NEW Source of Chinese Law; Impact of Guiding Cases (re: “Malicious Collusion” & Trade Secrets)

Issue 7 of China Law Connect With headlines reporting the U.K. election results, Brexit, and U.S.-China trade negotiations, one may easily overlook an extremely important development in China: the emergence of a new source of Chinese law.  China’s national legislature just passed a decision (??) to authorize the country’s National Supervisory Commission (the “NSC”) to “formulate supervisory regulations in accordance with the Constitution and laws”.

The Delights of Winter  CLC Editors’ Selection

This newsletter covers:

  • NEW Source of Chinese Law and China’s Anti-Corruption Commissions
  • Law on Legislation and Guiding Cases (re: “Malicious Collusion” & Trade Secrets)
  • Guiding Cases and Growing Convergence of Legal Traditions
  • CLC Editors’ Selection: Artificial Intelligence and Big Data
  • 2020 Conference (Save the Date: July 15, 2020)

NEW Source of Chinese Law and China’s Anti-Corruption Commissions

With headlines reporting the U.K. election results, Brexit, and U.S.-China trade negotiations, one may easily overlook an extremely important development in China: the emergence of a new source of Chinese law.  China’s national legislature just passed a decision (??) to authorize the country’s National Supervisory Commission (the “NSC”) to “formulate supervisory regulations in accordance with the Constitution and laws”.

The NSC, China’s “highest supervisory organ”, came into existence after the Chinese Constitution was amended in March 2018.  The NSC and its local commissions are in charge of “handling duty-related violations of law and duty-related criminal cases” and are expected to “independently exercise, in accordance with law, [their] supervisory power”.  The commissions themselves are required to be transparent about their work as well as accept “social supervision” and “public opinion supervision”.

Only time can tell whether the supervisory commissions will evolve to become truly independent entities that can combat corruption and other duty-related crimes, thereby helping build a fair society that will serve both Chinese citizens and foreign investors.

What is immediately clear is that China’s Law on Legislation, a national law that explains the sources of Chinese law, should be amended as soon as possible to include “supervisory regulations” and address at least the following issues:

  • What is the status of “supervisory regulations” in the hierarchy of sources of Chinese law?
  • Given that the supervisory commissions are subject to “social supervision”, will citizens have an effective channel through which they can point out inconsistencies between supervisory regulations and the Constitution or a national law and urge authorities to repeal supervisory regulations that are in conflict with more superior sources of law?

Law on Legislation and Guiding Cases (re: “Malicious Collusion” & Trade Secrets)

Since the Law on Legislation was adopted in the year 2000, it has only been amended once (in 2015).  When the national legislature turns to the amendment of the law to explain the legal status of “supervisory regulations” and related issues, it should seize the opportunity to include in the law a clear reference to Guiding Cases, China’s de facto binding precedents that are currently regulated by rules released by the Supreme People’s Court.

Specifically, a formal recognition of the significance of the “Main Points of the Adjudication” of each Guiding Case should be considered.  Carefully prepared by the Supreme People’s Court to guide the adjudication of similar subsequent cases, the “Main Points of the Adjudication” of each Guiding Case typically clarify how specific legal rules should be interpreted and applied when courts handle similar issues.

The year 2020 marks the 10th anniversary of the establishment of the Guiding Cases System.  Legal practice and various empirical data over these years have revealed the growing importance of Guiding Cases.  Two pieces included in Issue 7 of China Law Connect (“CLC”; ISSN 2576-1927 (PRINT); ISSN 2576-1935 (ONLINE)) are illustrative:

  • In a China Cases Insight™ piece, Zhaoyi Song, Assistant Managing Editor of the China Guiding Cases Project (the “CGCP”), analyzes 26 subsequent cases that explicitly mentioned Guiding Case No. 33 (Cargill International S.A. v. Fujian Jinshi Vegetable Oil Producing Co., Limited et al., A Dispute over Contracts Affirmed to be Invalid).  He explains, through his in-depth analysis, how these subsequent cases shed a better light on the “Main Points of the Adjudication” of Guiding Case No. 33, which provide, among other guidance:

Where a debtor transfers [its] principal property to an affiliated company at a clearly unreasonably low price and the affiliated company, with knowledge of the debtor’s indebtedness, does not actually pay consideration [for the principal property], [a people’s court] may determine that the debtor and its affiliated company have maliciously colluded to harm the interests of [the debtor’s] creditors.  [The people’s court] should then determine that the related property transfer contract is invalid.

Among these subsequent cases is one decided by the Supreme People’s Court, in which the Supreme People’s Court clearly stated that the lower court in that case made a mistake because a party referred to Guiding Case No. 33 but the lower court, in defiance of rules issued earlier by the Supreme People’s Court, made no comments on the applicability of the Guiding Case, as if this case was never mentioned by the party.

