A Q&A guide to dispute resolution law in China.
The country-specific Q&A gives a structured overview of the key practical issues concerning dispute resolution in this jurisdiction, including court procedures; fees and funding; interim remedies (including attachment orders); disclosure; expert evidence; appeals; class actions; enforcement; cross-border issues; the use of ADR; and any reform proposals.
To compare answers across multiple jurisdictions visit the Litigation and enforcement Country Q&A tool.
This Q&A is part of the PLC multi-jurisdictional guide to dispute resolution. For a full list of jurisdictional Q&As visit www.practicallaw.com/dispute-mjg.
Litigation and arbitration are the two main methods used to settle large commercial disputes. Foreign investors who conduct business in the People's Republic of China (PRC) (China) or with Chinese partners are inclined to have their disputes arbitrated. Many arbitration commissions have been established following the Arbitration Law 1995 (Arbitration Law), and the number of disputes arbitrated by these commissions has increased greatly.
Mediation as a separate and independent dispute resolution method is rarely used, but conciliation in litigation and arbitration proceedings is highly encouraged. In July 2009, China's Supreme People's Court (Supreme Court) through judicial interpretation approved mediation as a separate means of resolving disputes. The Beijing Arbitration Commission has its own stand-alone mediation rules. However, since this judicial interpretation is relatively new, the impact of mediation as a separate means of resolving disputes remains to be seen.
The ordinary limitation period is two years starting from the moment the claimant knew or in the circumstances ought to have known of the alleged infringement.
There are several exceptions to the two-year limitation period, including:
One-year limitation period for disputes relating to:
compensation for personal injury;
the sale of low quality goods without proper notice of the low quality;
delay or refusal to pay rent; and
loss of a consignment.
Three-year limitation period for certain environmental damage disputes.
Four-year limitation period for disputes relating to technology transfer and international sales of goods.
The limitation period can be interrupted by:
The claimant demanding performance of the obligation or filing a lawsuit.
The obligor consenting to performance of the obligation.
The four levels of the court system are:
The Supreme Court: national level.
High People's courts: provincial level.
Intermediate People's courts: municipal level.
Basic People's courts: county level.
Large commercial disputes are brought at first instance at the Intermediate People's courts or, less often, the High People's courts, depending on the amount in dispute.
There are two kinds of special courts:
The Maritime Court (municipal level).
The Railroad Transportation Court (county and municipal levels).
Usually a court has the following divisions:
Civil, which, in turn has the following sub-divisions:
IPR, which also hears anti-trust cases; and
The Supreme Court, all High People's courts and most of the Intermediate People's courts have foreign-related commercial and IPR divisions. Some Basic People's courts, as approved by the Supreme Court, also have such sub-divisions.
The answers to the following questions relate to procedures that apply in courts at all levels.
Qualified Chinese lawyers can conduct cases before any court. To qualify as a Chinese lawyer, a person must:
Pass the national bar exam.
Complete a one-year internship in a Chinese law firm.
Apply for a lawyer's practising licence.
Register with the relevant local bureau of the Ministry of Justice.
Foreign lawyers are not allowed to conduct cases in the Chinese courts.
Four types of legal fee structures (which can be combined) are allowed for commercial disputes:
Flat rate: a single fixed fee for the services provided.
Proportional rate: fees proportional to the disputed amount.
Hourly rate: an established fee on the basis of time spent on the matter.
Contingent fee: a success fee, commonly used in commercial disputes. A contingent fee cannot exceed 30% of the total disputed amount.
Fees are not fixed by law. However, local government provides guidance on the legal fees to lawyers.
Usually the parties in the dispute fund the litigation. However, the law does not prohibit third parties from funding the litigation.
Insurance is not available for litigation costs.
Court hearings are usually held in public, unless the case involves state secrets or individual privacy. However, if the case involves commercial secrets, the court can decide to hold the hearing in private or not, on request of either party.
The court does not impose any rules on the parties in relation to pre-action conduct. However, disputes involving labour issues must go through a special arbitration procedure before being litigated in court (see Question 34).
The claimant starts proceedings by filing a bill of complaint. The court then decides within seven days whether or not to accept the case. The following conditions must be satisfied for the case to be accepted:
The claimant must have a direct interest in the case.
