International|Mediation

Important Development in Chinese Business Mediation

On July 24, 2009, the Chinese Supreme People’s Court issued Several Opinions on Establishing and Improving of a Dispute Resolution System and the Linking of Litigation and Alternative Dispute Resolution Mechanism.  Thanks to Andrew Aglionby and his stalwart crew at Baker & McKenzie’s China office, we have a translation of this document (reproduced at the foot of this post) that seems to promise an entirely new day in Chinese commercial mediation.

Until this document issued, agreements to mediate, and agreements reached as a result of mediation, were legally cognizable only if the mediation were conducted either by arbitrators pursuant to CIETAC rules or by judges pursuant to Chinese civil procedure rules.  This restriction had a serious dampening effect on the spread of mediation proactice conducted ad hoc or through a private commercial mediation service.

For example, in 2004, when I was negotiating the US-China Business Mediation Center on behalf of the CPR Institute, it was necessary to place in the mediation rules of the Center a provision that the parties could apply to CIETAC to transform the mediated agreement into a CIETAC award, thus making it enforceable under Chinese law.  This new document, however, changes matters entirely.

 The newly issued Opinions profess that their purpose is to better link the official workings of the court system with the activities of “social organizations, enterprises and institutions” that engage in mediation.  And the effect of the Opinions, as far as I can interpret them, will be to bring China in line with Europe and the United States in granting contractual status to agreements reached through mediation, even if the mediation is conducted by private institutions or on an ad hoc basis.

After encouraging the continued observance of existing mediation provisions in arbitration and court proceedings, and encouraging administrative bodies to use mediation “to settle [] disputes according to the law,” the Opinion goes further.  At paragraph 10 it “encourages and supports the establishment of a sound dispute mediation function and mechanism by and within industry associations, social organizations, enterprises and institutions.”  Moreover, any agreement reached in a mediation conducted through such non-state offices “shall have the legal force of a contract.”

At paragraph 12 and 13 it seems to set forth the jurisdictional groundwork for this promise: Parties may apply to the People’s Court to seek performance of any mediation agreement that is “reached as a result of mediation carried out by administrative organs, people’s mediation organizations, business and commercial organizations, industry mediation organization, or other organization with mediation functions.”

At paragraph 15 the Opinions also empower courts to assign cases to be mediated by “commercial mediation organizations, industry mediation organizations or other” bodies. 

True, there is a troublesome provision at paragraph 18, empowering a mediator to report to the court the behavior of an uncooperative or deceptive party.  So confidentiality of court-annexed mediation schemes remain a “live issue.”  At the same time, however, paragraph 16 provides that in the event of a court-supervised mediation, “the judge who has participated in the mediation shall not be the trial judge in the same proceeding unless it is agreeable to all parties” — a clear departure from prior practice.

All in all, this document is a huge step forward in introducing globally accepted commercial mediation practices to the vast Chinese market.  I know that the Secretary General of the Conciliation Centers of the China Council for Promotion of International Trade, Yang Hua Zhong, and his talented Vice-Chairman Cheng Hui, have labored mightily for this change for many years.  I congratulate them on this success.

With thanks again to Mr. Aglionby, here is the unofficial translation:

Several Opinions on Establishing and Improving of a Disputes Resolution System and the Linking of Litigation and Alternative Dispute Resolution Mechanism (“Opinion”)

 (Legal Ref.:(2009)No. 45) 

 24 July 2009
To local People’s Courts of all levels; Military Courts of all levels; all Railway Transportation Intermediate Courts and base-level Courts; all Marine Courts; all levels of the Courts for Production and Construction in Xinjiang:

The “Several Opinions on Establishing and Improving of a Disputes Resolution System and the Linking of Litigation and Alternative Dispute Resolution Mechanism” published by the Supreme People’s Court has been approved by the Central government, and is now issued to you for your due implementation. Please timely report to the Supreme People’s Court’s Leading Group Office for Judicial Reform in case of any problem encountered during implementation.

In order to maximize the role of the Supreme People’s Court in establishing and improving a dispute resolution system and to provide a link between litigation and alternative dispute resolution mechanism, the following opinions are laid down:

I. To identify the main objectives and tasks required

1. The main objectives for establishing and improving dispute resolution system and to provide a link between litigation and alternative dispute resolution mechanism are:
To fully utilise the strengths of People’s Courts, administrative organs, social organizations, enterprises and institutions and others, to promote the mutual coordination and development of the various methods of dispute resolution in order to better the linking of litigation and alternative dispute resolution, and to provide people with more options for dispute resolution whilst maintaining social harmony and stability as well as promoting faster and better economic and social development.