For detailed analysis and a complete list of all subsequent judgments/rulings which explicitly mention Guiding Case No. 33 (identified through September 30, 2019), see http://cgc.law.stanford.edu/commentaries/clc-7-201912-insights-7-zhaoyi-song.

Guiding Cases and Growing Convergence of Legal Traditions

The growing significance of Guiding Cases is not an anomaly in a legal system that has traditionally emphasized legislation.  As observed by Chief Judge Diane P. Wood of the United States Court of Appeals for the Seventh Circuit in her article titled Some Observations About Judicial Precedents, which is published in Issue 7 of CLC:

Legal traditions around the world have for a long period of time been largely divided into two groups: civil-law and common-law traditions. […] However, there has been a growing convergence between these two different legal traditions.  Many common-law jurisdictions now base their legal systems on a comprehensive body of statutes, but then use precedential case law decisions to further flesh out the meaning of these statutes.  Conversely, many civil-law jurisdictions are now permitting certain courts to issue decisions that are, to some extent, binding on lower courts.  Against this backdrop, the release of Guiding Cases designated by the Supreme People’s Court of China as having de facto binding effect, is another example of a country seeking to improve its legal system by supplementing legislation with judicial decisions.

Driven by the need to effectively apply Guiding Cases, a growing number of Chinese lawyers are seeking to learn more about the use of cases in practice.  In October 2019, Judge William A. Fletcher(United States Court of Appeals for the Ninth Circuit) and Dr. Mei Gechlik (Founder and Director of the CGCP) provided training related to this topic to nearly 40 lawyers from different parts of China.  The lawyers found it very useful.  One lawyer shared the following thought:

The use of Guiding Cases, which are model cases showing equitable application of law, to supplement reasons for adjudication is conducive to the equitable adjudication of cases and persuasion of parties to accept the adjudication results.  As lawyers, who are to apply the law and carry out justice, we should keep our faith, never forget our original intentions, apply the law correctly in handling each case, and help build the cornerstone of fairness and justice through individual cases.

Other lawyers’ comments are available here.  After the training, Judge Fletcher adapted his talk to produce an article titled Deciding Cases in the American Case-Based System, which is also included in Issue 7 of CLC.

Apart from the above training, in October, Dr. Gechlik also shared her thoughts about U.S.–China relations with Stanford’s undergraduate students, spoke to Stanford Law School students enrolled in the Global Quarter Program (which provides instruction on different legal systems), and participated in a panel titled “International and Global Law: From Education to Practice” during Stanford’s Alumni Weekend.

Issue 7 of CLC ends with a piece of art titled “The Delights of Winter” created by Mr. CHEN Xuncheng, a master of ceramic art.  The covers of the four issues of CLC published in 2019 are uniquely beautiful.  We are very grateful to Mr. Chen for letting us use his art to decorate these covers.

CLC Editors’ Selection: Artificial Intelligence and Big Data

2020 Conference (Save the Date: July 15, 2020)

Since the CGCP launched CLC in June 2018, the number of our website users has increased from 75,000 to 130,000 (mostly from Australia, China, Japan, the United Kingdom, and the United States).  This rapid increase in our readership has given us a vote of confidence in our quality work.  As 2019 is coming to a close and 2020 is going to begin soon, we hope you can take the following steps to support us:

(1) Purchase the CLC issues published in 2019: Issue 4, Issue 5, Issue 6, and the newly released Issue 7, individually, or all together at a discount;

(2) Purchase a subscription to receive all CLC issues to be released in 2020;

(3) Purchase the new CLC Editor’s Selection: Artificial Intelligence and Big Data and get all of the following CLC articles at a discount:

(4) Plan to attend our conference titled “China’s Guiding Cases: From the First Ten Years to a New Era” (“????????????????”), which will be held on July 15, 2020, in Beijing.    (Details will be announced soon.  Interested in sponsorship and speaking opportunities?  Please contact Jennifer Ingram, Managing Editor of the CGCP, at jaingram@stanford.edu)

and/or

(5) Donate USD1,000 or more (tax deductible) to receive all of the above.  Please email a copy of your donation receipt to jaingram@stanford.edu.  (Make sure to choose “China Guiding Cases Project Fund” from the drop-down menu on the online donation page):

The CGCP thanks the following sponsors for their kind and generous support:

Alston & Bird LLP, the Center for East Asian Studies of Stanford UniversityChina Fund of the Freeman Spogli Institute for International Studies of Stanford University, Dentons (Beijing), the Fu Tak Iam Foundation LimitedInternational and Foreign Language Education (IFLE) office of the U.S. Department of Education (grant 84.015A), Karisma Institute, the McManis Wigh China Foundation, PanUSAThird Classroom, and Tencent Research Institute.

Since it was founded in February 2011 to help China establish a more transparent and accountable judiciary, the CGCP has shared significant insights about the country’s Guiding Cases and related developments, including the Belt and Road Initiative. To continue receiving messages that highlight these insights, please subscribe to our mailing list here.

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