The defendant must be specified.
There must be specific arguments, facts and causes for the claim.
The claim must be within the scope of civil claims and subject to the jurisdiction of the court to which the lawsuit is filed.
If the court decides not to accept the case, it issues a ruling of non-acceptance, which can be appealed.
If the case is accepted, the court serves a copy of the bill of complaint on the defendant within five days.
The defendant must file a bill of defence with the court within 15 days from receipt of the copy of the bill of complaint, or within 30 days if the defendant has no domicile in China. The court can grant an extension of the filing period, on the defendant's request.
The defendant can challenge the jurisdiction of the court within the above-mentioned period.
Next, a judicial panel is established. The parties must be notified of the members of the panel within three days from its establishment.
If there is a third party who is required to participate in the proceeding, the court notifies the third party to join the proceeding.
The hearing consists of the following two stages:
Court investigation. The parties present their positions and adduce evidence, and witnesses give their testimony. All the evidence, including documentary evidence, physical evidence, witness testimony and expert opinions, is cross-examined.
Court debate. Parties make further allegations and debate the disputed issues. At this stage, the parties do not raise arguments contrary to their submissions during the court investigation.
Before making a judgment, the judge can conduct a conciliation proceeding by inviting the parties to settle. If no settlement is reached, the court issues a judgment. If a settlement is reached, the court may issue a conciliation judgment, which is enforceable as an ordinary judgment.
Domestic cases adopting an ordinary procedure must be closed within six months from when the case is accepted. However, in special circumstances, the time limit can be extended for another six months or more, subject to relevant approvals.
Cases adopting summary proceedings must be closed within three months from when the case is accepted. The courts are not required to strictly follow the rules applicable to the court investigation and court debate in summary proceedings.
There is no time limit for the court to finalise cases involving foreign elements.
A party can petition the court to dismiss the case before a full trial, on the grounds that the claim has not satisfied all of the requirements that must be met for a case to be admitted to court (see Question 9, Starting proceedings).
If the court finds that the case has not met one of the applicable conditions, it issues a ruling of dismissal. The ruling of dismissal can be appealed.
A defendant cannot apply for such an order. The US rule that each party is responsible for paying its own attorney's fees is followed, unless a specific statute or contract provides otherwise (see Question 22).
Interim injunctions are not available, except in IPR and maritime cases.
An IPR owner can apply to the court for an interim injunction before filing the claim, if it can prove both that:
Its rights are or would be infringed.
It would suffer irreparable harm if it fails to apply for the injunction.
In maritime cases, a party can apply to the maritime court for a maritime injunction if it can prove all the following:
It has a specific maritime claim.
There is a need to redress the action which conflicts with the law or the agreement.
The case is urgent and the applicant would suffer further damage if no injunction is granted immediately.
There is no requirement for prior notice. In urgent cases, the applicant can obtain the injunction order in 48 hours. If the injunction is granted, it is executed immediately.
In maritime cases, mandatory interim injunctions to compel a party to do something can be granted. For example, the court can issue an interim injunction compelling a carrier to issue a bill of lading.
Interim attachment orders are available pending judgment or final order. These orders are generally granted on the grounds that the execution of the final judgment may become impossible or difficult if the interim attachment order is not granted.
The parties can apply to the court for the interim attachment order. Alternatively, the court can also grant the interim attachment order on its own initiative if it deems it necessary.
Interim attachment orders can be obtained without prior notice to the defendant. In urgent cases, the court must make a decision within 48 hours of receipt of the application for the order.
The party must file the application for an interim attachment order with the court in charge of the main proceedings.
An attachment order does not create any preferential right or lien in favour of the claimant over the seized assets, but if more than one claimant seizes the property, they get paid in sequence (the claimant who seizes the property earlier takes priority over the claimant who seizes the property at a later time) unless the debtor runs into bankruptcy. Persons who already have a lien over the seized assets have priority over the claimants for compensation.
The claimant must compensate the defendant for any loss incurred from the wrongfully granted attachment order.
In practice, the court usually requests the claimant to provide security equivalent to the amount of the preserved property. If security is not provided, the application is rejected.
Evidence preservation and advance enforcement orders are also available.
A party can seek an evidence preservation order on the grounds that:
The evidence may be destroyed.
