Category Archives: Commercial law

Commercial law, Court Operations, Court Reform, intellectual property, judges, judicial committees, judicial documents, Maritime courts

New Supreme People’s Court guidance on how Chinese judges consider cases

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photo of professional judges’ meeting in a Qingdao area court

Among the many reforms set out in mentioned in the February, 2019  Supreme People’s Court ‘s (SPC’s) fifth judicial reform plan outline is improving the mechanism of the Professional Judges Meeting, about which I have previously written.   Earlier this month (January, 2021), the SPC issued guidance on professional/specialized judges meetings (I have also translated it previously as specialized judges meetings) , entitled Guiding Opinion on Improving the Work System of Professional Judges Meetings (Professional Judges Meetings Guiding Opinion or Guiding Opinion),  (关于完善人民法院专业法官会议工作机制的指导意见), superseding 2018 guidance on the same topic. The earlier guidance had the title of Guiding Opinions on Improving the Working Mechanism for Presiding Judges’ Meetings of People’s Court (For Trial Implementation).  The meetings are intended to give single judges or a collegial panel considering a case additional thoughts from colleagues, when a case is “complicated,” “difficult,”, or the collegial panel cannot agree among themselves.  

This blogpost will provide some background to the Guiding Opinion, a summary of the Guiding Opinions, a summary of a non-scientific survey of judges, and some initial thoughts. 

Background to the Guiding Opinion

The Guiding Opinion is a type of soft law that enables the SPC to say that it has achieved on of the targets set out in the current judicial reform plan. According to a recent article by the drafters, they researched and consulted widely among courts, but that does not mean that a survey went out to all judges.  It is further evidence that the SPC is operating as Justice He Xiaorong stated five years ago–” after the circuit courts  are established, the center of the work of SPC headquarters will shift to supervision and guidance…” 

Judicial reform and the Guiding Opinion

The Professional Judges Meeting Guiding Opinion is linked to #26 of the current judicial reform plan outline, discussed in part in this June, 2019 blogpost.  I have bold-italicked the relevant phrases:

#26 Improve mechanisms for the uniform application of law. Strengthen and regulate work on judicial interpretations, complete mechanisms for researching, initiating, drafting, debating, reviewing, publishing, cleaning up, and canceling judicial interpretations, to improve centralized management and report review mechanisms. Improve the guiding cases system, complete mechanisms for reporting, selecting, publishing, assessing, and applying cases. Establish mechanisms for high people’s courts filing for the record trial guidance documents and reference cases. Complete mechanisms for connecting the work of case discussion by presiding judges and collegial panel deliberations, the compensation commission, and the judicial committee. Improve working mechanisms for mandatory searches and reporting of analogous cases and new types of case. (完善统一法律适用机制。 加强和规范司法解释工作，健全司法解释的调研、立项、起草、论证、审核、发布、清理和废止机制，完善归口管理和报备审查机制。完善指导性案例制度，健全案例报送、筛选、发布、评估和应用机制。建立高级人民法院审判指导文件和参考性案例的备案机制。健全主审法官会议与合议庭评议、赔偿委员会、审判委员会讨论案件的工作衔接机制。完善类案和新类型案件强制检索报告工作机制)

Uniform Application of Law

As for why the uniform application of law is an issue, a quick explanation is the drafting of Chinese legislation often leaves important issues unresolved and  leaves broad discretion to those authorities issuing more specific rules.  To the casual observer, it appear that the Chinese legislature (NPC) “outsources” to the SPC (and Supreme People’s Procuratorate (SPP) for some issues) the hard job of drafting more detailed provisions. (see Chinalawtranslate.com for many examples and NPC_observer.com for insights about the legislative drafting process).  Although the Communist Party’s plan for building rule of law in China calls for legislatures to be more active in legislating (see NPC Observer’s comments), in my view the SPC (and SPP) will continue to issue judicial interpretations, as the NPC and its standing committee are unlikely to be able to supply the detailed rules needed by the judiciary, procuratorate and legal community.  Although the general impression both inside and outside of China is that the SPC often “legislates,” exceeding its authority as a court, as I have mentioned several times in recent blogposts, the SPC issues judicial interpretations after close coordination and harmonization with the NPC Standing Committee’s Legislative Affairs Commission.

Professional Judges Meeting Guiding Opinion

The Guiding Opinion is linked to the judicial responsibility system, about which my forthcoming book chapter will have more discussion.  Professor He Xin addresses that system, among other topics in his recently published academic article.

The Guiding Opinion authorizes certain senior members of a court (court president, vice president, head of division, as part of their supervisory authority (under the Organic Law of the People’s Courts) to chair meetings of judges (who exactly will attend depends on the court- to discuss certain types of cases and provide advice to the single judge or three judge panel hearing a case. (In my informal inquiries, I have found that interns are sometimes permitted to attend, but sometimes not). The types of cases mentioned in Article 4 of the guiding opinions and listed below are not complete, but raise both legal and politically sensitive issues:

  • ones in which the panel cannot come to a consensus,
  • a senior judge believes approaches need to be harmonized;
  • involving a mass (group) dispute which could influence social stability;
  • difficult or complicated cases that have a major impact on society;
  • may involving a conflict with a judgment in a similar case decided by the same court or its superior;
  • certain entities or individuals have made a claim that the judges have violated hearing procedure. 

Before the discussion, the judge or judges involved in the case are required to prepare a report with relevant materials, possibly including a search for similar cases, which may or may not be the same as the trial report described in my July, 2020 blogpost, 

The guiding opinions sets out guidance on how the meeting is to be run and the order in which persons speak.

Depending on the type of case involved, a case may be further referred to the judicial committee or the matter may be resolved by the meeting providing their views to the collegial panel. 

Article 15 of the guiding opinions provides that participating in these meetings is part of a judge’s workload. The guiding opinions provide that a judge’s expression of views at these meetings should be an important part of his or her performance appraisal, evaluation, and provision, and the materials can be edited into meeting summaries, typical cases, and other forms of guidance materials,   which can be used for additional points in performance evaluation.  One of the operational divisions of the SPC and at least one circuit court has published edited collections of their professional judges meetings, with identifying information about the parties removed.

Comments

From my non-scientific survey of judges at different levels of court and in different areas of law, my provisional conclusion is as follows. Judges hearing civil or commercial cases seem to hold these meetings more often, particularly at a higher level of court.  Criminal division judges seem to hold such meetings less often (at least based on my small sample), but the meetings are considered to be useful. 

 Frequency seems to depend on the court and the division, with one judge mentioning weekly meetings, while others mentioned that they were held occasionally. Most judges that I surveyed considered the meetings useful, because they provided collective wisdom and enabled judges to consider the cases better. One judge noted that it may also result in otherwise unknown relevant facts coming to light. 

I would also add my perception that it also gives the judges dealing with a “difficult or complicated case” (substantively or politically) in a particular case the reassurance that their colleagues support their approach, even if the judges involved remain responsible under the responsibility system. This is important when judges are faced with deciding cases in a dynamic area of law with few detailed rules to guide them, or where the policy has changed significantly within a brief time. My perception is that this mechanism provides a more collegial environment and better results that the old system of having heads of divisions signing off on judgments. I would welcome comments from those who have been there.

