “standardization” –improve reference to similar cases, case guidelines, the guiding case mechanisms, implement mandatory search system for similar cases and related cases. We will carry out an in-depth national judicial standardization inspections.  This is sending two signals–greater implementation of China’s case law system (as I have written about earlier), and the continued use of government/Party inspection campaigns (reflecting the administrative aspects of the Chinese courts).

7. Improve the  performance appraisal system. Scientifically set the performance appraisal indicator system for handling cases, and guide judicial personnel to handle more cases, handle cases quickly, and handle cases well. Use big data technology to accurately measure the quality of the case and strive for convincing results. The assessment results are used as an important basis for the level of salary, job promotion…This is an important and unresolved issue for the Chinese courts–how to appraise judges.  Outside of China, many scholars have written about this, including Carl Minzner, William Hurst & Jonathan Kinkel. A good deal of research has been done within the Chinese court system concerning this (see this summary of a report published earlier this year by a team of Guangdong Higher People’s Court judges–discussing how the “civil servant/administrative model” predominates and suggesting that China should be looking to other jurisdictions for models, as judicial evaluation is a worldwide issue.  Case closing percentages continues to be very important for Chinese judges.  Is big data technology the answer?  Is this consistent with encouraging judges to write more reasoned decisions?  This appears to signal  a continuation of the judge as factory worker system described in this blogpost

8. In the area of criminal law, and criminal procedure, there are mixed developments.  On the one hand, greater encouragement for using the plea bargaining with Chinese characteristics (please see Jeremy Daum’s deep dive into the pilots). The merging of the arrest and prosecution stages is also mentioned.  Guo also mentioned  measures to enable appointing defense counsel in death penalty cases, having full coverage of defense counsel in criminal cases (Jeremy Daum has comments also on the system of stationing lawyers in detention houses), requiring lawyers to represent petitioners in criminal collateral appeals cases, as well as greater use of live witnesses at trial。  The National Judges College academic journal Journal of Law Application just published an article by a Beijing Higher Court judge, reviewing the duty lawyer scheme, with analogous findings to Jeremy’s.

9.  For those interested in how the supervision commission is/will affect criminal cases, Guo mentions establishing a system for linking the supervision’s investigatory system with the criminal procedure system (said to improve the battle against corruption, the question is the extent to which individual rights are protected).

10.  On foreign related matters, Guo mentions innovating foreign-related work, and improving cooperation on international enforcement and judicial cooperation.  These continue to be difficult issues, with no likely resolution in sight, particularly criminal and also civil.  As I have mentioned before China is participating in the drafting of the Hague Convention on the Recognition and Enforcement of Foreign Judgment, but there are major inconsistencies between the provisions of the draft convention, and the Choice of Court Convention which China signed last September.

Guo highlights improving an initial appointment system for judges and procurators, expanding open recruitment so that talented people will be attracted to becoming and remain judges.  He calls for better coordination between the law schools and professional training, systems for provincial level appointment of judges (and procurators), with better policies on temporary appointment (挂职) (a system used for academics to work in the system for a period of one or two years, and judges/procurators from higher levels to work at the basic level or in a poorer area), exchanges, promotions, and resignation.

In his recommendations, Guo tips his hat to judicial (and procurator) dissatisfaction with status and pay with his statement “uphold resolving a combination of ideological and practical issues, motivate cadres and police to the greatest extent possible.” 坚持解决思想问题和解决实际问题相结合,最大限度调动政法干警积极性”-as this blog has reported, a combination of those issues, excessive work, and significant amounts of time allocated to “studying documents” has led younger experienced judges (and procurators) to decide to resign.

