The National Civil Commercial Trial Work Conference Draft Conference Summary or how the SPC guides the lower courts through issuing conference summaries

Screenshot of draft conference summary

In early August, the Supreme People’s Court (SPC) issued the National Civil Commercial Trial Work Conference Conference Summary (Draft of the SPC #2 Civil Division for the Solicitation of Opinions from the Public) 全国法院民商事审判工作会议纪要 (最高人民法院民二庭向社会公开征求意见稿. The draft, which sets a comment deadline of 25 August and includes a brief (but useful) introduction, provides a summary of current critical legal issues in domestic commercial law. As explained below, this document provides an excellent example of one of the ways that the SPC guides the lower courts through issuing judicial normative documents 司法文件 or 司法规范性文件 (also called judicial regulatory documents and judicial guidance documents (司法指导性文件) and uses national court conferences to derive a consensus on critical legal issues. The 123-article draft document relates to legal issues, rather than the political issues discussed at length in Justice Liu Guixiang’s speech (as described in a recent blogpost). The fact that this draft was issued for public comment and so quickly shows that guidance from the SPC to the lower courts is needed quickly at a time where the domestic Chinese economy is facing downward economic pressure.  I  explain what this document is, why it was issued for public comment, and its implications. The planned summary of the issues will need to wait until time permits (perfect is the enemy of the good).

Collection of Guidance Documents of the SPC

Conference Summary

It is a fact that the Supreme People’s Court (SPC) issues a broad range of documents that guide the lower courts in addition to its judicial interpretations.  Several recent posts on this blog (and two of my recent book chapters) have focused on several of those documents. One of the documents that the SPC issues is entitled “conference summary/meeting minutes” (会议纪要), which is also a type of Party/government document (as mentioned in earlier blogposts).

As I explained “earlier” (25 years ago) in my 1993 article, the SPC uses specialized court conferences as a way of transmitting central legal policy, unify or harmonize court practices in accordance with that policy, and obtain an overview of court practices and problems.  Although conference summaries do not have the status of a judicial interpretation, the lower courts will generally decide cases according to its provisions. “Harmonizing court practice” means in Chinese judicial parlance that judges are applying the law similarly.

The SPC entitles conference summaries “judicial normative documents”(司法文件) judicial guidance documents (司法指导性文件) and sometimes judicial policy documents” (司法政策性文件).  As I’ve written before, this fuzzy use of terminology is not unusual. An (authoritative) follower has proposed using the English translation “judicial regulatory document” for 司法规范性文件.  An authoritative person (who cannot be named), concurred with the follower’s proposal. The book pictured above, edited by a group from the People’s Court Press (affiliated with the SPC),  includes a number of conference summaries (some with commentary by drafters). The editors commented that “although judicial guidance documents are not judicial interpretations and cannot be cited in a court judgment document as the basis of a judgment, it is generally recognized that they have an important guiding impact on the trial and enforcement work of the courts at every level.”

Public Consultation

This conference summary appears to be one of the few that has been issued for public consultation (the previous civil/commercial conference summary was also issued for public comment (see here).  My understanding is that the usual practice has been to solicit the views of certain experts outside the court system in the drafting process (as well of many in the court system).  As to why this draft has been issued for public comment, a knowledgeable person said it was to “hear views from all parts of society (听取社会各界的意见). I surmise that the #2 Civil Division (the division that took the lead in drafting the conference summary) took the view that it was useful to understand the views and comments that “the market” (the legal professional community) has relating the rules in the conference summary before finalizing it. This way the conference summary can be amended before it is finalized to account for any useful comments and the #2 Civil Division can anticipate issues that may arise when the conference summary becomes effective.

Purpose, Implications and Drafting Procedures

In the introduction to the draft, the SPC described its purpose in issuing this conference summary.  “The main purpose is in relation to various problems encountered in the process of trial practice, to provide some resolution methods that judges can use as a reference when discussing reasoning in the application of specific laws, to unify judicial thinking, and limit judicial discretion, work hard to have the masses feel justice in every case”   (主要目的是就审判实践中遇到的一些问题,提出解决方案,作为法官在具体法律适用、进行说理论证时的参考,统一全国法院的裁判思路,约束法官自由裁量空间,提高司法公信力,稳定当事人、法律工作者及社会的预期,努力让人民群众在每一个司法案件中感受到公平正义).  The conference summary has implications for the legal professional community as a whole (particularly lawyers and in-house counsel) because it signals what approach the lower courts are likely to take to current controversial issues.

According to the notice, the drafters of the conference summary combined the legal issues set out in Justice Liu’s report with issues raised by delegates at the conference and issues derived during the process of preparing for the conference.  As described in the book chapters mentioned above (and in great detail in a book chapter stuck in the production pipeline), this is representative of judicial interpretation and judicial document drafting.

