1 . What is the structure and organisation of local courts dealing with commercial claims? What are the main procedural rules governing commercial litigation?
The legal system in China is characterised by socialism and a civil law tradition where the statutory law plays a pivotal role. Civil procedure in China is governed by the Civil Procedure Law of the People’s Republic of China (CPL), supplemented by the Interpretations of the Supreme People’s Court on Application of the CPL and other judicial interpretations issued by the SPC on evidence, interim measures, and other civil procedure issues.
China’s court system consists of four levels, namely:
- The Supreme People’s Court (SPC). This is the highest court that supervises the administration of justice by all subordinate courts.
- The high people’s courts. These are located in provinces, autonomous regions and municipalities directly under the central government.
- The intermediate people’s courts. These are located in prefectures, autonomous prefectures, cities under separate state planning and larger cities. In addition, China has special courts including railway transportation courts, maritime courts, IP courts, and financial courts at the intermediate people’s courts level.
- The primary people’s courts. These are located in counties, autonomous counties, cities not divided into districts and municipal districts.
In terms of procedure, a case is normally closed after being heard by two levels of courts: trial and appeal, except in certain circumstances where retrial proceedings may apply. Generally, primary people’s courts are the courts of first instance presiding over the majority of civil and commercial cases. However, courts of higher levels, including the SPC, may become the courts of first instance for certain types of disputes, depending on the subject matter, nature and size of the claim.
2 . What pre-action considerations apply?
Generally, there is no pre-action protocol or consideration imposed by law. The plaintiff is not required under law to send a pre-action letter to the potential defendant. That said, for certain types of disputes, the parties are required to go through certain proceedings before commencing actions in court, as follows:
- For labour disputes, the parties shall resort to labour arbitration before commencing actions in court.
- For shareholder derivative disputes, when a company’s directors or senior executives carry out acts which damage the company’s interests, the shareholders must first request the board of supervisors/supervisor to urge the company to commence court action in the company’s name, before the shareholders can commence actions in their own names.
3 . What are the main alternative dispute resolution (ADR) methods used to settle large commercial disputes?
In China, the main methods of alternative dispute resolution (ADR) are arbitration, mediation and conciliation:
- Arbitration. Being one of the most popular ADR methods in China, arbitration provides an efficient and flexible solution to dispute. Arbitrations in China are mainly governed by the CPL, the PRC Arbitration Law and relevant judicial interpretations. The PRC Arbitration Law is currently undergoing review/amendment which is expected to align with the prevailing practice in international arbitration. This echoes with China’s initiative to promote its position as an arbitration-friendly forum.
- Mediation and conciliation. Mediation and conciliation are also popular ADR methods in which the parties intend to preserve confidentiality and business relationships. Specifically, the parties are encouraged to settle their cases through mediation/conciliation instead of initiating legal proceedings. Even after arbitration/litigation proceedings are commenced, the parties can still opt to switch to mediation/conciliation.
A recent development in ADR in China is the establishment of a one-stop court system that provides both litigation services and other ADR services, which offers more flexibility for parties to resolve their disputes efficiently. According to statistics published by the SPC, in 2022, an average of 75 cases per minute were successfully resolved online by way of pre-litigation mediation.
4 . How long, on average, do court proceedings take to reach trial?
The duration of court proceedings in China varies depending on the type and complexity of the case, the level of court, and the degree of cooperation of the parties. According to Article 152 of the CPL, the first-instance trial of a civil case should be concluded within six months from the date of acceptance by the court. However, this period can be extended by another six months with the approval of the president of the court, and further extended under special circumstances with the approval of a higher court. Therefore, while many first-instance cases can be concluded within six months, in theory and in practice, a first-instance trial can last up to one year or longer.
For second-instance trials, Article 183 of the CPL stipulates that they should be concluded within three months from the date of acceptance by the court. This period can also be extended by another three months with the approval of the president of the court, and further extended under special circumstances with the approval of a higher court. Therefore, a second-instance trial can also last up to six months or longer.
For retrial cases, Article 211 of the CPL provides that they should be concluded within six months from the date of acceptance by the court. However, as a starting point, it is very hard to get leave for retrial, thus only a very small percentage of cases might be accepted for retrial. Similarly, this period can also be extended by another six months with the approval of the president of the court, and further extended under special circumstances with the approval of a higher court. Therefore, a retrial case can also last up to one year or longer.
