The Dispute Resolution Review: China

Introduction to the dispute resolution framework

China is a country with a statutory law system. All aspects of national and social life are regulated by laws and administrative regulations enacted by the National People's Congress, the State Council and other legislative bodies. In addition to the Constitution, China has relatively complete substantive laws and regulations including criminal law, civil law and administrative law, as well as relevant procedural laws and regulations in terms of criminal, civil and administrative litigation.

China has a four-tier court system consisting of the Supreme People's Court, High People's Courts at a provincial level, the intermediate people's courts and the basic people's courts. In addition, there are also specialty courts such as, inter alia, maritime courts, financial courts and bankruptcy courts, which are equivalent to intermediate courts. With regard to railway transport, China has established intermediate railway transport courts and basic railway transport courts. Except for a small portion of petty lawsuits in which the first instance is final, China mainly adopts a system whereby the second instance is the final one. Under special circumstances, for a final judgment that has become effective, the parties can also apply for retrial, and the chief judge of the court can also initiate a retrial. In addition, the procuratorate also has the right to file an appeal against an effective judgment.

Apart from a lawsuit before a court, alternative dispute resolution mechanisms may be availed of in China: see Section VI for further details.

The year in review

The Civil Code of the People's Republic of China, which came into effect as of 1 January 2021, comprises the General Rules of Civil Law, the Property Law, the Contract Law, the Tort Law, the Marriage and Family Law and the Inheritance Law. It replaces the previous separate pieces of legislation and is the basic civil law in China.

China has enacted the Personal Information Protection Law, which comprehensively sets out the principles (lawfulness, legitimacy, necessity and good faith), scope and legal liability for the protection of personal information and, in particular, sets out the rules relating to the cross-border provision of personal information.

China amended its Patent Law and Copyright Law in 2021 to expand the scope of protection and increase compensation for infringement.

In 2021, the Supreme Court of China issued the Online Litigation Rules, which stipulate the rules for completing all or part of the litigation process online via the internet or a dedicated network, such as filing a case, mediation, exchange of evidence, cross-examination, trial and service of process, that rely on an electronic litigation platform.

In addition, the Supreme Court has also issued Certain Rules of the Supreme People's Court on Providing Online Case Filing Services for Cross-border Litigants, under which cross-border litigants, such as foreigners, residents of Hong Kong, Macao and Taiwan, mainland Chinese citizens with their usual place of residence located abroad or in Hong Kong, Macao and Taiwan, as well as enterprises and organisations incorporated abroad or in Hong Kong, Macao and Taiwan, can register in their real names through the China Mobile Mini Court WeChat app, or on a computer terminal, and, after completing identity verification, can start filing cases and other related litigation matters.

Court procedure

i Overview of court procedure

Civil litigation in China shall be initiated by submitting materials that conform to the specific requirements of a court for case registration, after which the court will decide whether general procedures or simplified procedures will apply to the trial in such case. At hearing, each party to the lawsuit has the right to retain one or two litigation representatives. Both the plaintiff and the defendant may be required to submit evidence to prove the facts on which their respective claims and defences are based, and the counterparty has the right to cross-examine the evidence and current opinions on its authenticity, legality and relevance, respectively. After evidence exchange and fact-finding, the litigants debate in court. The court will, after hearing the claim, defence, evidence exchanges and cross-examination, and debating opinions, render the first instance judgment based on the facts ascertained during the hearing after applying the relevant laws and regulations. Against the judgment of first instance, a dissatisfied litigant has the right to file an appeal (except for small claim cases, under which the system of a judgment of first instance being final applies) to the next higher level court. Basically, the court of second instance shall conduct a trial following trial procedures that are similar to those of first instance, and then make a second instance judgment.

ii Procedures and time frames

The first instance procedure in China mainly consists of general procedures and simplified procedures. The general time limit for the former is six months; that for the latter is three months.

