I Optimize the Alternative Dispute Resolution Mechanism with the Ideology of ‘Arbitration +’

Undoubtedly, the SPC’s recent measures to improve courts’ internal working efficiency, i.e., to allocate judicial resources reasonably based on cases’ complexities  and to optimize trial procedures by conducting pre-trial conferences and utilizing innovative technology to facilitate trials, have greatly reduced judges’ workloads. Nevertheless, besides improving efficiency within the judicial system, reducing caseloads is the other side of the coin to resolve the dilemma between ‘more cases’ and ‘fewer judges’. Skillful use of the ideology of ‘Arbitration +’ with combination of other alternative dispute resolution mechanism can serve as an important tool to relieve the burden shouldered by the judicial system.

Firstly, there is the need to change the traditional dispute resolution strategy from resolving disputes in court to the ideology of ‘Arbitration +’. All roads lead to Rome. Likewise, multiple ways lead to successful resolution of disputes besides going to court. ‘Arbitration +’ refers to a systematic commercial dispute resolution method based on arbitration, under which other means of dispute resolution shall be given full play to. On one hand, attorneys and their clients shall be relieved from the conservative idea of merely going to either court or to arbitrate when disputes arise. On the other hand, courts shall offer friendly assistance to arbitration in the process of dispute resolution, such as granting interim reliefs to preserve evidence, assets, or specific acts, and etc.

Secondly, it is more necessary than before to resolve disputes through arbitration to reduce judges’ burden. According to the 2017 Work Report of the SPC, courts at different levels have adjudicated 4.026 million commercial cases of the first instance in 2016. In contrast, only 208 thousand cases were accepted by 251 arbitration institutions in Mainland China in 2016, although having surpassed 200 thousand cases for the first time, as revealed by the 2017 National Symposium on Arbitration Work. It is obvious that fully use of arbitration institutions’ potential to resolve commercial disputes can reasonably allocate resources for dispute resolution. Arbitration institutions, attorneys, and other legal practitioners shall play a more active role in commercial dispute resolution to reduce the judicial system’s burden in resolving disputes. 

Thirdly, there is the need to promote ‘industry arbitration’ in different business sectors and to resolve innovative commercial disputes through arbitration. Under the New Normal, commercial disputes are becoming more and more complicated. Disputes in the areas of banking, financing and real estates have emerged with more new features than ever before. New disputes have also sprung up in large numbers because of recent business developments, such as disputes in cross-border investment under the ‘Belt and Road Initiatives’, private equity investment, disputes in financial derivatives, internet financing, and etc. Efficient resolution of the aforesaid disputes requires professional knowledge and business awareness with the changing market. Compared with litigation, arbitration can better achieve the parties’ objectives with arbitrators’ special expertise within a certain business sector, the doctrine of party autonomy, and the confidentiality of arbitration proceeding, and etc. For the purpose of improving efficiency, a party in a dispute may rely more on the specialty and expertise of an arbitrator chosen by themselves rather than on the omnipotence of some judges to whom the case is accidentally assigned to.

Last but not least, it is also important to use other techniques such as negotiation or mediation to resolve commercial disputes. As indicated by the ideology of ‘Arbitration +’, it is necessary to supplement arbitration with other dispute resolution method. In fact, businessmen have long been hoping that disputes can be properly resolved without prejudice to their business relationship and reputation. As a result, mediation is becoming more professional, specialized, and standardized along with the development of the mechanism connecting litigation/arbitration and mediation. Nowadays, the parties may submit a dispute to an independent mediation center like the Beijing Arbitration Commission Mediation Center for mediation. Besides, they may settle a dispute by mediation during the arbitration proceeding. It is foreseeable that the close collaboration between arbitration and other dispute resolution method will effectively reduce judges’ burden. 

II Build an Unmeritorious Claims’ Filter System based on the Rule of ‘Loser Pays’

The adoption of the case filing system has given rise to an increase of litigation claims that are falsified, malicious, or manifestly lack legal merits. To tackle such situation, the SPC released the Opinions of the SPC on Further Promoting the Efficient Distribution of Complex and Simple Cases and Optimizing Allocation of Judicial Resources (hereinafter the ‘Opinions’). In such Opinions, the SPC pointed out that the court shall manage to filter unmeritorious claims through its ruling on the allocation of legal and attorney’s fees. As a guideline, the Opinions have laid the foundation to an unmeritorious claims’ filter system based on the rule of ‘Loser Pays’. However, there remain some concerns with respect to such filter system’s application and hence requires further clarification.

On one hand, losing party being liable for the counterparty’s attorney’s fees shall be established as a common rule and be widely adopted in dispute resolution. By far, ‘Loser Pays’ are only provided under limited circumstances, such as cases involving exercise of the creditor’s right of cancellation, infringement of intellectual property rights, realization of security interests, and defamation cases. Moreover, the amount or ratio of attorney’s fees that the court ruled in favor of the wining party is within the judges’ sole discretion and no clear standard could be summarized from precedents. After issuance of the Opinions, the application of the rule of ‘Loser Pays’ has been expanded to cases where a party or a third party suffers damages directly from the counterparty’s misconduct, such as the counterparty’s abuse of the right to sue, intentional delay to perform obligations of parties involving in litigation, and etc. In the aforementioned scenarios, courts shall hold the blameworthy party liable for reasonably incurred attorney’s fees upon the counterparty’s claim. However, it seems that the scope of this rule’s application under the Opinions is still very narrow, which requires further expansion in order to effectively direct and guide acts of parties involving in litigation.

It is worth mentioning that other jurisdictions have successfully established the rule of ‘Loser Pays’, reducing a large quantity of baseless claims. For instance, Singapore’s Rules of Court provides the principal that ‘costs follow the event’[1], which means that the costs of an action including reasonable attorney’s fees are usually awarded to the successful party under most circumstances.

As a consequence, it is necessary to change the rule of ‘Help Yourself’ to the rule of ‘Loser Pays’ in common means in Mainland China. To make such change happen, the SPC may first release new judicial interpretations to adopt the rule of ‘Loser Pays’ as a general principle and to establish a fee evaluation mechanism to restrict judges’ discretion to some extent. If such rule proves to be effective in Mainland China, it should be subsequently incorporated into the Civil Procedure Law by the legislature.

On the other hand, the rule of security for costs may also be adopted to discourage unmeritorious claims. In common law jurisdictions, courts are entitled to order security for costs, i.e., procedural costs and attorney’s fees, against an impecunious plaintiff to ensure the recovery of reasonable costs paid by the defendant who wins the lawsuit. In fact, the Rules of Civil Litigation Costs released by the SPC in 1984 provided that persons with foreign nationalities and foreign enterprises shall provide security for costs when bringing lawsuits before courts in Mainland China. It is noted that however, such design has been deleted from the Measures on the Payment of Litigation Costs released by SPC in 2006. Nowadays, the drastic growth of baseless claims calls for adoption of the rule of security for costs in Mainland China.

[1] Rule 3, Order 59, Rules of Court in Singapore. 

III Conclusion

By summary, challenges emerged from the adoption of case filing system may be successfully conquered from two perspectives. On one hand, alternative dispute resolution mechanism, especially arbitration should be encouraged to reduce the quantity of cases submitted to courts. On the other hand, it is pertinent to build an unmeritorious claims’ filter system based on the rule of ‘Loser pays’ as well as the rule of security for costs. Efforts from the two perspectives, collaborating with one another, may lead to further development of the judicial reform.