1. Introduction and background
The Civil Procedure Law of the People’s Republic of China (the “CPL”) was adopted on 9 April 1991. On 28 October 2007, the CPL was amended (the “Amendment”) for the first time by the Standing Committee of the National People’s Congress.
The Amendment will take effect from 1 April 2008. The Amendment was primarily motivated by various problems encountered in the enforcement of civil judgments and the retrial procedure. Accordingly, the Amendment focuses on these two areas. In addition, the Amendment also removes the Bankruptcy Chapter of the CPL, which is replaced by the recently enacted Enterprise Bankruptcy Law.
2. Enforcement of judgment
2.1 Extension of the limitation period for the enforcement of judgment The existing CPL states that the Judgment Creditor (i.e., the party in whose favour the judgment has been entered) must enforce the judgment within a very short period. Where both the Judgment Creditor and the Judgment Debtor (i.e., the party against whom the judgment has been entered) are corporate bodies or institutions, the limitation period during which an application for enforcement of judgment must be made is six months. Where one of the parties is an individual, the limitation period is one year. The limitation period runs from the “Specified Date” – this is the date recorded in the judgment by which the Judgment Debtor has to satisfy the debt. The current limitation period is apparently too short. The Amendment has extended the limitation period to two years for both corporations and individuals.
In addition, the Amendment makes it clear that the two year limitation period can be “suspended” and “interrupted” in the following situations: - i. “Suspension” applies where the Judgment Creditor is unable to enforce the judgment due to force majeure or other obstacles occurring in the last six months of the limitation period. In this situation, the limitation period will be suspended, which means that it will stop running for the same duration that the obstacle exists. When the obstacle ceases to exist, the remaining part of the limitation period continues to run.
ii. “Interruption” applies where the Judgment Creditor asks the Judgment Debtor to pay the debt or where the Judgment Debtor agrees to pay the debt (the “Interruption Event”). Where an Interruption Event occurs within the limitation period, the limitation period shall be started afresh from that Event, which means that the Judgment Creditor will have another two years to enforce the judgment from the time of the Interruption Event. If two or more Interruption Events occur successively, the limitation period shall be started afresh from each of the Events. This means that the Judgment Creditor is, in effect, able to extend the limitation period indefinitely by continuously serving notices of demand to the Judgment Debtor as long as the interval between two notices does not exceed two years. In this regard, a Judgment Creditor is highly advised to send written notices to the registered address of the Judgment Debtor and carefully preserve the evidence of service.
2.2 Choice of court of enforcement The current CPL provides that the court which has tried the case in the first instance (the “Court of the First Instance”) shall enforce the corresponding judgment. Where the Judgment Debtor’s assets are in another city, this provision often makes the enforcement procedure complicated and ineffective. The Amendment expands the options available to the Judgment Creditor for enforcing his judgment: he can apply to either the Court of the First Instance or the court of the same level in the place where the Judgment Debtor’s assets are located.
In line with the Amendment’s focus on the ease and efficiency of enforcement, the Amendment also provides a Judgment Creditor with a new remedy should the Court of the First Instance fail to carry out the enforcement within six months after receipt of such an application. The Judgment Creditor can now apply to the Next Higher Court of the Court of the First Instance for enforcement. The Next Higher Court has the discretion to: i. Order the Court of the First Instance to proceed with the enforcement within a period specified by the Next Higher Court,
ii. Order another court at the same level as the Court of the First Instance to enforce the judgment, or
iii. Carry out the enforcement itself.
2.3 Measures to facilitate the enforcement of judgment
2.3.1 Fines
The court has the power to impose a fine on the Judgment Debtor that has failed to comply with the court’ directions. The court may also fine any corporation that has been requested to assist to enforce the judgment but refuses to do so. Currently, the maximum amount of the fine is RMB 30,000, (equivalent to about USD 4,000). This low amount reflected the economic situation at the time the CPL was first passed in 1991. With the changing economic circumstances, this fine is now regarded as inadequate. Therefore, the Amendment has increased it to RMB 300,000.
The court also has the power to fine the person who is generally in charge of the corporation which refuses to cooperate with the court or the person who is directly responsible for the refusal. The Amendment raises such fine from RMB 1,000 to RMB 10,000.
2.3.2 The court has the power to attach assets without notification
Under the existing CPL, the court shall give the Judgment Debtor (either a corporation or an individual) a notification of enforcement before taking any action against the Debtor’s assets. This often gives the Debtor an opportunity to dissipate his assets. The Amendment stipulates that the court has the discretion to take immediate action against the Judgment Debtor’s assets without notifying him, if the court believes that the Debtor is likely to dissipate his assets.
