Supreme People’s Court releases big data on civil litigation in 2014

The Supreme People’s Court (Court) recently issued a report on civil litigation in the Chinese courts in 2014 with some big data and analysis. (The graphics in this blogpost are from the report.)  What are the trends relating to commercial disputes and what do they mean?

# of civil/commercial cases accepted (in 10,000s)

Trend #1–the number of civil and commercial cases has almost doubled in the past 10 years, despite obstacles to filing law suits, well documented elsewhere in blogposts and academic articles (and recognized as a major issue by the Court).

According to the commentary provided by Ma Jian of the Court’s research office, it reflects:

  • Dynamics and fluctuations in society and the economy;
  • Multiple effects of the government’s macro-control policies;
  • Outcomes of implementing legislation regulating the economy and society.
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55.8% contracts; 25.47% ownership etc., 18.63% family/inheritance law

Over 9 million civil/commercial cases were accepted by the Chinese courts in 2014, up 7.41% compared to 2013.  1.2 million cases were carried over to 2015, reflecting a change in performance indicators for the courts, described in this earlier blogpost.

In recent years, civil and  commercial cases have constituted 63% of all litigation in the Chinese courts.  As the Court report noted, the enormous growth in the caseload places even more pressure on the judges.  The large caseload, poor pay, lack of respect, and responsibilities unrelated to hearing cases have motivated a significant number of judges to leave (as this recent article highlights).  The personnel changes announced in the judicial reforms have exacerbated these trends (and were anticipated by the drafters).

Contract disputes

Trend #2.  In 2014, contract disputes constituted more than half of all civil/commercial disputes in the Chinese courts, far outweighing any other category.The proportion of contract disputes in proportion to other civil/commercial disputes has been rising. In 2014, the Chinese courts accepted 4.5 million contract cases, an increase of 11.36% in comparison to 2013. The top five types of contract disputes, accounting for 73% of first instance cases were:

  • loans;
  • sales;
  • labor;
  • service; and
  • real estate development & management cases.

The following types of contract disputes have increased most quickly:

  • credit card;
  • construction;
  • loans;
  • insurance.
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1st instance loan contracts (in 10,000s)

Loan disputes

Trend #3. Loan disputes have more than doubled in the past 10 years.  In 2014, they increased by almost 18% in comparison to 2013, to reach 1.7 million cases, Since 2012, loan disputes have exceeded divorce cases. Reasons for this according to the Court:

  • the government’s prudent money policy;
  • monetary/funding tightening;
  • impact of the new company law reforms [more small companies coming onto the market needing funding];
  • effects of changes to capital market system;
  • large amount of private lending [民间, generally known as shadow lending outside of China], leading to many more disputes. (I will publish an article on these disputes in the near future).

Other contract disputes

In 2014, the courts accepted almost 700,000 sales contract disputes, an increase of 12.28%. According to Court research, many of these cases involved small companies (SMEs). Many of these cases involved small family companies, with inadequate contract templates, leading to disputes.

New real estate construction cases accounted for 118,700 cases, an increase of 18.7%, while 173,000 real estate development cases were accepted by the courts, a increase of 5.53%。  The large increase in real estate construction cases is related to the tightening of funding for real estate development and the hot and cold in the real estate development market.

Other ownership disputes

New first instance ownership disputes accepted in 2014 reached 2 million cases, an increase of 3.67%.  Tort cases accounted for 1.6 million of those cases.  New shareholder disputes accounted for about 26,0000, an increase of almost 37%, with a smaller number of commercial paper disputes (48000), an increase of 15.46%.

The Court commented that SMEs have been most affected by the overall macro-economic downturn, which has indirectly led to all sorts of shareholder disputes.  The new Company Law has made it possible for funds to come in and out easily, but because many of these companies lack secure sources of operating capital and have to depend on private lending (shadow banking), if one party to these transactions has a funding problem, it causes a multi-party chain reaction and creates many complex shareholding disputes.

Mediation

Mediation/withdrawal of case rate for civil/commercial 1st instance cases

As can be seen from the above bar graph, the rate of settlement of first instance civil (and commercial) cases by mediation or other settlement is now back to 2007 levels.  The Court did not set forth reasons for the significant drop in cases resolved by mediation. In my view, two of the factors include:

1) the rate of cases resolved by year end had been an important performance indicator for the courts. Since December, it has no longer been the case; and

2) The Court has moved away from a simplistic policy of “mediation first” to a more nuanced approach to dispute resolution, as indicated by its initiative regarding diversified approaches to dispute resolution.

Comment

Chinese civil litigation reflects what is going on in the real economy and society (this will be even more the case when the effects of case filing reforms are documented) and the effects of government policies and controls on both.  Although the US and the European Union are negotiating bilateral investment treaties (BITs) with China, it appears from news reports that no one in either negotiating team has considered the impact of the current state and ongoing reforms of the Chinese judiciary on those BITs.  These issues deserve more serious attention. Foreign investors (or more often, subsidiaries of foreign investors) in China are increasingly finding themselves in Chinese courts and this trend is likely to continue.

Does money matter when determining which Chinese court will hear your dispute?

imgresFor commercial cases, the amount of dispute does matter in determining which Chinese court will hear your dispute.

