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CHINA (PRC FIRMS): An Introduction to Dispute Resolution

Overview of 2022 Dispute Resolution in China 

Rule of Law creates the best business environment. China protects the legitimate rights and interests of Chinese and foreign parties equally and is trying to create a fairer, transparent and predictable business environment under the rule of law. In the area of dispute resolution, China's new developments in the following four areas deserve attention.

The Civil Code 

The Civil Code came into force on 1 January 2021, and the current General Principles of the Civil Law, the Contract Law, the Property Law, the Tort Law, the Guarantee Law, the Marriage Law, the Law of Succession and the Adoption Law were repealed simultaneously. Subsequently, the Supreme People's Court will compile and clarify relevant judicial interpretations based on the Civil Code.

Rules of Hierarchical Jurisdiction 

According to the “Notice of the Supreme People's Court on Adjusting the Standards for the Jurisdiction of the Intermediate People's Courts as Courts of First Instance over Civil Cases”, Intermediate People's Courts shall have jurisdiction over civil cases of first instance if the value of the dispute is more than CNY500 million and all the parties’ domicile is in or all the parties’ domicile is out of the provincial administrative area under which the court is located; if the domicile of one of the parties is not within the provincial administrative area under which the court is located, Intermediate People's Courts shall have jurisdiction over civil cases of first instance involving the value of dispute over CNY100 million.

Besides, according to the “Implementation Measures for the Pilot Program of the Reform of Improving the Trial Levels and Functional Orientations of Courts Structured in a Four-Tier System”, if a party considers that a legally effective civil or administrative judgment or ruling made by a High People's Court is erroneous, the party shall apply to this High People's Court for retrial. And only under two specific circumstances, a petition for retrial may be filed with the Supreme People's Court.

It is predicted that the number of cases heard by the Primary People's Court will increase significantly in 2022, and the first, second and retrial proceedings of most civil cases have no chance to cross the provincial administrative region. Hence parties with concerns over potential local protectionism may opt for arbitration.

Quasi-Case Law System 

The Supreme People's Court issued “Implementation Measures on the Establishment of Dispute Settlement Mechanism for the Application of Law” to emphasise the necessity, methods and requirements for the courts to search for similar cases' judgments. According to “Guiding Opinions of the Supreme People's Court on Unifying the Application of Law and Strengthening the Similar Case Searching (Trial)”, where a court finds any of the following circumstances in the trial or enforcement proceedings, it shall file an application for resolving differences in the application of laws with the Trial Administration Office: (1) There are differences in the application of laws between the effective judgments made by the Supreme People's Court; (2) The judgment of case in trial may have differences with the principles or standards on the application of laws determined in the effective judgment made by the Supreme People's Court.

These rules constitute a quasi-case law system in essence and aim to reduce the occurrence of different judgments in similar cases. In addition to the statute law, the law application standards determined by the effective judgments of the Supreme People’s Court plays an increasingly important role.

The Losing Party in Litigation Bears the Attorney Fees

According to the previous practice in litigation, the court's support for claims of attorney fees is usually limited to certain types of cases or the circumstances where the parties have clear contractual terms on who bears the attorney fees. Of late, there has been a trend of relaxation of this strict rule. In the relevant opinion given by the Supreme People's Court and guiding cases, the Supreme People's Court holds the opinion that attorney fees are the actual costs incurred by a party to realise its rights and are reasonable losses caused by the other party's breach of contract. The rule that the losing party bears the attorney fees reduces the cost of safeguarding the rights of the parties through litigation, hence it is beneficial in protecting their legitimate rights and interests.