China uses a socialist legal system with Chinese characteristics, which largely follows the civil law tradition. Therefore, statutory law is the most important source of law in the Chinese legal system. It is worth noting that, in recent years, China’s Supreme People’s Court (SPC) has attached great importance to uniform application of the law. Specifically, it constantly raises the importance of precedents in judicial practice by providing guidance for China’s judicial practice in the form of “Guiding Cases”. Although these Guiding Cases are not yet formal sources of law in China, they serve as reference for the judges when deciding on similar cases.

PRC courts mainly adopt the inquisitorial approach. The judges largely control the trial proceedings: they guide the parties to conduct fact-finding and court debates and may question the parties as they see fit. Of course, the parties and their counsel still need to present their respective evidence during the trial, cross-examine the other party’s evidence (primarily documentary evidence), and comment on the application of law or challenge that of the opposing side.

Normally, most legal processes in China will be conducted through both written submissions and oral arguments. Only in the case of a second instance trial/appeal where no new evidence, facts or grounds are presented will the court find it unnecessary to hold an in-person hearing. There are also some special procedures for which no hearings will be required.

The court system in China can be divided into four levels:

• the first level is the SPC, which is the highest judicial organ in China;
• the second level is the higher people’s courts (the “higher courts”), which are located in every province, autonomous region, and municipality;
• the third level is the intermediate people’s courts (the “intermediate courts”), which are established in each prefecture-level city; and
• the last and basic level is the primary people’s courts (the “primary courts”), which are established in each county, district, or county-level city.

China adopts a two-instance trial system, and the court system is not structured according to the court’s litigation function (eg, trial court or appellate court). Cases of first instance are mostly tried in the primary courts while some foreign-related cases and cases with major impact (eg, large monetary disputes exceeding a certain amount) may be tried in the intermediate courts, the higher courts, or even the SPC within their respective jurisdictions. Decisions made by the court of first instance may be appealed to the court of second instance. Decisions from the second-instance are effective and binding, but they may be revised through a retrial proceeding in certain circumstances.

In addition, the jurisdiction of courts is generally determined based on geographical location and their levels. But specialised courts with exclusive jurisdiction over certain cases also exist, such as intellectual property (IP) courts, maritime courts and financial courts.

According to the Civil Procedure Law, all trials are open to the public except where state secrets are involved, where privacy concerns arise, or where otherwise stipulated by the law. For a divorce case or a case involving commercial secrets, where a litigant applies for a closed hearing, the lawsuit may be tried in a closed hearing.

The court shall pronounce judgment for all cases regardless of whether the hearing is open or closed. The public may inspect the legally effective judgments and decisions except where the contents involve state secrets, commercial secrets, and/or personal privacy.

In China, litigants are entitled to entrust the following persons as agents in legal proceedings:

• a lawyer or grass-roots legal service provider;
• a close relative or employee of a litigant; and
• a citizen recommended by the community, employer, or the relevant social organisation.

A power of attorney signed or sealed by the principal shall be submitted to the court when an agent is entrusted. Foreign lawyers cannot join the proceedings as litigation agents in China, but can observe the hearing with permission from the court. With that said, we have observed some changes to the regulations permitting lawyers qualified in Hong Kong SAR and Macau SAR to practise in certain areas in several Greater Bay Area cities since 2020.

PRC law does not prohibit third-party litigation funding, which is conceptually similar to litigation financing in legal practice. A litigant may seek a third party to pay the attorney’s fees, notarisation fees, appraisal fees, and other expenses of the proceedings. However, third-party funding is rare in China.

PRC law does not stipulate specific provisions for what types of lawsuits are available for third-party funding. In general, commercial cases are likely to be suitable cases. Pursuant to the SPC’s opinion, payment of plaintiffs’ litigation costs through the environmental public interest litigation fund is encouraged in environmental public interest litigation.

PRC law does not specify the parties who may obtain third-party funding. According to the current practice of litigation financing, third-party funding is available for both the plaintiff and the defendant.

PRC law does not restrict the amount of third-party funding. Generally, the amount of funding will be determined through negotiation between the funder and the litigants.

There are no specific provisions under PRC law relating to third-party funding. Therefore, it is up to the funder to decide what costs it will fund.

Pursuant to the Administrative Measures on Fees for Lawyers’ Services, contingency fees are permitted only in civil cases involving a property relationship and the clients are informed of the government-guided prices but opt for a contingency fee. When a contingency fee is charged, a law firm and the client shall enter into a contract and the contingency fee shall not exceed 30% of the total amount of the subject matter in such a contract.

PRC law does not set any time limits for obtaining third-party funding.

In most cases, there is no prerequisite before the plaintiff files a lawsuit. However, PRC law sets out some special circumstances under which the plaintiff shall satisfy certain preconditions before filing a lawsuit, such as the parties in labour disputes shall go through labour arbitration before filing a lawsuit and when directors or senior executives violate the law and cause damage to the company, the shareholders shall submit a written request to the board of supervisors/supervisor to urge the company to sue before taking action themselves.

The plaintiff is not required to send a pre-action letter to the potential defendant and the potential defendant is not required to respond to such a letter under PRC law.

The PRC Civil Code provides that the general limitation period to initiate an action before the courts is three years unless otherwise provided by law. In addition, there are also some special periods, such as:

• the limitation of a claim for payment of insurance money by the insured party or the beneficiary of a life insurance policy from the insurer is five years; and
• the limitation on filing a lawsuit concerning a dispute arising from an international contract for the sale of goods or a contract for the import and export of technology is four years.

Generally, limitation periods are calculated from the date when the right-holder knows or ought to have been aware of the damage and the identity of the obligor unless otherwise provided by law. And the longest limitation of protection is 20 years unless the court decides to extend the limitation per the application of the right-holders under some special circumstances. Also, limitation periods can be suspended or interrupted in accordance with the law.

