International Litigation - China – Zhou Qiang

ZY PARTNERS(“ZY”) is a law firm based in Beijing providing legal services across Chinese mainland. We are a boutique law firm specialised in litigation practice with a remarkable proven track record, especially in the fields of foreign-related intellectual property (“IP”) and commercial dispute resolution.

Many of the cases represented by ZY are ranked as one of the Top Ten most Influential Cases of the Year, Guiding Cases or Reference Cases by the Supreme People’s Court of China (“the SPC”), the Beijing High People’s Court and local people’s courts in other parts of China. One of the appellate cases represented by ZY, i.e., the dispute over shareholders’ capital contribution between Thumb Env-Tech Group (Fujian) Co, Ltd. and Sino-Environment Technology Group Limited, even created a number of FIRSTs since the establishment of the SPC, namely: (1) it was the first time for the SPC to set up a grand collegial bench with five justices to hear a civil case; (2) it was the first time for the SPC to declare a ruling on the case right after conclusion of an oral argument, in which our client prevailed; and (3) it was the first time for the SPC to invite a large number of foreign envoys and foreign media in Beijing to observe the hearing.

We attribute the achievements mainly to our effective litigation strategies and the excellent performance in trial of our lawyers, in particular:

(1) combining the lawyer’s way of thinking with that of the judge’s. I used to be an SPC judge before starting private practice, and I have educational backgrounds in both Chinese and American law; therefore, I possess both the way of thinking like a lawyer and a judge in representing cases. “Lawyer’s way of thinking” refers to the ability of summarizing facts and legal issues in a case and making best arguments for our clients before the court, while “judge’s way of thinking” refers to the ability of making a ruling which is not only fair but also practical. Through this combination, we customize litigation strategies that meet clients’ expectations and are practically feasible;

(2) conducting thorough legal research and case searches out of court. With the development of judicial adjudication in China, almost every legal provision has formed corresponding specific legal analysis on its understanding and application, as well as supporting cases. Before a trial, a lawyer should not only fully ascertain facts of the case, but also conduct full and thorough legal research as well as case searches in order to locate the most favorable legal theories and supporting cases for the client. Lawyers should also anticipate and prepare for any possible counterarguments from the opposing party, including evidence, legal basis and potentially cited negative reference case law, etc., and timely adjust litigation strategies; and

(3) performing full presentation and arguments persistently in court. Unlike a common-law trial, Chinese judges dominate the whole trial process. In this context, a lawyer needs to fully express his or her position and arguments under the premise of obeying the judge’s command. This is particularly important when a judge intentionally or unintentionally overlooks or weakens a material issue on the finding of facts or the application of law. Some lawyers, out of politeness, hold back their opposing views before the judge, expecting to stress and explain such views in a written post-hearing brief submitted after the trial. However, some judges do not attach importance to the post-hearing brief, do not read it carefully or even do not read it at all. As such, a lawyer should have courage and be skillful at correcting the erroneous understanding of the opposing party or the judge on the facts finding or application of law, in an acceptable manner.

In my over 30 years’ practising experience, when a lawyer fully implements the three litigation strategies above, to obtain a practical and desirable result in a litigation is not too difficult.

ZY represent clients commencing civil or commercial proceedings as plaintiffs, or defending their interests as defendants or third parties. Broadly speaking, our workflow consists of following steps: (1) conducting a search of conflict of interest; (2) signing an engagement letter; (3) designating a lawyer to handle the case or forming a team of lawyers when necessary; (4) conducting legal research and case searches, and collecting evidence; (5) preparing for case filing or responding to a complaint, including drafting litigation documents, collating evidence, filing a lawsuit, or submitting response formalities and defence with evidence, etc.; (6) conducting pre-trial rehearsals; (7) attending the court hearing; (8) drafting and submitting a post-hearing brief; (9) receiving rulings served by the court; and (10) filing an appeal or applying for enforcement. Depending on the actual situation and complexity of a case, the certain above steps can be simplified or omitted, but most cases must go through the above steps.

Most clients of ZY are foreign-related companies or individuals, including: (1) foreign companies having trade relations with China parties; (2) multinational companies and their invested companies in China (wholly foreign-owned enterprises, Sino-foreign joint ventures and Sino-foreign contractual joint ventures); (3) foreign citizens residing in China; and (4) Chinese companies and individuals engaging in international investment or trade with foreign counterparts, etc.

