An extract from The Asset Tracing and Recovery Review, 8th Edition

Seizure and evidence

i Securing assets and proceeds

When seeking civil remedies by initiating civil litigation or arbitration in China, victims of fraud may apply to the competent Chinese court for the preservation of the perpetrator's assets. Asset preservation is a legal proceeding whereby claimants may seal or freeze assets of the counterparty for a limited period. After a final judgment or arbitral award is rendered, claimants may then apply for enforcement against the subject assets.

Grant of a preservation order

When granting a preservation order, Chinese courts consider only whether the claimant's interests in a later judgment or arbitral award may be jeopardised because of the defendant's action or any other reasons. Moreover, courts normally will not require the claimant to produce evidence to prove that the claimant's interests may be jeopardised. Rather, this condition may be easily met by a statement made in the application. Therefore, when seeking the preservation of a perpetrator's assets, claimants need not show the prima facie case for their legal rights; however, courts may require claimants to produce some evidence preliminarily to show their legal standing.

Provision of security

Generally, Chinese courts will require claimants to provide security for an asset preservation application. The form of security traditionally includes cash, real property and guaranties provided by designated security companies. In recent years, it has become increasingly common for courts to accept guaranties provided by insurance companies, which are more popular among claimants because of their lower cost.

Procedures, periods and durations

Normally, an asset preservation application will be submitted along with a case admission file. Since a case admission file already includes a statement of claims and supporting evidence, a claimant normally needs only to submit an additional application for asset preservation. After a court accepts the application, it will inform the claimant of its intention to grant the order and require the claimant to provide security, or require the claimant to provide additional materials (e.g., the defendant's asset information), before the order can be granted. Courts rarely dismiss an asset preservation application outright. After an order is granted by a ruling, the court may take another week to effectively preserve the subject assets, depending on the type and location of the assets to be preserved. Bank deposits may be frozen for a period of one year, and all other assets may be preserved for up to three years, commencing from the date of enforcement. The preservation period can be renewed by an application before its expiration if a lawsuit is still pending or if the final ruling or judgment has not been satisfied at the end of the period.

Asset preservation in a Chinese arbitration proceeding

Claimants can also apply for asset preservation in arbitration proceedings administered by a Chinese arbitration institution. Claimants usually need to submit their application to the arbitration institution, and the institution will forward the application to the competent Chinese court to enter and enforce the ruling. Chinese courts treat these applications forwarded by arbitration institutions no differently from those filed directly with a court in civil litigation cases.

Preservation measures before initiating a lawsuit

In emergency cases, fraud victims may also apply for the preservation of relevant assets before filing a litigation or arbitration case if, without immediate action, the victim's rights and interests will suffer irreparable harm. In such cases, the court has to make the ruling within 48 hours and, if the application is approved, the court will enforce the preservation order immediately. However, if a victim fails to file a litigation or arbitration case within 30 days of the preservation of assets, the court will lift the preservation measures.

Seizure of assets to secure the enforcement of a judgment or arbitral award

A claimant, after obtaining an effective court judgment, ruling or arbitral award, can file an application to a competent court for enforcement. After the court accepts the application, the claimant can request the court to seize or preserve any of the perpetrator's identifiable assets, with no security requirement.

Seizure of assets in criminal proceedings

In criminal investigations, law enforcement authorities are empowered to seize and place under seal property and articles relevant to a crime, which generally include proceeds of the crime, tools used to commit the crime and other property and articles related to the crime. However, the purpose of the law enforcement authorities in taking these measures is primarily to obtain evidence of a crime rather than to obtain recovery for the victims.

ii Obtaining evidence

In criminal proceedings, law enforcement authorities have broad powers to collect evidence. Rules on the exclusion of evidence are not as well established in China as in other jurisdictions, and thus the methods used to collect admissible evidence in criminal proceedings are extensive. In civil proceedings, however, fraud victims have very limited means to collect evidence. Normally, a fraud victim and his or her attorney will take one or more of the following measures to collect evidence from perpetrators or relevant third parties.

Attorney investigation orders

Courts increasingly issue attorney investigation orders to attorneys who need to collect evidence from third parties such as banks, hospitals and company registration offices. While Chinese law does not yet provide uniform rules on the issuance of attorney investigation orders, many local courts take the position that an investigation request made by attorneys in accordance with an investigation order is equivalent to an investigation request made by court officers. Enforceability of these orders varies depending on local rules issued by the high court of each province.

Evidence preservation proceedings

Victims can apply to the court to take measures to preserve evidence that could be lost or no longer obtained in the future. Technically, victims can apply to preserve evidence with or without a lawsuit, although courts are generally more willing to grant such applications with or during a lawsuit. Courts do not often grant evidence preservation orders, in part because the circumstances under which such orders are granted are very narrowly tailored.

Facts found by effective court judgments or arbitral awards

Under Chinese law, claimants can base claims on facts established by an effective court judgment or an arbitral award, with no need to further prove the facts. New evidentiary rules effective on 1 May 2020 have slightly changed the evidentiary effect of facts established by court judgments or arbitral awards. According to the new rules, a party is relieved of the burden of proving only fundamental facts established by a court judgment, and facts established by an arbitral award may be rebutted by producing contrary evidence. Therefore, for example, where a fraud case follows a criminal proceeding, a fraud victim can use in his or her civil suit the facts established in the criminal judgment. The victim can also apply to review and copy the criminal fraud case file, which will allow the victim to take extensive advantage of the investigation authority's discovery work.

Requests for production made during trial

Chinese law does not contain provisions for discovery procedures such as document production; however, if a perpetrator refuses to produce evidence in its possession, a victim can request the perpetrator to produce the evidence during trial. If the perpetrator refuses to produce the evidence without due cause, the court may conclude that the content of the concealed evidence supports the victim's claims.