Substantive Content

From the number of articles relating to specific issues, it is possible to see where the inadequacies in current legislation exist and where the courts lack consensus on important commercial law issues.  Since the draft was issued, Chinese law firms have published articles focusing on specific issues. Time does not permit me to explain its provisions now.

  1. Issues related to the application of the General Principles of Civil Law and its relationship with other legislation (5 articles)(《民法总则》适用的法律衔接问题(5条))
  2. Trial of company disputes (22 articles) (关于公司纠纷案件的审理(22条))
  3. Trial of contract disputes (26 articles) (关于合同纠纷案件的审理(26条)
  4. Trial of security disputes (18 articles)(关于担保纠纷案件的审理(18条)
  5. Financial consumer rights protection disputes (6 articles)(关于金融消费者权益保护纠纷案件的审理(6条)
  6. Trial of securities disputes (11 articles)关于证券纠纷案件的审理(11条)
  7. Trial of business trust dispute cases (7 articles)(关于营业信托纠纷案件的审理(7条))
  8. Property insurance disputes (6 articles)(关于金融消费者权益保护纠纷案件的审理(6条))
  9. Trial of commercial paper disputes (4 articles)(关于票据纠纷案件的审理(4条)
  10. Bankruptcy cases (13 articles) (关于破产纠纷案件的审理(13条)
  11. Trial of cases involving third party objection to enforcement and withdrawal of a case (5 articles) (关于案外人执行异议之诉和第三人撤销之诉纠纷案件的审理(5)
  12. Cases with both civil and criminal aspects (2 articles) 关于民刑交叉纠纷的处理(2条)
  13. Etc. (1 article)

Signals from the Supreme People’s Court’s national civil/commercial trial work conference

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Justice Liu Guixiang in a photo from some years ago

During the first week of July,  the Supreme People’s Court (SPC) held its civil/commercial work conference (民商事工作会议), at which senior SPC and lower court leaders (and other leaders) gathered to hear about the latest SPC policies concerning civil and commercial cases.

As this blog has noted, most of the work of the Chinese courts involves civil and commercial disputes, not criminal cases. President Zhou Qiang gave an important speech which set the tone for the conference, but the one that the practitioners (judges and lawyers) are paying close attention is the keynote speech by Justice Liu Guixiang, full-time member of the SPC Judicial Committee and organizer of the conference. From the content of Justice Liu’s speech, it appears that the focus was domestic commercial cases.  For those who want to review the text in full, it is available here and here (the second version was published on the Wechat account Empire Lawyers (法客帝国)and includes an introduction and highlighting by the lawyer who has the account.) (The last conference was in December 2015.) This blogpost highlights some of the many issues his speech raises.

(For those not familiar with SPC work conferences, the description I provided 25 years ago remains accurate: “Another important way through which the [SPC] uses these meetings is to transmit central legal policy, unify court practices in accordance with such policy, and obtain an overview of current court practices and problems.”)

Justice Liu Guixiang is a senior member of the SPC and one of a relatively few senior judges who graduated from the University of International Business and Economics (UIBE) (formerly affiliated with the predecessor to the Ministry of Commerce (MOFCOM)) and so is familiar with cross-border issues in particular (and was earlier head of the #4 Civil Division, in charge of cross-border issues). He is well known to the international community. Justice Liu has been given responsibility for the SPC’s campaign to basically resolve enforcement difficulties within two or three years (as the former head of the Enforcement Bureau).  Because problems in the Chinese economy means that many more business deals in China are ending up as disputes in the Chinese courts, the SPC needs to signal to the lower courts how important issues should be handled and to the senior political leadership that the courts are supporting the Party and its core.

Justice Liu conveyed messages on two types of issues to two parts of the audience for his speech.  The two parts of his audience were (are) the political leadership and tens of thousands of judges involved with civil and commercial issues, as well as others in the court system.   The two types of issues are political issues and legal issues, both on substantive law and procedural law.  People outside of China might be tempted to dwell on the political messages (as this analysis does, as time doesn’t permit better analysis of the legal issues), but the messages on legal issues are those ones that will have the greatest impact on the court system and on practitioners. The speech will be reviewed, discussed, and used as the basis for further work in the court system, and attentive lawyers and in-house counsel know that the content of the speech will affect their litigation strategy and business. I’ve spotted one synopsis on the takeaways from the conference from one of Beijing’s prestigious law firms and more are following.

Political issues

The first part of his speech addressed political issues, but that part also includes some highlighting of critical legal issues. He states that politics is the most important. Justice Liu repeats some of the “innovative” language from January’s Political-Legal Work Conference that I mentioned in a blogpost earlier this year (with which his speech is harmonized).  “As a political and legal organ, the people’s court is first and foremost a political organ. It must put political construction in the first place and clearly talk politics” )人民法院作为政法机关,首先是政治机关,必须把政治建设摆在首位,旗帜鲜明讲政治 )(I was tested on the phrase “talk politics/讲政治“ recently by some persons in the system with a sense of humor).