The Guiding Opinions provide yet another illustration of how Chinese courts operate as a cross between a bureaucracy and a court, from the rationale for holding the meeting to the use of meeting participation as an important part of performance evaluation. 

Although the slogan (of several years ago) is that judges should be treated more like judges,  the Guiding Opinion appears to treat lower court judges analogous to secondary or university students, to be given grades for their class participation.  

What are the implications of this mechanism?

Litigants and their offshore counsel (Chinese counsel would know this) need to know that the result in their case in a Chinese court may be influenced by judges who are not in the courtroom when their counsel advocates orally. Written advocacy should still have an impact on professional judge committee discussions.  It appears that counsel is not informed that the case has been referred to a professional judges committee for discussion and it is not possible for counsel to know who is part of the committee and apply for judges to be recused in case of a concern that there has been a conflict of interest. 

Would it result in more commercial parties deciding that arbitration is a better option, as they have better control over dispute resolution in their particular case?  My perception is that the decision concerning appropriate dispute resolution is based on other factors, and the existence of the professional judges meeting as a mechanism to provide views to judges hearing a case has little impact on that decision.  I welcome comments on that question.

__________________________________________

Many thanks to those who participated in the survey and also to those who commented on an earlier draft of this blogpost.  

Civil Code, Commercial law, intellectual property, judicial interpretations

Supreme People’s Court’s 2020 Accomplishments in Transitioning to the Civil Code

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photo of a meeting of the SPC’s judicial committee. I surmise a screen for viewing presentations is not visible.

On 30 and 31 December 2020, the Supreme People’s Court (SPC) delivered  its first batches of documents designed to ensure a seamless transition to the Civil Code on 1 January 2021, about which I wrote last recently and in November, 2020. Several SPC leaders spoke at a press conference on the morning of 30 December 2020 to announce the issuance of these documents, with Justice He Rong taking the lead.  Justice He Rong also gave highlights of items on the SPC’s agenda on the transition to the Civil Code for 2021, but those details will be forthcoming in a subsequent blogpost.

I correctly predicted that the SPC judicial committee would meet one or more times before year-end and we readers of SPC media will see one or more long catalogues of cancelled and amended judicial interpretations and other judicial normative documents published on or before 1 January 2021.

We can  see the results of the long hours of work of unknown numbers of people, particularly within the SPC, the National People’s Congress Legislative Affairs Commission (NPC LAC), and  many “relevant departments” in drafting these judicial interpretations.  Justice He Rong mentioned the timely guidance of the (NPC LAC) （我们得到了全国人大常委会法工委的及时指导）,  support and coordination from the Supreme People’s Procuratorate, and support and help from central state organs and academics and the public.  Timely guidance from the NPC LAC signals (as mentioned previously), that SPC staff spent unknown numbers of hours  ensuring that these judicial interpretations were properly harmonized. 

It is unclear to me whether those of us outside the system will ever learn about the amount of work involved. I surmise the responsibility of delivering this timely and properly  depended on the project management skills of the Research Office.  If foreigners could give recommendations to SPC leaders concerning “models of socialist labor (动模范),” I would recommend it to all involved in the transition to the Civil Code. 

Given the very general provisions of the Civil Code, these judicial interpretations (and more to come) are crucial for the operation of the Chinese legal system, despite theoretical questions about their binding nature beyond the court system.

As of 1 January 2021, the following judicial interpretations and other normative documents implementing the Civil Code have been issued (the English titles below are rough translations).  I will link to English translations as they become available. Unless otherwise noted, a document is a judicial interpretation. Among the many aspects of the drafting process, per the SPC’s relevant five year plan, socialist core values have been incorporated into the judicial interpretations.

The judicial interpretations 

Scattered comments are in italics. Where judicial interpretations have numbering , for example (1), it suggests that the drafters anticipate further comprehensive interpretations as the greater situation (大局) evolves:

  1. Decision on invalidating certain judicial interpretations and judicial normative documents (关于废止部分司法解释及相关规范性文件的决定). It canceled 116 of them, some of which I recall reviewing for my 1993 article;
  2. Regulations on timing application  of the Civil Code (

    关于适用《中华人民共和国民法典》时间效力的若干规定).  These rules relate to application of Civil Code for disputes etc. that arose pre-Civil Code. Although the general rule is that the then current law and judicial interpretations will be applied, for some types of cases  the Civil Code will be applied. (If it better protects a party’s rights and interests, upholds social and public order, and promotes socialist core values). Chart with explanation linked here.

  3. Interpretation on the application of the marriage and family part of the Civil Code (1) (最高人民法院关于适用《中华人民共和国民法典》婚姻家庭编的解释（一）). Note article 1 links ongoing domestic violence to the term “abuse” in the Civil Code. Chart with judicial interpretation, Civil Code, and prior judicial interpretation linked here. 

  4. Interpretation on the application of law to labor disputes (1) 最高人民法院关于审理劳动争议案件适用法律问题的解释（一).  

  5.  Interpretation on the application of law to construction contracts (1)(最高人民法院关于审理建设工程施工合同纠纷案件适用法律问题的解释（一）);
  6. Interpretation on the application of law to the property （rights in rem) part of the Civil Code] (1) (最高人民法院关于适用《中华人民共和国民法典》物权编的解释（一）). Rules relate both to immovable (real) and movable property, and authority of both courts and arbitral institutions;
  7. Interpretation on the application of law to the inheritance part of the Civil Code (1) (最高人民法院关于适用《中华人民共和国民法典》继承编的解释（一）). Chart with judicial interpretation, Civil Code, and prior judicial interpretation linked here. 
  8. Interpretation regarding the system of taking security) ( 关于适用
    《中华人民共和国民法典》有关担保制度的解释). This is a comprehensive interpretation on secured interests (besides mortgages, guarantees, liens, pledges, it also has content concerning factoring, finance leasing, and retention of title, as well as the giving of security by companies. It specifies that independent (demand) guarantees continue to be governed by the 2016 judicial interpretation on that topic. Those latter regulations are crucial to BRI infrastructure projects, as mentioned in this blogpost.
  9. Decision on amending the interpretation on the application of the Trade Union Law and 27 other civil law related judicial interpretations  related to civil-related judicial work (关于修改《最高人民法院关于在民事审判工作中适用〈中华人民共和国工会法〉若干问题的解释》等二十七件民事类司法解释的决定);
  10. Decision on amending the judicial interpretation on the hearing of patent tort disputes and 18 other intellectual property-related judicial interpretations (关于修改《最高人民法院关于审理侵犯专利权纠纷案件应用法律若干问题的解释（二）》等十八件知识产权类司法解释的决定）；
  11. Decision on amending the “SPC Provisions on some issues concerning people’s courts seizing goods being shipped by rail” and 18 other enforcement-type judicial interpretations (关于修改
    《最高人民法院关于人民法院扣押铁路运输货物若干问题的规定》等十八件执行类司法解释的决定)。 Comparison chart linked here;
  12. Decision on amending the “Official Reply of the Supreme People’s Court on Whether the Right to Use of Allotted State-Owned Land of a Bankrupt Enterprise Shall Be Classified as Insolvent Property” and 29 other commercial-type judicial interpretations (最高人民法院关于修改《最高人民法院关于破产企业国有划拨土地使用权应否列入破产财产等问题的批复》等二十九件商事类司法解释的决定)
  13. Decision on amending the “Provisions of the Supreme People’s Court about Several Issues Concerning the Civil Mediation Work of the People’s Courts” and 19 other civil procedure-related judicial interpretations (最高人民法院关于修改《最高人民法院关于人民法院民事调解工作若干问题的规定》等十九件民事诉讼类司法解释的决定);
  14. Notice that certain guiding cases are not to be further used for reference (最高人民法院关于部分指导性案例不再参照的通知). This is a judicial normative document, not a judicial interpretation.
  15. SPC issues amended “regulations on civil causes of action” (最高人民法院印发修改后的《民事案件案由规定》).  This is a judicial normative document, not a judicial interpretation. This link contains both the decision itself to amend the causes of action and the amended causes of action. Compensation for sexual harassment is listed (#372), but detailed provisions on the elements have not yet been issued.

