On May 13, 2015, the highest judicial institution in China, the Supreme People’s Court, issued theDetailed Rules of Implementation of the Provisions of the Supreme People’s Court on Case Guidance Work (“《最高人民法院关于案例指导工作的规定》实施细则”) (“Detailed Rules”).  This judicial interpretation marks a significant step in improving the Case Guidance System (案例指导制度) in China’s judiciary.  In the past five years, ten sets of cases totaling fifty-two cases (see Appendix) have been released by the Supreme People’s Court.  The so-called Case Guidance System was formally established on November 26, 2010, with the issuance of the Provisions of the Supreme People’s Court on Case Guidance Work (“最高人民法院关于案例指导工作的规定”).

In practice, a foreign investor coming from a common law system may be confused about the case guidance system when placed in situations where a Chinese subsidiary is involved in litigation before the civil law court system here.  Under a common law system, the legal principle of stare decisis[1] refers to a decision made by a court creating a binding precedent that the court itself and lower courts are obligated to follow.  A superior court can overturn inferior court precedents but should not overturn its own precedent unless there is a strong reason to  reverse or modify settled matters.  In the United States, for example, there is both vertical and horizontalstare decisis at both the state and federal level creating many layers of binding precedent on state and federal laws as well as constitutional questions.  Additionally, courts in the US on matters of first impression in a jurisdiction can, and often do, look to precedents from other jurisdictions to guide their decisions.  These guiding precedents that are not binding on the court’s legal analysis are often characterized as persuasive authorities.

A foreign investor would benefit from approaching China’s civil law case guidance system, not as a direct comparison to binding precedents established through stare decisis, but though the lens of how persuasive authorities influence common law courts.

Limited Binding Effect of the Guiding Cases

In the trial practice of a people’s court, a guiding case has no binding effect such as codified law and regulations, and therefore cannot be directly cited as a law in a judgment.  However, a guiding case can be cited in the reasoning part of a written decision.   The legal basis is as follows.

Article 7 of the Provisions of the Supreme People’s Court on Case Guidance Work provides that,

“With respect to guiding cases published by the SPC, the people’s courts at all levels shall take them as reference when trying similar cases.” 

Also, Article 9 of the Detailed Rules provides that,

“Where a case under adjudication by a people’s court at any level is similar to a guiding case published by the Supreme People’s Court in terms of basic facts and the application of law, the people’s court shall render a judgment/ruling by reference to the headnotes of the judgment/ruling on the guiding case.”

Therefore, the binding effect of a guiding case is limited by the law to a reference rather than a binding precedent that must be followed.

Further, Article 10 of the Detailed Rules provides that,

“When a people’s court at any level refers to a guiding case in the adjudication of a similar case, it shall quote the guiding case as part of the reasons for judgment/ruling, but shall not quote the same as a basis for judgment/ruling.”

Thus, a civil law judge is not allowed to use the guiding cases as the legal basis in the judgment.  Rather, a judge can refer to a guiding case in the reasoning part of a judgment.  This would be comparable to a common law judge looking to the dicta[2] from another published decision as guidance for developing their legal reasoning, but legal dicta is not in and of itself a legal basis for a decision.

Although the binding effect of a guiding case is limited compared to the precedents in a common law system, the Detailed Rules give a judge less discretion to ignore a guiding case in its judgment.

Article 11  of the Detailed Rules provides that,

“During the process of case handling, case handling officers shall search relevant guiding cases. Where relevant guiding cases are quoted in written judgments/rulings, the serial numbers of the guiding cases, and the headnotes of their judgments/rulings shall be quoted as part of the reasons for judgment/ruling.

Where the public prosecution organ of a case, or the parties to a case and the defense counsel or the agent ad litem thereof cite a guiding case as part of the reasons for prosecution (defense or litigation), the handling officers of the case shall respond in the reasons for judgment/ruling whether the guiding case has been referred to, and explain the reasons therefor.”

Accordingly, a judge is obligated to search the guiding cases during the trial and is obligated to refer to the guidance cases on the condition that the case in trial is similar to the guiding cases “in terms of basic facts and the application of law”.  In particular, if the judge decides not to refer to the guiding cases when the guiding cases have been cited by the parties, the judge is obligated to explain the reasons for not following the guiding cases.

Reasons Behind the Difference

The reason behind the difference between a guiding case and a precedent is rooted in the role of a court in a Chinese civil law system and a common law system.

Different from the role of a judicial branch under a common law system, in China, the power of a people’s court is limited to the trial of a case and a judge is not allowed to strike down laws or interpret laws, altering their practical effect or application.

Under PRC Constitution, the role of interpreting the law is solely vested in National People’s Congress, NPC, the legislative body in China.  However, the Supreme People’s Court is empowered to issue judicial interpretations guiding lower courts to apply the law.  The legal basis for the Supreme People’s Court to issue judicial interpretations is Article 32 of the Organic Law of the People’s Courts of the People’s Republic of China (2006 Amendment),

“The Supreme People’s Court gives interpretation on questions concerning specific application of laws and decrees in judicial proceedings.”

However, in a common law system, for example in the United States, a ruling issued by the Supreme Court can set a precedent altering the application of laws enacted by Congress.  The Supreme Court is entrusted with the responsibility to determine the constitutionality and enforceability of laws through its power of judicial interpretation.

Outside the Guiding Cases

The Detailed Rules in its Article 2 gives a definition of a guiding case as follows:

“Guiding cases shall refer to cases that meet the following requirements: the judgments/rulings rendered on such cases have come into legal effect; the facts ascertained in such cases areclear; the laws applied to such cases are correct; the judgments/rulings rendered on such cases contain sufficient reasoning, and have favorable legal and social effects; and, such cases are significant in terms of providing universal guidance for the adjudication of cases of similar types.”

The term of “guiding cases” can only be used for the cases released by the Supreme People’s Court that have met the requirements in the above Article 2.  The Case Guidance Office of the Supreme People’s Court is the sole authority to issue the guiding cases across the country.  Although in practice, lower people’s courts, for example, Chongqing Higher People’s Court in 2011 and Shenyang Intermediate People’s Court in 2007 both issued judicial guidance on how to use a reference case[3] when a judge adjudicate a case, such reference cases shall not possess the sole and highest authority of a guiding case.

Article 9 of the Certain Opinions of the Supreme People’s Court on Regulating Trial Relation between Courts in a Vertical Relationship issued on December 28, 2010 provides that,

“Higher People’s Court shall provide guidance on the trial of cases to the local people’s courts at various levels and the special People’s Courts under its jurisdiction through trying cases, formulating documents in respect of trial, issuing typical cases, convening trial work meetings, organizing judge training, etc.”

A Supreme People’s Court’s judge interpreted the above Article 9 in a press conference on December 21, 2011 that “the higher people’s court may release reference cases that are typical and have guiding effect, however, such reference cases should not be named as guiding cases and shall not be referenced in the judgment or ruling.”

Looking forward, the Supreme People’s Court will unify the reference of guiding cases with the issuance of the Detailed Rules.  In practice, only the guiding cases will be seen in a judgment or ruling in trial practices throughout China.  Unlike the guiding cases, a Supreme People’s Court’s judge has interpreted that “the reference cases issued by lower courts may be used for internal study of the judges.”  The case guidance system is intended to enhance the nationwide uniformity of court decisions and the amount of the guiding cases are expected to grow in the coming years during the ongoing judicial reform across the country.

We will monitor any updates of the guiding cases released by the Supreme People’s Court and in particular case that may have impact on foreign investors in China.