During a case trial, the plaintiff has the right to apply to the court for compulsory attachment measures such as property preservation, evidence preservation and behaviour preservation. Where the lawful rights and interests of an interested party will be irreparably damaged if an application for preservation is not filed immediately under urgent circumstances, pre-trial attachment is also available to the party upon approval by the court. The court will generally make a ruling within 48 hours of the party's application and enforce such ruling.

iii Class actions

There is a system of joint action in civil procedure in China. According to Civil Procedure Law, a joint action means that one side or both sides of a civil action consist of two or more persons, the subject matter of action for each party is the same or is of the same kind, and the people's court deems that the disputes of all the parties may be tried concurrently, to which all the parties agree. Further, if a party to such joint action consists of a large number of persons, they may jointly elect a representative or representatives to act on their behalf. The acts of such representatives in the litigation shall be binding on the parties they represent. This type of action is pretty common in judicial practice. For example, plaintiffs in a false statement case of securities generally adopt such form of joint action.

iv Representation in proceedings

When conducting civil litigation in China, both a natural person and a legal entity can appear in court on his, her or its own behalf and participate in all litigation activities, unless he, she or it appoints a representative to attend the litigation on his, her or its behalf. Representation of a non-natural person entity is realised by way of its responsible person or legal representative appearing in court.

v Service out of the jurisdiction

Litigation documents to be served on a litigation party who has no domicile within the territory of China shall be served outside the territory of China. According to the law, a court may, as the case may be, adopt such methods as:

  1. diplomatic service;
  2. service of process based on bilateral treaties;
  3. service of process based on international conventions;
  4. service of process via embassies and consulates;
  5. service of process to an agent;
  6. service of process to branches; or
  7. service of process by public announcement or electronic service.

When it comes to service of process, there is no difference due to the nature of the subject.

vi Enforcement of foreign judgments

Where an effective judgment or ruling of a foreign court requires recognition and enforcement by Chinese court, a party may apply directly to the intermediate people's court having jurisdiction for recognition and enforcement, or apply to the foreign court for that foreign court to request recognition and enforcement by the people's court in accordance with the provisions of an international treaty concluded with or acceded to by China, or under the principle of reciprocity.

vii Assistance to foreign courts

Under Chinese law, in accordance with international treaties concluded with or acceded to by China, or with the principle of reciprocity, Chinese courts and foreign courts may request each other to serve legal documents, conduct investigations, collect evidence and take other litigation actions. The request for and provision of judicial assistance shall be carried out through channels stipulated in the international treaties concluded with or acceded to by the People's Republic of China (PRC); where no treaty relations exist, a request for and the provision of judicial assistance shall be carried out through diplomatic channels. A request from a foreign court for a people's court to provide judicial assistance and its annexes shall be attached with a Chinese translation or a text in any other language or languages specified in the relevant international treaty. A people's court could provide judicial assistance in accordance with the procedure stipulated by the law of the PRC.

An embassy or consulate of a foreign country accredited to the PRC may serve documents on a citizen of that country and make investigations and collect evidence, provided that the laws of the PRC shall not be violated and no compulsory measures are taken.

Except for the aforesaid circumstances, no foreign agency or individual may, without the permission of the competent Chinese authority, serve documents, conduct investigations and collect evidence within the territory of China.

viii Access to court files

Chinese courts will post basic information about trials, such as the parties to a trial, the case number and the nature of a dispute, on bulletin boards (electronic screens) outside courthouses and on their websites. For ongoing trials, no entity except for the litigant has the right to access information such as specific claims and evidentiary materials. After a judgment is rendered and comes into effect, the court will post on its website those judgment documents that can be made public.2

ix Litigation funding

Litigation funding is new to the Chinese legal market and is still at a very preliminary stage. There are only a very limited number of funds that have entered this market in recent years and that are dedicated to providing financial assistance to parties involved in legal disputes. The regulatory attitude of the Chinese judicial department toward such type of newly developing funding is unclear and remains to be clarified.

Legal practice

i Conflicts of interest and Chinese walls

Conflicts of interest are generally run and implemented by a law firm itself before it decides to accept an engagement from a client. National and local bar associations issue and modify from time to time the guidelines for the management of conflicts of interest of law firms. Chinese walls are permitted and relatively common.

ii Money laundering, proceeds of crime and funds related to terrorism

There are currently no rules in China specific to lawyers' responsibilities pertaining to money laundering, proceeds of crime and funds related to terrorism.

iii Data protection

The Personal Information Protection Law became effective as of 1 November 2021 in China. This legislation comprehensively regulates the scope of personal information, norms for access, processing and use of data, cross-border data protection and other related matters. To adapt to the openness and global nature of the internet and the fluidity of data and information, and to fully protect the personal information rights and interests of natural persons in China, the Law adheres to the principle of territorial jurisdiction in terms of the scope of spatial application (extraterritorial application), supplemented by the necessary protective jurisdiction. The Law insists on the 'notification of consent' being core to the rules for the processing of personal information. The legislation expressly requires personal information processors to ensure transparency and fair and equitable results in automated decision-making, and not to apply unreasonable differential treatment to individuals in terms of transaction conditions such as transaction prices. If a decision is made by means of automated decision-making that significantly affects the rights and interests of an individual, the individual has the right to request an explanation from the personal information processor and to refuse to allow the personal information processor to make a decision solely by means of automated decision-making.