Jurisdictional requirements stipulated in the Civil Procedure Law apply to all courts in China. When a lawsuit is filed, the court will examine whether it has jurisdiction based on hierarchical jurisdiction rules and territorial jurisdiction rules. In general, the court at the location of the defendant’s domicile shall have jurisdiction. If the domicile and habitual residence of the defendant are different, the court at the location of habitual residence shall have jurisdiction. However, the court at the location of the plaintiff’s domicile shall have jurisdiction over certain proceedings, such as an identity relationship lawsuit filed against a person who does not reside in China, those involving a missing/declared-missing person, or those involving a person who is subject to mandatory education measures or is imprisoned.

In certain types of lawsuit, the courts designated by law have exclusive jurisdiction. For example, for port operation disputes, the court at the location of the port shall have jurisdiction; for real property disputes, the court at the location of the real property shall have jurisdiction.

The plaintiff needs to submit the following documents when filing a lawsuit to the court in China:

• statement of claims (including the basic information of the parties, claims, underlying facts, and reasons);
• supporting evidence;
• identity information of both the plaintiff and the defendant; and
• a power of attorney and other identity information documents of the lawyer (if a lawyer is engaged as the agent).

After the court has officially accepted the case, the plaintiff may amend the documents, such as the claims, or submit supplementary evidence, etc. It should be noted that, in most circumstances, the plaintiff shall finalise the claims and produce all evidence within the time limit determined by the court.

According to the Civil Procedure Law, service is the court’s responsibility, while the plaintiff needs to provide the defendant’s address and contact information upon filing the case. After a court accepts the case, it will deliver a copy of the pleadings and evidence submitted by the plaintiff to the defendant within five days from the date of the opening of the case file.

A lawsuit can be filed against a defendant who is not a resident in China for a contract dispute or any other property rights dispute, provided that:

• the contract is executed or performed in China;
• the subject matter of the litigation is located in China;
• the defendant has properties in China which can be seized; or
• the defendant has established a representative organisation in China.

The court may take different measures to serve a non-resident defendant, such as service through:

• methods stipulated in an international treaty;
• diplomatic channels;
• entrustment of the embassy or consulate of China where the defendant is of Chinese nationality;
• an agent entrusted by the defendant;
• a representative organisation of the defendant established in China;
• mail (if applicable);
• facsimile or email; and
• publication.

Under PRC law, the failure of the defendant to respond to a lawsuit shall not affect the trial of the case by the court.

In particular, if the defendant does not submit a statement of defence as required by the court, the court will continue with the proceedings. If the defendant refuses to be present in court upon being served summons without justification or leaves the courtroom during the hearing without the court’s permission, the court may render a default judgment.

PRC law permits joint actions and representative actions. If an action involves multiple persons on one side of the suit, with the same subject matter or of the same type, and the court deems that the lawsuit can be tried concurrently, the court may try the lawsuit as a joint action upon consent of the parties. Where the parties on one side of a joint action are numerous (more than ten), such parties may appoint a representative or representatives to participate in the action.

If the number of litigants of a representative action is uncertain when filing, the litigants shall elect a representative or the court may designate a representative from the litigants when necessary. The court may issue a public announcement, stating the facts of the case and the claims, and notifying the right-holders to register within a stipulated period.

PRC law has no requirement to provide clients with a cost estimate for potential litigation at the outset, but legal services fees shall be subject to the government-guided prices and market-regulated prices. In practice, the client usually requests the lawyer to estimate litigation costs at the outset.

According to the provisions of the Civil Procedure Law, there are three main types of interim motion in China. For these interim motions, the court may also take preservation measures on its own without the application of the parties when necessary.

Evidence Preservation

This is used:

• where evidence is likely to be lost or difficult to obtain later, a litigant may apply to the court for evidence preservation in the course of proceedings; or
• in urgent cases, an interested party may apply to the court (at the place where the evidence is located or the respondent is domiciled, or to the court which has jurisdiction over the case) for preservation of evidence before filing a lawsuit or applying for arbitration.

Property Preservation

For cases in which the judgment may be difficult to enforce or other damage may be caused due to one party’s conduct or other reasons, a litigant may apply to the court for the preservation of property either before or after a case has been filed. And the court may take appropriate measures to seize, detain, or freeze the assets accordingly.

Conduct Preservation

In the same circumstances as property preservation, a litigant may also apply to the court to compel a party to perform or prohibit it from performing certain acts. In practice, pre-litigation conduct preservation is usually applicable to IP disputes. In 2018, the SPC issued a judicial interpretation that specifies the procedure for applying conduct preservation in cases of IP disputes.

First, in China, a party cannot obtain an early judgment on some or all of the disputed issues before the case is concluded. However, according to the Civil Procedure Law, the court may issue a ruling on advance enforcement in some cases, upon the application of a party, specifically:

• cases to recover support, alimony, childcare, pension, or medical expenses;
• cases to recover labour remuneration; and
• cases requiring advance enforcement under urgent circumstances.

The cases concerning advance enforcement shall meet two conditions:

• the rights and obligations between the parties are clear, and the denial of advance enforcement will seriously affect the applicant’s living situation or business operation; and
• the respondent is capable to perform.

The court may order the applicant to provide security, and if the applicant fails to provide security, the application will be dismissed.

Second, PRC law does not provide for any particular procedure for the other party to strike out claims before trial or substantive hearing. Once the case is accepted by the court, what is available to the defendant is objection to the court’s jurisdiction: for example, on the ground that the arbitration agreement precludes the court’s jurisdiction.

In common law jurisdictions, dispositive motions refer to motions filed with the court that may put an end to all legal proceedings in that court, which means such motions can either wipe out the case entirely or certain portions of it. Most of these motions fall under a motion to dismiss or a motion for summary judgment.

