August 2017
Guiding Opinions of the Supreme People's Court on Preventing and Sanctioning of Sham Litigation(Mainland China)
James Cheng
On June 20, 2016, the Supreme People's Court issued the Guiding Opinions on the Preventing and Sanctioning Sham Litigation (hereinafter, the "Opinions"). Consisting of a total of 18 articles, the Opinions provide specific rules on the prevention of sham litigations by covering, through citations to the Civil Procedure Law and other laws, the current state of sham litigation in the legal field, what constitutes sham litigation, the characteristics of a sham litigation, how to recognize a sham litigation, and how sham litigation is sanctioned.
The Opinions summarize the typical features of sham litigation, which include: (1) the parties are close relatives, affiliate enterprises or others with joint economic interests; (2) serious inconsistency between the amount being sought for judicial protection versus the plaintiffÕs own economic conditions, or where the defendant appears to be attempting to stash away assets in light of a worsening economic condition; (3) clear deviation from logic and common sense in the facts and reasons relied on in the plaintiff's complaint; (4) absence of a substantive civil dispute between the parties, and the defendant actively participates in the litigation and readily agree to the plaintiffÕs claims; (5) the evidence provided is insufficient, internally contradictory and no chain of evidence can be created, or the evidence provided demonstrate at most the existence of the facts associated with the case but no point of dispute exists between the parties; or (6) lack of evidence in the case even though the parties still swiftly settle and request the peopleÕs court to issue a mediation document. As to how to recognize a sham litigation during verification of fact phase, the Opinions also provided specific guidance such as strengthen the review over the accuracy, legality and connections of evidence, increase the effort on official investigation of evidence as needed, explore whether to implement an oath system for the parties and an admission rule upon request, and if one party's admission to unfavorable facts introduced by the other party goes against common sense, further investigation is required in order to make a prudent determination.
In addition, the Opinions also contain detailed provisions concerning the examination of the legality of mediation agreements, notarized debt instruments, arbitration awards and mediation documents. The potential for sham litigation is high in cases involving a third-party complaint to dismiss, an objection to a complaint filed by a person not a party to the case, and a request for retrial filed by a person not a party to the case. The Opinions specifically calls for the protection of the lawful interests of all parties and recognize sham litigation in the aforementioned cases.
Finally, the Opinions set up a multifaceted and comprehensive sanction system for sham litigation. For the form of sanctions, a greater deterrence effect is sought from compulsory measures against interference with civil litigation, civil damages and criminal penalties. There are also corresponding sanctions against the peopleÕs court staff, agents-ad-litem, examination agencies and expert witnesses. For new sanctions, the Opinions requests exploration into establishing a list of persona non grata for those engaging in sham litigation. By leveraging existing information platforms such as the system for persons subject to enforcement who have lost their credibility and other social credibility systems, comprehensive restrictive measures may be taken against participants of sham litigation and enhance the deterrence effect of sanctions.
On June 20, 2016, the Supreme People's Court issued the Guiding Opinions on the Preventing and Sanctioning Sham Litigation (hereinafter, the "Opinions"). Consisting of a total of 18 articles, the Opinions provide specific rules on the prevention of sham litigations by covering, through citations to the Civil Procedure Law and other laws, the current state of sham litigation in the legal field, what constitutes sham litigation, the characteristics of a sham litigation, how to recognize a sham litigation, and how sham litigation is sanctioned.
The Opinions summarize the typical features of sham litigation, which include: (1) the parties are close relatives, affiliate enterprises or others with joint economic interests; (2) serious inconsistency between the amount being sought for judicial protection versus the plaintiffÕs own economic conditions, or where the defendant appears to be attempting to stash away assets in light of a worsening economic condition; (3) clear deviation from logic and common sense in the facts and reasons relied on in the plaintiff's complaint; (4) absence of a substantive civil dispute between the parties, and the defendant actively participates in the litigation and readily agree to the plaintiffÕs claims; (5) the evidence provided is insufficient, internally contradictory and no chain of evidence can be created, or the evidence provided demonstrate at most the existence of the facts associated with the case but no point of dispute exists between the parties; or (6) lack of evidence in the case even though the parties still swiftly settle and request the peopleÕs court to issue a mediation document. As to how to recognize a sham litigation during verification of fact phase, the Opinions also provided specific guidance such as strengthen the review over the accuracy, legality and connections of evidence, increase the effort on official investigation of evidence as needed, explore whether to implement an oath system for the parties and an admission rule upon request, and if one party's admission to unfavorable facts introduced by the other party goes against common sense, further investigation is required in order to make a prudent determination.
In addition, the Opinions also contain detailed provisions concerning the examination of the legality of mediation agreements, notarized debt instruments, arbitration awards and mediation documents. The potential for sham litigation is high in cases involving a third-party complaint to dismiss, an objection to a complaint filed by a person not a party to the case, and a request for retrial filed by a person not a party to the case. The Opinions specifically calls for the protection of the lawful interests of all parties and recognize sham litigation in the aforementioned cases.
Finally, the Opinions set up a multifaceted and comprehensive sanction system for sham litigation. For the form of sanctions, a greater deterrence effect is sought from compulsory measures against interference with civil litigation, civil damages and criminal penalties. There are also corresponding sanctions against the peopleÕs court staff, agents-ad-litem, examination agencies and expert witnesses. For new sanctions, the Opinions requests exploration into establishing a list of persona non grata for those engaging in sham litigation. By leveraging existing information platforms such as the system for persons subject to enforcement who have lost their credibility and other social credibility systems, comprehensive restrictive measures may be taken against participants of sham litigation and enhance the deterrence effect of sanctions.
