Supreme People’s Court & foreign-related disputes

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Judge Zhang Yongjian, chief judge of the Supreme People’s Court (SPC)’s #4 Civil Division (responsible for foreign, Hong Kong, Macau, and Taiwan related commercial issues) previously featured on this blog, gave an interview to Legal Daily on the sidelines of the NPC meeting. This quick blogpost sets out some of the useful information from the interview:

He provided some data on the number of cross border cases:

  • Total number of foreign-related cases of all types (first, second instance, retrial, enforcement) heard and resolved: 25900, up 9.38%, among which 1061 were criminal,19200 civil and 3629 administrative, and about 2000 enforcement cases. The civil and commercial cases increased almost 11% compared to last year and accounted for about 75% of all foreign-related cases.
  • Total number of Hong Kong, Macau, Taiwan related civil and commercial cases closed: 27053 civil and commercial cases, Judge Zhang said that they accounted for 85% of all cases involving “greater China.”

The cases coming before the Chinese courts differ from the old trading and joint venture disputes, with many more cases involving demand guarantees, international factoring, private equity funds, stock options in companies listed overseas listed companies, cross-border telecommunications (fraud?), bonded trade disputes.

(As this observer has previously predicted), the number of cases related to One Belt One Road (OBOR) is increasing relatively quickly, while the number involving the United States, Britain, Germany, are decline. Cross-border project contracting and international logistics related cases are on the increase, as well as foreign-related intellectual property cases and maritime cases. Although Judge Zhang did not say so, it appears that many of these disputes are related to Chinese companies going out as well as OBOR, and may reflect inadequate documentation of the projects. The increase in maritime cases is linked to the ongoing decline in the shipping industry.  Chinese maritime courts have heard cases related to the Hanjin bankruptcy as well as large numbers of cases involving ship crew.

Challenges for the Chinese courts in hearing cross border cases:  encountering many “blank spaces” in Chinese legislation; conflict of laws with neighboring countries.  Other ongoing bottlenecks for Chinese courts in hearing cross-border cases–service of process to overseas parties; obtaining evidence crossborder; determining facts that have occurred abroad; determining and applying foreign law.

Judge Zhang highlighted the solutions for the Chinese courts in dealing with the difficulties:

  • SPC issuing judicial interpretations and other judicial guidance;
  • establishing a case guidance and reference system for the lower courts, including model cases, guiding cases, and selected cases (i.e. as selected by the SPC), to guide and limit judges’ discretion.
  • The SPC selecting some commercial cases (relating to free trade zones, internet finance, cross border investment financing) with an international impact as a model.
  • To enable correct and just hearing of cases, the higher and lower courts should be in touch in a timely matter and establish a system for supervision before, during and after a case. [What this means for judicial autonomy in hearing cases and the appeal system is not said.]
  • On the goals for 2017, those include establishing an OBOR dispute resolution center (推进设立“一带一路”争端解决中心的建立,促进“一带一路”建设). This is likely linked to the May, 2017 OBOR Conference to be held in Beijing.  Judge Zhang did not further specify, but it seems unlikely to mean establishing China’s own investment dispute resolution center. Perhaps this means increasing the role of Chinese courts in hearing cross-border cases involving OBOR jurisdictions.

Judge Zhang mentioned that he and his colleagues in 2017 have a variety of difficult issues that will be the subject of judicial interpretations or policy documents. This observer hopes that they will find it appropriate to consult the international legal community when drafting the following judicial interpretations that are on their agenda:

  • Enforcement of foreign civil and commercial judgments (possibly related the the Judgments Convention being negotiated under the auspices of the Hague Conference on Private International Law, and in the near term, to the enforcement of judgments through mutual judicial assistance treaties;
  • cross-border guarantees;
  • labor issues for ship crew;
  • damages in marine environmental cases;
  • jurisdiction in foreign-related cases, particularly civil and commercial cases;
  • judicial review of arbitration (this has been signalled for at least two years).

Judge Zhang signalled that they want to establish an English language website on foreign-related civil and commercial matters.  It is hoped that this new website will post information in a more timely manner than the current SPC English language website. An (unsolicited) recommendation is to hire an expatriate editor (similar to Xinhua and other Chinese media outlets) to assist in delivering content that meets institutional requirements and interests the foreign user.

All these developments relate back to one sentence in the Fourth Plenum Decision:

Vigorously participate in the formulation of international norms, promote the handling of foreign-related economic and social affairs according to the law, strengthen our country’s discourse power and influence in international legal affairs, use legal methods to safeguard our country’s sovereignty, security, and development interests.

 

 

 

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What you should know about foreign-related cases in the Chinese courts post 4th Plenum

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The integration of China with the outside world through investment, trading, shipping, and licensing, inevitably (in some cases) leads to litigation in a Chinese courtroom (even if a contract has an arbitration clause), as companies large and small have found out.  Some recent examples are listed below:

The Supreme People’s Court (Court) recently held its 4th National Work Conference on Foreign-Related Commercial and Maritime Adjudication (4th National Work Conference) in early November, shortly after the 4th Plenum. This is a conference that the Court organizes occasionally for judges hearing  commercial and maritime cases involving foreign parties. The Court uses work conferences to transmit the latest central legal policy, harmonize court practices consistent with those policies, and find out what the latest difficult legal issues are. (This is a practice similar to other Party/government agencies).