There is no concept in Chinese law that matches dispositive motions. Once the plaintiff files a lawsuit, there is no means for the defendant to halt the proceedings. However, after receiving the case materials, the court may refuse to accept the case, or dismiss the case once accepted, if it deems that the conditions for initiating an action are not met. Under Article 122 of the Civil Procedure Law, such conditions include:

• the plaintiff shall be a citizen, legal person, or other organisation that has a direct interest in the case;
• a definitive defendant exists;
• the plaintiff has provided specific claims, facts and reasons for the case; and
• the case shall fall within the scope of civil lawsuits which can be accepted by the court and the jurisdiction of the court.

PRC law provides that where a party who must participate in a joint action fails to join a lawsuit, the court shall notify such party to join in the proceedings. The interested parties may also apply to the court to join the case.

Joining as a Plaintiff

First, under some circumstances, parties may join a lawsuit as plaintiffs. These circumstances include:

• inheritance proceedings that are initiated by some of the successors – the court shall notify the other successors to join the proceedings as co-plaintiffs;
• cases regarding infringement of a joint estate that are initiated by some of the co-owners – the other co-owners shall be the co-plaintiffs; and
• public interest cases – other departments and relevant organisations that are entitled to file a lawsuit by the law may apply to the court to join the proceedings as co-plaintiffs before the hearing.

Joining as a Defendant

Second, parties may also join a lawsuit as defendants, for example:

• if a plaintiff claims that a labour-dispatching institution shall be responsible for the damages caused by a dispatched worker in the performance of work duties, the employer who accepted the dispatched worker and the labour-dispatching institution should be co-defendants;
• in an action arising out of a dispute over a contract of guarantee, if the creditor makes claims against both the guarantor and the guarantee, the court shall include the guarantor and the guarantee as co-defendants; and
• if an incapacitated person or a person with limited capacity for civil conduct causes damages to others, their guardian shall be the co-defendant.

Independent Claims and Legal Interests

Third, PRC law provides that a third party may be added to a lawsuit, in the following two scenarios:

• a third party who deems that it has an independent claim over the subject matter of a suit shall have the right to apply to the court to join the proceedings; and
• a third party who does not have an independent claim to the subject matter, but has a legal interest in the outcome of the case, may also join the proceedings through application or the court’s notification.

Moreover, a third party who has been ordered to assume civil liability by a court shall have the rights and obligations of a litigant to the case, such as the right to appeal.

In addition, where a party who must participate in a joint action fails to join in the proceedings for a cause not attributable to the party or its agent ad litem, the party may file a petition for retrial within six months from the date when the party knew or should have known of the action.

PRC law does not provide any regulations obliging the plaintiff/claimant to pay a sum of money as security for the defendant’s costs at the defendant’s application. However, the court may order the plaintiff to provide security before granting a preservative measure or ruling on advance enforcement.

The movant applying for interim motions shall pay to the court an application fee, which shall ultimately be borne by the losing party, subject to the decision of the court. Also, when the court decides to take preservation measures, it may order the movant to provide security at its own expense, and if the moving party fails to comply, the court will dismiss the application.

Under the provisions of the Civil Procedure Law, when an interested party applies to the court for preservation measures before filing a lawsuit or applying for arbitration due to an urgent situation, the court must make a verdict within 48 hours after accepting the application. If the court determines to take preservation measures, such measures shall be implemented immediately. If the applicant fails to initiate an action or arbitration within 30 days after the preservation measures being taken, the court shall remove the preservation.

For litigants who apply for preservation measures in the course of proceedings, the court shall make a verdict within 48 hours only in cases of emergency, and the court’s decision to take preservation measures shall be implemented immediately, but no general time limit is stipulated in normal circumstances. Nonetheless, concerning the property preservation, a judicial interpretation issued by the SPC stipulates that the court shall make a verdict within:

• five days after accepting the application; or
• five days after the provision of security when security is required in such case.

Once a ruling is made to take preservation measures, the measures shall be commenced within five days.

There is no discovery mechanism under PRC law. As such, the court cannot compel the litigants to produce evidence relevant to the case during the proceedings. However, PRC law does provide for the burden of proof as follows.

A party shall provide evidence to prove the facts on which its claims are based or to refute the facts on which the claims of the opposing party are based. If a party fails to provide evidence or the evidence provided is insufficient to support the alleged claims, the party who bears the burden of proof shall bear the adverse consequences.

Article 95 of the newly revised Several Provisions of the Supreme People’s Court on Evidence for Civil Actions (Amended in 2019) (the “Evidence Provisions”) provides that if a party controlling a piece of evidence refuses to submit the same to the court without any justifiable reason, a claim by the other party (who bears the burden of proof) that such evidence is unfavourable to the controlling party may be upheld by the court. Nevertheless, the court will be cautious when drawing such an inference.

As for witness testimony, the Evidence Provisions stipulate that the court shall require the witness to appear in court and be examined by the judge and the parties. A litigant may also apply to the court for a witness to testify before the time limit for producing evidence expires. The statement and testimony of a witness made during the preparatory stage before the trial or during the investigation and inquiry by the court shall be deemed equivalent to testifying in court. However, testimony provided in writing or otherwise by a witness who fails to appear in court without justifiable reasons shall not be considered as the basis for identifying the facts of a case.

In China, evidence can be obtained from third parties who are not named as a plaintiff or defendant during the legal proceedings. For one thing, the parties to the case may apply to the court for an investigation and collection of evidence before the time limit for producing evidence expires when they are unable to collect certain evidence by themselves due to objective reasons. The court may issue an investigation order to the applicant to collect such evidence from a third party accordingly.

To petition the court to investigate and collect evidence, a party shall submit a written application setting out the details of the evidence: for example, the name of the person or entity to be investigated, the address, the title or content of the evidence, the necessity of the evidence to be investigated and collected by the court, the facts that need to be proved, and the definite clues for tracing the evidence.