As for the review of local level judicial guidance documents for consistency with the Civil Code, mentioned in the November blogpost, the Shanghai Higher People’s Court has reported that it has met its performance goal.  Another blogpost will discuss new SPC guidance（that I  flagged a year and a half ago, in the current judicial reform program) directed towards reining in local court guidance, or as seen another way, strengthening the SPC’s firm guiding hand!

Civil Code, Commercial law, intellectual property, judicial interpretations

Civil Code & Supreme People’s Court update

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Merry Christmas to all blog readers who celebrate!

The Supreme People’s Court media outlets posted a brief article on 23 December updating the court system and legal professionals on progress towards seamless transition to the Civil Code on 1 January, about which I wrote last month, by reporting on a . From that notice, it appears that the staff of the SPC’s Research Office (which coordinates judicial interpretations and is in charge of guiding cases) and other staff members of the SPC’s Leading Small Group for Implementing Civil Code Work 民法典贯彻实施工作领导小组 (Leading Small Group) will have long nights of work until the end of the year.

The notice reported on a recent meeting chaired by Justice He Rong. She is the executive vice president (and deputy Party Secretary of the SPC) and led a meeting of the entire Leading Small Group and the SPC’s judicial committee to review the work of the committee.The decision was to “approve in principle” decisions concerning canceling and amending 591 judicial interpretations and related judicial normative documents (judicial documents) and 139 guiding cases. “Approval in principle” (原则通过), as discussed here, is not mentioned by the SPC’s 2007 regulations on judicial interpretations but is one of the SPC’s long-established practices. It means that the judicial committee has approved it, subject to some “minor” amendments. Minor amendments are more than typographical errors and relate to specific substantive matters.

Justice He reminded meeting participants that the smooth transition to the Civil Code was highly valued by General Secretary Xi Jinping, so that it was part of the SPC’s political responsibility to complete the work properly and timely.   But the focus of this blogpost is again on the practicalities, rather than the political aspects of this project.

Although it was said to be Justice He’s guidance, I surmise that it was the drafters’ thinking to  take this comprehensive cleanup as an opportunity to focus on making the Civil Code easy for users to apply, and strive to build a clear, concise, and highly targeted judicial interpretation system. I read from the language of this notice that the drafters plan to issue more comprehensive judicial interpretations on broad areas of law (such as the one on taking security that is has been issued for comment) rather than ones relating to specific questions of law. 

The judicial committee decided to cancel 116 judicial interpretations and other judicial documents, and approved in principle amendments to 14 other general judicial interpretations and other judicial documents, and another 111 judicial interpretations and judicial documents in the areas of:

  1. civil law (27),
  2. commercial law (29);
  3. intellectual property law (18);
  4. civil procedure law (19); and 
  5. enforcement procedures (18).

So it seems likely the SPC judicial committee will meet one or more times before year end and we readers of SPC media will see one or more long catalogue of cancelled and amended judicial interpretations and other judicial normative documents published on or before 1 January 2021. I hope the hard work of the team involved over many months is properly acknowledged.

Commercial law, foreign-related cases, Hong Kong, International law, One belt one road

Supreme People’s Court’s New Policy on Cross-border Commercial Issues and Covid-19

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Screenshot 2020-06-18 at 7.32.24 AM
From left, Li Guangyu, SPC spokesperson; SPC Vice President Justice Luo Dongchuan; Judge Wang Shumei, head of #4 Civil Division

On 16 June, the Supreme People’s Court (SPC) held a news conference (pictured above), to announce that it had issued “Guiding Opinion on the Proper Handling of Civil Cases Involving the Novel Coronavirus Outbreak in Accordance with the Law (III)” (SPC Guiding Opinion III).” SPC Guiding Opinion focuses on the most important cross-border commercial issues that have arisen in the Chinese courts this spring as a result of the Covid-19 pandemic.  This brief blogpost provides some comments and an overview of the document, leaving the detailed analysis to the law firms that are sure to analyze it.

What is this document?

SPC Guiding Opinion III is a judicial policy document (司法政策性文件). As this blog has often commented, the Supreme People’s Court (SPC) must serve the greater situation and deal with practical legal issues, so that the SPC itself and its senior leadership are correct, politically, and professionally. One of those ways is by providing properly calibrated guidance to the lower courts and other related authorities with the appropriate political signals.  For this document, Justice Luo Dongchuan provided the political background and signals in his introductory remarks at the SPC news conference. The document itself is practically oriented (as those in the system say “problem-oriented”–“问题导向”)（and the practitioners say “干活”).

From the photo above it is clear that the #4 Civil Division, headed by Judge Wang Shumei, which focuses on cross-border commercial and maritime issues, took the lead in drafting. That division is one of the smaller divisions of the SPC and “punches above its weight.”

A judicial policy document is not a judicial interpretation but as the SPC editors of a collection of these documents noted, “it is generally recognized that they have an important guiding impact on the trial and enforcement work of the courts at every level.”  SPC Guiding Opinion III is one example of the many types of SPC “stealth” guidance to the lower courts.  I describe it as “stealth guidance” because it affects how cases are handled, heard, and decided, but cannot be cited in a court judgment or ruling. For that reason, only the highly observant will note the impact of judicial policy documents.

I anticipated that the SPC would issue further Covid-19 pandemic guidance when I spoke [links to video] in April at a virtual event sponsored by Berkeley Law School’s Center for Law & Technology. Some of the guidance reveals frequently used litigation tactics of Chinese parties.

