Dilemma and Breakthrough in Enforcement of Civil Judgments by Chinese Courts

Thu, 15 Mar 2018 Insights

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Chinese courts have long been faced with the difficulty of civil judgments being effectively enforced. However, in recent years, Chinese courts have undertaken various measures, which lead to significant efficiency gains in the enforcement.

1. Background

Chinese courts have long been confronted with the difficulty of effective civil judgments being enforced. In China’s political system, the Communist Party of China (CPC) plays an important role in the judicial system. As early as 1999, according to a document issued by the CPC Central Committee (CPC’s supreme body), the enforcement dilemma is described as: 

  • It is difficult for the Court to locate the judgment debtor; 
  • It is difficult for the Court to locate executable property;
  • The institutions or personnel who are required to assist in enforcement do not cooperate with the Court; 
  • It is difficult for the Court to control and dispose of property subject to execution.

These problems have caused a large backlog of cases where judgments remain unenforced. By the end of 1998, a total of over 530,000 unenforced judgments had been deposited in courts across the country, the amount involved totaling more than RMB 100 billion.

Since then, the enforcement dilemma has not yet been fundamentally resolved. In some respects, there is even an aggravating trend, which has led to great concerns from all walks of life in China while the masses are dissatisfied with this issue.

In 2014, the CPC Central Committee released the political document, "Decision of the CPC Central Committee on Several Major Issues concerning the Overall Promotion of the Rule of Law" (中共中央关于全面推进依法治国若干重大问题的决定), and made plans for the reform of China's legal system. In the said document, it emphasizes once again "thoroughly solving the enforcement dilemma" and "ensuring the winning parties timely realize their rights and interests in accordance with the law."

To respond to the aforementioned requirements of the political document, on 13 March 2016, during the fourth session of China’s 12th National People’s Congress (NPC), when Zhou Qiang, president of the Supreme People's Court (SPC), delivered a report on the SPC's work, he promised that “within two to three years, the enforcement dilemma will be basically solved”.

In order to honor this commitment, on 29 April 2016, the SPC issued the “Working Outline for Implementation of ‘within two to three years, the enforcement dilemma will be basically solved’ ”(关于落实“用两到三年时间基本解决执行难问题”的工作纲要) and proposed the following four goals for the next two to three years:

(1) For cases where executable property exists, judgments shall be basically enforced within the statutory deadline. 

(2 )Two phenomena are basically reduced. First, the judgment debtor evades enforcement or resists enforcement; second, outsiders and some government agencies interfere with the case.

(3) Situations that may result in negative enforcement, selective enforcement and/or arbitrary enforcement are basically eliminated.

(4) For cases where no executable property exists, two problems are basically solved. First, there is a lack of strict adherence to the procedural and substantive criteria for ending this enforcement; second, there are no sound provisions for the resumption of enforcement when executable property is found.

Since then, a number of measures taken successively by Chinese courts have effectively addressed the enforcement plight. 

2. Countermeasures

According to an article entitled "Current Situation and Analysis of the Enforcement in the People's Courts" (人民法院执行工作现状与分析)published by Judge Liu Guixiang (SPC judicial committee member, president of the First Circuit Court) in January 2018, significant progress has been made in the enforcement of civil judgments in China: from 2013 to 2015 (in 3 years), the monetary amount for which judgments are enforced by Chinese courts reached RMB 3.286182 trillion, and from 2016 to 2017 (in 2 years), the amount exceeded RMB 2.5 trillion. Liu Guixiang believed that such progress made by SPC were mainly from the following four countermeasures: 

(1) Establishing an online system to facilitate the inquiry and control of judgment debtors’ property

For 60-70% of enforcement cases, the parties concerned are unable to provide effective clues to the property and the People's Court is required to investigate such property in accordance with the law. To this end, SPC began to establish an online inquiry and control system and strive to obtain all information regarding judgment debtors’ property and activities. By the end of 2014, the system was launched. Up to now, more than 3,500 courts across the country have been able to inquire about 20 entries of 15 categories of information such as deposits, vehicles, securities, online funds, wealth management products and personal overseas investments of the judgment debtor through the system.

As of December 2017, through this online system, Chinese courts have inquired a total of 32.36 million cases, frozen RMB 173.5 billion, found 27.02 million vehicles, 49.3 billion shares, more than 340,000 fishing vessels and ships and over RMB 2.8 billion online banking deposits.