 

 

 

SPC reveals new Belt & Road-related initiatives

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Judge Liu Guixiang (SPC judicial committee member & head of #1 Circuit Court) speaking at conference

In late September (2017), the Supreme People’s Court (SPC) held a Belt & Road judicial conference with senior judges from 16 jurisdictions in the desert oasis of Dunhuang, famed for its Buddhist caves.  As is its custom at its international conferences, the SPC released some information concerning previously unknown cross-border related initiatives, both of which have implications for the international business and legal communities.  The English language reports of the conference (in China Daily and related media outlets)  missed the implications.  A brief article in one of the SPC’s Wechat accounts reveals that:

  • SPC is drafting a judicial interpretation on the recognition and enforcement of foreign civil & commercial judgments (关于承认和执行外国法院民商事判决若干问题的规定);
  • SPC is considering establishing a Belt & Road International Commercial Court (literally “Tribunal”) (“一带一路”国际商事法庭). (chief of the SPC’s #4 Civil Division, Judge Zhang Yongjian, must have been speaking of this when he was interviewed during the 2017 National People’s Congress meeting).

Enforcing foreign civil judgments

A recent decision by a Wuhan court to enforce a California default judgment has received worldwide attention, both professional and academic. with some noting nothing had really changed and Professor Donald Clarke correctly wondering whether an instruction had come from on high.  With this news from Judge Liu, it is clear that the Wuhan decision is part of the Chinese courts’ rethink of its approach to recognizing and enforcing foreign court judgments.

Judge Liu revealed that the judicial interpretation will set out details regarding the meaning of “reciprocity” and standards for applying it (明确互惠原则具体适用的标准).  In another recent article, an SPC judge considered the matter of reciprocity in more detail.  Among the issues she mentioned were: 1) China not being a party to the Hague Convention on the Choice of Courts (this obstacle has been removed as China signed the Convention on 12 September 2017 (this article has a good overview); 2) China should actively participate in the drafting of the Hague Convention on the Recognition & Enforcement of Foreign Judgments (this seems to be happening, as this blog has reported).  The SPC judge recognized that the current Chinese position has significant limitations and can lead to a great deal of parallel litigation (see Professor Vivienne Bath‘s scholarship on this).  The SPC judge also suggested that the standards set out in mutual judicial assistance agreements could be useful in drafting standards for reviewing the recognition and enforcement of foreign judgments.

Belt & Road Commercial Court

Judge Liu also mentioned that the SPC would establish a Belt & Road dispute resolution mechanism and that the SPC was considering a Belt & Road commercial tribunal, to provide the parties of OBOR countries with fair, efficient, and low-cost one-stop legal services.  It is clear from discrete developments that the SPC is looking to Singapore’s International Commercial Court and the Dubai’s International Finance Centre Courts (DIFC).  One of those discrete developments is the cooperation agreement that the Shanghai Higher People’s Court and Dubai International Finance Centre Court signed in October 2016 (reported here), which must have required the concurrence of the SPC. The other discrete development is the memorandum of understanding on legal and judicial cooperation between the SPC and Singapore Supreme Court, signed in August 2017, relating to mutual recognition and enforcement of monetary judgments, judicial training for judges, and the Belt & Road initiative.

The details of the SPC’s  Belt & Road commercial court (tribunal) are yet unclear.  Both the DIFC and Singapore International Commercial Court have a panel of international judges, but a similar institution in China would be inconsistent with Chinese legislation.  The SPC is clearly interested in promoting mediation to resolve Belt & Road disputes. This interest is visible from the September 2017 International Mediation conference in Hangzhou, at which Judge Long Fei, director of one of the sections in the SPC’s Judicial Reform Office, spoke on the benefits of international commercial mediation.

Perhaps the SPC envisions an institution analogous to the Asian Infrastructure Investment Bank and plans to cooperate more on resolving Belt & Road commercial disputes with UNCITRAL and other international organizations.  We will need to see how this further develops.

It is also unclear whether the SPC will issue a draft judicial interpretation or draft regulations on the Belt & Road dispute resolution center for public comment.  Although President Zhou Qiang and Executive Vice President Shen Deyong speak of the benefits of judicial transparency, it seems the benefits of public participation in judicial interpretation drafting /rule-making have yet to be fully realized.

