In August 2012, the People's Republic of China
("PRC") enacted amendments to its Civil Procedure Law
("CPL"). These amendments (collectively referred to as
the "2012 Amendments") came into force on January 1, 2013
and are the most extensive amendments made to the CPL to
date.
This Commentary examines the following eight key changes
brought about by 2012 Amendments and assesses their potential
impact on future litigation and arbitration conducted in the
PRC:
- Prospective litigants are required to attempt pre-action mediation.
- Mediation agreements can be judicially confirmed and enforced by the courts.
- Litigation is required to be conducted in good faith.
- Parties have greater freedom of choice of jurisdiction.
- The scope of asset preservation measures in advance of judgment is extended.
- Courts can order pre-action preservation of evidence.
- The parties may themselves select a joint expert witness.
- The grounds for the court to refuse to enforce a domestic arbitration award are curtailed.
Development of Civil Procedure Law in China
China's first two attempts at codifying civil procedure law
were ill-fated. The first attempt was in 1910, when the Court of
the Qing Dynasty promulgated the Qing Imperial Code of Civil
Procedure. This was somewhat short lived, however, with imperial
China coming to an abrupt end one year later. The second attempt
was in 1935, when the nationalist government promulgated the Civil
Procedure Law of the Republic of China. Although having a
substantially longer inning than its 1910 predecessor, the 1935
Civil Procedure Law was abolished 14 years later by the government
of the PRC.
Between 1949 and 1982, civil procedure rules were promulgated from
time to time by the Supreme People's Court ("SPC"),
there being no civil procedure code as such. Following the movement
to modernize the PRC's legal system in the late
1970s–early 1980s to make it more suitable for a
market-driven economy, in March 1982 the Standing Committee of the
National People's Congress enacted a civil procedure law on an
experimental basis ("1982 Trial CPL"). After a nine-year
trial, in April 1991, an amended version of the 1982 Trial CPL was
adopted as the Civil Procedure Law of the PRC ("1991
CPL").
Apart from the 2012 Amendments, there has only been one other
round of amendments to the CPL since 1991. These were made in
October 2007 (entering into force on April 1, 2008) and were
primarily motivated by problems encountered in the enforcement of
civil judgments and the retrial procedure.
Prospective Litigants Are Required to Attempt Pre-Action Mediation (Articles 122 and 133)
The courts in the PRC have always promoted mediation as an
alternative means of settling disputes. From its very first
inception in 1991, the CPL expressly provided that the courts may
mediate disputes after a lawsuit has commenced. The same court may
then adjudicate the case in the event that the mediation fails.
While the concept of the same court acting as both mediator and
adjudicator raises eyebrows in many other jurisdictions, the
post-action mediation provisions of the CPL remain unchanged by the
2012 Amendments (refer to Chapter 8 of the CPL).
The 2012 Amendments further promote mediation by adding the
following provisions to the CPL: "Wherever appropriate,
mediation shall be adopted for civil disputes before they are
brought to the people's court, unless the parties thereto
refuse to mediate" and "where mediation may be conducted
before the trial, mediation shall be conducted to timely solve the
dispute."
The legislative purpose of these provisions is to encourage
parties to settle their disputes by mediation before actually
commencing a lawsuit, rather than waiting until after the lawsuit
has commenced, and may well be in response to a decline in the
number of civil cases being settled by mediation following
commencement of proceedings.
Judicial Confirmation and Enforcement of Mediation Agreements (Articles 194 and 195)
The 2012 Amendments introduce new provisions for obtaining
judicial confirmation of a mediation agreement and for the
enforcement of mediation agreements. These provisions apply to all
mediation agreements, no matter whether made pre-action or
post-action.
These new provisions further demonstrate the increased emphasis on
the use of mediation for settling disputes.
Litigation Shall Be Conducted in Good Faith (Article 13)
The 2012 Amendments provide that civil litigation should abide
by the principle of good faith. This amendment is perhaps in
response to an increase in the occurrence of frivolous or malicious
lawsuits and the abuse of process by litigants, such as
intentionally delaying proceedings, falsifying evidence, and the
like.
While a welcome addition to the CPL, mounting a challenge to a
lawsuit on the basis that the other party is acting in bad faith is
likely to be difficult to implement in practice and will require
further judicial interpretation to establish the line between good
faith and bad faith.
Choice of Jurisdiction Options Are Expanded (Article 34)
Under the previous CPL, the parties to a contractual dispute
were permitted, by mutual agreement, to choose the location of the
court to hear the dispute. Such court may be located at the place
of domicile of either of the parties, at the place where the
contract was signed, at the place where the contract was performed,
or at the place where the subject matter is located.
The 2012 Amendments expand the types of dispute under which the
parties may choose the location of the court to include disputes
over "rights or interests in property" and also expands
the options available to the parties to include "any other
place actually connected to the dispute."
Extension of the Scope of Asset Preservation Measures in Advance of Judgment (Articles 100 and 101)
The previous CPL permitted a party to apply to the courts for an
order to preserve property where enforcement may be jeopardized by
acts taken by the other party. Such an application could be made
before commencing the lawsuit in urgent circumstances. These
provisions for property preservation measures are retained in the
amended CPL; however, following the entering into force of the 2012
Amendments, the courts now have the power to make orders requiring
a party to take certain actions or refrain from certain actions
(the previous property preservation measures together with the
newly introduced measures are collectively referred to in the CPL
as "Preservation Measures").
