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arbitration, conference summary, Expert Committee, international commercial court

Supreme People’s Court Issues New Guidance on Cross-Border Commercial & Procedural Legal Issues

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In January 2022, the Supreme People’s Court (SPC) issued a Conference Summary [also translated as “Meeting Minutes”] of the National Symposium on Foreign-Related Commercial and Maritime Trial Work (Foreign-Related Commercial  & Maritime Law Conference Summary (bilingual version here) (全国涉外商事海事审判工作座谈会会议纪要).  From unauthorized versions released, it can be seen that it was another SPC year-end accomplishment.  Although this document is not a judicial interpretation and cannot be cited in Chinese court judgments, it is crucially important for legal professionals outside of China dealing with cross-border commercial issues involving China and for Chinese legal professionals focusing on cross-border commercial issues involving the rest of the world.

The conference summary has  111 provisions.  The focus is on legal issues because the target audience of domestic judges understands the political framing.  The conference summary applies to foreign-related cases and to Hong Kong, Macau, and Taiwan-related cases by reference (see Article 111,  set out at the end of this post).  They are in the following categories:

  • foreign-related commercial (涉外商事部分), the longest:
  • Maritime (海事部分); 
  • Judicial review of arbitration (仲裁司法审查部分).

This blogpost will explain why the conference summary was issued, its legal and policy basis, and why it addressed those particular issues and will leave the majority of the content of the conference summary for the experts in practice and academia.

Why this conference summary?

The conference summary (meeting minutes) is based on a national conference on foreign-related commercial and maritime trial work held in Nanjing in June of last year and the issues that the SPC would have heard raised by lower court judges.

When asked the question of why this conference summary was issued, an SPC judge is likely to say “to resolve difficult issues in practice and unify judgment standards.” But a fuller answer to this question for a larger audience requires further details. 

As to why a conference summary and not rely on “case law” with Chinese characteristics, including China International Commercial Court cases, SPC cases, and various types of typical or SPC selected cases as “soft precedents,” the answer is that the SPC is issuing this conference summary to guide lower court judges (and possibly judges in other divisions of the SPC) practically and efficiently and for some additional reasons.  The simple answer is that “case law” is not effective enough to practically guide lower court judges.  If it were, the SPC would not have issued this document. I have seen a number of academic articles (in English) that illustrate a misunderstanding of what the SPC is doing.   

Additionally, I surmise that at the Nanjing conference, behind closed doors, SPC judges heard about inconsistent approaches or requirements from lower court judges.  I surmise they also heard from lower court judges uncertainty in the approach that they should take concerning issues where the law is unclear.   The judicial evaluation system values deciding cases correctly. Moreover, the most recent SPC policy focuses on unifying the application of law. Its leadership has established a leading small group to that end.  So for all these reasons, lower court judges would look to the SPC for clarification.   What is contained in the conference summary is the SPC’s current consensus on major cross-border commercial, maritime, and arbitration review-related issues, based on their further research and consideration.

In the busiest courts where many of these cases arise, judges are under enormous pressure to decide cases timely and accurately, especially after the recent changes to the jurisdiction of lower courts under the reorientation of the four levels of the people’s courts and the issuance of other documents changing the jurisdiction of the lower courts in commercial cases.  “Codifying” the principles from cases and issues considered by the SPC in the form of a conference summary is the most useful and efficient form of guidance for lower court judges. As mentioned here, although conference summaries are not judicial interpretations and cannot be cited in a court judgment document as the basis of a judgment, they provide important guidance to the work of the courts concerning issues about which existing law and judicial interpretations are unclear.  Judges will rely on its provisions to decide cases.

The legal basis for the conference summary derives from the SPC’s authority under Article 10 of the Organic Law of the People’s Courts to supervise the lower courts. 

As for an answer to the question of why not issue a judicial interpretation–time, fluidity, and attenuated basis for some of the conference summary’s provisions do not permit a judicial interpretation to be issued.  One example of the attenuated basis and fluidity is Article 100,  which”codifies” the Guangzhou Intermediate People’s Court decision in the Brentwood case (discussed here).   It establishes welcome certainty to the enforceability of arbitral awards made by overseas arbitration institutions arbitrations seated in Mainland China.  It provides that such awards are regarded as foreign-related arbitral awards (rather than foreign awards) in Mainland China.  It is likely to be helpful to the overseas arbitration institutions that are considering establishing case management offices in China, as is now possible under Shanghai and Beijing regulations.   As mentioned before, the Arbitration Law being revised, the current draft addresses the issue, and the SPC is likely to issue a comprehensive judicial interpretation thereafter.  