5 . What disclosure obligations apply? Are parties required to disclose unhelpful documents as well as those on which they rely?
There is no discovery requirement or procedure under PRC law. In practice, a party has the burden of proving its case, namely that it shall provide evidence that supports its own claims or defences and bear the consequences of failing to do so. A party is not required to disclose unhelpful documents or documents that are adverse to its interests. That said, if a party has control over the evidence but refuses to produce the same to the court without any justifiable reasons, the other party may request that the court draw an inference that the withheld evidence is unfavourable to the controlling party, and the court may decide to order specific production if it deems appropriate.
Further, evidence that involves state secrets, trade secrets, and/or individual privacy could be submitted as evidence, although they shall be kept confidential and shall not be cross-examined in a public proceeding.
Generally, parties have a duty of honesty and good faith, and they must not conceal, tamper with, or destroy evidence. If a party fails to comply with this duty, it may face sanctions from the court, such as adverse inferences, fines, or criminal liability.
6 . Can witnesses be required to attend trial and face cross-examination?
In principle, an individual who has knowledge of a case shall have the general obligation to testify in court as a witness, upon notice by the people’s court. Under certain circumstances, for example, illness, inconvenience of physical attendance due to distance or travel restrictions, force majeure or other justifiable reasons, a witness may provide their testimony in writing, through audio-visual transmission technology, audio-visual recordings or any other means as permitted by the people’s court.
However, in practice witness evidence is seldom used in civil cases; and such evidence is unlikely to be given much weight compared to documentary or physical evidence.
There is no similar practice of cross-examination in the people’s court as in common law jurisdictions. According to the CPL, and relevant judicial interpretations, judges, the parties and their counsels can direct questions to the witnesses.
7 . What discretion do the courts have in making costs orders?
According to Article 29 of Measures on the Payment of Litigation Fees, the court fees shall be borne by the losing party unless the winning party voluntarily bears the costs. In case of a partial victory, the court may, at its discretion, decide on the amounts and allocation of court fees.
Generally, courts have no power to order attorney’s fees and other third-party fees, except where:
- the parties have agreed in the contract at dispute that the losing party shall pay;
- the law explicitly prescribes that the losing party shall pay reasonable attorney’s fees to the winning party, including, among others, in the following types of cases:
- personal injury;
- infringement of copyright, trademark or patent;
- unfair competition;
- contract disputes in which the creditor exercises their right of revocation; and
- legal aid.
8 . What are the main types of interim remedies available?
In China, there are three main types of interim remedies available in litigation and in support of arbitration: property preservation, evidence preservation and conduct preservation.
- Property preservation refers to the measures taken by a court to freeze, seize, detain or dispose of the property of a party or a third person, in order to prevent the party from dissipating or transferring its assets and ensure the enforcement of a future judgment or award. Property preservation can be applied for before or during litigation, and can cover both movable and immovable property, as well as intangible property such as bank accounts, securities and intellectual property rights.
- Evidence preservation refers to the measures taken by a court to collect, fix, examine or retain evidence that may be lost or difficult to obtain in the future, in order to ensure the authenticity and availability of evidence for trial. Evidence preservation can be applied for before or during litigation, and can cover both documentary and physical evidence, as well as witness testimony and expert opinion.
- Conduct preservation refers to the measures taken by a court to order a party or a third person to perform certain acts or refrain from certain acts that may affect the resolution of the dispute or the enforcement of a future judgment or award. Conduct preservation can be applied for before or during litigation, and can cover various types of acts, such as ceasing infringement, maintaining status quo, delivering goods, paying rent, fulfilling contractual obligations, and so on. In practice, pre-litigation conduct preservation often applies to IP disputes. In 2018, the SPC issued a judicial interpretation which clarifies the application process for conduct preservation in IP disputes.
9 . What approach do the local courts adopt with respect to arbitration? What arbitration law applies and is it based on the UNCITRAL Model Law?
Arbitrations seated in China are mainly governed by the CPL, the PRC Arbitration Law and relevant judicial interpretations. Although the UNCITRAL Model Law has not been formally adopted in China, it was taken into account during the drafting of the PRC Arbitration Law. Many fundamental principles set out in the UNCITRAL Model Law were embraced by the PRC Arbitration Law.
