China: Extra-judicial Mediation System and Practice (Part II of II)

This article continues to discuss Extra-judicial Mediation System and Practice. The first part of this article was published on Chinalawinsight on October 2011.

II. A review of extra-judicial mediation

Compared with mediation during arbitration or litigation, extra-judicial mediation can offer a more amicable way for the solving of disputes and avoid many of the disadvantages of "judicial mediation".

In judicial mediation judges and arbitrators primarily rely on rigid laws and regulations to guide the mediation process whereas the regulations applicable to extra-judicial mediation are more flexible. Article 17 of the Several Provisions provides that "in the mediation of cases, relevant organizations may, without violating the mandatory provisions of laws and administrative regulations, guide the parties to reach settlement agreements by referring to industrial practices, village regulations, community conventions, local good customs and other codes of conduct."

Second, as to the roles of mediators, a mediator in an extra-judicial mediation only plays a single and independent role while in "judicial mediation" a judge or an arbitrator plays dual roles, namely, on the one hand mediating a dispute, and on the other hand rendering a judgment or award if the mediation is unsuccessful. In this regard, the opinions and information disclosed in the mediation will inevitably influence the judge or arbitrator"s decision on the case. Consequently, parties may be reluctant to express themselves openly, which can obviously hinder a mediation.

Third, with respect to issues of independence, the extra-judicial mediation is totally independent of other dispute resolution mechanisms. Even if the mediation is not successful, the parties" right to seek relief by other legal proceedings will not be affected. But if the mediation helps the parties reach a satisfactory result, cost as well as time will be saved. In comparison, mediation conducted during litigation or arbitration proceedings is attached to or dependent on the ongoing litigation or arbitration. Only when arbitration or litigation is launched can "judicial mediation" start which can be time-consuming and inefficient as well.

Last, the commencement of extra-judicial mediation is simpler than that of "judicial mediation". Except for a few commercial mediation organizations with formalities, application for mediation can be made either in writing or orally. With "judicial mediation", however, the parties must submit a request in strictly enforced written format to start a litigation or arbitration proceeding

Extra-judicial mediation does have its limitations. Since a settlement agreement is only a civil contract, unlike the record of a settlement agreement made by the court or arbitral tribunal, it cannot be so easily enforced. This is where the real difference between the outcome of extra-judicial mediation and "judicial mediation" lies.

III. Recent Developments in the Enforcement of an Extra-judicial Settlement Agreement

As previously mentioned, a settlement agreement reached via extra-judicial mediation is only a civil contract which cannot be enforced as easily as a court order. Therefore, to improve the enforcement of a settlement agreement, China has established three methods. The first approach is that a party may apply to the to a settlement agreement requiring the payment of money. If a debtor fails to properly perform such a notarized agreement, then the creditor may apply to the people's court having jurisdiction to enforce performance of a notarized agreement¹. Second, for settlement agreements requiring payment of money, a creditor may also apply directly to the local court having jurisdiction for payment orders. The third approach is to obtain judicial confirmation of the settlement agreement. As early as 2004, the Supreme People's Court issued the Provisions about Several Issues Concerning the Civil Mediation Work of the People's Court² ("Provisions on Mediation"), which is regarded as introducing the judicial confirmation mechanism. The Several Opinions issued in 2009 further affirmed the legal framework of judicial confirmation. And the Several Provisions issued in 2011 offers even more detailed and concrete regulations on proceedings, time limits, and jurisdiction of the court to make this mechanism more practical.