In the anti-unfair competition litigation filed by Jaguar Land Rover Limited (“Land Rover”) against Jiangling Holdings Co., Ltd. (“Jiangling”) and Beijing Dachang Landwind Automobile Sales Ltd. (“the Land Rover Case”), ZY represented Land Rover in the first-instance procedure and the second procedure. In May 2021, the Beijing Intellectual Property Court rendered the final judgement, upholding the findings and views in the first-instance judgement on the infringement and remedies sought. The final judgement found that the “Range Rover Evoque” model of Land Rover falls into the scope of the “influential decoration” as stipulated in the PRC Anti-Unfair Competition Law, and that Jiangling’s use of such exterior design in its Landwind X7 model constituted unfair competition. The courts also fully supported Land Rover’s claim for compensation.

The Land Rover Case is the first litigation case involving comparison of an entire vehicle in China for a plaintiff to obtain protection of the exterior design of a car against unfair competition, which is a milestone in the history of automobile rights protection. This case is also of great significance for optimising the development environment in China for automobile companies and boosting their confidence in their rights protection.

ZY are more active in litigation, mainly in foreign-related IP litigation and foreign-related commercial litigation. ZY lawyers have always been committed to pursuing quality and professionalism, and have made considerable achievements, formed advantages and specialties in representing these two types of cases. Since 2009, ZY and their major partners have been ranked as China’s “Top Ranked Law Firm” and “Top Ranked Lawyers” in IP area every year for their outstanding performance. The ranking lists include Managing IP, Chambers Asia-Pacific Guide, IAM Patent 1000, WTR 1000, etc. With the surge in the number of company bankruptcy cases, our foreign-related commercial litigation team continues to be active and leading in areas of cross-border insolvency, including litigation to recover assets and company takeovers.

With regard to ADR, in China, it is mostly referred to mediation, which can be done both in litigation and arbitration led by judges and/or arbitrators based on both parties’ free will. In our practice, we always encourage our clients to participate in the mediation because if a dispute could be solved through mediation, a quick and completed enforcement such as damage compensation and collections, can be reasonably expected.

I have not yet identified which certain industries or companies are more suited for litigation or arbitration. In China, the basic methods of resolving civil and commercial disputes are litigation and arbitration. The difference between litigation and arbitration is primarily procedural rather than substantive. In other words, arbitral awards have the same binding and enforceable force as court judgements. Arbitration is “final in one instance”, while litigation is “final after trials by two-tier courts” in China. The arbitration hearings and arbitral awards are not open or available to the public, while the litigation cases are tried openly and rulings are available to the public as a principle with exception in several circumstances. Therefore, it is best for a client seeking efficiency and privacy to choose arbitration as the dispute resolution method; if a client believes that arbitration is too risky based on the above characteristics, it may choose litigation instead.

Since the dispute resolution clause of most commercial contracts is generally determined by non-litigation lawyers or in-house counsel when drafting a contract, and companies usually engage litigation lawyers after disputes arise, litigation lawyers usually do not have a say on whether to choose litigation or arbitration.

The main challenges in litigating on a cross-border level in China are as follows:

(1) the choice of a competent court. The PRC Civil Procedure Law (“CPL”) stipulates the competent courts having jurisdiction over foreign-related cases which include: the court at the place where a contract is signed or performed, where the subject matter of action is located, where the impoundable property is located, where the tort occurs or where the domicile of the representative office is located. When two or more courts have jurisdiction over an action, we should give serious consideration to choosing a court to file the lawsuit. China is a unitary country, so all courts nationwide apply the same CPL in their cases. However, due to the different degrees of openness, experiences in handling foreign-related cases and judges’ philosophy, the duration of case proceedings and even the outcome of a judgement may differ significantly. Therefore, before filing a lawsuit, it is advisable to conduct corresponding research to identify the most suitable court.

(2) the collection of evidence. The CPL stipulates that “a party shall have the burden to provide evidence for its claims”, and there is no “discovery procedure” in PRC litigation. According to the Interpretation of the Supreme People’s Court on the Application of the Civil Procedure Law and Several Provisions of the Supreme People’s Court on Evidence in Civil Actions, a party has the right to apply for the court to investigate and gather any primary evidence necessary for the trial that the party is unable to gather for objective reasons, or apply for the court to order the opposite party who controls the documentary evidence to submit such evidence. However, such an application should meet certain conditions, and subject to the court’s approval, the outcome is uncertain. Therefore, in civil litigation in China, a party mainly relies on its own abilities of evidence collection to support its litigation claims.

Further, the CPL provides specific requirements on original evidence. Courts usually require the party submitting the original documentary evidence and physical evidence. If the original is not displayed in court, it will be difficult for the court to determine the authenticity of the evidence unless the opposing party admits it.

