China's Jury System

"I consider trial by jury as the only anchor ever yet imagined by man, by which a government can be held to the principles of its constitution."

--Thomas Jefferson

Two days ago, I had the pleasure of talking to Hon. Duan, a senior justice on the Supreme People's Court of China, who is currently on administrative leave to study American administrative laws here at SMU Law School. In our two hour long conversation, we talked about many different topics regarding the Chinese and American legal and judicial systems. One of the most interesting discussions concerns the jury systems in both countries. The United States has a very unique jury system that is often vilified and glorified by people of different philosophies. However, many people probably do not know that China actually has its own jury system, at least on the books. So, I think the importance of this subject deserves a little discussion on this blog.

A. History of the Chinese Jury System:

My cursory research reveals that a rudimentary jury system existed even during the early days of the communist revolution. The idea was that common people would be selected to participate in rendering justice. However, the jury system formally established in the 1954 Constitution, along with the entire justice system, came to a halt during the horrific Cultural Revolution. The end of the Cultural Revolution gave the Chinese jury system a second chance. In 2004, the Standing Committee of the National People's Congress promulgated the Resolution/Decision Regarding Improving the People's Jury System ( 关于完善人民陪审制度的决定) ("Jury System Decision"), which came into effect on May 1, 2005. Currently, the Chinese jury system theoratically operates under this piece of legislation.

B. The Criteria for Selecting Jurors:

Pursuant to Articles 4-6 of the Jury System Decision, a candidate for the people's juror must meet the following requirements:

a. must uphold the Chinese Constitution;

b. must be older than 23 years of age;

c. must be of good moral character;

d. must be physically fit and healthy;

e. must have a minimum of a junior college degree (大学专科文凭);

f. must not be a lawyer, a member of the National's People of Congress, employee of the Public Security Bureau, People's courts, People's procuratorate, or National Security;

g. must not have committed a crime;

h. must not have been terminated from public office.

C. Method of Selection:

Assuming that candidates meet the above-criteria, they can be nominated by their work units (Danwei) to the local people's court for consideration. After nomination, the local people's court and the justice department of local government coorporate to evaluate such individuals before they could be recommended to the chief judge of the local court, who can then petition the local people's congress to officially appoint the recommended individuals as jurors.

The number of jurors is determined by the local people's courts on a as-needed basis.

D. Working Procedures:

First of all, Chinese jurors, unlike American jurors, have the same authority as other judges who serve on the presiding panel. They could ask questions during court proceedings, and can cast votes regarding the final decision and outcome of cases. In fact, Chinese trial courts, much like appellate courts, decide cases based on the principle of majority rule. In other words, if the juror vote is in accordance with the vote of another judge panelist, then the majority votes determine the outcome of the case.

Second, jurors can participate in cases of varying nature. Except for summary judge proceedings (简易程序审理) and other cases provided for by law, jurors could hear, along with his/her judge panelists, the following types of cases:

a. criminal, civil and administrative cases of significant social impact;

b. criminal, civil and administrative cases where criminal defendant or plaintiff in administrative case requests juror presence.

Third, the law requires that where jurors participate, there must be at least one juror for every two judges.

Fourth, the normal term for jurors is five (5) years.

Fifth, jurors, like judges, must avoid conflicts of interest during legal proceedings, and must undergo professinal training regarding procedures and substantive law.

E. Compensation for Jurors:

Chinese jurors, like their American counterparts, are entitled to monetary compensation for their service. However, much like their American counterparts, their compensation is minimal. The source of such compensation lies in the budget of the local courts and governments.

F. The Reality of the Jury System in China:

While I applaud the jury system as established by Chinese law, I have to say that the system exists largely on paper. Based on the facts above, it is obvious that severe impediments exist for the actual functionaity of the Chinese jury system. First, the selection criteria post a high bar for many Chinese people. The intent behind such criteria is that only people with good education and connections could possibly be nominated, not to mention being appointed. Second, because of budgetary limitations, courts and local governments are not going to fork out more money to conduct jury trials. Third, I doubt that litigants in China actually prefer to have jurors serving on their presiding panel (this is to be debated and researched.). As a result, the jury system does not play a significant part in the Chinese justice system.