Selected comments on the content

The document is divided into four sections:

  1. Civil procedure mechanics–parties, evidence,  deadlines, and statutes of limitations (Articles 1-5): This section draws on the recently amended and effective civil evidence rules

Article 1 directs Chinese courts to approve applications for extensions for foreign (cross-border) parties who are delayed in being able to provide notarized and authenticated documents to evidence the identity.  Delays in obtaining notarized and authenticated powers of attorney are to be treated similarly. If China had acceded to the 1961  Hague Convention Abolishing the Requirement of Legalisation for Foreign Public Documents, for all of China, this requirement would no longer be necessary. The Convention is applicable to Hong Kong because of UK-PRC handover arrangements, which enabled conventions originally applicable to Hong Kong pre-1997 to continue in effect.

Article 3 reveals one of the frequently used litigation tactics of Chinese parties in cross-border litigation in China–that is disputing the authenticity of a document because it has not been properly notarized and legalized. The SPC Guiding Opinion III advises lower courts to notify parties that they may reserve their arguments concerning these formalities, and focus their arguments on relevance and persuasiveness of the evidence.

      2. Ascertainment (determination) and application of law

These articles remind Chinese courts to use the Law of the People’s Republic of China on the Law Applicable to Foreign-Related Civil Relationships to determine governing law (assuming a contract does not designate a governing law), and to look to the SPC Guiding Opinion I for guidance on force majeure under Chinese law.  The SPC also reminds lower court judges not to substitute Chinese law if foreign law governs.  This is not the first time that this type of reminder has appeared in SPC policy documents, indicating this is an ongoing problem.  This section also includes guidance on the application on the UN Convention on the Sale of Goods.

Articles 8 and 9 relate to letters of credit, standby letters of credit, and demand (independent) guarantees. It reminds lower courts to correctly apply the International Chamber of Commerce (ICC)’s UCP 600 (Uniform Customs and Practice for Documentary Credits), the ICC’s URDG 758(demand guarantee rules), and the related SPC judicial interpretation concerning demand guarantees.

This likely means that Chinese contractors who have provided independent guarantees or standby letters of credit for construction projects overseas are seeking to prevent the owner of the projects from drawing on these guarantees through litigation in the Chinese courts. This case decided by the SPC in April, 2020, reverses the judgment of the Shandong Higher People’s Court in favor of the Chinese contractor.  The dispute relates to a Shandong Electric Power Company (SEPCO) project in India. Previous reporting in the Indian press seen here.

3. Transport contracts

Articles 11-17 relate to various types of transportation contracts as well as shipbuilding contracts.

4. Green channel.

This last section reminds courts to use online procedures and cross-administrative region arrangements if convenient and that Hong Kong, Macau, and Taiwan related commercial cases should be handled with reference to this guidance.

How was the document drafted?

As to how the SPC determined the FAQs of the lower courts, it did what all corporates and institutions around the world do these days–convened a video conference. The participants presumably came from the maritime courts and the foreign-related civil divisions of the provincial courts.

Why did the SPC issue it?

The number of cases directly affected by this guidance is relatively small. According to statistics released with President Zhou Qiang’s report to the NPC in May, there were 17,000 first instance foreign-related commercial cases and 16,000 foreign-related maritime cases in the Chinese courts in 2019, compared with 31.5 million cases in the Chinese courts overall.

However, foreign-related cases tend to be more sensitive because, as Zhou Enlai said “外事无小事” (foreign matters are never small matters” –foreign-related matters, because they involve relations with other countries and the prestige of the Chinese state, are sensitive. That means that judges hearing cross-border cases have a particular pressure to handle these disputes in a way that is consistent with the law (of course), acceptable to the leadership of their court & to the outside world.  One important aspect of SPC Guiding Opinion III  is the impact on Belt & Road projects, In many of these projects Chinese companies are often contractors, or also contractors and equipment suppliers (and Chinese banks provide financing). On the civil/commercial side cross-border cases possibly involve treaty/convention obligations (or treaty-like arrangements, in the case of Hong Kong).

As issues dealt with in SPC Guiding Opinion III relate to the most important Chinese cross-border commercial issues that have arisen during the pandemic, it has an impact on the Chinese (and foreign) business community, far beyond the number of foreign-related cases in the Chinese courts, and is likely to have an impact on related arbitrations governed by Chinese law.

About Me, Commercial law, Expert Committee

Supreme People’s Court Monitor at the Supreme People’s Court (III)

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I am prefacing this blogpost with a statement that nothing in it (or future blogposts, for that matter) represents the Supreme People’s Court (SPC), the China International Commercial Court (CICC), or the  International Commercial Expert Committee (Expert Committee).

On the afternoon of 21 August, Professor Liu Jingdong of the International Law Institute of the Chinese Academy of Sciences (pictured below) and I spoke at the SPC, invited by the #4 Civil Division.  Ms. Long Fei, Deputy Director (Person in Charge) of the CICC Coordination and Guidance Office. chaired the proceedings and Judge Wang Shumei, head of the #4 Civil Division, gave concluding remarks.  Professor Liu had previously been a guazhi scholar (seconded/temporarily assigned) in the #4 Civil Division (appointed as a deputy division chief, as is the practice). He felt the event was a reunion with his former colleagues.  This was the first event to involve lectures by CICC Expert Committee members to judges and other staff at the SPC, including several members of the CICC.  I trust that other Expert Committee members will have the same opportunity in the future.  I am grateful to all those involved in making all the arrangements needed for the event to take place and to all of those who took time away from dealing with difficult cases and other work to listen to and interact with Professor Liu and me.

 

The audience of about 40 people (pictured below) included Hu Shihao, head of the Judicial Reform Office, Li Xiao, deputy director of the Research Office, Judge Guo Zaiyu (of the CICC), and many others, including a group of students interning in the #4 Civil Division (seated in the back row).  After the formal part of the lecture (and a question and answer session), I was very happy to be able to take a few minutes to share with the students some of my thoughts about takeaways from their internships.

I spoke about the impact of the Belt and Road on the Chinese courts (about which I have previously spoken), market reaction outside of China to the CICC, and some modest suggestions relating to the Expert Committee.  I gave my presentation in Chinese, as I knew some in the audience would have difficulty understanding English, although my “foreigner’s Chinese” (洋式中文) may have been a challenge to understand. Professor Liu spoke on the “legalization” of the Belt & Road”  (the subject of his 2017 article in 政法论坛). One of my suggestions was that this not be a one-off event. The official report on the event (in People’s Court Daily), is also on the Chinese version of the CICC website.

 

 

 

bankruptcy law, Commercial law

Supreme People’s Court reports on its bankruptcy accomplishments

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Screen Shot 2017-12-30 at 8.45.44 AM

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.

arbitration, Commercial law, One belt one road

December update on judicial review of arbitration

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IMG_2676
photo of Beijing traffic, December 2017

The latest buzz within the Chinese international commercial legal community on Belt & Road related legal developments appears not to have surmounted the Great Wall of the Chinese language. The buzz is that a comprehensive judicial interpretation relating to arbitration is on route to promulgation.

