The amended Civil Procedure Law of the PRC (the CPL) went into effect in April 2008. To facilitate the implementation of the CPL, the PRC Supreme Court (the Supreme Court) recently issued a set of judicial Interpretations to guide the Chinese courts on issues concerning the enforcement of court judgments under the CPL. The judicial interpretations are entitled the Interpretations of the Supreme Court on Certain Questions Regarding the Application of the Enforcement Procedure of the Civil Procedure Law of the People’s Republic of China (the Interpretations), which came effect on January 1, 2009.
Restriction on Existing China
The CPL states that a court may stop the party responsible for the failure to fulfill the obligations required in a judgment or ruling from leaving Chinese territory. However, problems may arise under certain circumstances when applying such restrictive measures. For example, if the losing party is a company rather than a natural person, it is unclear under the CPL who in that company should be restricted from existing China.
The Interpretations stipulate that if an organization refuses to satisfy a judgment, its chief representative, person in charge, or staff directly responsible for the failure of fulfillment (such as the financial officer) may be deterred from going abroad. In addition, if the person requested for fulfillment has a diminished capacity, the court may impose the exist restriction on his or her legal agents.
In a press release intended to clarify the Interpretations, the official in charge of the Enforcement Bureau of the Supreme Court (the Enforcement Bureau) explained that it is unreasonable to ensure fulfillment of obligations at the price of restricting the freedom of too many people. Therefore, the Interpretations seek to protect the prevailing party’s rights and without abusing such power. If the party has fulfilled its obligations as required or provided sufficient guarantee for fulfillment, or the prevailing party agrees, the court may cancel such restriction.
Stepping in of Higher Courts
The CPL provides that if a court fails to enforce a judgment within six months after receiving a petition of enforcement, the applicant petition a higher court for enforcement. The Interpretations clarify, however, the higher court will only intervene only by ordering the original court to enforce the judgment within a specified period of time, or by directing a different court to take action within six months after the maturity of conditions for enforcement, including but not limited to:
- while the losing party owns property for enforcement at the time of petition, the lower court fails to complete the enforcement within six months after receiving the petition;
- where the losing party is found to own property for enforcement during the enforcement process, but the lower court fails to complete the enforcement within six months after discovery of the property; or
- while the judgment or ruling requires the performance of certain actions, the lower court fails to take actions to ensure fulfillment of obligations within six month after its receipt of the enforcement petition.
The Enforcement Bureau Official believes that the intervention by higher courts may help solve some problems often met in the process of enforcement, such as the prevalent problem of local protectionism. However, in circumstances such as the losing party does not own property that can be used to satisfy the judgment, it would only increase the court’s work load if any party request a higher court to step in. Therefore, the Interpretations provide that the prevailing party may only resort to higher courts when the judgment can be satisfied but the lower courts fail to take appropriate action.
Order of Financial Reports
Under the CPL, when the losing party is uncooperative, a court may require it to report its financials in the current and the previous year, and the court may fine or detain the losing party who falsifies or refuses to issue the report. Accordingly, the Interpretations stipulate that a court must issue a formal Order of Financial Status Report (the Order) if it intends to adopt this compulsory measures. The order must specifically inform the losing party of the scope of property to be reported, the period of time covered, the legal consequences for failure to file a truthful report. The Interpretations also lay out the scope of the property that must be covered in the financial report, including cash, bank deposits, securities, real and personal property, equipment, products, raw materials, equity, creditors’ rights, intellectual property right, and other properties.
According to the Enforcement Bureau official, the courts are required to issue a formal Order because they should not take the ordering of compulsory financial reports lightly. The Order help compel the uncooperative party to fulfill its obligations, in addition, if the party still refuse to be cooperative, the Order may justify the court’s impositions of fines or personal detention.
Jurisdiction Dispute for Enforcement
The CPL allows the trial court or the court at the same level of the trial court at the location of the losing party’s property to enforce a judgment. In practice, since the losing party’s properties may spread over a number of jurisdictions, multiple courts may have jurisdiction over the enforcement, which may encourage the prevailing party to petition to various competent courts at the same time to increase its chance of receiving full compensation.
To avoid overlapping jurisdictions and to provide solution to conflicts, the Interpretations set forth the following rules when more than two courts have the jurisdiction over the enforcement of a judgment if:
- a competent court discovers that a petition for enforcement has been accepted by any other competent courts, it must immediately reject such petition;
- after accepting an enforcement petition, a court discovers that such petition has been previously accepted by other competent courts, it must rescind the acceptance. In addition, if it has levied on the uncooperative party’s property, it must hand over the property to the early-accepting court.
Allocation of Losing Party’s Property
The Interpretations state that if there exists more than one applicant petition for enforcement against one single losing party, or petition for splitting the losing party’s property subject to enforcement, the enforcement court should formulate a property allocation plan and send it to all the applicants and the losing party. If any party is unsatisfied with the plan, it may file a written objection to the enforcement court within 15 days upon receipt of the plan. The enforcement court will then inform other parties and solicit their opinions. If no other party opposes the dissatisfied party’s proposal for change, the enforcement court may adjust the plan based on the proposal. If any other parties oppose the proposal, the court will not adjust the plan. Instead, it will inform the dissatisfied party that it may sue the opposing parties to seek final solution from the court.