G. Future of the Chinese Jury System:

One thing is certain--the Chinese government obivously thinks that jurors do have a role to play in the justice system, given the relatively long history of the system in Communist China. The question is how the jury system can actually be implemented or reformed to function. On that note, Justice Duan thinks that the American jury system appears to guarantee procedural fairness, while the Chinese system appears to strive for substantive fairness by imposing high standards on juror candadates. She believes that China can actually borrow the spirit of the American system to ensure procedural fairness in Chinese legal proceedings. How the Chinese jury system be fashioned in the future remains to be seen.

Economic Crisis Tests China's Enterprise Bankruptcy Law

The Economic Crisis is a Test of Character.

路遥知马力，日久见人心。(As distance tests a horse's strength, so time reveals' a person's heart.)

China's Enterprise Bankruptcy Law (EBL) came out after more than one decade of debates and compromises, and it was applauded for advancing China's efforts in establishing a truly market-oriented economy. More than two years after its promulgation, it has been tested in Chinese courts. For example, the Chinese company, Sanlu Group that manufactured tainted milk, went through an seemingly orderly liquidation process under the new Enterprise Bankruptcy Law.

Besides Sanlu, the law is also undergoing public tests in the context of massive failures experienced by small to miedium sized business in Guangdong Province due to the economic crisis. Like other bankruptcy regimes in many countries, the EBL was designed to provide orderly and effective means to sort out debtor-creditor relationships during difficult times. To accomplish that, the EBL allows liquidation (Chapter 7/13 under U.S. Bankruptcy law), reorganization (Chapter 11 under U.S. Bankruptcy law), or reconciliation (informal workouts). The law also contains detailed provisions governing the relationships, behaviors, and obligations of courts, creditors, debtors, creditors' committee, and the bankruptcy administrator. Overall, the law is a very comprehensive piece of legislation, and if enforced properly, it could be a effective tool to regulate market behaviors.

But, how is the law fairing in these difficult times? According to this report, the EBL is experiencing some significant growing pain.

As the global recession slams China, bankrupt business owners are shutting factories overnight. Often, they leave the mainland, afraid of angry suppliers and workers and uncertain about legal protections. Dongguan alone last year recorded 673 cases—up 24%—of owners fleeing their factories, leaving behind 113,000 unemployed workers owed $44.1 million. Labor disputes almost doubled, to nearly 80,000.

Many foreign investors, due to falling demands from the West, had no choice but shut down their businesses in order to stop the bleeding. One would think that most foreign investors who decried China's lack of legal institutions would throw their arms into the relatively well-developed and interests-neutral courts in Guangdong Province. The reason being that the EBL is an excellent way out in case of business failures, and that the EBL is not unfriendly to investors. Further, courts and judicial enforcements in costal areas, according to Professor Peerenboom, are in comparison better than those in interior China.

However, that is not the case. Many investors fled China, like those New Yorker debtors who escaped their debtors to populate the great State of Texas because New York law could not reach them in the early days of frontier history in the American west. In the case of debtors in China, they led to Taiwan, Korea, or wherever the "sword" of Chinese law cannot follow.

The excuse, as reported is:

But few judges have received the necessary training to understand the complex measure, so local officials often discourage hard-pressed owners from filing for bankruptcy. And by compensating creditors before employees, the law undercuts Beijing's desire to minimize labor unrest....

Putting aside the validity of the argument that local officials discourage the filing of bankruptcy, I think the excuse for not using EBL is a weak argument. True, many judges in China are not trained and versed in the EBL, but the fact is that Chinese courts set up special tribunals to handle special litigation. Those judges assigned to the speical bankruptcy tribunals are more qualified to handle liquidation cases. Further, this aversion and fear of the incompetency in Chinese courts and judges have got to stop at some point. Yes, the qualification of judges in all cases play a crucial role in the outcome of cases, and qualifications of judges vary widely from court to court. There is no exception even here in the U.S. But, because of China's recent efforts in moderninzing its judiciary by imposing strict requirements on qualifying judges, for example, law license, judges are getting more and more better trained and educated. In addition, because of the vast number of businesses and disputes in southern China in Guangdong Province, many judges are actually very experienced in economic disputes. I'd submit that many are more versed in such disputes than some in East Texas. Therefore, to use Chinese judge's perceived lack of qualification as an excuse for fleeing China instead of initiating bankruptcy proceedings under the EBL is an ancient and weak argument.