For another thing, the court is also entitled to investigate and collect evidence from third parties (including relevant entities and individuals) at its discretion, in which case the third party cannot refuse. The court may delegate the investigation to another court where the matter/evidence is under investigation and request the entrusted court to complete the investigation within 30 days after receiving the letter of entrustment.

As discussed in 5.1 Discovery and Civil Cases, PRC law does not provide for a discovery mechanism.

In China, the development of evidence and the procedure for admitting it into the record usually involves a process of evidence collection, production of evidence, exchange of evidence, cross-examination, and the verification and determination of evidence.

First, the court will serve the parties with a notice on the production of evidence during the preparation period before trial, which will set out the principles and requirements applicable to the burden of proof, the time limit, and the legal consequences for failure to produce the evidence within the prescribed time limit. The parties shall collect and submit evidence to the court within the time limit.

Second, the court will organise an exchange of evidence between the parties under the judge’s supervision. In the course of the exchange of evidence, the judge shall record in the case file the facts and evidence to which the parties have no objection. If any party objects to a piece of evidence, such objection and the reasons will be recorded in the file. The main issues in dispute between the parties will be determined through the exchange of evidence.

Third, in a trial, evidence shall be presented in court and cross-examined by the parties. The cross-examination shall focus on the authenticity, legality and relevance of the evidence. Evidence not cross-examined by the parties shall not be considered as the basis for determining the facts of a case.

Fourth, the judge shall verify the evidence under the applicable legal procedures comprehensively and objectively. Evidence reflecting the reality of a case, being relevant to the facts to be proved, and whose source and form complying with the provisions of laws shall be deemed as the basis for determining the facts of a case.

PRC law does not recognise the concept of legal privilege. That said, the Lawyers’ Law provides for the lawyer’s duty of confidentiality. A lawyer shall keep state secrets and trade secrets obtained during practice confidential, and shall not violate their client’s privacy.

In China, in-house counsel are generally not regarded as practising lawyers. With the Measures for the Administration of Corporate Lawyers coming into effect on 1 January 2019, in-house counsel working for a state-owned enterprise who are certified as corporate lawyers now enjoy the same rights as practising lawyers. In-house counsel can meet clients, review case files, investigate, collect evidence, etc. Different from external counsel, in-house counsel shall handle legal affairs as entrusted or assigned by the corporation that they work for and shall not:

• engage in non-gratuitous legal services;
• work part-time in a legal service institution (eg, a law firm); or
• handle litigation or non-litigation legal affairs as a lawyer outside the corporation.

In theory, in-house counsel who are licensed and managed by the competent judicial administrative department shall also assume the same duty of confidentiality as practising lawyers (although not clearly stipulated in the Measures for the Administration of Corporate Lawyers).

In China, there is no legal provision that disallows a party from disclosing a particular document during the proceedings. Even if the evidence involves state secrets, trade secrets, and/or individual privacy, such evidence is still required to be submitted to the court. However, the aforementioned evidence and evidence which shall be kept confidential according to the law shall not be cross-examined in a proceeding open to the public.

PRC law does not provide for injunctions, but the law does provide for certain reliefs that have similar functions to injunctions. The reliefs fall under two categories: permanent reliefs and interim reliefs.

Permanent reliefs include cessation of infringement, removal of obstacles, elimination of danger, restitution of property, restitution to the original condition, and continued performance. The aforementioned reliefs may be granted either individually or concurrently. Furthermore, certain permanent reliefs are provided for under particular legislation: for example, copyright law, trade mark law and patent law specifically provide for ordering the cessation of infringement.

Interim reliefs refer to interim property preservation and conduct preservation. The interim reliefs can be initiated by the litigants by application, or imposed by the court on its own initiative. In an emergency, a party may also apply to the court for pre-litigation preservation, in which case security must be provided by the applicant. See 4.1 Interim Applications/Motions.

In the case of interim and pre-litigation relief, the court shall issue a verdict within 48 hours after the receipt of the application when it is urgent. If the court grants relief, such decisions shall be enforced immediately.

Under PRC law, there is no requirement for the court to notify the respondent or hold any hearing when deciding on interim or pre-litigation relief. If the opposing party’s property has been subject to property preservation measures such as seizure, impoundment or freezing, the court will immediately notify that party. The party whose property has been preserved may apply to the court for reconsideration once, while the execution of the relief will not be suspended when the relief is reconsidered.

Article 108 of the Civil Procedure Law (Amended in 2021) provides that if the application for preservation is erroneous, the applicant shall compensate the respondent for the loss suffered by the respondent as a result of the preservation. However, the applicant shall not be liable if the preservation measure has been removed by the court based on the respondent’s provision of security.

In the course of proceedings, when the court takes preservation measures on application or ex officio, it shall determine whether the parties should provide security and the amount of such security on a case-by-case basis. If the court orders the applicant to provide security but it is not provided, such application will be dismissed. As for pre-litigation property preservation, the security shall be provided by the applicant in an amount equal to that of the request for preservation.

Besides, during the period of property preservation, if the security provided by the applicant for preservation is insufficient to compensate for the losses that may be caused to the respondent, the court may order the applicant to increase the security accordingly; if the applicant refuses to do so, the court may render a ruling to entirely or partially remove the preservation.

PRC law is unclear as to whether relief is available against the defendant’s assets outside China. Even if a Chinese court issues such an order, it would be difficult to enforce in other jurisdictions.

A better approach to obtaining relief against assets outside China is to apply for an injunction to the court where the assets are located. For example, the Arrangement Concerning Mutual Assistance in Court-Ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the Hong Kong Special Administrative Region (HKSAR), which came into effect on 1 October 2019 (the “HK Arrangement”), provides that a party to arbitral proceedings administered by an arbitral institution on the Mainland may, pursuant to the Arbitration Ordinance and the High Court Ordinance, apply to the High Court of the HKSAR for interim measures in aid of the arbitration. Likewise, a party to arbitral proceedings administered by a recognised arbitration institution with presence in Hong Kong may apply to the PRC mainland courts for interim measures in aid of the Hong Kong seated arbitration.