The evidence may be difficult to obtain at a later stage.
A party can seek an order for advance enforcement in one of the following circumstances:
There is an urgent need to stop infringement and eliminate obstruction.
There is an urgent need to compel a person to refrain from acting.
The claimant needs to immediately collect payments to purchase raw materials or tools.
The claimant needs to immediately receive insurance compensation to restore its business.
In maritime cases, the claimant can apply for a maritime claim preservation order and an evidence preservation order, in addition to a maritime injunction.
The following remedies are available:
Cessation of infringement.
Removal of obstruction.
Elimination of danger.
Return of property.
Restoration of original condition.
Repair, reworking or replacement.
Compensation for losses.
Payment of liquidated damages.
Elimination of impact and rehabilitation of reputation.
Generally, damages can only be compensatory. The court can grant damages for loss of profit and consequential damage if the party can prove the exact damage it has actually sustained. In certain cases such as consumer disputes, the damages can be punitive, and may amount to two or ten times the actual loss.
There are no specific rules (such as pre-trial discovery) under Chinese law specifying what documents the parties must disclose to the other party and the court. However, the court will find against a party who fails to present evidence, if it is proved that the party both:
Holds the evidence in relation to the case.
Withholds the evidence without justification.
The court can collect and examine the evidence, if either:
The court finds it necessary, because the case involves either:
facts that may infringe state interest, social public interest and the legitimate interest of others; or
purely procedural matters, for example, joining other parties to the claim, suspending the proceedings and terminating the proceedings.
A party asks the court to collect evidence, because:
the evidence is kept by the authorities and needs to be collected by the court;
the evidence involves state secrets, commercial secrets or individual privacy; or
for objective reasons, the party is unable to obtain the evidence that it needs to prove the case.
By law, electronic documents cannot be denied as evidence just because of the way they are generated. However, there are no specific evidence rules targeted at electronic documents.
Chinese law does not recognise the notion of privileged documents or any equivalent.
The without prejudice principle is not recognised under Chinese law either. In practice, the court looks at the surrounding circumstances and decides on the admissibility of evidence labelled "without prejudice", and different judges have different opinions on this issue.
Evidence involving state secrets, commercial secrets or private matters of individuals is kept confidential. If evidence of this kind must be presented in court, it cannot be discussed in a public court hearing.
Under the newly amended PRC Lawyer Law, a Chinese external lawyer must keep any information of his client or other person confidential, if his client or other person is unwilling to disclose it. This provision seems to give some protection of the attorney-client relationship. However, it has hardly been tested in practice, and it is unclear to what extent it entitles a Chinese lawyer to refuse a request from the court for disclosure of documents.
Witnesses are under a duty to testify in court hearings. At the exchange of evidence between the parties organised by the court or during the court investigation (see Question 9), a witness gives oral evidence, which is deemed as testimony made in a hearing. If a witness has difficulty in attending the hearing, with the court's approval, a written witness statement can be submitted or the witness can testify by video conference.
In practice, documentary evidence is considered more reliable than oral evidence, and a lot of witnesses choose to submit witness statements instead of testifying in court.
The parties are entitled to cross-examine witnesses of fact or, if the witness does not appear with the court's approval, the witness statement. If a witness or witness statement is not cross-examined, the witness's testimony cannot be admitted as evidence.
Expert witnesses testify in particular fields and can be appointed by a party, by mutual consent of the parties, or by the court.
The expert's role is to give his specialised knowledge or opinion within the scope of his expertise.
Experts are cross-examined by the parties and judges. With the court's approval, the testimony of an expert appointed by one party can be challenged by another expert appointed by the other party.
The party appointing the expert pays the expert's fees. If the expert is court-appointed, the parties share the costs.
Appeals are made to the court on the level immediately higher than that issuing the appealed order or judgment (see Question 3).
The grounds for appeal are the following:
The facts ascertained by the first instance court are incorrect or unclear because of a lack of sufficient evidence.
The laws applied by the first instance court are incorrect.
There is a violation of legal procedure, which may affect the result of the judgment.
An appeal against the first instance judgment must be brought within 15 days from the day the judgment is served, or within 30 days if the appellant has no domicile in China.