 

Supreme People’s Court diversified dispute resolution policy (updated)

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Opening of court-annexed mediation center of Qianhai court

On 29 June 2016, the Supreme People’s Court (SPC) issued a policy document on diversified dispute resolution (Opinion on the people’s courts more deeply reforming the diversified dispute resolution mechanism) (Diversified Dispute Resolution Opinion)(关于人民法院进一步深化多元化纠纷解决机制改革的意见). The document uses the term “diversified dispute resolution” (consistent with Chinese practice) rather than “alternative dispute resolution” (more often used outside of China) to reflect the central place of mediation, arbitration, and conciliation in Chinese dispute resolution. (This updated version reflects comments by an authoritative person (and a very careful reader).

It was accompanied by regulations on court-appointed mediators.  For those interested in the way the SPC works, it is another example of an SPC policy document in the form of an “opinion” (discussed here) accompanied by regulations  (a type of judicial interpretation, discussed here).

The policy document sets out in a consolidated form the SPC’s latest policies on mediation, arbitration, and its relationship with litigation.  It provides a framework for further reforms. It is intended to inform the lower courts as well as related Party/government agencies of forthcoming reforms.  It signals to the central leadership that the SPC is on course to achieve one of the reform targets set out in the 4th Court Reform Plan. The current head of the SPC’s judicial reform office, Judge Hu Shihao, spoke at the press conference announcing the Diversified Dispute Resolution Opinion, indicating that the office took the lead in drafting it.

A summary follows below, highlighting, based on a quick reading, focusing on its:

  • objectives and origin;
  • signals and practical implications.

A very useful academic article on diversified dispute resolution, with survey data and more on the political background, can be found (behind a paywall) here. (To the many academics and practitioners who have written on this topic, please feel free to use the comment function or email to expand/contradict, or correct this).

Objectives & origin

The SPC issued the Diversified Dispute Resolution Opinion as a way to implement one of the targets in the 4th Judicial Reform Plan:

46. Complete diversified dispute resolutions mechanisms.Continue to promote mediation, arbitration, administrative rulings, administrative reconsideration or other dispute settlement mechanisms with an organic link to litigation, mutually coordinate and guide parties to choose an appropriate dispute resolution. Promote the establishment of dispute mechanisms that are industry-specific and specialized in the areas of land requisition and property condemnation, environmental protection, labor protection, health care, traffic accidents, property management, insurance and other areas of dispute, dispute resolution professional organizations, promote the improvement of the arbitration systems and administrative ruling systems. Establish an operating system that links people’s mediation, administrative mediation, industry mediation, commercial mediation, and judicial mediation. Promote the legislative process of a diversified dispute settlement mechanism, establish a system for a systematic and scientific diversified dispute settlement system.

The Diversified Dispute Resolution Opinion is a product of the 4th Plenum decision. Its underlying approach was approved by Xi Jinping and other top leaders. Judge Hu, who mentioned at the press conference that at a 2015 meeting, the Leading Small Group on Comprehensive Reform approved a framework policy document (not publicly available) on improving the diversified resolution of disputes (关于完善矛盾纠纷多元化解机制的意见) and the General Offices of the State Council and Central Committee followed with an implementing document. The principal reason that this topic merited top leadership time and involvement is because of its direct links to maintaining social stability and reducing social disputes.

Similar to other SPC policy documents discussed on this blog, comments on the draft were sought from the central authorities, lower courts, relevant State Council ministries and commissions, industry association, arbitration organizations, scholars, and the Legislative Affairs Commission of the National People’s Congress Standing Committee. The Diversified Dispute Resolution Opinion was approved by the SPC judicial committee.