(2) Establishing a credit discipline mechanism against judgment debtors to force them to voluntarily fulfill their obligations

In order to force judgment debtors to satisfy the effective legal documents, in 2013, the SPC began to include the judgment debtor that undertakes certain dishonest conducts into the List of Dishonest Judgment Debtors. The blacklist is automatically pushed to relevant government departments, organizations and companies (such as financial institutions) to bring the dishonest subject to the credit discipline of "one dishonesty" (in court) and "all restricted" (elsewhere).

At present, dishonest judgment debtors have been restricted by disciplinary measures of more than 100 entries of 11 categories, such as travel (no purchase of a specific class tickets of flight or train), tourism, investment (no service as the company executives), the purchase of real estate, financing (such as loans) and other activities, while also may not serve as government officials, party representatives at all levels, the NPC representatives, the Chinese People's Political Consultative Conference (CPPCC) members and other positions.

From October 2013 to the present, various courts in China have declared a total of 9.25 million persons listed on the List of Discredited Judgment Debtors, and a total of 9.81 million persons subject to restrictions on high-level consumption. Among them, 9.08 million persons are restricted from the purchase of flight tickets; 3.56 million persons are restricted from the purchase of bullet train tickets and high-speed rail tickets; and more than 190,000 executives are restricted from acting as legal representatives and executives of enterprises. According to the SPC’s statistics, more than 10% of the dishonest subjects will fulfill the obligation voluntarily or negotiate with the judgment creditor to reach a settlement agreement.

(3) Improving the liquidation efficiency of the property subject to execution through online judicial auction 

According to the SPC’s statistics, funds collected from the enforcement proceedings in China only account for 40% of the judgment debtors’ assets. The rest of the assets must be liquidated through auctions and other methods before they can be paid to the judgment creditors. However, the traditional auction method is not only costly, the turnover rate is low and so is the premium rate. To solve these problems, some Chinese courts have begun to adopt the online judicial auction method since 2012, i.e., through the Internet auction platform, to dispose of the assets subject to enforcement in an open manner through online electronic bidding. The SPC affirmed this practice and, starting from 1 January 2017, launched an online judicial auction in courts across the country.

Among the Internet auction platforms recommended by the SPC, the highest index platform for judicial auctions is Taobao. In Taobao, from 2012 till now, the auction network has accumulated 650,000 auctions and 360,000 auction objects with a turnover of RMB 500 billion, with an average transaction rate of 92% and the premium exceeding the starting price reaches 64% while the parties involved are exempt from up to RMB15 billion commission. 

At present, the auction with the largest single amount in the online judicial auction is the auction of land use rights on 10 August 2017. In this auction, after 901 bids, the land use rights with an estimated value of RMB1.67 billion were eventually settled at RMB 2.63 billion at a premium of 57%.

(4) Establishing a national case management system to prevent enforcement officers’ illegal acts 

To prevent corruption within enforcement officers, the SPC has established an integrated information management system covering all courts across the country.

The system sets 37 key nodes for eight categories of enforcement cases. For each enforcement case, procedures of each section must be implemented within the system, from filing, enforcement notification, inspection of the judgment debtor’s property, to the assessment, auction, liquidation of property, distribution of proceeds from liquidation and payment to the judgment creditor. In this system, each step must be strictly followed as per the procedure. The next step can only be entered after the standard actions are completed while there is no room for compromise.

Enforcement courts, parties, higher courts, and even the SPC can use this system to supervise the work process of enforcement officers, so as to prevent the officers from carrying out non-standard or even illegal acts such as passive enforcement, delayed enforcement, selective enforcement and arbitrary enforcement.

In May 2016, the SPC completed the development of the system and put it into use in courts across the country by the end of the same year. Since then, all newly accepted enforcement cases have been handled in the system, and historical data of more than 25 million old cases have been gradually transferred to the system.

Our tips:

The move by Chinese courts in recent years has led to a rapid increase in the enforcement efficiency, while the cost borne by the parties concerned has remained low. If you have a foreign court judgment or a foreign arbitral award that needs to be recognized and enforced in China, you may consider trying to apply for recognition and enforcement in Chinese courts. If you have an ongoing dispute, you may also consider settlement through a Chinese court or a Chinese arbitral institution, given that the enforcement mechanism in China can make it easier for the enforcement of the judgment or award.

 

 

If you would like to discuss with us about the post, or share your views and suggestions, please contact Ms. Meng Yu (meng.yu@chinajusticeobserver.com ).

If you need legal services for the recognition and enforcement of foreign judgments and arbitral awards in China, please contact Mr. Guodong Du (guodong.du@chinajusticeobserver.com ). Du and his team of experienced attorney will be able to assist you.

Contributors: Guodong Du 杜国栋 , Meng Yu 余萌

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