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 attract 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.

 

 

 

What’s on the Supreme People’s judicial interpretation agenda (II)?

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SPC General office document issuing the 2018 judicial interpretation plan

The Supreme People’s Court (SPC) has a yearly plan for drafting judicial interpretations, as set out in its 2007 regulations on judicial interpretation work , analogous to the National People’s Congress (NPC) and its legislative plans. Judicial interpretations, for those new to this blog, are binding on the SPC itself and the lower courts, and fill in some of the interstices of Chinese law (further explained here).

On 10 July, the SPC’s General Office issued the document above. It sets out a list of 48 judicial interpretation projects for 2018 (with several for 2019) for which the SPC judicial committee’s had given project initiation/approval (立项) designating one or more SPC divisions/offices with primary drafting responsibility (this process to be detailed in a forthcoming article).  It appears to be the first time this type of document was publicly released (please contact me with corrections).  If so, it is a concrete step in increasing the SPC’s transparency (addressed in part in one of my forthcoming academic articles). The projects, deadlines, and some brief comments (some longer than others) follow below.

(“Project initiation”/”project approval” is a procedure well-known to those of us who have been involved in foreign investment projects in China, where it involves approval from the planning authorities, primarily for infrastructure projects, but is an initial procedure used by regulatory authorities of all types, Party and state. For the SPC, it reflects one of the planned economy aspects of the way it operates.

The document classifies the 48 projects into three categories:

  1. 2018 year-end deadline;
  2. 2019 half-year deadline;
  3. 2019 deadline.

This post will discuss the projects in the second and third categories, the ones with deadlines in 2019.

From these we can see which projects are the highest priority and where the SPC sees gaping regulatory holes need to be filled, reflecting its political-legal priorities. Often specific issues have already been on the agenda of the relevant division of the SPC for some time before they have been officially been approved by the SPC’s judicial committee.

As discussed in my previous blogpost, several of the interpretations listed for 2018 have already been issued. It is unclear which other drafts will be made public for comment, as the 2007 regulations do not require it to do so. Making this list known may put some pressure on the SPC to undertake more public consultation.  Few if any interpretations in the area of criminal or criminal procedure law have been issued for public comment.

First half of 2019 deadline

  1. Standardizing the implementation of the death penalty (规范死刑执行).  Apparently this will focus on more setting out more detailed guidelines concerning how the death penalty is implemented, linked to the Criminal Procedure Law and the SPC’s interpretations of the Criminal Procedure Law.

This article on a legal website sets out the steps in implementation and notes that parading of the persons to be executed is prohibited (although this rule seems to be ignored in too many localities).  A recent scholarly article provides some detail (in Chinese). It is possible that 2008 regulations on suspension of the death penalty will be updated. Responsibility of the #1 Criminal Division.  Given the sensitivity of issues related to the death penalty, it is significant that the SPC leadership decided to make this list public, given that this interpretation is on the list.

2. Judicial interpretation on harboring and assisting a criminal.  These provisions occur in various parts of the Criminal Law and are also mentioned in the organized crime opinion discussed in this earlier blogpost.  Drafting responsibility of the #4 Criminal Division.

3.  Interpretation relating to the protection of heroes and martyrs.  With the incorporation of the protection of heroes and martyrs in the Civil Code and the passage of the Heroes and Martyrs Protection Law earlier this year, drafting of a related judicial interpretation was expected.  Responsibility of the #1 Civil Division.

4.Interpretation on technical investigators in litigation.  Responsibility of the #3 Civil Division) (IP Division).  I look forward to Mark Cohen’s further comments on this.

5. Interpretation on the recognition and enforcement of foreign court judgments.  This blog flagged this development last year.  Judge Shen Hongyu of the # 4 Civil Division, who wrote this article on issues related to the recognition and enforcement of foreign court judgments, is likely involved in the drafting.  Drafting responsibility of the #4 Civil Division.

6. Disputes over forestry rights, apparently an area with many disputes.  The Environmental and Natural Resources Division is responsible for drafting.

7.Regulations on responsible persons of administrative authorities responding to law suits, relating to new requirements in the amended Administrative Litigation Law. and the 2018 judicial interpretation of the Administrative Litigation Law. The Administrative Division is in charge of drafting.

8.Regulations on the consolidated review of normative documents in administrative cases.  The Administrative Division is in charge of drafting this.

9. Regulations on the consolidated hearing of administrative and civil disputes, apparently related to item #22 in the previous blogpost. Responsibility of the Administrative Division.