Principle #1 (of four)–“To uphold the absolute leadership of the Party. The leadership of the Party is the fundamental requirement of socialism with Chinese characteristics, and it is the root and soul of the people’s court.”…However, “the erroneous thoughts of so-called “constitutionalism”, “separation of powers” and “judicial independence” of the West must be resolutely resisted. This is a major issue of political principle and we cannot be vaguely ambiguous.” One commentator noted that this principle is greater than any ordinary principle of law.

This language harkens back to that used by President Zhou Qiang in January 2017. Why this was included, when the audience would know these principles clearly?  Likely for senior political leadership to see that the courts are harmonized with the Center and to ensure that the Center knows that SPC leadership is doing everything to ensure court cadres (judges and other court officials) are as well.

Principle #2, serve the Party and the greater situation.

Justice Liu reminds his audience that “it is necessary to fully realize that there is no rule of law that does not have political positions or political views” (没有不具有政治立场、政治观点的法治). In civil and commercial trials, we must have a stable political stance, determine the political direction correctly, pay attention to the political effect, consider the political influence (impact), and be good at analyzing complicated issues from the perspective of politics, from the perspective of the fundamental interests of the people, and from the perspective of the overall economic and social development of the party and the country, integrate politics in civil and commercial trial work.” (在民商事审判中必须站稳政治立场,把准政治方向,注重政治效果,考虑政治影响,善于从政治角度从人民群众根本利益角度、从党和国家经济社会发展大局的角度分析处理错综复杂的民商事矛盾纠纷,把政治融入具体的民商事审判业务中.

Interestingly, he notes that the system of recording interference by senior court leaders and other Party/government leaders has not been effective, and this must be implemented as well as the judicial responsibility system (问题在于我们在审判实务中没有不折不扣地落实好,非法过问案件登记制度的功能没有得到有效发挥。必须采取有效措施把这项与司法责任制相配套的改革措施落到实处).  This appears to be a reflection of the concern of many judges that they will be held responsible for judicial decisions that they made because they were under pressure to do so from senior court officials or local officials.

American civil (and criminal) procedure law professors would be intrigued to know that “so-called long-arm jurisdiction” merited mention in Justice Liu’s speech (“Pay close attention to the United States’ all-around suppression in the fields of economy, politics, science and technology, etc. and the implementation of so-called ‘long-arm jurisdiction”‘to bring new challenges to our country’s judiciary;高度关注美国从经济、政治、科技等领域对我国进行全方位打压,实施所谓“长臂管辖”给我国司法带来的新挑战.

Justice Liu includes in this section several legal issues and highlights the way that Chinese judges should think when hearing cases:

When making judgments, we must fully consider the overall situation of economic and social development, political effects, and social effects.  When dealing with major and sensitive cases, we must pay attention [carefully listen] to the opinions of financial supervision departments, state-owned asset management departments, and social organizations such as  small and medium enterprise associations to accurately grasp the overall situation of social stability, social impact, and political impact. 我们在作出判断时,要充分考虑经济社会发展大局、政治效果、社会效果. 在处理重大敏感案件时,要注意听取金融监管部门、国有资产管理等部门以及中小企业协会等社会组织的意见,精确把握社会稳定大局、社会影响、政治影响。

Justice Liu called for more work on bankruptcy law, particularly strengthening coordination with government, resolving obstacles in bankruptcy liquidation and reorganization, and introduce judicial interpretations to deal with the legal issues. In order to prevent and resolve major risks, the people’s courts should issue judicial interpretations or judicial policies on issues such as bond defaults that directly affect financial security and social concerns, equity pledges of listed companies, and Internet lending.

He calls for deepening supply-side structural reform and promoting high-quality economic development; clearing out “zombie enterprises”; preventing financial risks, protecting the legitimate rights and interests of private enterprises, establishing a legalized business environment, and other civil and commercial matters, and mentions the “Fengqiao Experience,” but in relation to the 2018 SPC Joint Opinion with the China Securities Regulatory Commission on increasing diversified dispute resolution for securities disputes and a single dispute resolution platform linking litigation and other forms of dispute resolution.  He flags future work in using other forms of dispute resolution to resolve financial/securities disputes.

Legal issues

Substantive legal issues are the ones that have attracted the interest of judges and other legal professionals. Politics is also visible in the way that Judge Liu phrased his summary of the legal issues briefly noted below  (particularly his use of dialectical analysis, consistent with Party Center language). (This analysis will be expanded later as time permits). The issues that he is highlighting are the major ones, particularly regarding commercial issues.  He is providing the view of the SPC (likely drawing on the views of the #2 Civil Division, the division focusing on domestic commercial issues), and is signaling where Chinese courts are in disagreement and should conform.

