China litigation guide
By Zhao Fang and Fei Ning
Jun He Law Offices
Tel: +86 10 8519 1300; Fax: + 86 10 8519 1350; Website: www.junhe.com
China’s economy and society have developed rapidly, benefiting from three decades of reform and liberalisation. In line with this, civil and business disputes have increased both in amount and quantity. In China, court litigation remains the most traditional way of resolving disputes. But arbitration has been widely used in commercial disputes, particularly those involving foreign elements.
LitigationChina practices a system of courts characterised by ‘four-level and two-instance of trials’. The judicial authority of the PRC is exercised by the following people’s courts: local courts at three levels; military courts and other special courts; as well as the Supreme Court, which is the highest authority. Local courts are divided into fundamental courts, intermediate courts and higher courts. The courts adopt a system whereby a case should be finally decided after two instances.
The litigation of civil disputes is governed by the Civil Procedural Law of the PRC, which sets out special provisions for foreign related disputes. In contrast to domestic disputes, the majority of foreign related disputes are heard by intermediate or higher courts for quality control. The Supreme Court has also rendered many judicial interpretations to regulate litigation involving foreign factors.
China newly amended the Civil Procedural Law to improve the efficiency of judgment enforcement. In order to better face the rapid development of modern science and economic developments, Chinese courts placed more attention on cases in new areas such as IP and financial.
Foreign judgments can be recognised by Chinese courts according to bilateral treaties or by the principle of reciprocity. In theory, if a foreign judgment does not violate fundamental principles of Chinese law, or interfere with sovereignty, national security, and public policies, the court may rule on the recognition of such foreign judgment. However, though bilateral treaties are widely achieved nowadays, for complicated reasons (similar to those in other countries) few foreign judgments have been recognised and enforced in China.
Arbitration
Arbitration is becoming more and more popular for commercial dispute resolution in China. Under PRC law, a valid arbitration agreement must reflect a clear intent to arbitrate and clearly identify the exact arbitration institution selected by the parties. Unlike other countries, ad hoc arbitration is not recognised under Chinese law if the applicable law governing such arbitration is PRC law. An ad hoc arbitration award generated outside China can be enforced in China pursuant to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
After promulgation of the Arbitration Law of the PRC in 1995, more than 200 arbitration institutions have been established in China. Among them, China International Economic and Trade Arbitration Commission (CIETAC) is the most well-known arbitration body – particularly for hearing foreign related disputes. In addition, local arbitration commissions (such as those set up in Beijing, Shanghai, Guangzhou and Shenzhen) can also hear disputes. But unlike CIETAC or the Beijing Arbitration Commission, most local arbitration institutions still have a long way to go in order to improve the quality of their awards and the spirit of their service.
In recent years, Chinese arbitration institutions have amended or planned to amend arbitration rules in order to grant a more reasonable and effective system for parties in arbitration, as well as to be more compliant with international practice so as to attract parties in international disputes. For example, the 2008 arbitration rules adopted by Beijing Arbitration Commission cancel the delivery of notarisation and public notice, and allow parties of international commercial cases to select arbitrators outside the list of arbitrators.
Both domestic and foreign related local arbitral awards can be enforced in China pursuant to the same enforcement rules, i.e. the PRC Procedural Law. Foreign arbitral awards generated outside of mainland China may also be recognised and enforced according to the New York Convention. On the basis of reciprocity, CIETAC and local commission awards are enforceable in other member countries. Arbitration awards are recognised and enforced between the PRC, Hong Kong, Macau and Taiwan, pursuant to special arrangements reached with China.
ADR
In China, ADR theory is quite different from that found under Western legal systems. Although there now exists a similarly independent ADR institution in China, the general idea of ADR under the PRC legal system is actually amalgamated into the judicial or arbitration process in hearing.
The People’s Mediation System is the ADR formality for Chinese parties and its ‘oriental experience’ has won high praise in international judicial circles. Unlike Western-style ADR, in China ADR is more often conducted by the same court or tribunal during or after the hearing rather than by an independent organ before the hearing. The less confrontational nature of such mediation methods can also help preserve the commercial relationship between the dispute parties.