10.  Application of the criminal law to cases involving the organization of cheating on state examinations (linked to Amendment #9 to the Criminal Law). The Research Office is responsible for drafting.

11. Application of the criminal law to crimes involving network use and aiding persons in such crimes (cyber crimes).  This article discusses some of the issues. The Research Office is responsible for drafting this.

End 2019 deadline

  1. Jointly with the Supreme People’s Procuratorate, Interpretation on Certain Issues Related to the Application of Law in Criminal Cases of Dereliction of Duty (II), likely updating interpretation (I) in light of the anti-corruption campaign and the establishment of the National Supervision Commission.
  2. Interpretation on limiting commutation during the period of the suspension of death sentences.  See related research in English and Chinese. The #5 Criminal Division is responsible for this.
  3. Interpretation on the trial of labor disputes (V), likely dealing with some of the most pressing labor law issues facing the courts that are not covered by the preceding four interpretations or relevant legislation.   The #1 Civil Division is in charge of drafting.
  4. Regulations on maritime labor service contracts, likely connected with China’s accession to the 2006 Maritime Labor Convention and a large number of disputes in the maritime courts involving maritime labor service contracts.  The #4 Civil Division is in charge of drafting.
  5. Regulations on the hearing of administrative cases, likely filling in the procedural gaps in the Administrative Litigation Law and its judicial interpretation.  The Administrative Division is responsible for drafting this.
  6. Protection of personal information rights judicial interpretation, linked to the Civil Code being drafted.  Implications for individuals and entities, domestic and foreign. Responsibility of the Research Office.
  7.  Amending (i.e. updating) the 2001 Provisions of the Supreme People’s Court on Certain Issues Concerning Application of Urging and Supervision Procedure, relating to the enforcement of payment orders by creditors.  Responsibility of the Research Office.

 

 

 

 

What’s on the Supreme People’s judicial interpretation agenda (I)?

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SPC General office document issuing the 2018 judicial interpretation plan

The Supreme People’s Court (SPC) has a yearly plan for drafting judicial interpretations, as set out in its 2007 regulations on judicial interpretation work  (I have not been able to locate a free translation, unfortunately), analogous to the National People’s Congress (NPC) and its legislative plans.  Judicial interpretations, for those new to this blog, are binding on the SPC itself and the lower courts, and fill in some of the interstices of Chinese law (further explained here).  On 10 July, the SPC’s General Office issued the document above. It sets out a list of 48 judicial interpretation projects for 2018 (with several for 2019).  The document details the projects for which the SPC judicial committee had given project initiation/approval (立项), designating one or more SPC divisions/offices with primary drafting responsibility (this process to be detailed in a forthcoming article).  It appears to be the first time this type of document was publicly released (please contact me with corrections).  If so, it is a concrete step in increasing the SPC’s transparency (addressed in part in one of my forthcoming academic articles). The projects, deadlines, and some brief comments (some longer than others) follow below.

(“Project initiation”/”project approval” is a procedure well-known to those of us who have been involved in foreign investment projects in China, where it involves approval from the planning authorities, primarily for infrastructure projects, but is an initial procedure used by regulatory authorities of all types, Party and state. For the SPC, it reflects one of the “planned economy” aspects of the way it operates.

The document classifies the 48 projects into three categories:

  1. 2018 year-end deadline;
  2. 2019 half-year deadline;
  3. 2019 deadline.

From these we can see which projects are the highest priority and where the SPC sees gaping regulatory holes that need to be filled, reflecting its political-legal priorities. Often specific issues have already been on the agenda of the relevant division of the SPC for some time before they have been officially been approved by the SPC’s judicial committee.

Several of the listed interpretations have already been issued.  The SPC has solicited public opinion at least one of these draft interpretations, and it is unclear which other drafts will be made public for comment, as the 2007 regulations do not require it to do so. Making this list known may put some pressure on the SPC to undertake more public consultation.

This post will discuss the projects in the first category only, with a follow-up post discussing the projects in the second and third categories.

