Commercial Litigation in China

Commercial litigation involves every aspect of dispute that arises in the context of doing business from partnership disputes, breach of contract, business torts to shareholders issues. For success in any commercial litigation, it is significant for the litigator to assess the merits of the dispute and develop either a defence or prosecution that meets the needs of the client. Creativity, efficiency and sound judgement are significant in the positioning of such disputes. With the rapid development of the Chinese economy over the last two decades, it has attracted investors from all over the world who conduct business with partners from China. However, due to the slow growth of the global economy, disputes between foreign investors and Chinese business people have been on the rise. This has led to the revealing of the different problems facing commercial litigation in China. Some of the major problems facing commercial litigation in China include judicial competence, judicial independence and mediation.

The quality of the judicial system remains a major problem in China. This is ore with the basic level courts in poor regions. It has always been noted by the critics that only a half of the PRC judges have a college degree and some not in law. Basic level courts make up 80% of all the courts in China most of which are in the rural areas. These courts handle the minor property disputes commonly handled by magistrates in other countries. These courts normally base their decisions on local norms rather than decisions based on formal law. This presents a problem mostly when dealing with foreign investors who may not be familiar with the local norms.

Considering that there are many ways through which one can influence the courts, judicial independence is a complicated topic. The courts in China are independent in some areas while compromised in other politically sensitive areas. As experienced by most of the developing countries, judicial independence has to be balanced with the need for judicial accountability. This, in turn, works to enhance the independence of incompetent and corrupt judges. In China, it is common for the government to intervene in cases involving key sectors, when the amount of money at stake is high, when the commercial litigation is significant to local or national interests and when the case outcome can affect a corrupt government official who is responsible for any decisions that may lead to losses for the Chinese company in the litigation. The government fuels these concerns through policies. In 2006, the government announced that some industries including oil, telecommunications, electricity, civil aviation, coal, shipping and armaments should remain under absolute state control. Others such as automobiles, manufacturing, architecture, science, chemicals, steel and electronics were to remain under relatively strong control by the state. Commercial litigation cases involving these industries are highly influenced by the political factors rather than the courts playing a dominant role.

Mediation has always been a major form of resolving disputes in China where several forms of mediation are practiced. However, over the years, mediation has been on the decline mainly because it is hard to enforce a mediated settlement. However, in 2002, the justice ministry initiated new emphasis on mediation. They worried that more cases were being appealed adding to the costs to the judiciary. Judges themselves feared the appeals for fear of reversed decisions, which might affect one’s reputation thus reducing chances of promotion. This emphasis has led to consequences. Judges are caught in the center of efficiency and mediation rate. Some judges go to the extreme of forcing the parties to accept the mediation results. This affects many businesses especially when enforcement fails.

The significance of law in Asia has been slighted mainly because much focus has been on enforcing contract rights. However, the importance of creating a business-friendly environment is also important. Institutions such as the courts have to be empowered to enforce the regulations efficiently and effectively. The major problem in China has been on the lack of transparency in the making and implementation of laws. Today, the government has done a lot to ensure that there is a favourable environment for the foreign and domestic investors. There are new forms of investment and new types of partnerships that investors can engage in.

The government in China has remained committed to ensuring there are market reforms. The general trend has been that the government is open to trading through the government is rethinking this strategy based on the protective strategies employed by other developed countries to protect their national economies. Since the year 2000, economic disputes have increased rapidly in China. The government has made several reforms to increase the fairness and efficiency of the litigation process. Reforms include reforms on rules and evidence, case management systems, time limits and different stages of the litigation process. In 2006, for example, 95% of all the commercial litigation cases were completed within the set timeline.
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