On 25 March 2022, the Arrangement Concerning Mutual Assistance in Court-Ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the Macau Special Administrative Region (the “Macau SAR”) came into effect (the “Macau Arrangement”). Similar to the HK Arrangement, a party to arbitral proceedings administered by an arbitral institution on the Mainland may, before the arbitral award is made, apply for interim measures to the primary court of the Macau SAR in accordance with the applicable laws of the Macau SAR. Likewise, a party to arbitral proceedings in Macau administered by a Macau arbitration institution may apply to the PRC mainland courts for interim measures in aid of arbitration.

PRC courts cannot impose injunctive reliefs directly against a third party who is not a party to the case.

The Civil Procedure Law and its judicial interpretation provide that once preservation measures have been handed down by a court, if a respondent in the proceedings (i) conceals, transfers, sells or destroys property that has been seized or impounded; or (ii) transfers property that has been frozen, the court may impose a fine, detention or even criminal liability on the defendant.

PRC courts try the cases by way of oral hearing. In China, a court hearing is organised as follows.

• Pre-hearing preparation:

a)       the court clerk ascertains whether the litigants and other participants in the proceedings are present in court, and proclaims courtroom order; and

b)       the presiding judge verifies the litigants, proclaims the cause of action, announces the list of the judge(s) and the court clerk, notifies the litigants of their relevant litigation rights and obligations, and enquires whether the litigants have applied for abstention.

• Court investigation:

a)       litigants make opening statements;

b)       litigants present evidence, including witness testimony, documentary evidence, physical evidence, audiovisual materials and electronic data, written expert opinions, inquest records, or testimony from experts and/or inspectors (although witness evidence is possible, it is not often used); and

c)       litigants cross-examine evidence produced by the other party(ies), including questioning a witness/expert.

• Court debate: litigants debate orally at the hearing.
• Closing statement: litigants make closing statements.
• Possible mediation: after the closing argument, the presiding judge will consult regarding each party’s opinion on possible mediation.
• Judgment: where mediation is unsuccessful, the court will make a judgment.

Case management hearings occur as follows.

• Pre-hearing conference: if a case has numerous evidence and complicated facts, the PRC court may decide to hold a pre-hearing conference prior to the court hearing to enquire as to the litigants’ opinions on some key issues and to organise the exchange of evidence.
• Hearing for reviewing litigants’ objections to the jurisdiction: if the judge deems it necessary, such hearing may be held; but the judge does not always do so.
• Hearing for reviewing litigants’ applications for assets, behaviour, and/or evidence preservation: also, such hearings may be held only when the judge finds it necessary.

There is no jury in China; instead, there are people’s assessors. In certain cases, people’s assessors will take part in a collegial panel to hear cases with the judges, in which only the judges can act as the presiding judge. People’s assessors can only participate in cases of the first instance, and the court chooses people’s assessors randomly from a list.

The Civil Procedure Law, Interpretations of the SPC on Application of the Civil Procedural Law and the Evidence Provisions govern the admission of evidence in China.

To be admissible, evidence must be presented in court and be cross-examined by the other party(ies) to the case. Judges may examine and assess evidence based on the following criteria:

• whether the evidence is the original and whether the photocopies and reproductions are consistent with the original;
• whether the evidence is relevant to the facts of the case;
• whether the evidence conforms to the law in terms of its form or source;
• whether the content of evidence is authentic; and
• whether the witness or the person providing the evidence has an interest in the party.

Ultimately, judges will verify the evidence under applicable legal procedures comprehensively and objectively, use logical reasoning and common sense to reach independent judgments concerning whether the evidence has probative force and probative value according to the law, and disclose the reasons for and conclusions reached in their judgments.

PRC law does not specifically provide for “expert testimony”, but there are three ways in which an expert may participate in the civil proceedings.

First, the Civil Procedure Law recognises appraisal opinion as a form of evidence, which is usually issued by experts. A party may apply to the court for an appraisal on specialised issues or the court may decide to conduct such an appraisal on its own. The parties may jointly appoint an appraiser, failing which the court shall make an appointment. The appraiser shall testify before the court if a party objects to their appraisal opinion or the court deems it necessary.

Second, Article 82 of the Civil Procedure Law provides that a party may apply to the court for persons with special expertise to appear before the court to give opinions. This is often referred to as the expert auxiliary system.

Third, certain IP courts are staffed with technical investigation officers.

Hearings are open to the public, except for those involving state secrets or personal privacy. Divorce cases or those that involve commercial secrets may be tried in a closed hearing upon litigants’ application. The transcripts of the hearing are not publicly accessible.

China practises the inquisitorial model of litigation whereby the judges actively steer the trial. The judge retains full control of the proceedings, and the parties can only speak at the hearing if the judge so permits.

If a civil case is heard under the summary procedure, the court shall announce the judgment right after the hearing, except where the court deems it improper to do so. A written judgment shall still be delivered after the oral announcement. Summary procedure applies to cases where the facts are clear, the rights and obligations between the parties are easily identifiable, and the parties have no material dispute. In other circumstances, the court usually delivers judgments at a date later than the hearing.

For first instance proceedings, if standard procedure applies, the court shall conclude the case within six months from the date of acceptance. If summary procedure applies, the court shall conclude the case within three months. Extension of time limits is subject to leave from the president of the court or the direct higher court under special circumstances.

For second instance proceedings, the court shall conclude the case within three months from the court accepting the appeal. The extension of the time limit is subject to leave from the president of the court or a direct higher court under special circumstances.