30 projects with a 2018 year-end deadline

  1. Regulations on the jurisdiction of the Shanghai Financial Court.  The NPC Standing Committee decision required the SPC to do so and included some broad brush principles on the new court’s jurisdiction.  As the SPC has announced that the court will be inaugurated at the end of August,  this is likely to be the highest priority project.  The Case Filing Division is in charge.
  2. Regulations on pre-filing property protection provisional measures (关于办理诉前财产保全案件适用法律若干问题的解释 ), a type of pre-filing injunction.  These regulations are for non-intellectual property (IP) cases, as item 18 below addresses provisional measures in IP cases (in which a great deal of interest exists in the intellectual property rights community, as these order can affect a company’s business). The Case Filing Division is in charge.  These regulations could benefit from some market input.
  3. Interpretation with the Supreme People’s Procuratorate on the Handling of Cases of Corruption and Bribery (II), likely updating the 2016 interpretation to reflect the establishment and operation of the National Supervisory Commission and addressing issues that have arisen in practice.  Issues to be covered likely include ones discussed in issued #106 of Reference to Criminal Trial (the journal of the SPC’s five criminal divisions, mentioned here) .  The #3 Criminal Division is in charge of drafting, but it is likely that the supervision commission will be/is one of the institutions providing input.  As I have mentioned earlier, the SPC generally does not solicit public opinion when drafting criminal law judicial interpretations.
  4. Judicial interpretation on the handling of criminal cases of securities and futures market manipulation.  This is linked to the government’s crackdown on abuses in the financial sector (see this report on the increase in regulatory actions) and is linked to last summer’s Financial Work Conference. The #3 Criminal Division is responsible.  It is likely the China Securities Regulatory Commission will provide input during the drafting process.
  5. Judicial interpretation on the handling of cases involving the use of non-public information for trading (Article 180 of the Criminal Law). Guiding case #61 involved  this crime.  It is likely that the principle from the guiding case will be incorporated into this judicial interpretation, as frequently occurs.  Again linked to the crackdown on the financial sector and again, it is a task for the #3 Criminal Division.
  6. Judicial interpretation on the handling of underground banking (地下钱庄) cases.  Large amounts of money are being whisked out of China unofficially.  Linked again to the crackdown on the financial sector as well efforts to slow the outflow of funds from China, and likely the People’s Bank of Chin.  Again, a task for the #3 Criminal Division.
  7. Interpretation on challenges to enforcement procedures in civil cases, related to the campaign to basically resolve enforcement difficulties within two to three years.  Drafting this is a task for the #1 Civil Division.
  8. Interpretation on evidence in civil procedure.  Important for lawyers and litigants, domestic and foreign.  Drafting this is a task for the #1 Civil Division.
  9. Interpretation on civil cases involving food safety. Food safety is an area in which public interest cases are contemplated.  These cases have been politically sensitive.  Drafting this is a task for the #1 Civil Division.
  10. Interpretation on construction contracts (II). The initial interpretation dates back to 2004. These type of disputes generally involve a chain of interlocking contracts and often regulatory and labor issues. Some of the larger cases have been heard by the SPC. Drafting this is a task for the #1 Civil Division.
  11. Interpretation on the designation of bankruptcy administrators.  Issues surrounding bankruptcy administrators have been ongoing in the bankruptcy courts, as has been discussed in earlier blogposts. Drafting this is a task for the #2 Civil Division.
  12. Regulations on the consolidating the bankruptcy of company affiliates, again an area where regulation is insufficient, posing issues for bankruptcy judges (as has been discussed in earlier blogposts). Drafting this is a task for the #2 Civil Division.
  13. Regulations on the civil and commercial cases relating to bank cards.  The drafting of this interpretation has been underway for several years, with a draft issued for public comment in June.  There have been a large number of disputes in the courts involving bank cards.  Drafting this is a task for the #2 Civil Division.
  14. Interpretation on legal provisions relating to financial asset management companies acquiring, managing, and disposing of non-performing assets.  The legal infrastructure related to non-performing assets is inadequate, as has been pointed out by all participants, including judges. The Shenzhen Intermediate Court has run several symposia bringing together leading experts from the market.  Drafting this is a task for the #2 Civil Division.
  15. Interpretation on the trial of internet finance cases (civil aspects), as existing judicial interpretations inadequately address the issues facing the lower courts. Drafting this is a task for the #2 Civil Division.