Under Chinese law, there is a representative action similar in some ways to class actions, organised in two ways:
If the number of litigants is fixed, the litigants can elect representatives to conduct the litigation, and the representatives' actions bind the litigants.
If the number of litigants is unknown, the court can issue a public notice to inform other potential claimants of the litigation, to provide them with the opportunity to file a claim. The claimants can elect representatives to conduct the litigation. If the claimants are unable to agree on a candidate, the court can select a candidate after consulting all those claimants who have filed a claim. The legal principles and analysis in any subsequent ruling of the court will bind all those who have filed a claim and those individuals who have not but file their claims at a later time.
However, a potential litigant who chooses to opt-out of a representative action can always file its own claim with the court.
Representative actions are funded by the parties who join the action. The court fees are advanced by the claimants before the litigation. In representative actions, the court can grant an extension for paying court fees and ask every claimant to pay its own share.
Unless the parties have agreed otherwise, the unsuccessful party must pay the successful party's court fees, including:
The case acceptance fee. (If a mediation agreement is reached the court refunds half of the case acceptance fee (see Question 9, Subsequent stages).)
Application fee for court orders (for example, property or evidence preservation orders).
Fees incurred by witnesses, translators, experts or a surveyor, for attending a hearing on a date designated by the court.
If each party wins partially, the court determines how to allocate the court fees between the parties, based on the specific circumstances of the case.
Usually the parties pay their own lawyer's fees. However, in IPR cases the court may order the unsuccessful party to pay the successful party's lawyer's fees, if these fees can be deemed as part of the reasonable expenses incurred by the successful party for:
Exercising its right(s).
Deterring the infringement of its rights.
Unlike in common law countries, there is no mechanism under Chinese law where the court may direct one party to partly pay the other party's lawyer's fees, if the other party proposes a pre-hearing settlement.
Interest is not generally awarded on costs.
If a party fails to voluntarily perform its obligation under the judgment, the other party can apply to the court for enforcement and the court directly transfers the case to the competent court for enforcement (see below). The party's application for enforcement must be made within two years from the last day of the period set out in the judgment for the losing party to perform its obligations.
The enforcement is executed by either:
The first instance court.
The court on the same level as the first instance court, in the place where the enforceable assets are located.
On receipt of an application by a party for enforcement or a transfer notice by a judge, the enforcement judge issues an enforcement notice to the non-complying party, requesting it to perform the judgment within a designated period. If the party fails to perform the judgment within the designated period, the enforcement officer will take compulsory measures to enforce it.
The party against whom the enforcement is sought must report its asset status, for the period from one year before its receipt of the enforcement notice, to the present date.
The enforcement court has the following powers, it may:
Issue an order to financial institutions to both:
check the accounts owned by the party against whom the enforcement is sought; and
freeze and transfer the party's deposits in an amount up to the obligations under the judgment.
Seize a party's income up to an amount not exceeding the obligation under the judgment.
Seal, seize, freeze, auction and sell the assets of the non-complying party, to ensure full compliance with its obligation under the judgment.
Issue warrants to search the residence of the party against whom the enforcement is sought, or the place where the assets are hidden.
Issue an injunction to prohibit the legal representative of the party against whom the enforcement is sought from leaving China.
Record the party's non-performance in a credit-ranking system and publish this information in the media.
Local courts generally respect a choice of law clause in a contract, provided the contract both:
Contains a foreign element.
Is not within a category to which Chinese law must apply.
In addition, courts apply Chinese law if the choice of law clause either:
Is contrary to the basic principles of Chinese law or the public interest.
Has an effect of evading the application of Chinese mandatory laws and regulations.
A contract contains a foreign element if:
A party to the dispute is a foreign person.
The disputed legal relationship was established, varied or terminated outside mainland China.
The subject matter of the dispute is situated outside mainland China.
Courts have widely held that pure domestic contracts, without any foreign elements, cannot be governed by the law of a foreign jurisdiction.
The following contracts are governed by Chinese law, despite a choice of law clause:
Sino-foreign equity joint venture contracts.
Sino-foreign co-operative joint venture contracts.
Sino-foreign co-operative exploration and development of Chinese natural resources contracts.
Contracts for the transfer of shares of a Sino-foreign equity joint venture or a Sino-foreign co-operative joint venture.