 2. The main tasks involved with the aim to establishing and improving dispute resolution system to linking the litigation and alternative dispute resolution are:
To give full effect to the role of the juridiciary to standardize trial proceedings, provide guidance to, supervise the processes of, and provide the link between litigation and arbitration, administrative mediation, people’s mediation, commercial mediation, industrial mediations and other non-litigation dispute resolution methods; to promote the establishment of effective organizational and procedural systems for various alternative dispute resolution mechanisms as well as to enable the development and prosperity of more convenient, flexible and effective alterative dispute resolution methods which would also provide judicial protection.

3. In an effort to establish and improve the link between litigation and non-litigation dispute resolution mechanisms, one must closely rely on the leadership of party committees, actively urge for the support from Government, encourage community participation and fully utilise the role of the judiciary in promoting to this end; the parties must be fully protected of their civil rights of actions and the right to litigate.
    

II. To promote the development of alternative dispute resolution mechanism

4. Conscientiously implement the “People’s Republic of China Arbitration Law” and related judicial interpretations. The processes and regulations unique to arbitration should be fully respected and reflected in the effectiveness of the arbitration agreement, the applicable rules of evidence, the arbitration proceedings, the basis for decisions, the standard for review to set aside the decisions or not to enforce the awards, etc, in order to maximize the role that the arbitration system plays in dispute resolution. The People’s Court shall handle promptly and in accordance with the law assets / evidence preservation applications made during the process of arbitration.

5. Conscientiously implement the “People’s Republic of China Labour Dispute Arbitration and Mediation Law” and the provisions of relevant judicial interpretations; to promote and improve the communication and coordination with arbitration institutions dealing with labour and employment disputes; to encourage the use of appropriate hearing methods by giving consideration to the unique nature of labour and employment disputes, as well as to support the development of an effective arbitration system in general. The People’s Court shall accept in accordance with the law claims by parties whose disputes are not accepted or is delayed by the relevant labour and employment dispute arbitration institutions.

6. Further strengthen the communication and coordination with arbitration institutions for rural land disputes in order to properly handle disputes relating to rural land contracts and to offer judicial protection and legal services to efforts relating to rural reform and development. The People’s Court shall promptly hear appeals by parties who are not satisfied with the decisions of the arbitration institutions for rural land contracts. The People’s Courts shall enforce the effective arbitral award or mediation order upon application by the parties in a timely manner and in accordance with law.

7. The People’s Court should give their full support to, and supervise in accordance with the law, the mediation carried out by people’s mediation organizations and to appropriately observe the applicable laws and regulations when conducting civil trials involving mediation agreements made through people’s mediation organization.

8. In order to effectively minimize potential disputes arising from activities of administrative management, the People’s Court encourages and supports that administrative bodies mediate, make administrative decisions or use other means to settle such disputes according to the law. Such mediation agreement or administrative decisions shall be effective at law. The People’s Court shall accept claims from parties who are not satisfied with the mediation or administrative decisions on any civil disputes between the parties and shall treat such claims as civil matters. When hearing cases that are classified by law and judicial interpretations as administrative matters, the People’s Court shall have jurisdiction to review administrative acts as well as to hear any civil disputes arising therefrom and shall have jurisdiction to give order relating to the civil dispute in accordance with the law.

Mediation agreements involving civil right and obligations or other settlement agreement for non-actionable administrative acts reached as a result of civil dispute mediations held by administrative organs, shall have the effect of a binding contract if both parties sign or seal the agreement, except as otherwise provided by law.

9. Parties without an arbitration agreement may apply to arbitration committees to have their civil disputes settled by way of mediation. Upon receiving such application, the arbitration committee shall refer the matter to one of its established mediation organisation which shall carry out mediation in accordance with its fair and neutral mediation rules. The resultant mediation agreement containing civil rights and obligations shall have the legal force of a contract when signed and sealed by the parties.

10. The People’s Court encourages and supports the establishment of a sound dispute mediation function and mechanism by and within industry associations, social organisations, enterprises and institutions, etc. The mediation agreement imposing civil rights obligations on parties reached as a result of mediation carried out by commercial dispute mediation organisations, industry dispute mediation organisations or other organisations with mediation functions shall have the legal force of a contract when signed and sealed by the parties. 

11. The labour dispute mediation agreement reached as a result of mediation carried out by a named mediation organisation under the “People’s Republic of China Labour Dispute Arbitration and Mediation Law” shall become effective and legally binding on the parties once the same is signed or sealed by the parties and signed and sealed by the relevant mediation organisation. The concerned parties can seek to apply directly to the People’s Court to judicially recognize the effectiveness of the mediation agreement in accordance with the provisions in this Opinion relating to judicial recognition, without first submitting the dispute to the arbitration proceeding. For those mediation agreements that the People’s Court refuse to confirm, the parties can apply to labour dispute arbitration committee for arbitration.    