  16. Judicial interpretation on the statute of limitations in the General Provisions of the Civil Code (just issued), which was the responsibility of the #1 and #2 Civil Divisions as well as the Research Office. The General Provisions changed the length of the statute of limitations.
  17. Judicial interpretation on administrative cases involving patent authorization and confirmation. It appears to be the counterpart in the patent area of a 2017 judicial interpretation relating to trademarks.  I look forward to “brother blogger” Mark Cohen’s further comments on this. Drafting this is a task for the #3 Civil Division.
  18. As mentioned above, pre-filing injunctions in intellectual property cases (知识产权九分诉前行为保全案件适用法律若干问题的解释 ), a type of pre-filing injunction.  There is great deal of interest in the intellectual property rights community concerning these injunctions, as these orders can affect a company’s business. I look forward to Mark Cohen’s further comments on this. Drafting this is a task for the #3 Civil Division.
  19. Regulations on issues relating to the International Commercial Court.  Those were the responsibility of the #4 Civil Division and the interpretation was issued at the end of June.  See the previous blogpost for further comments.
  20.  Regulations on the scope of environmental and natural resources cases, with drafting responsibility placed on the Environmental and Natural Resources Division. These relate to current government efforts to improve the environment.  I would anticipate that these would include provisions on cross-regional centralized jurisdiction, so that pressure from local government will be reduced. Several provinces have already introduced such guidelines.
  21. Interpretation on compensation for harm to the environment, also with drafting responsibility placed on the Environmental and Natural Resources Division.  This is related to an end 2017 Central Committee/State Council General Office document on reforming compensation for harm to the environment. Again, Drafting responsibility with the Environmental and Natural Resources Division.
  22. Regulations on the trial of administrative agreements.  There is a tension between the administrative and civil/commercial specialists, as reflected in the area of Public Private Partnerships  (PPPs)(see this earlier blogpost).  This has practical implications for both the domestic and foreign business community, as the government is seeking to expand the use of PPPs and avoid local government abuse of them.  Drafting responsibility with the Administrative Division and the Ministry of Finance is likely to be providing input.
  23. Regulations on administrative compensation cases, drafting responsibility with the Administrative Division.
  24. Interpretation related to agency issues in retrial (再审) cases.  With the many governance problems of Chinese companies, these issues frequently arise.  Drafting responsibility with the Judicial Supervision Division.
  25. Interpretation on the enforcement of notarized debt instruments.  Lenders often use this provision to seek more efficient enforcement.  This is related to the campaign to improve enforcement as well as government policy relating to the financial sector.  This research report by one of Beijing’s intermediate court shows that asset management companies are often the creditors and the large amounts of money are involved. Drafting responsibility with the Enforcement Bureau.
  26. Interpretation relating to the enforcement of cases involving company shareholding.  Given the complexities of shareholding in China, including the frequent use of nominee arrangements, these are difficult issues for judges to deal with.  See a recent presentation by one of the circuit court judges on this issue.  Drafting responsibility with the Enforcement Bureau.
  27.  Regulations on reference pricing when disposing of property.  This too is related to the enforcement campaign as well as efforts to clean up the enforcement divisions of the local courts by requiring more transparent procedures.
  28. Interpretation on the Handling of Cases of Crimes Disturbing the Administration of Credit Cards (II), updating the SPC’s 2009 interpretation, found here. Responsibility of the Research Office, which can coordinate with criminal divisions involved as well as interested authorities such as the China Banking Regulatory Commission.
  29. Interpretation on cases involving both civil and criminal issues.  This is a longstanding issue, and with the crackdown on the private lending sector, this has come to the fore.  Among the many issues include: if the defendant is criminally prosecuted first and assets are confiscated, how can affected borrowers or other parties  be compensated.  Drafting responsibility with the research office, likely involving several civil and criminal divisions.
  30. Regulations on the implementation of the People’s Assessors Law. As the law and the follow up SPC notice are too general for courts to implement, more detailed rules are needed.  The Political Department (it handles personnel related issues) and Research Office are involved in drafting.