The above timeframes do not apply to civil cases involving foreign elements, and there are no specific rules applicable to the time limit for the court to try foreign-related cases.

Generally, for domestic commercial disputes, the typical duration is six to nine months for first instance trial and three to six months for second instance trial. As for foreign-related commercial disputes, these may last longer, with an additional three to six months.

The parties to a lawsuit are entitled to settle on their own without court approval. Under such circumstances, the plaintiff usually withdraws the case before judgment.

Furthermore, the court may carry out mediation during civil trials subject to the parties’ being willing. In the mediation process, if the parties reach a mediation agreement, then that agreement is subject to review and approval by the court. If the court so approves, it will issue a paper for civil mediation confirming the mediation agreement. The paper for civil mediation enters into legal effect upon receipt by both parties.

The parties may keep the settlement confidential. For mediation moderated by the court, the court shall keep such mediation non-public if a party so requests. Mediation papers are not available to the public, except for those arising out of civil public interest litigation.

If the parties settle on their own, after which the plaintiff withdraws the case, the settlement agreement cannot be directly enforced by the court. In case of a breach, the party shall claim for contractual breach at the competent court to obtain an enforceable judgment.

For mediation conducted by the court, the mediation document issued by the court is directly enforceable.

A settlement agreement constitutes a binding contract between the parties which can only be revoked if the circumstances warrant a revocation under the PRC Civil Code: for example, serious misunderstanding, clear unfairness, fraud, or coercion.

For mediation papers issued by the court, if evidence proves that the mediation was conducted in violation of the principle of voluntary participation, or the content of the mediation agreement is against the law, a party may petition for a retrial, thereby setting aside the mediation document.

The successful party may receive monetary compensation, liquidated damages, and non-monetary reliefs, such as specific performance or the cessation of certain conduct. Another form of remedy available is declaratory relief, whereby the court makes a determination as to the rights and obligations of the parties without awarding any substantive relief: for example, declaring that there is no breach of contract. The court may further award a form of remedy that modifies the legal relationship between the parties: for example, termination of contract.

At the trial stage, a court may, pursuant to the application by a litigant, order the counterparty to undertake certain acts or prohibit the counterparty from undertaking certain acts. Furthermore, the court may rule on advance enforcement upon an application in the following cases:

• alimony, payment of maintenance, payment of child support, pension, medical fees, etc;
• labour remuneration; or
• where there is a need for advance enforcement under urgent circumstances.

Under the PRC law, damages are generally awarded to compensate for the losses suffered by the aggrieved party and based on the principle of foreseeability. Therefore, they do not possess a punitive function. However, in limited statutory circumstances, punitive damages may be awarded. For example, Article 1207 of the PRC Civil Code provides that, where defective products are manufactured or sold despite knowledge of the product defects and have caused death or serious health problems to others, the aggrieved party shall have the right to request punitive damages.

PRC law does not set maximum limits for damages, except for the PRC Maritime Law, which specifically stipulates the maximum amount of damages for personal injuries or damage to cargo.

Pre-judgment Interest

The successful party could request and be awarded pre-judgment interest, and the interest rate should follow the agreements of the parties if available. If there is no specific agreement in this regard, the judge may order the counterparty to bear the relevant interest if so requested by the innocent party.

For example, under Article 18 of the SPC’s Interpretation of Issues Concerning the Application of Law for the Trial of Cases of Disputes over Sales Contracts (Amended in 2020), the judge may order penalty interest for overdue payment from the defaulting party. For breach of contract on and before 19 August 2019, the judge may set the interest rate based on:

• the loan prime rate of the People’s Bank of China for RMB-denominated loans of the same type and period; and
• the overdue penalty interest rate set by the People’s Bank of China.

For breach of contract on or after 20 August 2019, the judge may set the interest rate at 130% to 150% of the loan prime rate published by the National Interbank Funding Centre at the time of the breach.

Post-judgment Interest

Generally, interest is calculated up to the date of the actual payment. If a party fails to make the payment within the time limit specified in the judgment, that party shall pay punitive interest. For example, if the debtor fails to make payment pursuant to the judgment, ruling or any other legal document, it will be required to pay double interest.

The successful party to a case may apply to the court to commence the enforcement of the judgment. The court will issue a notice to the party against whom enforcement is sought and order them to render performance within a specified period. If the party fails to perform the obligations per the notice, the court may take enforcement measures such as seizing, freezing, transferring or selling the property of the respondent.

The court may also withhold or withdraw the respondent’s income, which is then transferred to the applicant. Where the respondent refuses to perform the acts stipulated in the judgment, the court may carry out mandatory enforcement or entrust a relevant organisation or any other person to perform the required act, and the respondent shall bear the expenses incurred. Where the respondent fails to perform the obligations under the judgment, the court may also notify relevant authorities to restrict them from leaving China, and announce the details of the non-performance in credit system records or through public media.

The court may also issue orders restricting the respondent’s spending activities to what is necessary to maintain a reasonable living standard. For example, a judgment debtor may be restricted from taking flights or high-speed rail as means of transportation. If the respondent deliberately evades enforcement, they may be subject to judicial detention or even criminal liability.

The parties to a foreign judgment may apply directly to an intermediate court in China which has jurisdiction for ratification and enforcement. Alternatively, the foreign court that made the judgment may request ratification and enforcement by the Chinese court under the provisions of an international treaty concluded (or participated in) by that country and China or in accordance with the principle of reciprocity.

Chinese courts will examine the request according to the international treaty concluded (or participated in) by China or under the principle of reciprocity. If neither the basic principles of Chinese law nor the sovereignty, security or public interest of China is violated, the court shall rule on ratification of the validity. Where there is a need for enforcement, an enforcement order shall be issued and enforced.

Except in cases tried by the SPC at first instance, any party who is not satisfied with the outcome of the first instance could appeal the case to an appellate court. The appellate court could be the intermediate people’s court, the higher people’s court, or the SPC, depending on the level of the court that heard the first instance.