On 4 December the Supreme People’s Court (SPC) issued a news release that its judicial committee had approved a judicial interpretation on judicial review of arbitration in principle, entitled Provisions on Some Issues Related to the Trial of the Judicial Review of Arbitration (Judicial Review of Arbitration Interpretation) (最高人民法院关于审理仲裁司法审查案件若干问题的规定).  “Approval in principle”  (原则通过) is not mentioned by the SPC’s 2007 regulations on judicial interpretations but is one of the SPC’s long-established practices.  It means that the judicial committee has approved it, subject to some “minor” amendments. Minor amendments are more than typographical errors and relate to specific substantive matters.  However, the news release did not specify what those “minor” issues were or set a deadline for issuing the interpretation. In December of last year (2016), the SPC’s judicial committee also approved in principle the #4 Company Law interpretation, but that interpretation was not formally issued until August of this year. This observer surmises (without any basis in facts or rumors) that the interpretation will be promulgated before Chinese new year so it can be one of the 2017 accomplishments of the SPC’s #4 Civil Division (but then again, that may be overly optimistic.

The new interpretation will focus on the issues that courts frequently encounter when arbitration-related cases come before them, dealing with gaps in current judicial interpretations (and likely the outdated Arbitration Law, (The Arbitration Law is also the subject of discussions among practitioners, academics, and others.)  The interpretation will incorporate new provisions on the types of cases, case acceptance, jurisdiction, procedure, the application of law and other questions.  It appears that it will incorporate the provisions described in the Notice concerning some questions regarding the centralized handling of judicial review of arbitration cases (the subject of the last blogpost).  It is hoped that the new interpretation will provide for a hearing procedure when cases involving the SPC’s prior approval procedure.

For those not familiar with the intricacies of China’s judicial review of arbitration issues, a 1995 SPC circular sets out a prior approval procedure, requiring local  court rulings to refuse to enforce foreign-related/”greater China”/foreign arbitration awards to be submitted for eventual review by the SPC.  It is currently an internal administrative type procedure, with no explicit option of a hearing.

The SPC announcement described the drafting of the Judicial Review of Arbitration Interpretation as having begun in 2016.  This blog reported in late 2014 that Judge Luo Dongchuan, then head of the SPC’s #4 Civil Division, mentioned that a new judicial interpretation on the judicial review of arbitration-related issues will go into the Court’s judicial interpretation drafting plan in 2015 and that the SPC intends to reform jurisdiction in judicial review of arbitration issues, to consolidate them in specialized courts.

A follow up post will describe the latest buzz on the Belt & Road international commercial tribunal.

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alternative dispute resolution, Commercial law, foreign-related cases, One belt one road

SPC reveals new Belt & Road-related initiatives

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Screen Shot 2017-10-06 at 11.05.55 AM
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.

 

Commercial law, foreign-related cases

Chinese courts & formality requirements

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apostille
Hong Kong Apostille (from internet)

In February, 2017, the Supreme People’s Court (SPC) issued its second judicial transparency white paper, giving the official version of what the SPC has done to respond to public demands for greater transparency about the Chinese judicial system. But what are the voices from the world of practice saying? One of the issues (for a small but vocal group, foreign litigants) is inconsistent and non-transparent formalities requirements.

Chinese civil procedure legislation requires a foreign litigant to notarize and legalize corporate documents, powers of attorney & other documents. It is a time consuming and costly process, with some jurisdictions providing documents that do not meet the expectation of Chinese courts.   China is not yet a signatory to the Hague Convention Abolishing the Requirement of Legalisation for Foreign Public Documents  (Hague Legalization Convention)   which substitutes the faster and cheaper apostille process (note that Hague Legalization Convention continues to be applicable to Hong Kong and Macau under the terms of the joint declarations and Basic Laws for each Special Administrative Region (SAR)).  About one year ago, a Ministry of Justice official published a Wechat article discussing the benefits of the Hague Legalization Convention (as well as the issues facing China in implementing it).

While this article addresses issues faced by foreign plaintiffs seeking to challenge Trademark Review and Adjudication Board decisions in the Beijing Intellectual Property Court (Beijing IP Court), according to other practitioners (who have asked not to be identified), these problems with inconsistent (and non-transparent) requirements concerning legalizing foreign corporate documentation are not limited to the Beijing IP Court, but face foreign parties appealing from intermediate courts to provincial high courts elsewhere in China. These requirements can have the effect of cutting off a party’s ability to bring an appeal, for example.

What is the solution?  The long-term solution, of course, is for China to become a signatory to the Hague Legalization Convention.  In the meantime, Chinese courts should be more transparent about their formalities requirements.  These requirements affect all foreign parties, whether they are from One Belt, One Road  (OBOR) countries or not. If China is seeking to become an international maritime judicial center or hear more OBOR commercial cases, the Chinese courts need to become more user friendly.  Courts with significant numbers of foreign cases (Beijing, Shanghai, Shenzhen….) can consider reaching out to the foreign chambers of commerce, many of which have legal committees, to understand in greater detail what specific problems foreign litigants face (and convey their views to foreign audiences). Resolving this issue can create some goodwill with the foreign business community with relatively little effort.

 

administrative cases, bankruptcy law, Commercial law, Family Law, foreign courts, juvenile courts, Labor law

Welaw Monitor (微律观察) #2

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

Screen Shot 2017-06-17 at 10.04.02 AM
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

 

 

 

 

administrative cases, bankruptcy law, Commercial law, Family Law, foreign courts, juvenile courts, Labor law

Welaw Monitor (微律观察) #1

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I am tweaking the type of content on the blog, cutting down on the long analytical blogposts.   I will provide links to reports and analysis on court and other legal matters on Wechat. I am concentrating on writing a book and some other related writing and editing projects.

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

Commercial law

14 situations where the corporate veil can be pierced

Criminal law

Public security v. SPC & SPP on what is prostitution–does that include other types of sexual services?

SPC vice president Li Shaoping on drug crimes–relevant sections of Criminal Law should be amended, better evidentiary rules needed for drug crimes, & death penalty standards need to be improved

Hebei lawyer’s collateral appeal statement, alleges torture during residential surveillance, procedural errors (part of China’s innocence project

China’s financial crime trading rules are unclear

Defendant changed his story on appeal but the appeal court ruled he was the killer

25 criminal law case summaries from People’s Justice magazine 

Criminal procedure law

public security does not want the procuratorate supervisors in police stations

A corrupt official’s polygraph problems

Supervision Commission

Its power should be caged

Beijing supervision authorities take someone into custody, will shuanggui be abolished?

