English language websites of Chinese courts

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Too much of the information is out of date, including much of the information on the landing page of the website.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 has an outdated description of the SPC leadership.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 The scheduled hearings section is generally out of date and also provides no information as to how an interested person would attend a hearing.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).

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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.

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

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.
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    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

 

Liaoning high court looks into labor issues in bankruptcy

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

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

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

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

Research report reveals several major issues

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

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

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

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

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

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

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

Comments

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

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

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

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

How Zhejiang courts support its economy

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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).

 

 

 

What the Central Economic Work Conference means for the Chinese courts

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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.

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.

 

 

 

 

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.