There is a parallel procedure available for challenging judgments by way of “trial supervision” on widely drawn grounds, such as insufficiency of evidence, error of law or deficiency of process. Unlike an appeal, the invoking of the trial supervision process does not operate as an automatic stay of execution, and there is significant discretion as to whether a court will agree to undertake trial supervision.

To appeal a case to a higher court is a statutory right under the PRC Civil Procedure Law. As long as the party submits a duly signed appeal petition and appropriate authorisation documents within the specified time limit, the appeal will be accepted. However, after the second instance decision, there is no further automatic right of appeal, while retrial is possible in cases with special circumstances.

A party shall file the appeal within 15 days after the receipt of the judgment of the first instance, or ten days for a civil ruling. If the party has no domicile within the PRC, the foregoing period will be extended to 30 days. The party who initiates the appeal could submit the appellate petition to the court of the first instance or the appellate court directly.

The appeal procedure is commenced when a party files the appeal. There are no precise limitations on grounds for appeal.

As a general rule, the appellate court will focus on reviewing only the relevant facts and applicable law for the appeal request, instead of re-trying the whole case. Usually, an oral hearing will be arranged, unless the collegiate bench deems the hearing is not necessary if the appellant does not raise any new facts/grounds or submit any new evidence.

Parties are allowed to raise new defences and supplement new evidence during the second instance hearing. Notably, the SPC issued a new juridical interpretation concerning evidence in civil litigation in 2019, which came into force in May 2020. According to the foregoing rules, the evidence that the parties could supplement during the hearing of the second instance is not limited to the certain types originally prescribed by the law but extended to any evidence that may support the parties’ views.

In China, the right to appeal is an absolute right granted by the law and is not subject to any court approval.

The main power of the appellate court is to render decisions on the judgments/orders of the court of first instance.

• The appellate court will uphold the judgment/order of first instance if it deems the facts ascertained in the original judgment or ruling are clear and the application of laws is correct; otherwise, it may amend, revoke or modify the original judgment/order by issuance of a judgment or civil ruling.
• If the basic facts ascertained in the original judgment are unclear, the appellate court may request the court of first instance to retry the case or amend the judgment after ascertaining the facts by itself.
• If the judgment/order of first instance has material procedural defects, such as the omission of parties or an unlawful default judgment, the appellate court may request the court of first instance to retry the case.

The court fee will be borne by the losing party. The court will also apportion the court fee between the parties if the plaintiff achieves only a partial victory.

As to the unilateral expenses incurred in the proceedings, such as guarantee service fee, notarisation fee, translation fee, and the like, unless there is a clear agreement between the parties or in an IP case, the court is unlikely to shift such expenses to the other party. Besides, during the hearing, there might also be other expenses incurred that are related to both parties, such as the expenses for judicial testimony, or proof of foreign law. The court will decide on responsibility for these kinds of payments in the judgment.

Attorney’s fees are generally not recoverable from the losing party, except in IP cases, or in the event that the parties expressly covenanted for fee-shifting.

As stated in 11.1 Responsibility for Paying the Costs of Litigation, the losing party is usually ordered to pay the winning party’s court fees, but it is very rare for Chinese courts to order a losing party to pay a winning party’s legal costs. The expenses incurred for the proceedings are awarded at the discretion of the court.

PRC law is silent on interest on costs. It is generally believed that such costs do not give rise to interest.

In China, there are several modes of alternative dispute resolution (ADR), including arbitration, court-administered mediation, people’s mediation, and commercial mediation. At present, arbitration is the most popular ADR method in the PRC. As will be discussed below, the PRC Arbitration Law is undergoing major updating with the aim of further aligning the practice in China with prevailing international standards. The other ADR methods are being used by more corporations and individuals thanks to the improvement of the relevant legislation. Generally, settling disputes through ADR will to some extent be more efficient and cost-effective than the traditional court trial.

There are specific laws and rules on arbitration, court mediation and people’s mediation under the PRC law. Arbitration and people’s mediation do not form part of court procedures; both are separate proceedings.

Although the judge in civil proceedings may ask the parties whether they are willing to settle before making a judgment, parties are not required to agree on mediation. The mediation under civil proceedings is completely voluntary and no sanction will be imposed if the party refuses to attend the mediation.

As for arbitration, Article 5 of the Arbitration Law asks the court to respect the valid arbitration agreement between the parties. Therefore, a court will not hear the case if a valid arbitration agreement exists.

According to statistics, there are more than 270 arbitration institutions in the PRC. The most renowned among them are the China International Economic and Trade Arbitration Commission (CIETAC), the Shanghai International Arbitration Centre (SHIAC), the Shenzhen Court of International Arbitration (SCIA), and the Beijing Arbitration Commission (BAC).

Currently, the PRC court is advancing “multipartite mediation”. Therefore, many courts have established litigation-mediation connection centres, to combine litigation and mediation to better settle disputes. In light of this development, some courts will also request parties go through the mediation process before their case is formally filed.

The main legal provisions relating to the arbitration issues are provided in the Arbitration Law and its judicial interpretations. Furthermore, the SPC has recently promulgated the following important judicial interpretations, arrangement and minutes:

• Rules on Issues Relating to the Reporting and Review of Cases Involving Judicial Review of Arbitration;
• Rules on Several Issues Relating to the Hearing of Cases Involving Judicial Review of Arbitration;
• Rules on Several Issues Concerning the Handling of Cases of Enforcement of Arbitral Awards by the People’s Courts;
• Arrangement Concerning Mutual Assistance in Court-Ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and the HKSAR;
• Arrangement Concerning Mutual Assistance in Court-Ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the Macau SAR; and
• Minutes of the National Symposium on the Foreign-Related Commercial and Maritime Trial Work of Courts.