Image-capturing and personal identification equipment installed in public places shall be necessary for maintaining public security and comply with the relevant provisions of the state, and conspicuous prompting signs shall be set up. An individual's personal image and personal identification information collected may only be used for the purpose of maintaining public security and shall not be used for any other purpose, except with the individual's separate consent. Where personal information processors provide personal information outside of China, they shall inform the individual and obtain the individual's separate consent. Critical information infrastructure operators and personal information processors whose quantity of processing of personal information reaches that as prescribed by the Cyberspace Administration of China shall store personal information collected and generated within the territory of the PRC. Where it is necessary to provide such information and data to an overseas party, such provision shall pass a security evaluation organised by the Cyberspace Administration of China.

Documents and the protection of privilege

i Privilege

The Law of the People's Republic of China on Lawyers stipulates that a lawyer shall keep confidential any state secret or trade secret that has come to his or her knowledge in the course of his or her practice, and shall protect the privacy of parties to a litigation. A lawyer shall keep confidential information that is relevant to a case that the client or any other person is unwilling to disclose, save for the fact that, and relevant information about, the client or other person is preparing to commit, or is committing, a crime jeopardising national security or public security, or causing serious harm to the personal safety of other people. This requirement does not apply to in-house counsel and foreign lawyers.

ii Production of documents

In civil litigation, a litigant is required to submit documents proving its due incorporation, power of attorney for a litigation representative and evidentiary materials. In terms of burden of proof, the basic rule is that a claimant shall provide proof to support its own claim and generally has no power to request the opposing party to produce evidence against itself. A litigant may submit evidentiary materials formed or stored overseas, provided that if the evidence is not in Chinese, a translation is required, and the evidence shall be notarised by a notary public and then shall be legalised by a PRC consulate. If a litigant is unable to collect or obtain certain evidence on his or her own, he or she may apply to the court to investigate and collect evidence. Electronic evidence is also admissible before Chinese courts as long as its legality, authenticity and relevance are recognised.

Alternatives to litigation

i Overview of alternatives to litigation

Apart from a lawsuit before a court, alternative dispute resolution mechanisms in China mainly include:

  1. arbitration, in which the award is final and legally binding, and the parties can apply to the court for enforcement;
  2. people's mediation, where the mediation agreement reached in the people's mediation process is legally binding and the parties can further bring a lawsuit or apply to the court for enforcement depending on the merits of the mediation agreement; and
  3. labour dispute arbitration, where disputes between employees and employers are generally preceded by labour arbitration. Except for those eligible for direct lawsuits before the court, the award of labour arbitration is also legally binding and can be applied for enforcement by the court.

ii Arbitration

The Arbitration Law of the People's Republic of China stipulates the basic legal framework for regulating arbitration activities in China. A large number of regional and national arbitration institutions have been established in China. Arbitration is very common in the judicial practice of dispute resolution. The arbitral award is final and is non-appealable. The parties have the right to apply to the court having jurisdiction over the person, entity or property involved in arbitration for enforcement of the arbitral award. China is a member state of the New York Convention. Generally, intermediate courts are responsible for recognising and enforcing arbitral awards rendered in other member states. In practice, the vast majority of arbitral awards under the New York Convention have been recognised and enforced by Chinese courts. In the rare cases where local Chinese courts decide to refuse recognition and enforcement, they should report, level by level, to the Supreme People's Court of China for final approval.

iii Mediation

The People's Mediation Law regulates out-of-court civil mediation activities. Civil mediation is very common and popular, with courts often directing parties to submit cases to people's mediation bodies for mediation before bringing a lawsuit. The validity of mediation agreements is recognised by law.

iv Other forms of alternative dispute resolution

Apart from arbitration and people's mediation, there is no alternative dispute resolution in China as far as civil disputes are concerned.

Outlook and conclusions

In the wake of the covid-19 pandemic, Chinese courts are accelerating the implementation of online litigation, moving various trial activities such as non-contact filings and hearings online. Internet courts have also been established in Beijing, Hangzhou and Guangzhou. This trend will have a significant impact on the traditional manner of litigation in China.

Footnotes

1 Xiaohong Hu and Xinghui Jin are partners at JunHe LLP.

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