In sum, the EBL is flunking the test because it is not doing what it was intended to do.

Five Years Holding Period, Is it Fair?

China Banking Regulatory Commission (CBRC)'s chairman, Liu Mingkang announced that rules will change for foreign invesors who invest in Chinese commercial banks.

Remember the blockbuster IPOs of Chinese state-owned banks? Bank of China, China Construction Bank, China Industry and Commerce Bank all had their IPO a few years ago when the market was good. Many foreign investors bought shares of those banks, riding the wave of the bull market. When they bought into those shares, they agreed to holding those investment/shares for a period of three (3) years before they could sell because the CBRC required such a lock-up period.

The market situation has changed dramatically in recent months. Many of those foreign investors that bought shares in Chinese banks found themselves in urgent need of liquidity due to the severe finanical crisis worldwide. For example, according to reports, Bank of America sold its shares in the China Construction Bank; Royal Bank of Scotland got rid of its shares in the Bank of China. Foreign investors in Chinese banks' stocks also sold their shares for speculation purposes, based on the same report.

To combat the above phenomena, the CBRC has announced that the rules of the game shall change--the lock-up period for foreigner investors in Chinese banks' stocks will be lengthened from three (3) years to five (5) years.

It appears that this rule change is not meant to be retroactive, and it is effective only against future "strategic investors" in Chinese banks' shares.

The change from three years to five years seems arbitrary. Why would a five-year lock up period be more effective in reducing speculation on the part of foreign investors? I don't know if the CBRC made its rule/policy change based on solid research or just a a matter of course. Chinese government appears in many instances to like the number "five" in its macro-level planning. I sure hope the former is the case.

The change further illustrates the difficulties that foreign investors face in China in terms of uncertainties in the Chinese legal environment. When foreigners just got used to the three- year holding period for their investments in Chinese banks, suddenly, the Chinese government decided that a longer holding period is more desirable from a regulatory standpoint. For any reasonable investor, the question to pose is--what is prevent the CBRC from modifying the holding period in the furture again?

It is understandable for the Chinese government to make policy changes in accordance with circumstances and the country's corresponding regulatory needs. However, any policy changes must be based on sound reasoning by balancing the needs of investors and those of the public/nation at large. Without a balanced approach to adjustments in policy changes, China will be in actuality doing itself a disservice in creating unnecessary uncertainty in its capital markets.

Seven Steps to Protect Your Trademark in China

Out-law.com ran an article written by Alison Ross, which discusses "How to Protect Your Brand in China."  I thought the author did a very good and thorough job in advising mark owners on how they should go about protecting their marks in a comprehensive and proative way in China.

Here are the seven steps that Alison suggests as listed below:

1. Register trade marks early

2. Territorial registration

3. Register trade marks in English and Chinese

4. Mitigate risks through vigilance

5. Educate employees

6. Consider the applicable jurisdiction in disputes

7. Utilise available enforcement procedures

Read the full article here.

MOFCOM's Rejection of the Coke-Huiyuan Merger Disappoints Legal Experts

China, by and through MOFCOM, rejected Coca-Cola's bid to acquire the Chinese juice maker Huiyuan.  As soon as the news came out, it caught international attention and has been widely reported.  Many views float out there about why and how come. 

The Caijing Magzine in China came out with its own analysis of the legal implication of this decision.  Titled Legal Implications of Coke-Huiyuan, this report reveals concerns raised by legal scholars in China's Anti-Monopoly Law.

Some anti-monopoly experts remain skeptical about the power of a law that has been regarded as a “paper tiger.” Specifically, experts are concerned about whether the case followed rigorous legal processes and standards that would have helped China further define its merger and acquisition regulations.

More here.

Extraordinary Time is No Excuse for Extra Judicial Partiality

Two camps of lawmakers are debating what role Chinese courts should play in China during this extraordinarily trying time.

One camp believe that the courts should remain neutral, irrespective of how the financial and economic crisis is impacting businesses, and that the courts should be the instruments of justice in China's market economy.

