The Supreme People’s Court on Rules for Issues in Online Judicial Foreclosure Auctions by People’s Courts(Mainland China)

James Cheng
Since 2010, online judicial foreclosure auctions have been gradually emerged in different places. There are now over 1400 courts conducting a total of more than 250,000 online judicial foreclosure auctions for a value in excess of RMB150 billion. To regulate such auctions, the Supreme People’s Court promulgated the Provisions of the Supreme People’s Court Rules for Issues in Online Judicial Foreclosure Auctions by People’s Courts (the “Rules”), which will go into effect on January 1, 2017. Under the Rules, an auctioneer in a traditional auction is now considered an online service provider, and specific provisions were made to address particular issues in online judicial foreclosure auctions.
First, to prevent a low entry threshold from affecting the transparency and the formality of such auctions, the Supreme People’s Court will be setting up a nationwide list of online service providers for an enforcement applicant to choose from. In case no service provider was chosen or the applicants cannot agree on a provider, one will be designated by the people’s court. The Supreme People’s Court will also set up a dedicated evaluation committee and introduce third-party evaluation institutions to select, evaluate and remove online service providers.
In hopes of further increasing the fairness of auctions, the Rules re-organized the list of illegal procedures in online judicial foreclosure auctions in the “Rules on Issues in the Handling of Enforcement Opposition Cases by People’s Courts” promulgated in 2015 and added new scenarios in which the parties of the transaction and any other interested parties may seek to revoke a judicial foreclosure auction for reasons such as material error in the auction information, issues with the online platform or security issues.
In addition, online judicial foreclosure auctions may not limit the number of bidders; the auction can be closed even if there is only one bidder as long as the bid offered is not lower than the opening bid. The Rules thus broke the old rule in traditional auctions of requiring at least two bidders because the online auction process is completely open to the Internet at large. Online auctions also allow creditors to favorably cash in, thereby avoiding failed auctions and subsequent lowered values.
Finally, the Rules also set out the allocation of liabilities and avenues of relief in case of a revoked auction. After an auction is revoked, the parties of the auction, any interested parties and persons not a party to the matter may apply for national compensation if their lawful rights and interests have been impaired for any illegalities in the auction, and they may bring a separate action against another party if they believe such impairment is due to that party’s conduct.