12. Concerned parties may apply to have the enforceability of mediation agreements which imposes on either party an obligation for making payment, reached as a result of mediation carried out by administrative organs, people’s mediation organisations, business and commercial mediation organisations, industry mediation organisation or other organisation with mediation functions, etc. notarised by authorised notary public in accordance with the “People’s Republic of China Notary Law”. Where the debtor fails to perform or to properly perform his obligation under an enforceable notarised agreement, the creditor under the agreement may apply to the relevant People’s Court with jurisdiction over the matter to enforce the agreement in accordance with the law.    

13. For those mediation agreement with the effect of a contract which imposes an obligation for payment, the creditor may, in accordance with the “Civil Procedure Law of the People’s Republic of China” and the relevant judicial interpretations, apply to the basic people’s court with jurisdiction over the matter for a payment order.  The creditor shall submit to the court a written application, which clearly states the amount of money or the quantity of the securities that the creditor prays for together with supporting documents and the original mediation agreement.

 In relation to the mediation agreements that involve unpaid wages in arrears, medical expenses for work related injuries or economic compensation or damages, an employee may apply to the people’s courts for a payment order in cases where the employer does not fulfil its obligations in accordance with the mediation agreement.  

 III. Improve the mediation mechanism for multi-parties during litigation    

 14. For civil proceedings that are commenced within the jurisdiction of the people’s courts, the people’s courts may, upon receipt of the written or oral statement of claim but before the formal acceptance of the case, exercising its discretion or at the request of the parties, appoint administrative authorities, people’s mediation organizations, commercial mediation organizations, industry mediation organizations or other organizations with a function of mediation to conduct mediation.  If the parties do not agree to mediate or are not able to reach an agreement within a specified period, the people’s courts shall accept the case in accordance with the law.

15. Upon agreement between the parties or where the people’s court thinks fit, the people’s court may assign its civil cases to administrative authorities, people’s mediation organizations, commercial mediation organizations, industry mediation organizations or other organizations with the function of mediation to conduct mediation.  The parties may, by agreement, select the appropriate organization or request the people’s courts to appoint one.

After the mediation, the relevant authorities or organizations shall report the result of the mediation to the people’s courts. If an agreement is reached in mediation, the parties may apply to withdraw their civil claims, apply for judicial recognition of the agreement, or request the people’s courts to issue a mediation order.  If the mediation fails, trial shall be commenced immediately.

16. For civil actions which have already been commenced, the people’s courts may, in accordance with the relevant law, invite eligible mediation organizations or mediators to assist the judiciary in conducting mediation.  Mediation is to be conducted in courtrooms or any of the offices at the people’s courts, or any other places that are agreeable to all parties.  The parties are allowed to withdraw their proceeding or the people’s courts may issue a mediation order if the mediation is successful.  In contrast, trial shall be commenced immediately if the mediation fails.

The judge who has participated in the mediation shall not be the trial judge in the same proceeding unless it is agreeable to all parties.

17. During the mediation session, the mediator may refer to industrial practice, village regulations, community convention and local customs in guiding the parties to reach settlement provided that those customs and practices do not violate the laws and administrative regulations.

18. In the process of mediation, if a party has hidden important facts, given false information or wilfully delayed the mediation process, the mediator can give a warning to that party or terminate the mediation, and report the incident to the people’s court that it was appointed by. That party shall bear the liability if his/her conduct has caused losses to the other party or to a 3rd party.
    
19. The mediation session is not open to public except with the consent of both parties or otherwise.  The mediation organs, mediation organizations, mediators and the staff of the court who are responsible for the management of mediation, shall not disclose any matters concerning or have been discussed in the mediation session to any other person nor give evidence in relevant proceedings.   The parties shall not produce the transcript, the promises or concessions made by the parties for the purpose of mediation, and comments or suggestions made by the mediator or the parties in the mediation session to the court as evidence, except in the following circumstances:
(1) with the consent by both parties;
(2) clearly stated in law;
(3) for the protection of national interests, social public interests, legitimate rights and interests of third parties in which the people’s courts consider as necessary.

IV. Standardize and improve the judicial recognition process 
    
20. Parties may apply to the people’s courts for the recognition of a mediation agreement if the mediation agreement (with the nature of a contract) is reached with the assistance of the administrative authorities, people’s mediation organizations, commercial mediation organizations, industry mediation organizations or other organizations with the function of mediation and is signed and sealed by the mediation organisation or the mediator.  The parties may bring a claim to the people’s courts if they intend to enforce, change, revoke or recognise the validity of the mediation agreement.