2.3.3 Disclosure of assets
The Amendment imposes a duty on the Judgment Debtor to disclose the details of his assets. The clause applies to both a corporate and individual Judgment Debtor.This is a new measure intended to help the court to enforce judgments. The Judgment Debtor who has failed to satisfy the judgment debt is now required to give the court a statement as to the status of hisassets. The statement shall cover the period from one year before receipt of the notice of enforcement until the time of disclosure. If the Judgment Debtor refuses to disclose or makes misrepresentations as to the status of his assets, the court can fine or detain the Judgment Debtor or, where the Judgment Debtor is a corporation, its legal representative or the person who is directly responsible for the non-disclosure or misrepresentation. It is believed that this measure could greatly assist the court in tracing the Judgment Debtor’s assets. The statement could also help the Judgment Creditor decide whether he should wind up a corporate Judgment Debtor and sue its directors for breach of director’s duty.
2.3.4 Other new measures
Under the current legal system of China, there is no personal bankruptcy. The court therefore has very few measures against a personal Judgment Debtor who has dissipated his assets and refuses to satisfy the judgment. Following the Amendment, the court may impose one or a combination of the following sanctions on a personal Judgment Debtor if he fails to satisfy the judgment debt: -
i. Prohibit him from leaving China,
ii. Notifies the Credit Recording System (an information-sharing system among Chinese banks) that the Judgment Debtor has defaulted on the judgment. The effect of this punishment is that banks will not be willing to give credit to the Judgment Debtor, and/or
iii. Publish the Judgment Debtor’s default in the newspapers or other public media.
Hopefully, with the power of these new sanctions, more personal Judgment Debtors will voluntarily perform the judgments.
3. Retrial procedure
3.1 Introduction to the retrial procedure and its defects
Under the CPL, a party to the judgment who is not satisfied with the judgment (the “Unsatisfied Party”) may apply to the court which has made the effective judgment (the “Original Court”), or to its next higher court, for retrial of the case. The time limit to apply for retrial is two years from the date on which the judgment takes effect. The court which receives the application effectively has absolute discretion to decide whether to initiate the retrial procedure. Article 179 of the CPL provides some guidance by stipulating that the court shall initiate the retrial procedure where the application satisfies one of the five prescribed conditions. However, all these conditions are phrased in such general terms that they are of little practical help in assisting the court to determine whether a retrial should be granted.
Furthermore, the CPL does not stipulate the time limit within which the court shall respond to the applicant. It also fails to stipulate the procedure that the court should follow in deciding whether to initiate the retrial procedure. As the party applying for a retrial does so through an ex-parte application, the other party does not have the opportunity to object to the application.
The court may initiate the retrial procedure on its own accord without receiving any retrial application if it finds that a case has been wrongly decided. There is no time limit to its power to do so. The procurator also has a similar power to require the court to initiate a retrial.
In practice, the court seldom grants applications to initiate the retrial procedure simply because it lacks the human and financial resources to do so. Of course, cases where a court initiates retrial procedure without the Unsatisfied Party’s application are even rarer. It is therefore not surprising that the Unsatisfied Party who has applied for a retrial often feels confused, as he does not even know whether the court has reviewed his application.
Another problem is that the court’s power of retrial is without any reasonable limitation. The existing CPL does not give any practical illumination as to the situations where a case shall be granted a retrial. The parties’ rights are also not properly protected by procedures.
The Amendment is meant to resolve these problems by fine-tuning current procedures and introducing new ones to clarify the process to be followed where there is an application for a retrial.
3.2 More precise jurisdiction for retrial
Under the Amendment, the Unsatisfied Party can only apply to the Original Court’s next higher court for retrial. This provision attempts to prevent the situation of duplicity where more than one court receives and reviews a party’s application for retrial.
3.3 Review of applications becoming the court’s duty
The Amendment makes the review of an application for retrial a duty of the court.
The court is now required to review the application and respond to the applicant within three months after receipt of such application. If the application satisfies one of the 14 limbs set out in paragraph 3.4 below, the court must commence the retrial procedure. If the application does not satisfy any of the limbs, the court must expressly reject the application.
3.4 Circumstances under which the court should grant a retrial
3.4.1 Position under the existing CPL
Article 179 of the current CPL provides that if an application for retrial meets any of the following conditions, the court shall retry the case: -
a. There is sufficient new evidence to set aside the original judgment,
b. The main evidence on which the facts were ascertained in the original judgment was insufficient,
c. There was definite error in the application of the law in the original judgment,
d. The Original Court violated the required procedure, and the violation may have affected the correctness of the original judgment, or
e. The judge and/or the judicial assessor had committed embezzlement, accepted bribes, engaged in misconduct for personal benefit or perverted the law in the adjudication of the case.