(3) the application of law and the ascertainment of foreign law. Foreign-related litigation involves the application of foreign law or Chinese law. The Law of the People’s Republic of China on Choice of Law for Foreign-related Civil Relationships stipulates the application of law to foreign-related civil legal relations. For example, Article 14 of the Law stipulates: “The laws at the locality of registration shall apply to such items as the civil rights capacities, civil acts capacities, organizational institutions, rights and obligations of shareholders, etc. of a legal person and its branch.” Apparently, if foreign parties are involved in China litigation and issues addressed in Article 14 above are encountered, the application of foreign law would be mandatory. Generally speaking, judges in every country are more willing to apply laws in their own countries that they are familiar with to adjudicate cases, rather than foreign laws. However, when it comes to the mandatory application of foreign law, especially for judges with less experience in handling foreign-related cases, it becomes a difficult issue. Judges need to ascertain the exact content of the foreign law and analyse how to apply the foreign law. ZY lawyers generally adopt the following two methods to assist Chinese judges understanding the content of foreign law in order for the courts to adjudicate based on the correct application of law: (i) obtaining the exact text of the foreign law through official channels, translating it into Chinese and providing it to the Chinese courts; and (ii) engaging foreign lawyers to provide legal expert opinions or reports on the content and application of the law.

Certainly, for cases where the application of foreign law or Chinese law has little impact on the outcome, we suggest our foreign clients agree on applying Chinese law, which greatly facilitates Chinese courts in terms of application of law and also benefits the timely adjudication of cases and resolution of disputes.

Yes. ESG litigation does not have a unified definition. In China, it mainly refers to labour litigation, environmental dispute litigation, etc. Simply from the perspective of environmental litigation cases, such cases have increased significantly.

In recent years, the Chinese government has strengthened environmental protection. The SPC and the High People’s Courts have set up Adjudication Tribunals for Environment and Resources, and some intermediate people’s courts have also set up special tribunals to handle cases on environment and resources.

According to the Environment and Resources Adjudication of China (2020) released by the SPC, in 2020, courts across the country heard 253,000 environment and resources cases of various types, among which, the number of civil environmental cases, administrative environmental cases, criminal environmental cases as well as environmental public interest litigation (“EPIL”) cases concerning ecological and environmental damage of first-instance all increased, with each category increasing by 98.69%, 6.88%, 17.30%, 68.05% and 48.98% respectively year-on-year.

According to the Environment and Resources Adjudication of China (2021), in 2021, courts across the country accepted a total of 297,492 first-instance environment and resources cases, an increase of 8.99% year-on-year.

According to the Environment and Resources Adjudication of China (2022), in 2022, courts across the country accepted a total of 273,177 first-instance environment and resources cases. Although the number decreased slightly year-on-year, but it is still higher than that in 2020.

There are challenges associated with the ESG litigation. Among the hot topics related to ESG, ESG litigation has not received much attention, and relevant theoretical research and judicial practice are still in their infancy. For example, after China introduced a “dual carbon national goal” of reaching peak carbon emissions before 2030 and achieving carbon neutrality before 2060, the SPC issued Environment and Resources Case Categories and Statistical Rules (for Trial Implementation) (Fa [2021] No. 9) in 2021, creating a new cause of action called “Climate Change Response Case”, which refers to criminal, civil, administrative and EPIL cases arising from the process of dealing with the direct or indirect impact of climate change, such as greenhouse gas emissions and ozone-depleting substances. However, no actual case has emerged under this cause of action so far, and research and practice in this area should be further strengthened and explored.

During the three-year lockdown period, Chinese courts primarily conducted trials by video links. The CPL revision in 2021 has stipulated that “civil litigation activities may be conducted online through information network platforms subject to a party’s consent. Civil litigation activities conducted online through information network platforms have the same legal effect as offline litigation activities.” After the lockdown period, a party to the action still has the right to choose whether to attend a hearing online, and the courts usually respect the choice of each party. Since an offline hearing in courtroom provides a face-to-face environment, it is more convenient for the parties to display evidence, cross-examine and debate, and for the judges to conduct court investigation and questioning. Therefore, the traditional court hearings have become the basic hearing method again.

In China, the impact of COVID 19 pandemic on the digital economy has yet to be assessed. The most direct impact is that a large number of small-sized enterprises, even medium-sized enterprises, face survival challenges. People’s purchasing power has decreased significantly. Some law firms also suffer declines in case volume, decreases in clients and sharp declines in revenue. Obviously, although the lockdown was over, adverse effects are still affecting our life and business.

Communications between or among litigation lawyers are necessary. This is an important way to improve the professional level of litigation lawyers and is a channel to gather opinions from the litigation community to express petitions to relevant authorities.

ZY lawyers usually engage in the following activities: (1) exchanging and sharing experience by participating in seminars, publishing professional articles on the website and WeChat public account of our firm, etc. We summarise the problems encountered in our practices, and share our experience, which receive positive responses from our peers of other firms, clients and legal circle; (2) exchanging and sharing experience through professional platforms of the Lawyers Association. Our lawyers hold positions in various Professional Committees of the Beijing Lawyers Association, such as the Litigation Committee, and actively introduce and share experience on relevant platforms; and (3) communicating and sharing experience with international peers. By representing in cross-border litigation and arbitration, we have established long-term collaboration relationships with foreign lawyers, under which we refer cases to each other, or we represent the same clients on same or similar disputes side by side in respective jurisdictions if it is necessary.