See the next blogpost for a discussion of interpretation in the second and third categories.

 

 

 

Supreme People’s Court reports on its bankruptcy accomplishments

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The warm sun and shopping mall Christmas decorations were not what drew Supreme People’s Court (SPC) President Zhou Qiang and a large group of senior court and other government leaders to Shenzhen on Christmas Day–it was a rare national bankruptcy trial work conference. It sends signals about the importance of bankruptcy post 19th Party Congress.

This appears to have been one of the last official activities of Grand Justice Du Wanhua, who has taken the lead in promoting bankruptcy work in the courts (see earlier blogposts) and is a classmate of President Zhou Qiang. Du, who turns 64 in January, is retiring.  Takeaways from the conference include:

  • some statistics;
  • the latest political/professional policy on bankruptcy;
  • some informed comments on where the challenges are (with some of my further comments in italics).

Statistics

The Chinese courts accepted 8984 bankruptcy & compulsory liquidation cases in 2017 (through 21 December), heard by 97 bankruptcy divisions (up from 6 in 2016, a consequence of a 2016 SPC notice, described here).  The courts concluded 4404 bankruptcy cases through November.

Reforms aimed at speeding up cases moving from enforcement to bankruptcy proceedings are showing some initial success, with the Guangdong courts handling over 43,000 in the second half of 2017, of which 10,000 were handled by the Shenzhen courts.

Latest bankruptcy policy statements

President Zhou Qiang conveyed the macro policy on bankruptcy.

  • adhere to problem orientation (必须坚持问题导向) (one of the current political slogans);
  • if at all possible, merge or reorganize, less bankruptcy liquidation 尽可能多兼并重组,少破产清算 (the current policy);
  • Explore establishing a simplified procedure and a pre-reorganization system (简易破产程序、预重整制度) (this idea, a borrowing of pre-packaged administration from US/English law has been discussed by academics and others for some years, but this prominence seems to be new.  Pre-packaged administration is a bankruptcy/insolvency procedure under in which a company arranges to sell all or some of its assets to a buyer before appointing an administrator to facilitate the sale. It involves a company’s institutional creditors agreeing to it, so it is understandable that would be an attractive idea in China);
  • intermediate courts in larger cities and economically developed areas should establish bankruptcy divisions or collegial panels (this follows from an announcement in 2016, discussed here);
  • use informatization to improve the hearing of bankruptcy cases (信息化建设提高破产审判质效).

Du Wanhua had more specific signals to the lower courts.

  • improve professionalism;
  • improve the bankruptcy administrator system, promote establishing a bankruptcy administrator society, bring in a competitive system;
  • improve the enforcement to bankruptcy system,  accelerate cases that can’t be enforced transferred to bankruptcy proceedings;
  • use reorganization as much as possible through the market and legal methods to save companies in trouble;
  • establish a normalized government/courts unified coordinated system (要建立常态化的“府院破产统一协调机制”), protect the rights of each party on an equal basis;
  • use informatization.
  • handle carefully bankruptcy cases involving debts that are mutual/joint guarantees, guide financial creditors to convert the debt into equity or other methods that simplify the debtor relationship and enable the company to survive;
  • handle carefully the consolidated bankruptcy of affiliated companies, balance the conflicts between the rights and interests of each party.
  • improve cross-border bankruptcy trial work.

 On problems facing bankruptcy courts

Professor Li Shuguang of the China University of Political Science & Law, one of the preeminent Chinese bankruptcy law scholars, who attended the conference, had informed comments, citing the following challenges for the bankruptcy courts:

  1. The relationship between the courts and government when hearing bankruptcy cases needs to be resolved. (Despite the official talk of a united approach by courts & government, discussed above, it remains a challenge. For some local color, see this excerpt from an article by a team of Zhejiang bankruptcy judges on real estate developer bankruptcy:

If a real estate developer is having a crisis, government will involve itself first, and only if administrative measures don’t work, will they think of judicial measures. This creates problems in transitioning from administrative to judicial procedures. For example, how should a court treat the legal authority of the creditor settlement arrangement of the special work team formed by government to deal the crisis? Once the company goes into bankruptcy procedures, government hasn’t withdrawn completely, and on the one hand, all sorts of bankruptcy matters require coordination and cooperation by many government departments, and on the other hand government will give instructions and suggestions about bankruptcy work, considering the needs of the local economy, stability, and other interests.

3.  Many local courts are afraid to accept bankruptcy cases and even establish unreasonable barriers to for local protection–new systems need to be put in place.

4.  On bankruptcy administrators, there need to be more detailed rules on selection, oversight, administration, operation. [I can testify to this, based on the questions raised on one of my Wechat chat groups about bankruptcy administrators and the many articles published on bankruptcy law-related Wechat public accounts.] 

5. Professor Li asks how Chinese bankruptcy law can be reformed to effectively rescue companies, to enable courts to identify salvageable companies, properly protect the rights of creditors and shareholders.  More detailed rules are needed on preferences in bankruptcy.  These are ongoing issues for Chinese bankruptcy courts, as the current system protects local government interests.

6.  There exist a group of specific issues related to bankruptcy liquidation, such as how to expand the pool of assets available to the creditors, balance the interests of various creditors, deal with the relationship between creditor committees (under the bankruptcy law) and financial institution creditors committee (these committees were put in place from 2016, see more details here).  This also relates to issues of transparency and procedure, particularly what information will be available to members of the creditor committee, and at what point. An important area where legal infrastructure is lacking, as discussed in this Wechat article.

