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

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.

Supreme People’s Court strengthens judicial review of arbitration

liu guixiang at arbitration summit

Judge Liu Guixiang speaking at the China Arbitration Summit

At China’s Arbitration Summit in late September, Liu Guixiang, Chief Judge of the #1 Circuit Court, called attention to a notice that the Supreme People’s Court (SPC) issued earlier this year to strengthen judicial review of arbitration. The notice (Notice concerning some questions regarding the centralized handling of judicial review of arbitration cases关于仲裁司法审件归口办理有关问题的通知) is linked to the likely increasing number of cases involving judicial review of arbitration matters, linked to the increasing number of arbitrations involving Chinese parties (and the One Belt One Road initiative) both in China and elsewhere in the world, including Hong Kong International Arbitration Centre.  (The notice highlights data collection problems).

The notice, reproduced below, is not an SPC judicial interpretation. Unlike judicial interpretations, notices are not required to be published. It seems that the SPC itself has not officially published it, but several official websites have published it, as have a number of Wechat accounts.

A quick search reveals that the notice drew on  a 2014 study by the Guangdong courts summarizing the results of pilot projects  (including Shenzhen) that the SPC commissioned, involving cooperation with the now independent Shenzhen Court of International Arbitration. As is usual, Guangdong and Shenzhen have led the way as pilot areas for judicial reform. The study highlighted a list of problems with the way lower courts review arbitration related issues, including lack of consistency in reviewing cases. The study also highlighted problems in tracking case data.

As Judge Liu also mentioned (as has this blog), the SPC is working on a comprehensive judicial interpretation on that subject).  That judicial interpretation is still being drafted, with the #4 Civil Division of the SPC taking the lead.

A very rough translation and some comments written in italics follow. (Many thanks to an anonymous and well-informed follower of this blog for bringing the notice to my attention and for some thoughts.) Please call translation glitches/mistakes to my attention.

最高人民法院
关于仲裁司法审查案件归口办理
有关问题的通知

法[2017]152号

Supreme People’s Court

Notice Concerning Some Questions regarding the centralized handling of judicial review of arbitration cases

Fa (2017) #152

各省、自治区、直辖市高级人民法院,解放军军事法院,新疆维吾尔自治区高级人民法院生产建设兵团分院:

To the provincial, autonomous region, directly administered municipality higher people’s courts, People’s Liberation Army Military Court,  Production and Construction Corps Branch of the Xinjiang Autonomous Region Higher People’s Court:

为依法正确审理仲裁司法审查案件,保证裁判尺度的统一,维护当事人的合法权益,促进仲裁事业健康有序发展及多元化纠纷解决机制的建立,现就各级人民法院办理仲裁司法审查案件的有关问题通知如下:

To try correctly judicial review of arbitration cases according to law and guarantee a unified yardstick for judicial decision-making, protect the legal rights of parties, promote the healthy and orderly development of arbitration matters and the establishment of a diverse dispute resolution mechanism, we notify the various levels of the people’s court handling judicial review of arbitration cases of the following:

一、各级人民法院审理涉外商事案件的审判庭(合议庭)作为专门业务庭(以下简称专门业务庭)负责办理本通知规定的仲裁司法审查案件。

I.  The trial divisions (collegial panels) trying foreign-related commercial cases shall be the specialized trial divisions (below, “specialized trial divisions) responsible for undertaking the judicial review of arbitration as set out in this notice.

This means that SPC is requiring trial divisions (or collegial panels, in smaller courts) handling foreign-related commercial matters to be responsible for reviewing the arbitration related matters described in the next paragraph. It is a plus for competency/consistency in arbitration-related matters.

二、当事人申请确认仲裁协议效力的案件,申请撤销我国内地仲裁机构仲裁裁决的案件,申请认可和执行香港特别行政区、澳门特别行政区、台湾地区仲裁裁决的案件、申请承认和执行外国仲裁裁决等仲裁司法审查案件,由各级人民法院专门业务庭办理。

II.  In cases in which a party applies to have the validity of an arbitration agreement recognized, cases in which application is made to cancel a domestic arbitration commission’s award, cases in which application is made to recognize (认可) and enforce a Hong Kong SAR or Macau SAR arbitration award, recognize (认可) and enforce a Taiwan area arbitration award, application is made to recognize (承认) and enforce a foreign arbitral award, shall be handled by the specialized trial divisions of each level of court.

This paragraph describes the types of cases covered by the notice–the types of judicial review of arbitration matters and that these cases should be handled by the specialized trial division of each level of court designated in the paragraph I. There is a difference in terminology (bolded above, but not in the original Chinese) when referring to the recognition of arbitral awards from Hong Kong, Macau, and Taiwan as distinguished from foreign arbitral awards, emphasizing that awards from these jurisdictions are considered part of “one country.”  Notice that cases involving domestic arbitration awards or disputes over the validity of an arbitration agreement to submit a dispute to domestic arbitration are also to be reviewed by the specialized trial division.  A big plus for consistency and competency in judicial review of arbitration matters.