That said, there remains notable distinctions between the UNCITRAL Model Law and the Arbitration Law, including, among others, elements of a valid arbitration agreement, competence of an arbitral tribunal to rule on its own jurisdiction, interim measures, and grounds for setting aside an award. As mentioned above, the PRC Arbitration Law is currently undergoing review/update so as to align with the prevailing practice in international arbitration.
China has taken the initiative to promote its position as an arbitration-friendly forum. Courts in China at all four levels have been supportive of arbitration. In practice, the courts are reluctant to set aside or refuse enforcement of arbitral awards, as China has adopted and improved the so-called “internal prior reporting system”. If a court at intermediate level is minded to set aside or refuse enforcement of a foreign or foreign-related arbitral award, it must report to the high court for approval up to the SPC. For setting-aside or non-enforcement of a domestic arbitral award, the intermediate court must seek approval from the high court.
10 . Can arbitrators grant interim relief?
Under the current legal framework in China, arbitrators cannot grant interim relief in arbitrations seated in mainland China. The power to grant interim relief of the three statutory measures, as listed under Question 8 above, vests exclusively in the people’s courts. In theory, arbitrators can issue an interim order other than these three types.
According to the CPL, where a party applies for a preservation measure, the arbitral institution shall submit the party’s application to the intermediate people’s court at the place of domicile of the respondent or at the place where the respondent’s property is located.
Pursuant to arbitration rules issued by leading arbitration institutions in China, including China International Economic and Trade Arbitration Commission (CIETAC), Beijing Arbitration Commission (BAC) and Shenzhen Court of International Arbitration (SCIA), arbitral tribunals may grant interim relief that they deem necessary or proper in accordance with the applicable law. Therefore, arbitrators may grant interim measures in arbitrations administered by arbitration institutions in China, but seated in jurisdictions other than mainland China.
11 . On what grounds can an arbitration award be appealed?
Arbitral awards are final and binding, and there is no right of appeal against them. But unhappy parties may apply to the competent court to set aside an arbitral award on procedural grounds.
According to Article 58 of the Arbitration Law, the grounds for setting aside a domestic award include instances where:
- there is no arbitration agreement;
- the matters decided in the award exceed the scope of authority of the arbitration agreement or are beyond the arbitral authority of the arbitration institution;
- the formation of the arbitral tribunal or the arbitration proceedings were not in conformity with statutory procedures;
- the evidence on which the arbitration is based is forged;
- the other party has concealed evidence sufficient to affect the impartiality of the arbitration; or
- the arbitrator is found to have committed embezzlement, accepted bribes, practiced graft or distorted the law in making an award.
The court may also set aside an award that is contrary to social public interests.
The grounds for setting aside a foreign-related award, i.e. an award involving foreign elements, are different. According to Article 70 of the Arbitration Law, a foreign-related award may be set aside where:
- there is no arbitration agreement;
- the respondent is not given proper notice of the appointment of arbitrators or of the arbitral proceedings or is otherwise unable to present its case due to reasons not attributable to the respondent;
- the composition of the arbitral tribunal or the arbitration procedure was not in accordance with the arbitration rules;
- the award deals with matters that exceed the scope of the arbitration agreement, or are beyond the authority of the arbitration institution; or
- enforcement of the award would go against social public interests.
The court shall decide whether to set aside the award within two months of receipt of the application. However, in practice such time limit is not strictly applied; and for foreign-related awards, if the court contemplates setting aside the award it must go through the internal reporting process which will take significant time. The court’s decision is final and is not subject to review, appeal or retrial.
Further, if the court accepting the setting-aside application finds that the evidence relied on in the arbitration is fabricated, or that the counterparty has concealed evidence sufficient to impair the fair decision of the arbitral tribunal, it may send the case back for re-arbitration.
12 . What international conventions and agreements on enforcement of judgments or arbitral awards is your jurisdiction a party to?
In terms of enforcement of judgments, China signed the Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil and Commercial Matters, which is not yet in force. Meanwhile, China has entered into bilateral treaties/arrangements with a number of jurisdictions on judicial assistance, where recognition and enforcement of judgments are involved (including Cyprus, Laos and Hungary). For jurisdictions with no bilateral treaties/arrangements with China, Chinese courts will adopt the principle of reciprocity, i.e. consider whether the relevant jurisdiction has previously enforced a Chinese court judgments.