Among those issues is how to protect the interests of consumers who have purchased property from a bankrupt real estate developer.  This is an important practical issue for all involved (including local governments) because an increasing number of real estate developers are going into bankruptcy.  A recent Wechat article analyzes a 2015 SPC ruling that requires the bankruptcy administrator to perform the purchase and sale contract where payment has been made in full.  In practice, courts take different approaches to variations on this scenario.

7.  He echoes Du Wanhua on issues related to consolidation of bankruptcy cases involving corporate affiliates and the transfer of cases from enforcement to bankruptcy, raising the problem of the courts performance indicators.

8. Professor Li opens up the issue of “informatization,” so that it becomes a platform collecting and analyzing bankruptcy data, and information sharing mechanism for all involved.  This comment echoes my own experience that the electronic platform is not helpful for a researcher seeking access to bankruptcy documents, as few are accessible, not even those that are otherwise publicly available. Some bankruptcy judges have responded to my discrete inquiries that little information is available because it is possible to set access restrictions on information.)

9.  He raises the increasingly prominent issue of cross-border bankruptcy, in which judges lack legislation and experience to deal with these issues, and suggests that at an appropriate time harmonization of Chinese cross-border bankruptcy standards with international ones.  By this, he is likely referring to the UNCITRAL model law on cross-border insolvency.  These issues are ongoing ones for the professional community in Hong Kong and increasingly in the rest of the world, see this law firm alert. This has been a frequent topic of academic analysis.

Finally, Professor Li states (what is clear from the comments above) that bankruptcy legislation is inadequate–the judicial interpretations the SPC has issued. deal with only a small portion of the outstanding issues and there isn’t time to draft a long judicial interpretation.  As judges are hearing bankruptcy cases, large numbers of technical issues have arisen [I can testify to this, based on the questions raised on one of my Wechat chat groups.]  SPC academic journals and academic studies address specific issues, see these articles. Professor Li suggests that a “conference summary” be issued based on this conference and input from bankruptcy court professionals. (A conference summary is explained in this blogpost.)

Quick comment

Finally, this area of law is a microcosm of issues facing the Chinese courts, whether it is the requirement for the SPC and lower courts  to reflect current Party/government policy in what they do, relationship between the courts and government, issues with judicial professionalism, large number of technical issues but a lack of legislation, related issues that affect the ordinary person, consideration of foreign law models, and the disconnect between international and Chinese practice.

China’s draft court law

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Screenshot of trial in the Haidian district court

A draft of the first comprehensive overhaul of China’s court law since 1979 (the organic/organizational law of the people’s courts) is now open for public comment (until 4 October).  A translation of the draft is available at Chinalawtranslate.com (many thanks to those who made it possible).  A translation of the current law is here and an explanation of the amendments has also been published.  The draft is significantly longer than the earlier version of the law (66 vs. 40 articles). It retains much of the framework of the old law, incorporates legislative changes as well many of the judicial reforms, particularly since the Third and Fourth Plenums, and leaves some flexibility for future reforms. As with the current law, Communist Party regulations address (and add another layer to) some of the broad issues addressed in the draft law. Some comments:

Drafting process

The drafting process (the explanation has the details) reflects the drafting of much Chinese legislation (further insights about the process from Jamie Horsley here)–several years of soft consultation by the drafters of relevant Party and government authorities, plus one month of public consultations. Among the central Party authorities consulted were: Central Commission for Discipline Inspection, Central Organizational Department (in charge of cadres); Central Staffing Commission (in charge of headcount); Central Political Legal Committee.  On the government side: Supreme People’s Court and Procuratorate; State Council Legislative Affairs Office; Ministry of Finance, National People’s Congress Legal Work Committee. Investigations and consultations were also done at a local level.

General Provisions

Some of the dated language from the 1979 version has been deleted (references to the “system of the dictatorship of the proletariat,” “socialist property,” and the “smooth progress of the socialist revolution.” replaced by “lawful rights and interests of legal persons,” and protection of national security and social order. Although the draft court law deletes language that distinguishes among owners of different types of Chinese companies, Chinese criminal law still does (see this chart setting out sentencing guidelines, for example).

Article 10 of the draft incorporates judicial responsibility systems into the law (a prominent feature of the recent judicial reforms), but a topic regarding which dispassionate analysis is hard to find.

The draft contains clear statements about judicial openness and the right of the masses (i.e. ordinary people, that term is alive and well) to know about the work of the courts (according to law).