As to why Chinese courts disagree or are unclear on these issues, and why this speech will unify courts’ approaches, it has to do with Chinese legislation and judicial interpretations. Judge Liu’s speech is a type of judicial policy document, in essence. As I mentioned in a recent blogpost, rules or policies included in SPC judicial policy documents may eventually be crystallized in SPC judicial interpretations and eventually codified in national law, but that process is slow and cannot meet the needs of the lower courts. The lower courts need to deal properly (politically and legally) with outstanding legal issues pending a more permanent stabilization of legal rules. This is true for judicial policy documents in all areas of the law, not only in commercial law.  Therefore Justice Liu used this conference to convey the SPC’s views:

  1.  He flags the issues where Chinese courts disagree: validity of external guarantees given by companies; the validity of a contract if a fake chop is used; scope of the security rights when a security contract and registrations are inconsistent; guarantee contracts linked to shareholding (让与担保); how to adjust damages, how to implement the right to terminate a contract (如公司对外担保的效力问题、盖假章合同的效力问题、合同约定与登记簿记载不一致的担保物权的范围问题、让与担保问题,甚至连违约金如何调整、解除权行使的条件等一些常见问题);
  2. Methodology–in trying difficult and new civil and commercial issues, judges should search for “similar cases” and determine whether prior cases have derived related principles.  This links with my recent blogpost flagging the SPC’s development of its case law system (with Chinese characteristics). Justice Liu does not use the word “precedent.” He directs judges to consider whether principles in prior cases are applicable, if not, reasons should be given, and if an old principle is to be reversed, reasons should be given and these should be discussed by either the specialized judges committee or judicial committee. He stresses what I had mentioned previously, that principles are needed on what the scope of “similar cases” are.
  3. On disputes involving Value Adjustment Mechanisms (VAMs), judges should seek to coordinate the conflicts of interest between investors, companies and creditors. and implement the principle of capital maintenance and the principle of protecting the legitimate rights and interests of creditors, and to balance the interests of investors, shareholders, the company, and its creditors;
  4. He repeats SPC policy on an old FAQ (frequently asked question)–what if a contract violates a local policy, normative document, or ministerial rule–should a court invalidate the contract? The answer is no, the court needs to consider whether there is a violation of public order (公共秩序), which he says is mostly seen in violations of law or State Council administrative regulations;
  5.  How to protect all types of entities equally and provide special protection to groups such as minority shareholders and financial consumers;
  6. He gives practical guidance to for judges grappling with a theoretical legal issue–how to understand the status of the relevant law when the General Principles of Civil Law (2017) is inconsistent with earlier legislation such as the 1986 General Principles of Civil Law,  the 1999 Contract Law, the Company Law (last amended in 2018). The new law supersedes inconsistent prior law, but if provisions of the 2017 law are inconsistent with the special part of the Contract Law, the Contract Law prevails (on the theory that specialized provisions prevail)
  7. Issues related to the validity of contracts, including contracts that never went into force,
  8. Corporate guarantees to third parties–an issue regarding which there has been a great deal of litigation and court rulings have varied widely,  He sets down some rules;
  9. How to correctly understand a provision of the Company Law Judicial Interpretation #2, that gives creditors the right to seek the liquidation of a company in certain circumstances;
  10. Private lending (particularly interest-related issues);
  11.  Issues related to a debtor or guarantor using company shares to secure an obligation, and the related rights of the company and its creditors, voting rights and rights to dividends in the company., and whether the creditor has a priority right. Justice Liu notes the law is silent on the validity of such agreements but the SPC takes the view that these agreements are valid, as long as no mandatory provisions of law are violated;
  12. Remedies for a third party–raising objections in enforcement proceedings, requests for retrial, and applying to proceedings.
  13. How to deal with cases with both civil and criminal aspects–if civil and criminal case involves the same facts, it should be referred for criminal investigation first, and if there is some dispute, it can be coordinated by the local political-legal committee.  The major issue in practice is how to determine whether “the same facts are involved.”  Justice Liu points his audience to several factors. This is also an old issue in the Chinese courts, but has taken on new importance now that the Chinese government is using criminal prosecution to deal with abuses in the financial system that affect the interests of consumers and investors.

Not said in Justice Liu’s speech is whether the broad substantive content will be reissued in a form more useful to frontline judges (and other members of the legal community).  If practice is any guide, that is likely we will see a conference summary (会议纪要)–the SPC issued a conference summary based on the 2015 conference 11 months after the conference itself, on one set of issues.

 

 

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.