Article 20 of the Several Opinions provides that "for an agreement in the nature of a civil contract reached through mediation by an administrative organ, a people"s mediation organization, a commercial mediation organization, an industrial mediation organization or any other organization with a mediation function, the parties may apply to the people"s court having jurisdiction for confirming the validity of such an agreement after the mediation organization and mediator affix their signatures or seals to it." To request the confirmation, the parties submit the mediation agreement and letter of commitment to the people"s court. The letter of commitment signed by both parties must clearly state the following:

1. "Both parties voluntarily reach the agreement for the purpose of resolving disputes, and have no act of malicious collusion or circumvention of law; and
2. If any damage is caused to any other person due to the content of this agreement, both parties are willing to bear the corresponding civil liability and other legal liabilities."³

The court then decides whether to grant the confirmation primarily on the following grounds: (1) whether any mandatory provision of a law or administrative regulation is violated; (2) whether the national interest or social and public interests are infringed; (3) whether the legal rights and interests of non-parties are harmed; (4) whether a party subject to criminal liability is involved; (5) whether the contents of the settlement agreement are clear enough to be enforced; and (6) whether the mediation organization or the mediator conducting the mediationis in violation of the parties" will or any professional ethics.

The court decision confirming validity of the settlement agreement becomes effective when the decision is served on both parties. And if a party refuses to comply with the decision, the other party may apply to the people"s court for enforcement. As reflected in the Several Opinions, the judicial confirmation mechanism, like mediation itself, respects party autonomy. Even where the parties enter into a mediation agreement against their true will or the mediation organization or a mediator is a party interested in the case and the mediation apparently lacks fairness, as long as the parties knowing the aforesaid information still insist on applying for confirmation, then the court may.

Judicial confirmation of the settlement agreement provides a new warranty of its performance, which makes enforcing the mediation more practicable. Such a mechanism not only improves the efficiency and convenience of mediation as a form of alternative dispute resolution it also releases the parties from time-consuming litigation. Judicial confirmation also conserves court cost and resources. According to statistics released in a seminar held by the Judicial Reform Office of the Supreme People"s Court, taking the Lang Fang District Intermediate People"s Court as an example, in 2010, the total number of judicial confirmation cases accepted by that courtreached 75, including 23 family disputes, 27 contractual disputes, 11 traffic accident disputes, 5 employment disputes and 9 other disputes. Ninety-eight percent of the settlement agreements confirmed by the court have been performed voluntarily by the parties.⁴

In addition to judicial confirmation, delegated mediation, affirmed by the Supreme People"s Court in the Provisions on Mediation in 2004, also serves as an impetus for refinement of extra-judicial mediation. Article 3 of the Provisions on Mediation provides that,

"The people's court may, in accordance with Article 87 of the Civil Procedure Law ⁵, invite enterprises and public institutions or social organizations or other organizations, which have special relationship with the parties concerned or have a kind of connection with the case, and individuals, who possess professional knowledge, specific social experiences and have a special relationship with the parties concerned and will help to bring about the mediation,--- to assist inmediation work. of the Civil Procedure Law

The people's court may delegate to the entities or individuals prescribed in the preceding paragraph the mediation of cases after obtaining the agreement of the parties concerned, and if a mediation agreement is reached, the people's court shall confirm it according to the law."

Delegated mediation also effectively reduces the cost and increases efficiency for resolving disputes. Commercial mediation is the best example of such a change. The CCPIT Conciliation Center issued "Guidance on Improving the Connection between Mediation and Litigation with the People"s Court" to echo the implementation of the Several Opinions. According to the statistics of the CCPIT Conciliation Center, since the Several Opinions came into force, in the first half of 2010, commercial mediation institutions nationwide have accepted 632 mediation cases and 914 consultation cases. That number of accepted cases has exceeded the caseload for the entire year of 2009. ⁶ Meanwhile, cooperation between the people"s courts andmediation institutions has also raised the number of delegated mediation cases. Parties with a settlement agreement reached via delegated mediation can apply to the court either to confirm its validity or to make an official record for enforceability. This mechanism obviously strengthens the parties" faith and trust in resolving their disputes by mediation.

Conclusion

Extra-judicial mediation is widely used in China and continues to grow. As its legal effects and mechanisms mature, extra-judicial mediation is set to become an even more popular form of alternative dispute resolution, and could play a critical role in social and economic development of China. 

Footnotes:

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