Contracts for a foreign party's investment in an enterprise in China free of foreign investment, by way of equity acquisition, subscription of increased capital or asset acquisition.
Before a court applies the chosen foreign law to the contract, the parties must prove the contents of the applicable foreign law. Some local courts reject submission of foreign lawyers' legal opinions as a way of proving the contents of the applicable foreign law, while other courts agree to accept them. If the parties fail to prove the contents of the applicable foreign law, the court applies Chinese law instead.
Local courts generally respect the choice of jurisdiction in a contract if either:
The contract contains a foreign element (see Question 25).
The jurisdiction has a practical connection with the disputed contract.
In the following cases, the local courts claim exclusive jurisdiction over a dispute, despite the choice of jurisdiction:
The dispute is purely domestic without any foreign element.
A dispute arises from the performance of a:
Sino-foreign equity joint venture contract;
Sino-foreign co-operative joint venture contract; or
Sino-foreign co-operative exploration and development of Chinese natural resources contract.
In a contract with a foreign element, if the parties agree the non-exclusive jurisdiction of a foreign court, and one party brings its claims before a local court, the local court will hear the case if, under applicable laws, the local court also has jurisdiction over the claims.
China is party to the HCCH Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil and Commercial Matters 1965 (Hague Service Convention).
China has also concluded a number of bilateral judicial assistance treaties that cover the methods of service, including those with France, Poland, Spain and Italy. Mainland China also has reciprocal arrangements with Hong Kong, Macau and Taiwan.
Service proceedings on a party in China should be conducted:
Under the relevant bilateral treaty or arrangement.
Under the Hague Service Convention. However, China has made a declaration under Article 2 and objected to Article 10. Therefore:
direct service by the serving country's diplomatic or consular agent only applies when the party receiving service is a citizen of the serving country; and
direct service by mail and other service methods under Article 10 are not allowed in China.
Through diplomatic channels on the basis of the reciprocity principle, if no convention or treaty applies.
The content of the legal document to be served must not violate China's sovereignty. The foreign country's consulate in China sends the legal documents to the PRC Ministry of Foreign Affairs, which then sends the legal documents to the relevant High People's Court. The High People's Court then sends the legal documents to the relevant Intermediate People's Court, which serves the party concerned. In addition, provided the action is not against Chinese law and no compulsory measures are taken, a foreign embassy or consulate in China can serve the legal documents on its citizens.
China is party to the HCCH Convention on the Taking of Evidence Abroad in Civil or Commercial Matters 1970 (Hague Evidence Convention). In addition, China entered into bilateral judicial assistance treaties with many countries including Russia, Singapore and Greece. Mainland China also has a relevant arrangement with Macau and Taiwan.
The procedure to take evidence from a witness in China should be conducted:
Under the relevant bilateral treaty or arrangement.
Under the Hague Service Convention. However, China has made declarations under Articles 23 and 33. Therefore, pre-trial discovery of documents is not possible in China. A diplomatic officer or consular agent can only collect evidence in relation to its own citizens, and not Chinese citizens or citizens of a third country, provided that the action is not against Chinese law and no compulsory measures are taken. Further, taking evidence by a commissioner is not allowed in China.
Through diplomatic channels on the basis of the reciprocity principle if no convention or treaty applies.
The procedure is similar to that for service (see Question 27).
Recognition and enforcement of a foreign judgment in Chinese courts can be performed in accordance with applicable international treaties or conventions, or be based on the reciprocity principle, if either:
The parties apply to the competent Intermediate People's court.
A foreign court asks the Basic People's court for recognition and enforcement.
However, in practice, local courts only recognise foreign judgments under treaties that China has entered into.
China has entered into many bilateral treaties in this respect, for example, with Belorussia, Bulgaria, Cuba, Cyprus, Egypt, France, Hungary, Italy, Morocco, North Korea, Poland, Romania, Russia, Spain, Thailand, Tunisia, Turkey, Ukraine, United Arab Emirates, and Vietnam.
China is not a party to any multilateral international treaty in this respect.
To recognise and enforce a foreign judgment, local courts (usually the Intermediate People's courts) review the judgment to determine whether the judgment:
Is final and binding.
Qualifies under the relevant treaty.
Is against the basic legal principles of China.