Organization of the courts

The draft mentions some of the specialized and special courts that have been established over the last thirty years:

Article 14 incorporates the guiding case system into the draft.

Article 15 of the draft crystallizes the SPC’s circuit courts (tribunals) into law (SPC regulations on the jurisdiction of those courts found here).

Article 24 gives space for establishing cross-administrative region courts (the time has not yet been ripe for establishing them).

Articles 26 and 27 give courts some flexibility on their internal structure (courts in remote areas with few cases need not establish divisions, while large city courts can have multiple specialized ones. (Earlier blogposts have mentioned establishing bankruptcy divisions, for example.)

Trial Organization

This section of the draft law incorporates the current judicial reforms in several ways, including:

  • In Articles 30-31, on the operation of collegial panels and requiring the court president to be the presiding judge when s(he) participates in a collegial panel;
  • Mentioning in Article 32 that the members of the collegial panel are the ones to sign their judgments and dissenting opinions are to be recorded;
  • Article 34 gives space for eliminating the role of people’s assessors to determine issues of law;
  • Article 37 incorporates into law previous SPC regulations on judicial interpretations and guiding cases, specifying that they must be approved by the SPC judicial committee;
  • Article 40 contains provisions imposing liability on members of the adjudication/judicial committee for their comments and their votes. It also incorporates into the law SPC regulations on disclosing the views of the judicial committee in the final judgments, except where the law provides it would be inappropriate;
  • Article 41 also incorporates into the law the specialized committees mentioned in judicial reform documents (briefly discussed in prior blogposts).

Court Personnel

Article 42 requires court presidents to have legal knowledge and experience.  It has long been an issue that court presidents have been appointed more for their political than legal expertise.

It appears that the reform of having judges below the provincial level appointed by the provincial level is not yet in place,

This section of the draft court law incorporates the personnel reforms set out in the judicial reform documents in several ways: quota judge system; selecting higher court judges from the lower courts; the roles of judicial assistants and clerks (changed from the old model); other support personnel in the courts; a new career track for judges, including judicial selection committees; preference to hiring judges with legal qualifications;

Safeguards for the courts’ exercise of authority

Article 56 gives courts the right to refuse to engage in activities that violate their legally prescribed duties (with this end the phenomenon of judges sweeping streets?);

Article 57 relates to reforms relating to enforcement of judgments (and the social credit system);

Article 59 relates to threats to judges’ physical safety and personal dignity, that occur several times a year in China, and have been the subject of SPC regulations;

Scope for further reforms for judicial personnel management (including salary reform!) are included in this section.

Article 60 reiterates the principle that judges may only be transferred, demoted, dismissed according to procedures specified by law (Party procedures  to which most judges are subject,are governed by Party rules.)

Article 62 relates to judicial (and judicial personnel training)–some earlier blogposts have shed light on this topic.

Article 64 incorporates into the draft law President Zhou Qiang’s focus on the informatization (including use of the internet and big data) of the Chinese courts.

Etc.

My apologies to readers for the long gap between posts, but several long haul trips from Hong Kong plus teaching have left me no time to post.

Forthcoming individual bankruptcy legislation revealed in letter to President Zhou Qiang’s mailbox

Screen Shot 2017-07-27 at 12.48.54 PMMost readers of this blog are unlikely to know that the Supreme People’s Court (SPC) publishes on its website responses to selected letters to President Zhou Qiang that make suggestions and give opinions. In a July 11 response, the SPC revealed that individual bankruptcy legislation is on its agenda. As I suggest below, actual legislation is likely to come later.

The letter said:

Dear Mr. Pan Dingxin:

We received your proposal, and after consideration, we respond as follows:

establishing and implementing an individual bankruptcy system is beneficial for those individuals or households who have fallen into serious financial distress to exempt some of their debts and enable them again through their hard work to achieve normal business and living conditions. Because of this, it has an important function to protect individuals and households that have fallen into financial difficulties. However an individual bankruptcy system relates to the establishment and improvement of an individual credit system and commercialization of commercial banks or their further marketization and other factors.  At the same time, the implementation of an individual bankruptcy system requires the National People’s Congress or its Standing Committee to legislate. We believe that with development and improvement of the socialist market economic, the National People’s Congress or its Standing Committee will promulgate an individual bankruptcy law on the basis of the experience with the “PRC Enterprise Bankruptcy Law.” The Supreme People’s Court will definitely actively support the work of the relevant departments of the state, and promote the implementation of an individual bankruptcy system.