Moreover, for some of the procedural provisions, such as those relating to the recognition and enforcement of foreign judgments, it gives the SPC a chance to pilot its guidance, before formalizing it in the form of a judicial interpretation.   A recent Wechat article (with further details) flags that in 2021, three foreign judgments and nine Hong Kong, Macau, and Taiwan judgments were recognized and enforced.  Likely more applications were made but not decided.

Other provisions consolidate existing guidance in a form that is easier for the lower courts to grasp quickly.  Article 22, on obtaining an opinion on foreign or international law from a China International Commercial Court (CICC) expert committee expert, for example, repeats what is to be found in CICC guidance.  The same can be said about Article 11, on the topic of electronic service of process, promoted in several Belt & Road-related SPC Opinions.  It should be noted that China maintains its traditional approach to service of process from foreign jurisdictions.

It appears that some clauses reflect a change in the negotiating position of Chinese financial institutions, in contrast to “back in the day. ” Article 2, on the topic of asymmetric jurisdiction clauses, states that Chinese courts will uphold them unless they violate Chinese rules on exclusive jurisdiction or relate to the interests of consumers or workers.   (For those with no background on these clauses, according to Herbert Smith Freehills: “asymmetric jurisdiction clauses are common in the financial sector, and typically require one party to bring proceedings in one jurisdiction only, while the other (usually the financial institution) may choose to bring proceedings in other jurisdictions.”  From this position, I surmise that Chinese banks use asymmetric jurisdiction clauses as well.

Articles 18-20 address a few of the ongoing issues related to the application of international conventions and treaties in the Chinese courts. Article 18 answers the question of what a court should do if the relevant treaty or convention is silent or China has made a reservation on that issue.  The answer is to use the Law on the Laws Applicable to Foreign-Related Civil Relations to determine the applicable law.  Article 20 focuses on what a Chinese court should do if it is applying Chinese law if Chinese law has conflicting positions and China has acceded to a relevant treaty or convention.  A report on a recent workshop involving the SPC, the Beijing #4 Intermediate People’s Court, and academics from the China Academy of Social Sciences and other institutions flags some of the many other unresolved issues.

Article 30 addresses an important question for Chinese and foreign banks, suppliers to Chinese EPC contractors, and project owners, particularly in Belt & Road jurisdictions–how easily can a Chinese court stop payment on a demand (independent) guarantee?  The answer is, strictly according to the provisions of the relevant judicial interpretation. Article 30 provides that when a court hears an application to stop payment on the basis of fraud (which can be filed as a preliminary matter or during the course of litigation or arbitration),  it must examine the independent letter of guarantee stop payment application submitted by the parties in according to Article 14 of the (updated) Provisions on Several Issues Concerning the Hearing of Independent Letter of Guarantee Dispute Cases, and conduct a preliminary substantive examination on whether there are fraudulent grounds for stop payment in accordance with the provisions of Article 12 and set out its finding of facts and reasoning as required by  Article 16.

The Bigger Picture

This conference summary is another form of SPC soft law. It harmonizes the decisions of the Chinese courts to be consistent with SPC policy (or said another way, strengthens the firm guiding hand of the SPC). 

This document reflects the awareness of its drafters, the judges of the #4 Civil Division of the SPC, that the issues that come before the Chinese courts far outpace the infrastructure of Chinese foreign-related commercial law. Given the larger trends I described in my brief article last fall, we can expect the SPC to continue to play an important role in developing China’s body of law related to cross-border commercial matters.

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111.【涉港澳台案件参照适用本纪要】涉及香港特别行政区、澳门特别行政区和台湾地区的商事海事纠纷案件，相关司法解释未作规定的，参照本纪要关于涉外商事海事纠纷案件的规定处理)。111. [The application by reference of this conference summary to cases involving Hong Kong, Macao and Taiwan]. As for commercial and maritime cases involving the Hong Kong Special Administrative Region, Macao Special Administrative Region and Taiwan, which are not otherwise stipulated in relevant judicial interpretations, shall be handled with reference to the provisions of this conference summary on foreign-related commercial and maritime cases.

bankruptcy law, Communist Party and the Courts, Company Law, shadow lending, US federal courts

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.