By means of the events, we have increased our lawyers’ popularity, improved the professional skills and competence. More importantly, by voicing collectively, we convey litigation lawyers’ requests to the competent authorities, which has promoted the reform and progress of the litigation system in China.

The development of high technology has brought great convenience to the legal profession, including litigation lawyers, mainly in translation, collation of legal provisions, case searches, etc. It is reasonable to expect that, in the near future, AI will play a more and more important role in helping lawyers draft litigation documents. As for whether AI can replace a lawyer to manage all litigation works, especially drafting litigation documents and appearing in court, it is yet to be tested. In my opinion, if one day AI masters the abilities to replace lawyers, it will also have the abilities to replace judges. In my opinion, under the premise of established case facts, an AI judge would perform better than an AI lawyer.

On June 17, 2021, the SPC promulgated the Rules of Online Litigation of People’s Courts, promoting the application of online litigation in courts across China. Since January 1, 2022, it has been confirmed by the then revised CPL that online litigation activities have the same legal effect as offline litigation activities. Nowadays, Chinese courts could handle cases electronically throughout the whole process, regardless whether it is an Internet Court or not. For lawyers, we can handle litigation activities online, such as filing lawsuits online, participating in an online hearing or mediation, receiving electronic documents served by courts, and leaving a message to communicate with the judge through the court’s electronic litigation platforms, etc. Online litigation provides great convenience for lawyers and clients, saving time and costs, etc. However, for big and important cases, I believe main procedures, such as evidence exchange, cross examination on evidence or witnesses, arguments on major issues, etc., should be performed in the courtroom directly before the judges with both parties’ participation.

On September 1, 2023, the Standing Committee of the National People’s Congress of China, the country’s top legislative body, adopted the Draft Amendment to the Civil Procedure Law of the People’s Republic of China. The New Civil Procedure Law will come into force from January 1, 2024 (“the New CPL”). The New CPL, with the amendments focusing on Part Four “Special Provisions on Foreign-Related Civil Procedures”, provides more optimised measures for handling foreign-related cases by adopting previous judicial experience. The amendments cover 18 articles, including:

(1) revising the provisions on jurisdiction to further expand the jurisdiction of Chinese courts over foreign-related cases, including extending the court’s jurisdiction to cover any foreign-related civil dispute as long as it has appropriate connections with the PRC (Article 276), recognising the court’s jurisdiction based on the parties’ agreement on people’s courts’ jurisdiction (Article 277) and the party’s response to a complaint with a defence or raising a counterclaim (Article 278), as well as increasing the types of exclusive jurisdiction (Article 279);

(2) adding new provisions to deal with the parallel litigation, including providing principles to handle the conflict of jurisdiction between a PRC court and a foreign court (Articles 280 and 281), clarifying the term of “inconvenient court” for which the court may reject a lawsuit (Article 282);

(3) adding new methods of service to improve the efficiency of service of foreign-related litigation documents (Article 283);

(4) adding new measures to investigate and collect evidence overseas that, unless prohibited by the law of the country where a party or a witness is located, a Chinese Court may entrust the Chinese embassy or consulate in that country to collect evidence or collect evidence through instant communication tools or by other means agreed by the parties (Article 284);

(5) clarifying rules on the enforcement of PRC arbitral awards outside the territory of China (Article 297) and the recognition and enforcement of foreign arbitral awards in China (Article 304). Namely, (i) the claimant in the first scenario will be allowed to select either a Chinese Court or a foreign court for recognition (if necessary) and enforcement of a PRC arbitral award (Article 297); and (ii) the claimant in the second scenario could apply directly to a competent Chinese Court for recognition and enforcement of a foreign arbitral award (Article 304);

(6) clarifying rules on the examination of the application for recognition and enforcement of an effective judgement or ruling of a foreign court (Articles 298 – 303); and

(7) adding a provision on the immunity of foreign States (Article 305). It stipulates that the PRC laws in relation to the immunity of foreign States apply for civil litigation concerning a foreign State, and the New CPL applies if the relevant law does not contain any provisions. This is an echo of the promulgation of the Law on the Immunity of Foreign States promulgated on 1 September 2023 by the Standing Committee of the National People’s Congress of China of the PRC, which will take effect on 1 January 2024.

The New CPL will have a significant impact on foreign-related litigation in China. Anyone who is interested in the New CPL is welcome to contact me for further information and understanding.