Party discipline

On confession writing

10 No nos for Party members using Wechat

Administrative litigation law

SPC issues 10 typical administrative cases, including one involving the Children’s Investment Fund

Those disputing compensation for expropriation of rural land must first apply for a ruling–land is now part of the Harbin Economic and Technical Zone (unpacking of  case #46 of #2 Circuit Court’s case summaries)

Labor law

Important study by the Guangzhou Intermediate Court on labor disputes 2014-16, with many insights & a section devoted to sex discrimination issues

Don’t make these 10 mistakes when terminating employees

Family law

Status report on family court reforms (& difficult issues for judges)

 Why it’s so hard to deal with school bullying in China

How juvenile justice should be improved (the semi-official view)

Judiciary

300 cases in 100 days–a team of young judges & expedited criminal cases

Environmental Law

Procuratorate has brought 79 public interest law suits in Yunnan (press report)

Bankruptcy

Why bankruptcy is so difficult and what needs to improve

Lawyers

 legal qualification system needs changing, the profession needs those with non-law undergraduate training

 

 

 

Commercial law, shadow lending

Private lending leaves the shadows for the courtroom

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Supreme People’s Court (SPC) President Zhou Qiang’s report to the National People’s Congress in March of this year omitted data on private lending disputes.  In 2016, Zhou Qiang stated that the courts dealt with approximately 1.5 million cases, up 41% from the year before. According to a widely cited study issued in November, 2016, private lending disputes were the leading type of  civil dispute in the Chinese courts in 2011-2015.  Data on private lending disputes in 2016 seems to be missing from year end reports by many local  courts, although the the SPC is promoting the use of big data.  The report discussed below is an exception to the general trend this year. Beijing’s Chaoyang District  Court, one the busiest basic level court in China, recently published a report on private lending cases.

Data from Beijing’s Chaoyang District, numbers of cases accepted, 2013-2016:

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2013-16, number of private lending cases accepted

The court noted that the year on year growth rate for private lending cases was 8.1% (2013-2014), 128.9% (2014-2015), 160.3% (2015-2016), with 2016 cases over five times the number in 2013. In the first four months of 2017, the Chaoyang  court accepted 8777 new cases. The court expects the number of private lending cases to increase substantially during 2017.

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2013-16 cases , amounts in dispute, in units of 100 million RMB

Cases involving large amounts in dispute are on the rise: in 2013, 21 cases involved more than 10 million RMB, 31 in 2014, 61 in 2015 and 95 in 2016, with one case in 2016 involving 96 million RMB.  Total amounts in dispute in 2016 were over 821 million USD.1f8c0005df46479e9f11

Comments by court researchers:

  • Almost 1/3 of the cases involved one company.
  • Many of the cases involve P2P platforms (no specific numbers supplied);
  • because insufficient information is supplied, courts have problems serving process;
  • many platforms circumvent the restrictions on the rate of interest by imposing intermediary fees;
  • the loan agreements are badly drafted, making it difficult for judges to decide these  cases;
  • Few cases were settled and over 20% were default judgments.

Comment

Failing to release judicial statistics about private lending on a national level does not send positive signals about the state of judicial transparency, but does indicate the way that the SPC needs to serve government strategies.  These statistics, at a local level, do send signals about the state of the economy. Their absence at a national level does not mean the underlying economic concerns have vanished. Further concerns are raised by the fact that the Shanghai Justice Bureau, as of early April, has ordered public notaries to stop notarizing private lending agreements (notarizing an agreement makes court enforcement easier

Commercial law, foreign-related cases, Maritime courts, One belt one road

English language websites of Chinese courts

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The Supreme People’s Court (SPC) and other Chinese courts have established or upgraded their English language websites to promote better the image of the Chinese courts to the outside world.  These websites are linked to policy goals set by the 4th Plenum, 4th Five Year Court Reform Plan, and other related documents. That can be seen from an announcement on the English language version of the Shanghai Maritime Court’s website:

Shanghai Maritime Court established a judicial translator team, aiming at having a bigger say in global judicial disputes and fostering judicial talents with a global vision.

“Establishing a professional translator team for maritime judiciary centers is a goal for building a global maritime judicial center,” said Zhao Hong, president of the Shanghai Maritime Court.

“It is aiming to serve a maritime powerhouse and laying a solid foundation for China’s Belt and Road initiative,” Zhao said.

A quick rating of the soft power of these English language websites follows below.

SPC English website

  1. SPC’s English website: http://www.english.court.gov.cn

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The SPC English website, while an improvement over the previous version, could be substantially improved.

Too much of the information is out of date, including much of the information on the landing page of the website. The “About” section, which could be useful to foreign courts, diplomats, journalists, researchers, students, etc. has an outdated description of the SPC leadership.  In the section on Resources, the SPC white papers are published as separate pages, rather than as one downloadable PDF (as some of the Chinese maritime courts have done). The scheduled hearings section is generally out of date and also provides no information as to how an interested person would attend a hearing. The link to issues of the SPC Gazette only contains the first two pages, rather than the full issue itself.  Moreover, the landing page lacks links to other English language court websites.

National Maritime Court site

China Maritime Trial: http://enccmt.court.gov.cn/chinamaritimetrial/index.html, the English language version of the national maritime court website (partial screenshot below), apparent partner to the Foreign Related Commercial website (similar look and feel) seems to be in beta mode.Screen Shot 2017-05-08 at 2.03.12 PM

Again, as with the national court website, the news on most of the landing page appears to be outdated.  The white paper page does not enable the user to download a PDF version of the report providing an overview of the first 30 years of the maritime courts.  Under the resources tab, under law & regs, are links to translations of SPC judicial interpretations relating to the maritime courts, but it is not apparent to anyone looking at the landing page. These translations are potentially a useful resource to all sorts of foreign readers. Under the resources tab, the cases menu is empty. The judgement tab links to translations of some judgments and rulings by the SPC and maritime courts, but without any headings or indications on the front page of the website.  These translations, too, are potentially a useful resource to foreign users. It does have links to the other maritime courts (some of which have English websites, but some of the links are out of date.

National Foreign-Related Commercial Cases Website

China Foreign Related Commercial Trial: http://enccmt.court.gov.cn/ChinaForeignRelatedCommercialTrial/index.html , the English language version of the national foreign-related commercial cases court website (partial screenshot below),apparent partner to the Maritime Courts website (similar look and feel) seems to be in beta mode.china foreign related trial

Again, as with the national court website, the news on most of the landing page appears to be outdated. Under the About tab is a list of courts that can accept foreign-related cases, but information about the jurisdiction of each court is missing. Under the Media Center, most of the information under Updates is irrelevant to the courts, the information under International Exchanges is missing, but the Specials has a translation of the SPC’s Belt & Road policy document (although followed by descriptions of the SPC’s cooperation with several Shanghai-area law schools).  There is no content under the Resources tab or the Judgement tab.  Translations of judicial interpretations related to foreign-related civil and commercial issues and a clearer explanation of how a foreign-related case progresses in China would be useful for the casual foreign user, including those from the Belt & Road countries.

Local court websites

Relatively few Chinese courts seem to have English language websites, but the Shanghai high court (http://www.hshfy.sh.cn/shfy/English/index.jsp) has one of them.Screen Shot 2017-05-13 at 3.24.23 PM

The Shanghai Higher People’s Court website is well organized, and relatively timely, although the litigation guide has little information to guide the foreign litigant, and too much of the information, whether cases or news, is badly edited.  The information on jurisdiction is not very helpful for a litigant or counsel, because it does not convey information on the jurisdiction of the Shanghai courts.  It appears that translators lacked understanding of who the potential users of the site were, and had English language challenges, unlike the Shanghai maritime court (see more below).