On 30 April, the Supreme People’s Court adjusted the jurisdiction of higher and intermediate level courts, both the civilian and military courts in first instance civil/commercial cases in 关于调整高级人民法院和中级人民法院管辖第一审民商事案件标准的通知 (Notice on adjusting jurisdiction for higher and intermediate courts in 1st instance Civil/Commercial cases).  The rules described in the notice, which went into effect on 1 May gave Chinese commercial litigators no advance warning.  They are not applicable to the following types of cases:

  • maritime;
  • foreign, Hong Kong, Macau, and Taiwan related civil cases (there are separate rules on these); and
  • IP cases.

This means that these rules are applicable to cases brought by (or against) foreign invested enterprises (and domestic enterprises), with the above exceptions.  “For the avoidance of doubt,” the notice does not use the term “tier.”

The notice gives a rough idea of the size of business disputes in different parts of China and has special rules to deal with local protectionism, by enabling higher courts to take cases with smaller amounts in dispute if one party is registered outside of the jurisdiction (the Chinese version of diversity jurisdiction in the US federal courts).

First tier jurisdictions

The higher people’s courts of Beijing, Shanghai, Jiangsu, Zhejiang, and Guangdong will now have jurisdiction over cases with an amount in dispute of RMB 500 million or more, (300 million if one party is not registered locally) and intermediate courts, if the amount in dispute is at least RMB 100 million (50 million if one party is not registered locally).

Second tier jurisdictions

The higher people’s courts of the following jurisdictions will now have jurisdiction over cases with an amount in dispute of RMB 300 million (100 million if one party is not registered locally), and intermediate courts if the amount in dispute is at least RMB 30 million (20 million if one party is not domiciled locally):

  • Tianjin;
  • Hebei;
  • Shanxi;
  • Inner Mongolia;
  • Liaoning,
  • Anhui,
  • Fujian,
  • Shandong,
  • Henan;
  • Hubei,
  • Hunan;
  • Guangxi;
  • Sichuan;
  • Chongqing.

Third tier jurisdictions

The higher people’s courts of the following jurisdictions will now have jurisdiction over cases with an amount in dispute of RMB 200 million (50 million for non-locally domiciled parties) and intermediate courts will now have jurisdiction over cases with an amount in dispute of RMB 10 million:

  • Jilin;
  • Heilongjiang;
  • Jiangxi;
  • Yunnan;
  • Shaanxi;
  • Xinjiang and the Xinjiang Construction &Production Corp. Court {this latter court deserves a closer look).

Fourth tier jurisdictions

The higher people’s courts of the following jurisdictions will now have jurisdiction over cases with an amount in dispute of RMB 100 million (20 million for a non-locally domiciled party) and intermediate courts will now have jurisdiction over cases with an amount in dispute of RMB 5 million:

  • Guizhou;
  • Tibet;
  • Gansu;
  • Qinghai;
  • Ningxia.

Basic level courts:

Are generally to hear the following types of cases:

  • family law,
  • inheritance,
  • real estate management,
  • personal injury,
  • traffic accident,
  • labor,
  • infringement of right to one’s name and
  • group litigation.

Military courts:

  • The PLA Military Court has jurisdiction over civil cases with an amount in dispute of RMB 100 million or more; and
  • Military region military courts have jurisdiction over civil cases with an amount in dispute of RMB 20 million to 100 million.

Judgments from the military courts are not yet published on the Court’s database.  Earlier this year, (as reported here), a PLA legal academic suggested a change in that policy.

Rules to be applied flexibly

There is some flexibility in the rules for cases considered important, difficult, of a new type, or raising issues of general application, in which a higher court can decide to take the case, or alternatively a lower court can apply to hear such cases.

Can Communist Party organizations sue or be sued in Chinese court?

The answer to this question (in some Chinese courts, at least), is yes.  A recent legal blogpost flagged a ruling in a labor case published in the Supreme People’s Court’s case database: Su Qiao v. the Taian (Shandong) Municipal Communist Party Disciplinary Inspection Commission.  The author of the blog cited in support of his view Articles 48 of the 2012 Civil Procedure Law and Article 52 of the 2015 Civil Procedure Law Judicial Interpretation (concerning organizations that can be parties to civil litigation).

A subsequent (partial) database search revealed some other civil cases in which Communist Party organizations have appeared in variously as plaintiff, defendant, third party, and party against which the enforcement of an arbitral award was sought, including one decided by the Supreme People’s Court (Court):

General Office of the Jinan (Shandong) Communist Party Committee v. two individuals (leasing dispute,)(application to withdraw the lawsuit);

Three Gorges United Vocational University v.Chongqing Jianan Construction (Group) Ltd.Beibei District, Chongqing Muncipal Communist Party Committee School [Chongqing Jianan is listed as one of Chongqing’s top 100 companies in 2010],  (construction dispute)(ruling by the Court in application for re-trial);

Ms. Luo Yun vs. Jiangbei District Chongqing Municipal Party Committee Old Cadre Bureau, Taiping Property Insurance Co. Ltd, Chongqing branch (traffic accident claim);

Mr. She Xuejun vs. Sheqi County (Henan) Communist Party Committee Old Cadre Bureau (leasing dispute);

Beijing Forbidden City Film Co. Ltd. v. Jiangchuan County (Yunnan) Communist Party Committee Propaganda Bureau (enforcement of a Beijing Arbitration Commission arbitral award).