With regard to arbitral awards, China has entered into the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention), which provides a uniform framework for the recognition and enforcement of foreign arbitral awards in 172 contracting states.
It should be noted that enforcement of judgments and arbitral awards made in Hong Kong SAR, Macau SAR and Taiwan are governed by relevant interpretations issued by SPC respectively.
13 . What types of judgments in commercial matters are enforceable and what types are excluded?
- Domestic judgments. According to the CPL, domestic judgments are enforceable if they are final and conclusive. PRC law does not exclude any type of domestic judgments from enforcement.
- Foreign judgments. See above, Question 12. Generally speaking, foreign judgments from jurisdictions that have bilateral or multilateral enforcement treaties with China can be recognised and enforced in China. For commercial matters, normally only monetary judgments are enforceable. And judgments that are legally effective and concern substantive disputes in civil or commercial cases are enforceable, except for:
- foreign judgments that violate the basic principles of the PRC laws and the sovereignty, security and public interest of China; and
- foreign decisions granting provisional measures.
14 . What is the process for registration of foreign judgments and arbitral awards?
There is no registration requirement for enforcement of foreign judgments and arbitral awards. Instead, the recognition and enforcement process applies to both foreign judgments and arbitral awards.
Generally speaking, it is not easy to enforce a foreign judgment in China. PRC courts will only recognise and enforce a foreign judgment under the following regimes:
- international conventions that are signed and approved by China (so far, there are none);
- bilateral treaties or arrangements between China and the country or region where the judgment was made; or
- the principle of reciprocity, where there is no international convention or bilateral treaty or arrangement.
As such, if the prevailing party to a foreign judgment wishes to seek recognition and enforcement in China, it should first consider which regime will apply. The competent intermediate court seized of the application will examine whether the foreign judgment is legally effective, whether it violates the basic principles of PRC laws, or China’s sovereignty, security, public interest or social ethics, and whether it is consistent with any relevant treaty or reciprocal relationship. If the court decides to recognise and enforce the foreign judgment, it will issue a ruling and order enforcement.
Foreign arbitral awards
- Competent court. The prevailing party must apply to the intermediate people’s court at the place of domicile of the party against whom the enforcement is sought or where the property is located.
- Steps to take. The court will first decide on whether to recognise and enforce the award. If the court decides to grant the application, it will issue a ruling declaring recognition and enforcement of the award. The court will then internally transfer it to its enforcement bureau for enforcement.
- Prior reporting system. If the court seized of the application is minded to refuse recognition and enforcement, it has to first submit a report to the high court. If the high people’s court does not agree with the lower court, the lower court should recognise and enforce the award. However, if the high people’s court agrees with the lower court that the award should not be recognised and enforced, the high people’s court must report the case to the SPC. The intermediate people’s court may only refuse to recognise and enforce a foreign arbitral award after it receives the SPC’s approval to do so.
15 . Once the judgment or award is registered, what are the available methods of execution?
After the court issues a ruling declaring recognition and enforcement of the award and transfers it to the enforcement bureau, the enforcement bureau will serve an enforcement notice on the award debtor, in which it will urge the award debtor to perform the obligations as determined in the award, and warn that the failure to make prompt payment will result in late performance interest or a late fee.
If the award debtor fails to perform according to the notice of enforcement, the court will take enforcement measures and serve the corresponding legal instrument to the award debtor.
Assets that can be attached/frozen for enforcement include: movable assets, real properties registered in the name of the award debtor, specific movable assets and other property rights (tangible or intangible assets).
Enforcement measures against different types of assets vary, for example:
- For movable and immovable property, the court will first take measures to seal, seize or freeze the property subject to enforcement before the actual disposal of the assets, and then dispose of the assets by auction or sale.
- For bank deposits, and other property of the same nature, the court may directly issue a deduction or transfer order and transfer such property to the court’s account, and then distribute it to the applicant.
Enforcement must be done within six months of the enforcement bureau’s acceptance of the case, but can be extended in certain circumstances.
16 . What interim measures are available pending enforcement?
Asset preservation is available pending enforcement. According to the Minutes of the National Symposium on the Foreign-related Commercial and Maritime Trial Work of Courts issued in 2021, a party may apply for asset preservation after the court accepts its application for recognition and enforcement of a foreign judgment or arbitral award.