The 2012 Amendments also provide that a prospective party to an
arbitration can apply for Preservation Measures prior to commencing
the arbitration. It is, however, unclear as to whether or not this
provision is limited to domestic arbitrations since, although the
2012 Amendments simply refer to "仲裁"(i.e.,
arbitration), other provisions of the CPL separate out
"涉外仲裁"(i.e., foreign-related
arbitration) as a separate category of arbitration. We take the
view that it covers both local and foreign-related arbitration
cases, but an interpretation from the SPC would be useful in this
regard.
Upon receiving an application for a Preservation Measure (whether
pre-action or post-action), the court is required to make a
decision within 48 hours of the application, and if it grants the
application, the Preservation Measure can be enforced immediately.
In the case of a Preservation Measure made pre-action, if the
petitioner does not commence the litigation or arbitration within
30 days of the order, the order is cancelled.
The court may instruct the applicant to provide a surety as a
condition of ordering a Preservation Measure. In this regard, it
should be noted that "undertakings as to damages" cannot
be provided in lieu of surety, and therefore an applicant for
Protective Measures will need to be fully prepared to provide the
necessary surety upon making its application to the court.
These newly introduced Preservation Measures are analogous to the
common law concepts of mandatory and prohibitory interim injunctive
relief and are likely to play a significant role in improving the
enforceability of judgments and arbitration awards in the PRC. It
remains to be seen, however, under what circumstances and to what
extent the courts will be prepared to use these newly acquired
powers.
Pre-Action Preservation of Evidence (Article 81)
The previous CPL provided that a party to litigation may apply
to the court for the preservation of evidence where there is a
likelihood that such evidence may be destroyed, lost, or too
difficult to obtain later on. Unlike the preservation of property,
however, an application for the preservation of evidence could be
made only after commencing a lawsuit.
Following the 2012 Amendments to the CPL, an interested party is
now permitted to apply for an order to preserve evidence prior to
instituting the lawsuit and, furthermore, prior to commencing an
arbitration. Time limits for the court to grant such applications
and for the interested party to actually commence the lawsuit or
arbitration are the same as those for applications for Preservation
Measures.
This is a significant amendment. Valuable evidence can often
mysteriously disappear, or be moved, the moment a lawsuit or
arbitration has commenced, and it is useful to secure the
preservation of such evidence before the other party has an
opportunity to react.
Parties May Select Expert Witnesses (Articles 76, 77, and 78)
The previous CPL provided that, where the court deems it
necessary to make a determination on a specialized issue, the court
may refer such issue to an "authentication department
authorized by law" that shall appoint an expert witness to
provided an "expert conclusion." Under the amended CPL,
this provision is replaced and substituted with a provision that
permits the parties to jointly select the expert witness. Further,
it is not necessary for the parties to choose the expert from an
"authentication department authorized by law"; therefore,
the parties will presumably now have a wider pool of expert
witnesses from which to choose.
The court may still choose the expert witness itself, but only
where the parties have not requested to call an expert witness on
an issue for which the court considers an expert opinion is
required, or in the event that the parties cannot agree on the
identity of the expert witness.
Under the previous CPL, the court-appointed expert witness was not
required to attend the court hearing. However, the amended CPL
stipulates that if a party objects to the written opinion of the
expert, or if the court deems it necessary, the expert witness
shall appear in court for testimony. Where the expert witness
refuses to so testify, the court shall not take his opinions into
account in ascertaining the facts. Further, the party paying the
evaluation expenses may request the refunding of the evaluation
expenses.
Grounds for Refusing to Enforce a Domestic Arbitration Award Are Curtailed (Article 213)
Under the previous CPL, a court may refuse enforcement of a
domestic arbitration award on the grounds that "the main
evidence for determining the facts was insufficient" or that
"there was an error in the application of the law." These
grounds provide considerable latitude for the courts to refuse
enforcement.
The two grounds mentioned above are deleted by the 2012 Amendments
and replaced by the following: "the evidence that forms the
basis of the award is fabricated" and "the other party
has concealed evidence from the arbitral institution that affects
the impartiality of the award," respectively. These changes
significantly curtail the discretion of the court in refusing to
enforce a domestic arbitral award and bring the CPL in line with
the PRC Arbitration Law.
Conclusion
The 2012 Amendments greatly improve the CPL by strengthening the
rights of litigants and widening the scope of party autonomy. At
the same time, the 2012 Amendments are aimed at encouraging
disputes to be settled by mediation and preventing abuse of the
litigation process.
The enhanced interim measures available under the amended CPL to
protect evidence and assets prior to judgment are of particular
significance. The protection of evidence and assets have, for a
long time, been weak spots in the PRC's civil procedure law,
with mandatory and prohibitory interim injunctive relief
traditionally being available only for certain types of
intellectual property actions. This has given defendants ample
opportunity to destroy crucial evidence or put valuable assets out
of reach upon actions being initiated against them. Following the
2012 Amendments, the courts now have to power to order a wide range
of interim measures aimed at protecting evidence and assets prior
to the commencement of all types of civil action, including
arbitration proceedings.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.