For example, lawmaker Peng Xuefeng, director of the All China Lawyers Association, believes that:

"Prudent handling of company owners suspected of breaking the law is not a good option to solve current disputes resulted from financial woes."

[Market economy was fundamentally] "an economy ruled by law" and the economic development in the long run especially needed an integral legal guarantee, ..., adding there was no place for sentiment in judicial organs.

Peng represents the group of lawmakers who are of the view that the courts should not be taking sides, should not in any way favor businesses and companies in violation of the law, despite the macro economic circumstances.  They essentially believe that the courts are there to enforce the law.  Period.  There is no need to venture beyond the bounds of the law and the facts as they relate to the law.  In a certain sense, these are the pure jurists.

On the other hand, the second camp, which includes the current President of the Supreme People's Court of China, believes that the courts should play a more constructive and active role in assisting defendant businesses  weather the economic storm so as to contribute to social stability in China.  Specifically, they believe that 

...courts at all levels should "prudently use such compulsory measures as sealing up, impounding or freezing assets of companies," and should "promptly offer judiciary advisories to help enterprises in operational difficulty tide over economic woes." 

In helping enterprises deal with the economic hard times, courts, as the second camp believe, should uphold the law, while at the same time soften the way the law is to be enforced.  For example, when it comes to freezing the assets or impounding equipments of businesses, the courts should take into consideration how many jobs will be lost, and what collateral social consequences of such enforcement actions would result.  

This debate is nothing new, and it represents the tough situation Chinese courts are in.  They are painfully dependent upon other administrative organs in the Chinese government; therefore, they must bend in the direction that the prevailing political wind is blowing.  If the country is in tough financial times, courts are expected to be soft on enterprises in violation of the law; if the country needs to strike down on piracy or IP infringements, courts should act accordingly.  Courts are always caught up in politics.

The debate also reveals the reality of the rule of law in China.  The rule of law serves a political purpose.  It should serve purpose whereby the courts dispenses justice ONLY, free of political tides.  

I believe the second camp of people are short-sighted.  They see only the short-term benefit of lenient law enforcement on the part of the courts, but they fail to see the long-term ill of a judicial system that obeys both the law and political leaders.  They see only the upside of courts taking a temporary pro-business stance, but they fail to see the consequence of the same courts taking a pro-labor/pro-consumer/pro-whatever stance under different circumstances.  What they need to see is the value of a judicial system with courts and judges that are neutral and bound by the law only.

 

The Case for Individual Bankruptcy in China (2)

Right after the earthquakes in 2008, I wrote a post advocating for China to establish a individual bankrupty system. In that post, I gave cultural, economic and legal reasons in favor of such a system, in addition to China's fairly new Enterprise Bankruptcy Law.

One Chinese lawmaker, Shi Ying, who is a deputy to the Chinese National People's Congress, submitted a bill to the NPC which is in session now. She is also calling for the the establishment of a personal bankruptcy system for victims of the earthquakes in Sichuan Province.

In an interview, she lamented the tough situations that some of the victims are in because they are still on the hook to pay their mortgages even though their houses/apartments have been demolished by the earthquakes.

She states:

"If there is a personal insolvency system, we can declare someone is bankruptcy according to a fixed standard. And the bank can take all his or her assets except minimal living necessities for the family, and the debt is thus cleared..."

I think she is right on. The earthquakes were an act of God, and it is unreasonable for them to carry the debt for something that ceased to exist. If they had got into financial trouble due to their own irresponsbile spending, they'd have a weaker argument for personal bankruptcy to discharge their debt. But, the situation is far from that. Allowing them to declare bankruptcy will truly be a relief and a second chance to start all over again.

In addition to personal benefits for the earthquake victims, allowing personal bankruptcy to this group of people could also serve as opportunity for China to test the waters, so to speak, in anticipation of a full-fledged system that can go countrywide. Testdriving economic and/or political programs and policies is not a new thing to the Chinese authorities. Look at what happened to Shenzhen, whose success has built the foundation for more special econmic zones to be established. Permitting earthquake victims to declare personal bankruptcy could potentially build a model for the rest of the country.