21. Without violating the exclusive jurisdiction of the people’s courts, parties, in a written mediation agreement, are free to choose the basic people’s court at the place of their domicile, the place to implement the mediation agreement, the place of the signing of the mediation agreement or the place where the subject matter locates as the court with jurisdiction over any dispute arising from the mediation agreement.  If there is no agreement between the parties, except for the circumstances as provided under Article 34 of the “Civil Procedure Law of the People’s Republic of China”, the basic people’s courts at the place of the parties’ domicile or the place to implement the mediation agreement will have jurisdiction over the dispute. The people’s court which designate or appoint relevant mediation authorities or organisation to assist the parties in reaching mediation agreement will have jurisdiction over the recognition of the mediation agreement.
    
22. Parties shall jointly apply, either orally or in writing, to the people’s court which has jurisdiction over the recognition of the mediation agreement to recognize the mediation agreement.  If an application is made by one party with the consent of another, it will be treated as “jointly application”.  Parties shall submit the mediation agreement and their undertakings to the people’s courts.  The people’s courts shall review the documents upon receipt of the application and serve a notice of acceptance of the application to the parties in a timely manner.  An undertaking to be executed by the parties shall clearly include the following clauses:
(1) Both parties voluntarily reach the mediation agreement to settle the dispute and do not have malicious intention to circumvent the law.
(2) If the agreement, in any circumstance, causes damages to a 3rd party, both parties are willing to be responsible for the civil liability or any other legal responsibility.     

23. The people’s courts shall apply the simplified procedure in the Civil Procedure Law of the People’s Republic of China when dealing with the cases of recognition of mediation agreements.  The case will be heard by a single judge. Both parties should attend the hearing.  The people’s courts shall ask the parties (a) whether they understand the content of the agreement; (b) whether they accept the consequence arose from the agreement; (c) whether, by means of the judicial recognition process, they are willing to accept that the agreement shall be enforceable.

24. The people’s courts shall not recognise the validity of mediation agreement in one of the following situations: –
(1) The mediation agreement violates mandatory provisions under laws and administrative regulations; (2) The mediation agreement is detrimental to national interests and social public interests; (3) The mediation agreement is detrimental to 3rd parties’ legitimate rights and interests; (4) The mediation agreement involves the issue whether to make a criminal allegation against another party; (5) The mediation agreement contains uncertain terms which make it impossible to verify and implement; (6) The mediation was pressed by the mediation organisation/ mediator or the mediator had seriously violated the ethics code of conduct; (7) Any other circumstances that would affect the validity of the agreement.

 The people’s court shall refuse to recognise the validity of the mediation agreement under the following circumstances except that the parties knew the existing of the circumstances but insist to apply for recognition: the execution of the mediation agreement is contrary to the true intention of the parties; there is a conflict of interest on the part of the mediator; or the mediation is substantially unfair.   
    
25. The people’s courts shall review and adjudicate the validity of the mediation agreement in accordance with the law.  The court decision to recognize the validity of the mediation agreement takes effect after the servicing the people’s court’s decision to the parties.   If a party refuses to perform its obligations in accordance with the mediation agreement, the other party can apply to the people’s court to enforce the agreement.

V.   Establish a comprehensive workable mechanism

26.  Where conditions permit, the local people’s courts may, in accordance with the prescribed standards, establish a list of mediation organizations and a list of mediators in order to provide guidance to the parties in dispute in choosing the appropriate mediator or organization.  The people’s court may make timely adjustments to the lists in accordance with the change of circumstances. 

27. Mediator shall be obliged to follow the ethical codes of conduct. The people’s courts shall, notify the mediator to withdraw from the mediation, replace the mediator, terminate the mediation, or take other appropriate measures when the court finds that the mediator has a conflict of interest in the matter, which may affect its impartiality and fairness of the mediation or in case where the mediator has violated the ethical codes of conducts.   Unless otherwise agreed, the people’s courts do not permit the mediator to participate, as a representative of a party, in the same or related dispute after the termination of the mediation. 

28. According to the demand of work, People’s Court can designate particular unit or personnel internally to be in charge of the management and coordination of mediation organizations, liaison with the mediators, and provision of training and guidance etc. 

29. The people’s courts, at all levels, shall strengthen its relationship with other state organs, social organizations, commercial enterprises and other related organizations for the purpose of (a) encouraging the establishment of the alternative dispute resolution mechanism; (b) participating in the establishment of the alternative dispute resolution mechanism,  (c) assisting the parties to resolve issues during the connection between litigation and alternative dispute resolution, and (d) actively promoting the establishment and improvement of the alternative dispute resolution mechanism. 

30. All levels of the people’s courts shall, in accordance with the local circumstance, regulate the mediation mechanism which includes the requirements to be a mediator, ethical codes of conduct, mediation fees, sharing of costs between the parties, mediation management, mediation guide and connection mechanism.  The regulation enacted by the Higher Court shall be reported to the Supreme People’s Court, whereas the regulation enacted by the Basic and Intermediate People’s Court shall be reported to the Higher Court.

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