专门业务庭经审查裁定认可和执行香港特别行政区、澳门特别行政区、台湾地区仲裁裁决,承认和执行外国仲裁裁决的,交由执行部门执行。

When a specialized trial division, after review, has ruled to recognize and enforce a Hong Kong Special Administrative Region, Macau Special Administrative Region, Taiwan Region arbitration award, recognize and enforce a foreign arbitral award, the enforcement shall be transferred to the enforcement departments for enforcement.

三、一审法院作出的不予受理、驳回起诉、管辖权异议裁定涉及仲裁协议效力的,当事人不服该裁定提起上诉的案件,由二审人民法院专门业务庭办理。

III.  When the first instance court makes a ruling which relates to the validity of an arbitration agreement relating not to accept, to reject a filing or objection to jurisdiction, and a party  disagrees with the ruling and appeals, the specialized trial division of the second instance court should handle it.

This  provision channels appeals relating to arbitration matters to specialists in the second instance courts, again a plus for competency and consistency.

四、各级人民法院应当建立仲裁司法审查案件的数据信息集中管理平台,加强对申请确认仲裁协议效力的案件,申请撤销或者执行我国内地仲裁机构仲裁裁决的案件,申请认可和执行香港特别行政区、澳门特别行政区、台湾地区仲裁裁决的案件,申请承认和执行外国仲裁裁决的案件,以及涉及确认仲裁协议效力的不予受理、驳回起诉、管辖权异议等仲裁司法审查案件的信息化管理和数据分析,有效保证法律适用的正确性和裁判尺度的统一性。此项工作由最高人民法院民事审判第四庭与人民法院信息技术服务中心具体负责。

IV. Each level of people’s court should establish a centralized administrative platform for the judicial review of arbitration awards, to strengthen the informatized management and data analysis of cases regarding applications to confirm the validity of an arbitation agreement, cases regarding applications to cancel or enforce arbitration awards of our domestic arbitration institutions, applications to recognize and enforce Hong Kong Special Administrative Region, Macau Special Administrative Region, Taiwan Region arbitration awards, cases regarding applications to recognize and enforce foreign arbitral awards, and cases relating to the judicial review of arbitration such as refusal to accept, reject the filing, or objection to jurisdiction and others relating to the confirmation of the validity of an arbitration agreement; the effective guarantee of the correct application of law and of a unified yardstick for judicial decision-making.  The #4 Civil Division of the Supreme People’s Court and the People’s Courts Information Technology Service Center shall be specifically responsible for this work.

IV. This paragraph requires a platform to be established to enable better data collection of arbitration related cases. Data collection appears to be an ongoing issue for the courts.  2015 SPC rules on case file numbers (thank you to Chinalawtranslate.com for this translation), are aimed to create more consistency in filing numbers for cases, and will also be helpful in this process. Inconsistency in case files numbers was identified as a problem in the Guangdong study.) The SPC’s #4 Civil Division (in charge of cross-border civil and commercial matters) and the Information Technology Service Center are the ones responsible for ensuring this platform works.  The notice does not require data results to be made public. The legal and professional public (in China and elsewhere in the world) would look forward to regular big data reports on this.

最高人民法院

2017年5月22日

Supreme People’s Court

May 22, 2017

_______________________________________

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Advisory committee on cross-border legal issues for Hong Kong?

My article below was published in the 17 March edition of the South China Morning Post:

P1050083

To solve the many specific cross-border legal issues affecting the people of Hong Kong and the rule of law in  the special administrative region, an independent and non-partisan advisory committee on cross-boundary legal issues should be established.

The committee, which ideally would draw its membership from current or retired senior members of the legal profession,  would provide policy guidance to a working group drawn from the legal community. The idea would be to draw together people familiar with  the Hong Kong and mainland legal systems.  They would work together to propose options for practical solutions to problems involving  complex legal issues.

These problems could be issues in the news, such as parallel trading, and other serious problems not in the news such as cross-boundary pollution, criminal justice or domestic violence. The members of the working group must be able to reach out to those with the right expertise or background, regardless of political views.

One example of an important issue not in the news is domestic violence. Grenville Cross SC has recently written about the need for improving Hong Kong domestic law on this front.  I have  written about domestic violence on the mainland, highlighting new guidance by the Supreme People’s Court and others for dealing with this serious social problem.  Hong Kong social trends, such as cross-border marriages and Hong Kong elderly people settling on the mainland, mean that cross-border domestic violence is  an unrecognised problem.

Another issue concerns cross-border cooperation in criminal matters. The South China Morning Post reported last  autumn that the Supreme People’s Procuratorate had announced that it would focus on establishing ways to bring suspects home, including extradition and repatriation, with Hong Kong as the first target.  If the government is being asked to conclude a rendition agreement or criminal law judicial assistance arrangement, this touches on a broad range of legal issues for individuals, companies and other organisations.

A Hong Kong foundation  can consider investing some resources to fund the necessary research and analysis on which the advisory committee will need to rely. Such  foundations have been generous in funding research on law and Chinese studies in universities elsewhere.  The proposed advisory committee and working group are intended to provide practical results and are sure to provide value for money.

©SCMP