Local Maritime court websites

Several maritime courts have English language websites, with Guangzhou and Shanghai taking the lead in presenting useful and clear information to the foreign user.  The Shanghai maritime court website (http://shhsfy.gov.cn/hsfyywwx/hsfyywwx/index.html) does a good job of presenting official information clearly and in a timely manner. Screen Shot 2017-05-13 at 2.51.58 PM.pngThe Shanghai maritime court’s bilingual white paper for 2014 and 2015 is downloadable in PDF (under the Annual Report tab), the Court News is relatively timely,  The case digests are useful and calendar lists upcoming court hearings (however without information concerning how an interested person could attend them). Unusually for a Chinese court website, the Judges tab has photos of judges other than the senior leadership.  The Contact Us tab (unusual for a Chinese court) has only telephone numbers for the court and affiliated tribunals, rather than an email (or Wechat account).  Of course the information on the Chinese side of the website is more detailed (under the white paper tab, for example, a detailed analysis of annual judicial statistics can be found), and the laws & regulations tab might usefully set out maritime-related judicial interpretations, but most of the information is well organized and relevant.  Similar comments can be made about the Guangzhou maritime court’s website (http://english.gzhsfy.gov.cn/index.php).

Screen Shot 2017-05-13 at 3.19.38 PM.png

Comment

It appears that Judge Zhao Hong, president of the Shanghai Maritime Court (and former SPC #4 Civil Division judge) and her Guangzhou counterpart, Judge Ye Liudong, have a greater sense of what the world outside of China is interested to know about the Chinese courts than many other Chinese senior court judges. The team of judges (and other judicial personnel)  under her watchful eye does a good job of keeping the website current and useful.

Most of the court English language websites should be rated “room to improve,”  as they fail to convey useful and timely information to foreign users.Those running the website do not seem to have a sense of what the foreign audience wants to know. That could be solved in a couple of ways: looking at some foreign court websites, consulting with a web-development company focusing on the foreign market, or recruiting some foreign lawyers or law students to be a website focus group.

The websites need to convey to a foreign audience a range of useful information worded in accessible language if they are to accomplish their goal of promoting the image of the Chinese courts.  One useful piece of information that should be on a Chinese court website is a clear illustration of the steps in a civil or commercial case), aimed at individual or small business litigants.  How foreigners can use the Chinese courts to protect their rights, be they related to a contract, property, or employment relationship, is a practical issue both to the hundreds of thousands of foreign residents in China as well as those foreigners with cross-border disputes with a Chinese party.

big data, Commercial law, Communist Party and the Courts, One belt one road

Signals in Zhou Qiang’s 2017 NPC Report (Part 1)

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Most people who have commented (outside of China) on Supreme People’s Court (SPC) President Zhou Qiang’s March, 2017 report (on 2016 work) to the National People’s Congress (NPC) didn’t have the patience to read (or listen) much beyond the initial section, which mentions the conviction of Zhou Shifeng as indicating that the courts are doing their part to crack down on state subversion.  It appears to be another in a series of colorless government reports.  But for those with the ability (or at least the patience) to decode this report, it provides insights into the Chinese courts, economy, and society.

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The report, which went through 34 drafts, is intended to send multiple signals to multiple institutions, particularly the political leadership, in the months before the 19th Party Congress.

According to a report on how the report was drafted, the drafting group (which communicated through a Wechat group to avoid time-consuming bureaucratic procedures) faced the issue of how to summarize the work of the People’s Court in 2016 correctly.  The guidance from President Zhou on the report–it must:

  1. fully embody the upholding of Party leadership, that court functions (审判职) must serve the Party and country’s overall situation;
  2. embody the new spirit of reform, showing the (positive)impact of judicial reform on the courts and show the ordinary people what they have gained;
  3. not avoid the mention of problems, but indicate that they can be resolved through reform.

Underneath these political principles, the operation of a court system with Chinese characteristics is visible.

A partial decoding of the report reveals the points listed below (to be continued in Part 2).

1. Caseload on the rise

The caseload in the Chinese courts continues to rise significantly, at the same time that headcount in the courts is being reduced.  Diversified dispute resolution (the jargon outside of China is alternative dispute resolution) is being stressed.

  • SPC itself is dealing with a massive increase in its cases, 42.6% higher than 2016, and that number was significantly higher than 2015.

    Screen Shot 2017-03-16 at 4.07.25 PM.png
    2016, SPC cases accepted 22,742, up 42.3%, concluded 20151, 42.6%, Circuit Cts #1 & 2 accepted 4721 cases in last 2 yrs, resolved 4573 cases

     

The statistics on the SPC’s caseload are not broken down further, but are understood to be mostly civil, commercial, and administrative.  It appears from a search of one of the case databases that not all of the SPC judgments or rulings have been published (a search of one of the judgment databases showed 6600+, and only some of the death penalty approvals). It seems also that the database does not include SPC cases such as the judicial review of certain foreign and foreign-related arbitration awards.

Although the report does not focus on the reasons for the massive increase in SPC cases, careful observation reveals the following reasons:

  • establishment of the circuit courts, hearing more cases and ruling on applications for retrials;
  • increase in the number of civil and commercial cases with large amounts in dispute;
  • SPC itself has implemented the case registration system; and
  • changes in law giving litigants rights where none previously existed.

The report also mentioned that 29 judicial interpretations were issued (some analyzed on this blog) and that 21 guiding cases were issued.  Model cases and judicial policy documents were not separately set out, although some were listed in the appendix to the SPC report distributed to delegates.

Lower courts

23,030,000 cases accepted by lower courts, up 18%, cases resolved, 19,773,000; amounts in dispute up 23%

The pie chart below sets out the statistical distribution of cases heard by the Chinese courts:

 

Screen Shot 2017-03-16 at 9.59.06 PMThe pie chart of cases heard, enforced and closed in 2016 shows:

  • about 60% of those cases were civil, commercial, or intellectual property cases;
  • 6.41% criminal cases,
  • 3.40% parole, sentence reduction cases;
  • almost 26% enforcement cases,
  • .03% state compensation cases,
  • petition or application for retrial, .91%;
  • and 1.66% administrative cases.

Although the stress in Zhou Qiang’s report is placed on law and order, in fact many more cases in the Chinese courts are civil and commercial rather than criminal.

2. Social stability, public order, law & order are major concerns

Criminal cases have a prominent place in the report, although the data reveals a slight increase in the number of cases  (1.5%), involving the conviction of 1,220,000 people, down 1%. (Note that many minor offenses are punished by the police, with no court procedures).

Although the report mentioned the Zhou Shifeng case (state security) and criminal punishment of terrorist and cult crimes, it did not release statistics on the number of cases of any of these crimes heard.  Corruption cases totaled 45,000 cases, involving 63,000 persons.  Violent crimes (murder, robbery, theft) cases 226,000. Drug cases: 118,000, a significant decrease from 2015. 2016 cases of human trafficking and  sexual assault on women and children totaled 5335, while telecommunications fraud cases in 2016 totaled 1726.  Only 213 cases involving schoolyard bullying were heard and the SPC revealed that the drafting of a judicial interpretation on the subject is underway. The report highlighted some of the well-known criminal cases, including the insider trading case against Xu Xiang and the Kuai Bo obscenity cases to illustrate and criminal law-related judicial interpretations to signal that the courts are serving policy needs in punishing crime.