The 4th National Work Conference highlighted some of the provisions of the 4th Plenum:

  • Vigorously participate in the formulation of international norms;
  • Strengthen our country’s discourse power and influence in international legal affairs;
  • Strengthen law enforcement and judicial cooperation between the mainland, Hong Kong, Macau and Taiwan;
  • perfect our country’s judicial assistance systems;
  • ensure that the courtroom hearings play a decisive role.

Additionally, the Court emphasized other principles  such as —

  • vigorously asserting jurisdiction (which is also asserted vis a vis the Hong Kong courts–see this commentary on a Hong Kong divorce case), which deserves closer attention in Hong Kong;
  • Correctly applying international treaties and governing law principles.
  • Safeguarding national rights and interests.

Some background if you need it

“Foreign-related” is a concept of many years standing that means that a foreign element is involved, because of a party’s nationality, location of the property disputed, or other factors (as explained here).The concept of “foreign-related” further relates to other important questions, such as selecting arbitration outside of China and foreign governing law.

Following national work conferences, the Court  often issues follow-up “Conference Summaries” to guide the lower courts on the agreed upon approach to new or contentious issues. These do not have the status of a judicial interpretation but courts refer to them when deciding cases. According to Court rules, courts can cite judicial interpretations (but not Conference Summaries).  It doesn’t seem that the Conference Summary has yet been issued.

Status update on foreign-related cases in the Chinese courts

In China, 203 intermediate and 204 basic level courts have jurisdiction over first instance foreign-related cases.  In the period 2010-end June 2014, the Chinese courts heard 287,262 first and second instance cases foreign-related maritime and commercial cases, an increase of 41% over the previous period. The cases are mostly heard by courts in coastal areas, but as foreign investment goes inland, disputes inevitably follow.

Head’s up for the foreign legal community

Following the Work Conference, Judge Luo Dongchuan, head of the #4 Civil Tribunal of the Court, was interviewed by Legal Daily. Judge Luo mentioned many important future legal developments, highlighted below.

1. Reforms relating to four important practical issues

  • Establishing an electronic platform for service of legal process outside of the jurisdiction (intended to mean Hong Kong, Macau, Taiwan, as well as foreign countries);
  • Investigating and obtaining evidence (this is likely linked to current anti-corruption efforts by the Chinese government to pursue (and retrieve assets from) corrupt officials who have settled overseas)
  • Determining foreign law, through establishing a database of experts (Chinese and foreign).
  • Restricting parties to litigation from leaving China (Chinese legislation on these procedures is difficult to parse (see my earlier article on this subject and another related one).

2. Maritime court related reforms

  •  The Court is considering establishing maritime circuit courts, to deal with disputes arising inland arising from logistics cases in the maritime courts.
  • The Court intends to promote the maritime courts and a forum for hearing cases involving maritime pollution from on-shore sources (the largest source of maritime pollution China).
  • The Court is looking into reforming the maritime court’s jurisdiction, so that it will have jurisdiction over civil, criminal, and civil maritime cases.

3. Recognition of foreign court judgments

Judge Luo mentioned that the Court is researching the recognition and enforcement of foreign court judgments involving property.  (This appears to be at an early stage.)

3. Arbitration related reforms

Judge Luo emphasized that the Court supports arbitration.

Because arbitration is so important, the Chinese courts will try to uphold the validity of vague [poorly drafted!] arbitration clauses.

A new judicial interpretation on the judicial review of arbitration-related issues will go into the Court’s judicial interpretation drafting plan in 2015.

The Court intends to reform jurisdiction in judicial review of arbitration issues, to consolidate them in specialized courts, expanding the pilot projects underway in Guangdong, Inner Mongolia, and elsewhere (as designated by the Court.  Earlier this year, the Guangdong Higher People’s Court published a report on its experience so far.

4. Electronic platform

The Court is considering establishing an electronic platform for foreign-related cases.  This may relate to making litigation procedures for parties more transparent.

 Some unsolicited suggestions for the Supreme People’s Court

Consider the following:

  • Overhaul the Court’s English language platform, so that it provides useful official information for the foreign reader who does not know Chinese;
  • Issue more draft judicial opinions for public comment and give the public (foreign and Chinese) a more sensible time period to comment, particularly for draft regulations relating to any of the issues discussed above. The issues mentioned above are very important to the foreign business and legal community.  The current 30 day time period extremely short by international standards.  Given the opportunity, international and foreign organizations and law firms will comment, but it takes time for translation and busy lawyers and other legal professionals to make comments.
  • Consider what can be done to make the Chinese courts a more user-friendly forum for international commercial disputes.  For example, consider what is needed for China to become a party to the Hague Convention on the Legalization of Foreign Public Documents (which will involve reforms by multiple government departments) and other related conventions.  The current system of legalization of foreign evidence is difficult for foreign parties and puts the Chinese system behind the 107 countries in the world that are signatories).