Notably, on 30 July 2021, the Ministry of Justice of the PRC released proposed revisions to the PRC Arbitration Law for public consultation (proposed revisions). As expected, the proposed revisions signalled a wide range of ground-breaking changes to the existing arbitration regime, including the long-awaited (and hotly debated) acknowledgement of ad hoc arbitration, clarification of the status of foreign arbitral institution operating in China, and unification of the standards applicable to the setting aside of domestic awards and foreign-related awards.

Generally, disputes involving marriage, adoption, guardianship, family support, inheritance, and administrative disputes do not fall into the scope of arbitration.

There are two ways under the PRC law for a party to challenge the validity of an arbitral award: ie, apply for set-aside or non-enforcement of the award. If a domestic arbitral award was made under any of the following circumstances, a party may apply to the competent court where the arbitration institution is located to set aside the arbitral award:

• lack of arbitration agreement (the proposed revisions revise this condition to “there was no arbitration agreement or the arbitration agreement is invalid”);
• the subject matter addressed in the award is not within the scope of the arbitration agreement, or the arbitration commission has no power to arbitrate the subject matter (the proposed revisions revise this to “the subject matter addressed in the award is not within the scope of the arbitration agreement or non-arbitrable under this law”);
• the constitution of the arbitral tribunal or arbitration procedure violates statutory provisions (the proposed revisions revise this to “the constitution of the arbitral tribunal or arbitration procedure violates statutory provisions or the agreement of the parties, so as to seriously damage the rights of the parties”);
• the respondent has not been notified of the appointment of an arbitrator or of the conduct of the arbitration proceedings, or has otherwise failed to be heard for reasons which cannot be attributed to the respondent (supplemented by the proposed revisions);
• the evidence upon which the award is based was forged (the proposed revisions revise this to “the award is obtained by fraudulent acts such as malicious collusion and falsification of evidence”);
• the other party has withheld evidence that is sufficient to affect the fairness of the award (the proposed revisions propose to remove this ground); or
• arbitrators have accepted or solicited bribes, resorted to deception for personal gain, or perverted the course of justice in the award.

Under current law, for foreign-related arbitral awards, the last three grounds relating to evidence or bribery do not apply. The proposed revisions propose to provide the same grounds for setting aside an award whether it is foreign-related or not.

The court could also set aside the award if it determines that the award is against the public interest.

It is worth noting that a recent case rendered by Beijing Fourth IPC has likely opened the door to setting aside a foreign-related award based on res judicata. In this case, the court found an arbitral award covering a dispute already settled by arbitration violated the principle of finality of the award contained in Article 9 of the AL. The court then concluded this constitutes a ground for setting aside the award based on Article 274 (1) (4) of the CPL. This provision calls for the annulment of awards covering a matter beyond the scope of the arbitration agreement or rendered by an arbitration institution with no authority to arbitrate.

If a party applies to the court for enforcement of an arbitral award, the other party may request the non-enforcement of the award before the same court and on the same grounds as above.

Chinese arbitration awards are enforceable in the same manner as domestic judgments, subject to certain exceptions broadly equivalent to the grounds of appeal mentioned in 13.3 Circumstances to Challenge an Arbitral Award.

Foreign arbitration awards in commercial cases are regarded as “foreign awards” under the PRC law. They are enforceable in China under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”), to which China is a contracting state. The PRC court will base its decision on enforcement of Article V of the New York Convention. When refusing enforcement, a special procedure applies (the reporting procedure), whereby local courts intending to refuse enforcement must report the same to the higher court; and if the higher court intends to refuse enforcement, it must report to the SPC for approval, which makes non-enforcement extremely difficult.

The PRC is promoting the development of “case law”. Though the PRC legal system is a system of statute law, in recent years, the PRC courts have devoted time and resources to unifying the standards for the application of the law, which is accomplished through the establishment of a guiding and reference case system.

In addition, the Fifth Five-Year Reform Outline for the People’s Courts (2019–23) clarified that there was an intention “to establish a record filing mechanism for trial guidance instruments issued by higher people’s courts and reference cases... to improve the compulsory retrieval and report mechanism for similar cases and new cases”.

It is expected that PRC law will witness the increased significance of cases/precedents in court proceedings.

In addition, the SPC recently embarked on a court system reform by issuing the Regulation Regarding Reform of the Positioning of the Four Levels of Court Functions. Based on this Regulation:

• the primary people’s courts shall focus on the accurate finding of facts and the substantive resolution of disputes;
• the intermediate courts shall focus on the effective final adjudication as courts of second instance and precise dispute resolution;
• the high courts shall focus on correcting errors by retrial and unifying the scale of adjudication; and
• the SPC supervises and guides the national trial work and ensures the correct and uniform application of the law.

This means that, in the future, the high people’s courts and the SPC will hear even fewer first-instance cases.

COVID-19 has been quickly reshaping how trials are conducted in PRC. During times of travel restrictions, when people cannot physically sit together, court cases would be heard remotely with a heavy reliance on virtual hearing facilities. Even at times when travel restrictions are lifted, when people can attend court hearings in person, some courts still retain the virtual hearing option.

The SPC also issued a series of special judicial interpretations to address the legal issues related to COVID-19: for example, guidance on force majeure, time limits for trials, and other suggestions which apply during the pandemic era, to help both the courts and litigating parties to manage disputes in these difficult times.

Similarly, to deal with the difficulties that COVID-19 created for the Chinese companies (eg, when performing contractual obligations), the China Council for the Promotion of International Trade (CCPIT) issued a certificate of hardship upon individual application. The certificate aims to assist the applicant in demonstrating their hardship when performing the contract.

The government has not passed any legislation or order suspending the operation of limitation periods. The parties can certainly apply on a case-by-case basis as to whether limitation periods should be suspended as per the applicable provisions of the law.