The same section described what has been done in 2016 to correct mistaken cases, highlighting the Nie Shubin case (reheard by Judge Hu Yuteng and colleagues) as an example.  The report revealed that the local courts retried only 1376 criminal petition cases, likely a tiny fraction of the criminal petitions submitted.

3. Maintain economic development

As President Zhou Qiang indicated, the way that the Chinese courts operate is Party/government policy-driven (they must serve the greater situation). Serving the greater situation meant, in 2016, that the Chinese courts heard 4,026,000 first instance commercial cases, a 20.3% increase year on year.  He also mentioned the 3373 bankruptcy cases analyzed in an earlier blogpost. Of those 4 million commercial cases, 1,248,000 involved securities, futures, insurance, and commercial paper and 255,000 real estate cases and 318,000 rural land disputes. Other implications are discussed below.

This section of the report devoted a paragraph to a topic discussed last year on this blog: the courts serving major government strategies, including One Belt One Road, the Yangtze River Belt, and Beijing-Tianjin-Hebei coordinated development.

Green development , intellectual property (IPR), property rights (of private entrepreneurs), serving maritime and major country strategy, socialist core values, judicial solutions to new problems and cross-border assistance also merited mention in this section.

  1. The courts heard 133,000 environmental and natural resources cases, with Fujian, Jiangxi and Guizhou courts designated as experimental environmental courts.  While public interest environmental and procuratorate brought (environmental) cases were mentioned, statistics were not set out.
  2. First instance IPR cases totaled 147,000, with several cities (Nanjing, Suzhou, Wuhan, and Chengdu) establishing IPR divisions to take cases across administrative boundaries. This section mentioned the Jordan trademark case and the IPR courts.
  3. On protection of property rights, the report mentioned some of the documents intended to protect private entrepreneurs discussed on this blog, as well as 10 model cases.
  4. On maritime and cross-border cases, the report mentions the judicial interpretations on maritime jurisdiction (discussed in this blogpost), intended to support the government’s maritime policy, including in the South China Sea.  The Chinese courts heard only 6899 commercial cases involving foreign parties (this means that of the 2016 19,200 civil and commercial cases mentioned by Judge Zhang Yongjian, most must have been civil) and 16,000 maritime cases. The report again mentions making China a maritime judicial center, further explained in my 2016 article.
  5. On the relevance of socialist core values to the courts, that is meant to incorporate socialist core values into law (although they should be understood to have always to be there) and to give the Langya Heroes special protection under China’s evolving defamation law.
  6. Judicial solutions to new issues included internet related issues, including e-commerce cases, internet finance cases, and theft of mobile data; the first surrogacy case, and judicial recommendations to Party and government organizations.
  7. In the section on international cooperation, President Zhou Qiang revealed that fewer than 3000 cases involving mutual judicial assistance were handled. The bureaucratic and lengthy procedures for judicial assistance in commercial cases has long been an issue for lawyers and other legal professional outside of China.  This is likely to change (in the long run, as Chinese courts increasingly seek to obtain evidence from abroad).  US-China dialogue on bankruptcy issues and cooperation with One Belt One Road countries (cases involving these countries are increasing significantly), were also mentioned here.

TO BE CONTINUED

 

bankruptcy law, Commercial law, Labor law, Uncategorized

Liaoning high court looks into labor issues in bankruptcy

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

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

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

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

Research report reveals several major issues

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

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

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

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

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

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

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

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

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

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

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

bankruptcy law, Commercial law, Monitor

How Zhejiang courts support its economy

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zhejiang

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

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

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

What is special about Zhejiang?

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

Civil & commercial litigation in Zhejiang

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

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

How Zhejiang courts support SME economy

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

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

 

 

 

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

What the Central Economic Work Conference means for the Chinese courts

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©China Daily

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

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

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

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

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

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

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

But actually, bankruptcy cases remain fraught.

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

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

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

The third is to further increase the protection of property rights

Among the points Zhou Qiang made:

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

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

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

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

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

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

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

Comments

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

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

It appears that these documents respond to the following:

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

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

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

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

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

Among the issues that President Zhou Qiang mentioned

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

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

We are likely to see further developments in these areas.

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

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

Commercial law, Company Law, intellectual property, Uncategorized

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

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

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

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

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

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

Comments

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

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

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

 

 

 

 

alternative dispute resolution, Commercial law, Uncategorized

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.

 

Commercial law, Court Reform

Supreme People’s Court starring on Court TV

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Nestle v. TRAB hearing in SPC

From 1 July 2016, the Supreme People’s Court (SPC) is (in principle) broadcasting live all its public trials (public hearings) (better understood by those from a common law jurisdiction as an appellate court hearings) on its own Court TV website.

SPC broadcasts also include hearings by the #2 Circuit Court (in Shenyang) and #1 Circuit Court in Shenzhen.   The technical platform is provided through Sina.com and a private company.  The SPC describes its online broadcasts as its fourth transparency platform.

Some of the cases that the SPC considers do not have public hearing procedures, such as its capital punishment review and judicial review of decisions concerning foreign and foreign-related arbitral awards.

As of 14 July, there almost 30 cases for which the videos are available, many of which involve lending, either bank or private lending and real estate-related disputes, and are primarily civil cases.  Some of the cases include:

It provides a window into the world of Chinese commercial disputes.

Rationale

SPC Vice President Jing Hanchao, who was apparently tasked with implementing this development, is quoted by the official press as saying:

the live webcasts will be significant progress for judicial openness. With full transparency of trials online, the public can better play their supervisory role.

Live broadcasts will also drive judges to strengthen their capabilities, thus improving the judicial system…

..live webcasts will create a large amount of data that will help jurists study China’s legal system.

Having their advocacy broadcast on line may also drive lawyers to strengthen their advocacy skills as well.

For persons interested in the Chinese judiciary, it provides easy access to SPC court hearings, without the hassle of special permission, letters of introduction, and trips to Beijing.

Lawyers in Beijing do not seem to be aware of this development, at least judging by the lawyer acting for TRAB, who arrived in the courtroom after the hearing began.

Some outstanding questions

This decision by the SPC raises a number of questions.

  • Were the parties asked whether they consented to having their case broadcast on line? It is not apparent from the recordings that I have seen.
  • Individual parties read out their personal identification numbers on the recordings.  Could this be an invasion of their privacy?
  • The recently promulgated People’s Court Courtroom Rules (translation here (thank you Chinalawtranslate.com) and original here) lacks any type of balancing test:
  • Article 11: In any of the following situations, for trial activities that are conducted openly in accordance with law, the people’s courts may use television, the internet or other public media to broadcast or record images, audio or videos.
  • The 2010 regulations on the broadcast of cases (关于人民法院直播录播庭审活动的规定)  lack specific procedures enabling individuals to protect their rights. Do judicial reforms contemplate more specific procedures enabling litigants (or defendants) to refuse to have their case broadcast online?

 

Note:

Mac users may find that the platform works better through the Safari browser than Google Chrome.