3.4.2 Position under the Amendment
By contrast, the Amendment stipulates that a retrial shall be granted where such application meets any of the following 15 conditions: -
i. There is sufficient new evidence to set aside the original judgment,
ii. The main facts which were ascertained in the original judgment were based on a lack evidence,
iii. The basic facts which were ascertained in the original judgment were forged,
iv. The basic facts which were ascertained in the original judgment were not subject to cross-examination,
v. The applicant was unable to collect the evidence which was necessary for the trial, and he has asked the Original Court to investigate or collect the evidence, but the Court had failed to do so,
vi. There was/were definite error/s in the application of the law in the original judgment,
vii. The Original Court illegally assumed jurisdiction to try the case,
viii. The trial panel was illegally composed, or one of the members of the trial panel should have withdrawn,
ix. The person who lacked legal capacity to engage in litigation was not represented by his statutory agent, or any party who was supposed to attend the hearing but failed to do so due to reasons for which he or his attorney could not be blamed,
x. The applicant was illegally deprived of his right of debate,
xi. The applicant was not summoned by writ and hence default judgment was entered,
xii. The original judgment had omitted or exceeded the claimants’ pleadings,
xiii. The Original Court violated the legal procedure which may have affected the correctness of the judgment,
xiv. The legal document on which the original judgment was based has been set aside or altered, or
xv. The judge and/or the judicial assessor had committed embezzlement, accepted bribes, engaged in misconduct for personal benefit or perverted the law in the adjudication of the case.
3.4.3 Observations
From the foregoing comparison, the following observations may be made:
3.4.3.1 It is apparent that conditions (a), (b), (c) and (e) in article 179 of the current CPL remain unchanged in the Amendment.
3.4.3.2 On the other hand, condition (d) has been subdivided into more precise circumstances in the Amendment (i.e., conditions (iv) to (xii)). 3.4.3.3 Condition (xiii) is in essence, a “catch-all” provision to capture all instances of substantial violation of legal procedure which are however not specifically provided for in conditions (iv) to (xii).
3.4.3.4 Condition (xiv) is a new provision.
3.4.4 Limitation period for application for retrial extended in certain situations The limitation period for the application for retrial remains unchanged, i.e., two years from the Specified Date. However, the limitation period may be extended where a party discovers after the two-year limitation period has expired that: -
(a) The legal document on which the original judgment was based has been set aside or altered (condition (xiv)) or
(b) The judge and/or the judicial assessor had committed embezzlement, accepted bribes, engaged in misconduct for personal benefit or perverted the law in the adjudication of the case (condition (xv))
In these two situations, the party may apply for retrial within three months of knowledge of the relevant condition.
3.5 The other party’s right to raise objections
The Amendment provides that the court must give notice to the other party to the case within five days of receipt of the application for retrial. The other party may submit a written opinion within fifteen days of receiving the notification. Thereafter, the court may require the parties to provide further information if necessary.
3.6 Unresolved problems
Under the Amendment, the court and the procurator still have the power of starting the retrial procedure at any time without a party’s application. There is no time limit for such power. The existence of such apparently perpetual and indefinite power will inevitably affect the finality and conclusiveness of the judgment. However, in view of the limited resources and potential increase in the volume of retrial work, the courts are likely to maintain the practice that retrial is rarely initiated without a party’s application.
4. Removal of Chapter 19 relating to bankruptcy procedure
As mentioned earlier, the Amendment removes all provisions pertaining to bankruptcy proceedings because they have been replaced by the new Enterprise Bankruptcy Law which came into effect on 1 June 2007. The new Enterprise Bankruptcy Law is wider in scope than the bankruptcy chapter of the CPL and provides a set of unified bankruptcy procedural rules governing both private and state-owned companies.
5. Conclusion
The Amendment would hopefully help China develop a more efficient legal system, especially in terms of the enforcement of judgments. On the other hand, the amendments in the area of retrial are likely to make it easier to initiate the retrial procedure. However, it is also important to see how the courts are going to interpret the Amendment. The usual practice is for the Supreme People’s Court to issue an interpretation document shortly after the execution of a new law. We will give continuing attention to the interpretation of the Amendment.
With thanks to Zheng Yu of Rajah & Tann for preparing this article.