Thank you for your support of the work of the Supreme People’s Court!

Supreme People’s Court

June 15, 2017

Screen Shot 2017-07-22 at 9.37.15 PM Few are aware that Shenzhen has been working on draft individual bankruptcy legislation for several years now, looking to Hong Kong’s experience and legislation, described in a recent report as a “complete” individual bankruptcy system (“完善的个人破产制度”).  The process has been going on for so long that the team (designated by the local people’s congress and lawyers association) and headed by a Shenzhen law firm partner published a book one year ago with its proposed draft and explanations.

Although Professor Tian Feilong of Beihang University’s Law School has been recently widely quoted for his statement about Hong Kong’s legal system undergoing “nationalisation,”  this is an example, known to those closer to the the world of practice, that Hong Kong’s legal system is also seen as a source of legal concepts and systems that can possibly be borrowed.  The drafting team looked at Hong Kong (among other jurisdictions) and others in China have proposed the same as well.

Shenzhen’s municipal intermediate court has completed an (award-winning) study on judicial aspects of individual bankruptcy shared with the relevant judges at the SPC.

If recent practice is any guide, individual bankruptcy legislation will be piloted in Shenzhen and other regions before  nationwide legislation is proposed, and it will be possible to observe the possible interaction between those rules and the government’s social credit system. So national individual bankruptcy legislation appears to be some years off.

As to why the SPC has a letter to the court president function, the answer is on the SPC website: it is to further develop the mass education and practice campaign (mentioned in this blogpost four years ago) and listen to the opinions and suggestions of all parts of society (the masses).  Listening to the opinion and suggestions of society are also required of him as a senior Party leader, by recently updated regulations. The regulations are the latest expression of long-standing Party principles.

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Welcome to the “Court President’s Mailbox”

 

 

Welaw Monitor (微律观察) #2

I am traveling at the moment, so my time to review articles published on Wechat is limited.  But below are some links of interest.

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Huazhen (Flower Town) emotional counseling

Oldies but goodies

Several prominent media sources, the South China Morning Post among them, are running articles on China’s clean-up of the financial sector, this one pointing to the government’s focus on privately owned insurance companies.

But those reading Wechat would have known that several years ago, China’s legal analysts had been writing  articles such as “China’s private entrepreneurs are all on their way to jail  or China’s businesspeople are either in jail or on their way to jail. 

China’s Good Samaritan case Peng Yu back in the news-  a backgrounder plus-retired SPC judge Cai Xiaoxue criticizes as does former judge & Peking U Professor Fu Yulin.

Detention Center Law draft

The Ministry of Public Security (MPS) has recently issued its draft Detention Center Law for public comments (link to Chinalawtranslate.com’s translation.  The draft has caused a great deal of comment within China and those concerned about the treatment of fellow human beings in criminal detention in China should read these articles:

The MPS is drafting the Detention Center Law, but the entire legal world is opposed

10 years of calls for separating detention from criminal investigation

Professor Chen Ruihua, defects of the detention system and how it should be reformed

Professor Chen Ruihua–the detention centers should be transferred to the justice authorities

Commercial law

China’s distraught buy online counseling packages, but does China’s consumer protection legislation protect them if there are no standards for counseling?

Party discipline

A Cangzhou court president is under investigation. Is it connected to the strip search of a woman lawyer?

In CCDI hearing procedures, will evidence provided by the accused be considered?  The answer is, the scope is limited

Criminal law

Three SPC judges (likely to have been on the drafting team) unpack the asset recovery regulations (discussed in this January blogpost). It shows they looked to foreign legislation when doing so;

 20 years of bribery prosecutions, with 9 acquittals

SPC on anti-drug day, with white paper and 10 typical cases

Is it rape if the sexual contact comes after the coercion?

Supervision Commission

The first father’s day after being transferred to the Supervision Commission

Labor law

Does “remote working” in China mean the place of employment has changed?

Don’t make these 10 mistakes when terminating employees

Family law issues & property

Leta Hong Fincher’s book Leftover Women discusses the Marriage Law interpretation & home purchases.  This Wechat post sets out a chart with various scenarios related to marriage & home purchase--a very handy reference.

Bankruptcy

10 typical bankruptcy cases from Suqian, Jiangsu Province, including some real estate companies

Chongqing courts borrow concepts of personal bankruptcy from abroad when dealing with private (shadow) borrowing cases

The many inadequacies in China’s non-performing asset legislation

Judiciary

A review of the Party’s work at the SPC since the 18th Party Congress