Infringes sovereignty, state security or public interest.
In 1998, mainland China passed a law in relation to recognition and enforcement of Taiwan's judgments. Mainland China also has arrangements on enforcement of judgments with Hong Kong and Macau. However, the enforcement arrangements between mainland China and Hong Kong are only limited to money judgments, provided that the parties have previous written agreements on the choice of jurisdiction.
The main ADR methods used in China are arbitration and mediation.
Arbitration is subject to the Civil Procedure Law, Arbitration Law and many judicial interpretations. The specific procedural rules depend on the arbitration institution chosen, since various arbitration institutions have their own rules.
Judges and arbitrators can conduct mediation and conciliation during the court proceedings (see Question 9, Subsequent stages). In addition, mediation can also be a stand-alone procedure conducted by mediators. In July 2009, the Supreme Court, through judicial interpretation, recognised settlements resulting from stand-alone mediation as a contract, and prescribed the procedure for a court to recognise its legal effect.
ADR is used widely in international trade, and in the construction and banking industries.
ADR only applies if the parties agree. The Civil Procedure Law provides that the court can promote conciliation during the proceedings (see Question 9, Subsequent stages). However, the court can only do so when the parties agree to it. If parties are not willing to participate in the conciliation, the court cannot compel it.
The procedure for giving evidence in arbitration is subject to the Arbitration Law, the arbitration rules of the arbitration institution chosen and the parties' agreement.
The following generally applies:
The parties produce evidence to support their own claims and arguments.
The arbitral tribunal can collect evidence on its own initiative if it deems necessary.
The arbitral tribunal can refer a special issue to an expert to examine.
The evidence must be presented at a hearing and cross-examined by the parties.
A party can apply for evidence preservation if the evidence may be destroyed or be difficult to obtain in future. The arbitration institution will forward the application to a competent court. Only the competent court can grant an evidence preservation order (see Question 14).
Generally, documents produced during (or for the purposes of) ADR cannot later be protected from disclosure by privilege, since there is no privilege principle or equivalent concept under Chinese law (see Question 17). However, the Arbitration Law and the arbitration rules of many arbitration institutions provide that arbitration must be held in private, unless otherwise agreed by the parties. The stand-alone mediation rules of the Beijing Arbitration Commission also provide that mediation is confidential unless otherwise agreed by the parties.
In arbitration and mediation, costs are calculated according to the specific arbitration and mediation rules. Generally, the costs are proportional to the disputed amount. Usually the arbitration costs are paid by the unsuccessful party.
The main bodies that offer ADR services are:
China International Economic and Trade Arbitration Commission (CIETAC). CIETAC is attached to the China Council for Promotion of International Trade (CCPIT). It has its headquarters in Beijing. CIETAC has its own arbitration rules, one feature of which is combining mediation with arbitration. It also provides a large pool of Chinese as well as foreign arbitrators (www.cietac.org).
China Maritime Arbitration Commission (CMAC). This is also attached to the CCPIT. It has its headquarters in Beijing, a sub-commission in Shanghai, and two liaison offices in Dalian and Guangzhou. It specialises in maritime cases, and has its own arbitration rules (www.cmac-sh.org).
Local arbitration commissions. Many local arbitration commissions were established following the Arbitration Law, which allows arbitration commissions to be established in the city which is the capital of a province or where there are districts. The number of cases arbitrated by local arbitration commissions has been growing.
Beijing Arbitration Commission. This was established in 1995 and is one of the local arbitration commissions. It provides arbitration and mediation. In 2007, it adopted stand-alone mediation rules to provide mediation services independent of and in connection with arbitration. The number of cases and disputed amounts arbitrated at the Beijing Arbitration Commission have increased rapidly in recent years (www.bjac.org.cn).
Local labour dispute arbitration commissions. Labour dispute arbitration commissions are established at county level (like the Basic People's Courts). Labour disputes must go through arbitration procedure before being litigated in court, and a local labour dispute arbitration commission is in charge of all the labour disputes arising in its region.
A revision of the Arbitration Law and the foreign-related chapter of the Civil Procedure Law is on the legislator's agenda. However, no official timetable has been announced.
Qualified. China, 1990
Areas of practice. Arbitration, litigation and other dispute resolution proceedings.