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Respond to China’s Litigation Explosion: 2021 Amendment to Civil Procedure Law

Sun, 20 Feb 2022
Categories: Insights

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Key takeaways:

  • To address the challenge of litigation explosion, China launched the two-year pilot program in 2019, based on which solutions that have been tested and verified are now demonstrated in the amendment to the CPL.
  • Driven by the need of saving judicial resources in response to the litigation explosion, China’s newly amended Civil Procedure Law aims to reduce the caseload and simplify the litigation procedure by, among others, promoting online litigation and supporting mediation.
  • Through the amendment on the judicial confirmation for mediation (settlement) agreements, China provides its full support for mediation. Nevertheless, it remains to see whether this can be applicable to cross-border settlement agreements. 

In December 2021, China amended the PRC Civil Procedure Law (CPL). This is the fourth revision since the enactment of the CPL in 1991.

The newly-amended CPL aims to reduce the caseload and simplify the litigation procedure by promoting online litigation, expanding the applicable scope of the sole-judge trials, supporting mediation, and reducing the number of second-instance cases.

These measures will also improve judicial efficiency in cross-border civil cases. 

I. Why is CPL amended?

This amendment is driven by the need of saving judicial resources in response to the litigation explosion.

We have just discussed the litigation explosion in Chinese courts in our earlier post “A Closer Look at China’s Litigation Explosion in 2021”. Prior to that, we had also mentioned the litigation explosion in China several times. 

Chinese courts have been plagued by litigation explosion for the past decade. To address this problem, the National People’s Congress authorized the Supreme People’s Court (SPC) to launch a two-year pilot program in 305 local courts across the country in 2019.

The keywords of the pilot program are “simplification” and “diversion”.

(1) Simplification: to reduce the judicial resources used for each case by simplifying the procedure of each case.

(2) Diversion: to reduce the caseload of courts by settling more cases in arbitration or mediation rather than litigation.

By 2021, the two-year pilot program was over. Solutions that have been tested and verified in the pilot program are demonstrated in the amendment to the CPL.

It should be noted that, according to the SPC’s  Judge He Fan (何帆), this CPL amendment reflects a path of Chinese legislation.

Step 1: The relevant authorities, such as the SPC and the State Council, formulate the draft of the pilot program.

Step 2: The legislature, the National People’s Congress, authorizes the relevant authorities to launch the pilot program in specific regions;

Step 3: The relevant local authorities carry out the pilot program;

Step 4: The legislature revises or makes the law based on the results of the pilot program.

II. How is the CPL amended?

1. Online litigation is officially part of civil litigation so as to save litigation costs

According to the amended CPL, civil litigation may be held online upon the consent of the parties. Online litigation has the same legal effect as offline litigation. The service of process can also be completed electronically online. 

We believe that in the future, online litigation may become the primary or even default litigation method in Chinese courts, while offline litigation is used as a supplement to meet the needs of specific scenarios or individual requirements.

2. Expand the applicable scope of the sole-judge trial so as to fully utilize the workload of judges

Cases under any procedure, including summary procedure, ordinary procedure as well as second-instance cases, can be heard by a sole judge.

Previously, in China, only cases under summary procedure could be heard by a sole judge while cases under the ordinary procedure and all second-instance cases had to be heard by a collegial panel of three to seven judges.

In the SPC’s view, compared with a collegial panel of multiple judges, the sole-judge trial can improve the efficiency of judges.

From now on, except for complicated or influential cases, most cases will be heard by a sole judge.

3. Determine that small claims are not appealable so as to reduce the caseload of second-instance courts

Small claims cases shall be finally decided in the first instance. Therefore, parties may not file an appeal. Small claims cases are cases where the disputed amount is less than 50 percent of the average annual salary of local employees.

Prior to this, civil cases in China were all finally decided in the second instance, where parties could file one appeal.

This is a major change to China’s trial grade system.

4. Support mediation comprehensively so as to reduce the litigation burden

After the parties reach a mediation agreement, they can apply to a court for judicial confirmation to give the mediation agreement legal enforceability.

The courts where the parties are domiciled, where the subject matter is located, where the mediation organization is located, or the courts inviting the mediation organization to conduct the mediation, shall accept such application.

Previously, the parties could only apply to the court where the mediation organization was located to confirm the mediation agreement.

This amendment makes it easier for the parties to find a competent court. The more convenient the parties are in mediation, the fewer cases will proceed to litigation.

III. Our comments

This amendment to the CPL may improve the efficiency of Chinese courts in hearing cross-border civil litigation.

1. Online litigation facilitates overseas parties

The popularity of online litigation in Chinese courts helps overseas parties participate in Chinese litigation via the Internet.

Previously, many overseas parties may be reluctant to travel to China, or may be unable to come to China due to epidemics or other reasons. Online litigation provides them with an alternative worth considering.

2. Whether settlement agreement confirmation can be applied to cross-border mediation

If the parties reach a settlement agreement outside of China, say with the help of JAMS, can this mediation agreement be judicially confirmed by the court?

Previously, the answer was no. This is because only the court where the mediation organization is located can accept this application, and overseas mediation organizations such as JAMS are not located within China.

Now, the court where the parties are domiciled and the court where the subject matter is located can accept this application as well. 

Does this mean that the Chinese courts are open to overseas settlement agreements?  

Well, it is too early to draw a conclusion. The key lies in the question of whether JAMS and other overseas mediation organizations can be categorized as “legally established mediation organizations” under the CPL. 

If the answer is yes, then a cross-border settlement agreement can go through judicial confirmation, which ensures its enforceability. In other words, though China has not yet ratified the Singapore Convention on Mediation, the cross-border settlement agreements can, upon judicial confirmation, be enforceable as court judgments.

3. Can cross-border litigation be faster?

When hearing cross-border cases, Chinese courts are not subject to the time limits of the CPL, probably due to the fact that most Chinese local courts are inexperienced in handling such cases and need more time. And it also makes it impossible for the parties to anticipate the duration of the cross-border litigation.

However, if the amended CPL values efficiency, will this tendency lead the local courts to hear cross-border cases faster? Let us wait and see.

 

 

Photo by Eileen Eph on Unsplash

Contributors: Guodong Du 杜国栋 , Meng Yu 余萌

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