Signals

The objective of the document is to promote a more sophisticated, efficient, and effective approach to dispute resolution that will reduce social tensions. Part of the objective is to reduce the number of cases filed, heard, and tried by courts. For commercial disputes, it is intended to push disputes to institutions that can more competently, efficiently and timely mediate cases.  These institutions include those affiliated with industry associations, arbitration commissions, or specialized mediation associations.  The Diversified Dispute Resolution Opinion also calls for better mediation of cases within the courts by involving court-annexed mediators, before or after the person or entity files suit. The implications of this document for the reform of labor and rural land contract dispute resolution remain to be seen.

The Diversified Dispute Resolution Opinion requires better linkages between other diversified dispute resolution institutions and the courts and particularly stresses the role of mediation.  Depending on the type of mediation, it may be done by mediation commissions affiliated with government, people’s mediation committees, arbitration commissions, or other institutions (further information here).  One particular issue that is addressed is easing procedures for enforcing mediation agreements  by courts.  (Because a mediation agreement is a type of contract, it cannot be enforced directly without further procedures, such as being notarized, issued as an arbitration award, or recognized by the courts (through a special procedure under civil procedure law). It emphasizes that the courts can leverage forces outside the judiciary to resolve disputes. The document calls for reasonable borrowing of dispute resolution concepts from abroad.

Practical implications to expect in the medium to long term

  • For the foreign investment community (and their lawyers), a signal that the SPC is working on a judicial interpretation concerning the judicial review of foreign and foreign-related arbitral awards (“standardize judicial review procedures for foreign-related and foreign commercial arbitration awards”) (规范涉外和外国商事仲裁裁决司法审查程序). As this blog has reported earlier, this was signaled at the November 2014 National Conference on Foreign-related Commercial and Maritime Adjudication and last year’s One Belt One Road Opinion. It is unclear whether the future interpretation will change the prior reporting procedure, for example, to give parties a chance to submit arguments orally or in writing, or whether it is intended to consolidate the principles the SPC sets out in its responses to lower courts (released to the public in one of the SPC’s publications), summarized in comprehensive overviews of Chinese arbitration law, such as this one.
  • Changes to labor dispute resolution, as highlighted by the 2015 Central Committee/State Council document mentioned earlier. This is important in light of the uncertain economy and increasing number of workers being made redundant. in recent years, judges in different areas of China have published devastating criticism of the current labor arbitration system and labor dispute resolution generally. The judges pointed out the current labor arbitration system is not independent of the government, fails to protect labor interests equally, and . The judges also criticize the brief statute of limitations in labor disputes and lack of a specialized labor tribunal. It appears from reports that Zhejiang Province is taking the lead in providing greater choices and professionalism in labor dispute resolution, but it unclear how far those reforms go.
  • Further attention to rural land arbitration.The Diversified Dispute Resolution Opinion mentions better linkages between the courts and rural land arbitration. This area is important, as the government seeks to encourage farmers to expand their landholdings and mortgage their land, but the merits of the system are not the SPC’s issue. A 2014 report highlights the lack of independence of these arbitration commissions, lack of arbitrators, and absence of qualified arbitrators. A 2016 paper by several China Banking Regulatory Commission staff on the mortgage of rural land notes that those arbitration commissions need improving.
  • Local courts to establish “court-annexed mediation centers” to encourage and give parties “one stop shopping” for choices in mediating some of the cases most often seen in the courts–family, conflicts between neighbors, consumer, small claims, consumer, traffic accident, medical disputes;
  • “Improving” criminal conciliation and mediation procedures. Reforms in this area bear close monitoring because, as discussed in earlier blogposts, criminal conciliation and mediation procedures are often used to avoid embarrassing more powerful institutions (such as schools) and people especially in cases involving claims of rape, sexual assault, and child molestation;
  • Recognizing the results of and encouraging litigants to use neutral valuation organizations, for civil and commercial disputes such as medical, real estate, construction, intellectual property, and environmental protection, the results of which could be used as the basis of mediation;
  • More small claims and expedited procedures for minor civil disputes;
  • more lawyers to be appointed as court-appointed mediators;
  • Improvements to administrative dispute resolution procedures.