China is emerging as a leader in legal technology as it reforms and modernises its judicial and dispute resolution frameworks. Vanessa Ip reports
Is that your replacement, being uncrated next to your desk? The embrace of digital technologies and technology-enabled services within global judicial and dispute resolution frameworks was accelerated by the impact of covid-19. Many jurisdictions, including China, continue to forge ahead with tech-related reforms as part of their post-pandemic recovery agendas.
Lockdowns and remote working became commonplace during the pandemic years. Courts, dispute resolution bodies and consumer platforms around the world were pushed to adapt and implement online processes, many of which have now become permanent features of China’s dispute resolution framework.
According to Yang Chen, managing partner and director of Jincheng Tongda & Neal (JT&N) in Beijing, virtual hearings have become a “new norm” in Chinese litigation, arbitration and mediation proceedings. “Courts, parties, councils as well as arbitral tribunals are becoming increasingly used to conducting virtual hearings with the assistance of digital tools,” he says.
Eric Liu, partner, and Zeng Ying, counsel at Han Kun Law Offices in Beijing, say that “smart court” is turning from an idea into reality. “During the pandemic, the transition of courts from offline to online operations has afforded remarkable convenience to the parties, attorneys and judges,” says Liu.
“As far as we are aware … in 2023 two leading arbitration institutions in mainland China published new rules. Most recently, the China International Economic and Trade Arbitration Commission (CIETAC) issued its 2024 version of the arbitration rules. Changes can be summarised in six areas, with the common goal of improving efficiency while sufficiently respecting party autonomy. Under the new rules, among other things, extensive application of digitisation in arbitration procedures is encouraged.”
Chinese courts have gone a step further by mandating the adoption of artificial intelligence (AI) in judicial practice.
On 8 December 2022, the Supreme People’s Court issued the Opinions of Regulating and Strengthening the Applications of Artificial Intelligence in the Judicial Fields. It stated the goal was to “achieve a higher level of digital justice” by integrating AI with judicial work and by constructing smart courts in China. The opinions mandate that all courts will implement “improved” functional systems for the application of AI by 2025, and that these functional systems must reach “full application effectiveness” by 2030.
Liu and Zeng say that AI is receiving wide acceptance and broad application within Chinese courts. “We can imagine various settings where the engagement of AI could significantly enhance productivity, improve efficiency, reduce costs and relieve practitioners of repetitive tasks, allowing them to focus on more attention-demanding and delicate analytical work,” says Zeng.
Liu and Zeng say AI might be enlisted to conduct massive searches and analyse large volumes of data to identify and present patterns and trends of events so that attorneys can efficiently collect and manage evidence in a more organised manner.
AI might easily locate the most relevant statutes, cases, regulations and judicial interpretations from vast legal databases. In complex IP infringement cases, AI tools and algorithms may be called upon to conduct technical comparisons in a confident, neutral and secure way. Importantly, AI research can ensure confidentiality and neutrality, which are two major concerns of human-conducted reviews.
“In China, there is a particular division within the court system that is responsible for accepting and screening … filings, and rejecting cases if a complaint does not meet the pleading standard,” says Liu.
“When a filing can be submitted to an AI-powered screening platform, the judges working in the filing division will have more time to deal with pre-trial mediation work.”
Elephant in the courtroom
There are mixed views about whether AI will replace traditional legal practitioners and services. However, there is general agreement that, although AI disruption is inevitable, generative AI represents more of an opportunity for innovation and efficiency than a potential threat to the profession.
For Yue Qiang, a senior partner at Hai Run Law Firm in Beijing, traditional legal industry practices will continue be challenged by AI. “I believe that AI is profoundly changing the ecosystem of the legal industry, and a large number of basic legal consulting services will disappear quickly, which may eliminate a group of legal practitioners,” he says.
“However, I can also see the benefits. Case retrieval has become easier, formatted document writing has become more efficient, and AI legal products can help us better handle cases.”
Others are confident that AI cannot – and arguably, should not – replace human intelligence.
According to Liu, the future of AI in dispute resolution in China will likely involve a combination of human expertise and AI-driven tools. “While adjudicators and advocates will remain the key players in legal actions, AI is expected to hold great potential to assist the dispute resolution process in a transformative way,” he says.
Huang Rongxin, a counsel at Shanghai Pacific Legal, says AI “cannot completely replace the role of dispute resolution lawyers”, but adds it “will have a very significant impact on the dispute resolution area in terms of improving trial efficiency and material preparation”.
Catherine Guo, a partner at Anli Partners in Beijing, predicts human judges will be safe from AI replacement, despite the technological potential to improve the judicial system.
“Chinese courts are the world’s first to release judicial application opinions on blockchain and AI, clarifying the functional role of AI in assisting trials, and ensuring that judicial decisions are always made by judges, judicial powers are always exercised by trial organisations, and judicial responsibility is ultimately borne by the adjudicators,” she says.
Digital in dispute
Changes in the digital age are further reflected by the nature of disputes.
The main litigation topics Guo encounters in her practice relate to land and real estate disputes, environmental pollution, intellectual property rights, labour rights and interests, network security and privacy protection.
Of the digital transformation, she says: “With the popularisation of the internet, network security and privacy protection issues are becoming increasingly important. This includes disputes and lawsuits related to personal information protection, online fraud and online infringement.”
From the professional experience of Yue Qiang, of Hai Run, these disputes mainly take the form of contractual conflicts related to loans, sales (especially house sales), and service and transportation contracts.
“In addition, there are many infringement disputes and, with the development of the internet technology, online infringement liability disputes have become more numerous and complex than before,” he says.
Another sector where practitioners expect to see a surge in disputes is in digital assets.
According to Matthew Townsend, an international arbitration lawyer and partner at Reed Smith based in London and Hong Kong, there are continued disputes from the “crypto winter” fallout and high-profile bankruptcies, including crypto exchange FTX and crypto hedge fund Three Arrows Capital.
Townsend says more disputes are taking place between exchanges and liquidity providers, technology providers and third parties. “There are important pending court decisions on key issues in a number of jurisdictions,” he says. “These encompass the duties of developers to their users, the intersection of consumer protection law and arbitration, and claims against individuals unknown following hacks and exploits.
“Although crypto is banned in China, there have been decisions of the Chinese courts finding that virtual assets are property capable of protection through legal means. Given China’s important historical role in the development of this asset class, there is a China aspect to many cases we see.”
Peek into the future
When it comes to the future format of dispute resolution in China, practitioners expect litigation to remain the “mainstream” method chosen by parties to resolve disputes.
Shanghai Pacific’s Huang says litigation remains the go-to mechanism for dispute resolution in China, although he observes an increase in the proportion of domestic arbitration cases as this alternative becomes more specialised.
“We do not yet see independent, non-litigious mediation processes occurring as frequently in domestic dispute resolution activities,” he says. “In fact, mediation occurs more often in the progress of litigation or arbitration.”
According to Sun Shaosong, managing partner and head of dispute resolution, and Wang Qiao, a partner at Guantao Law Firm in Beijing, the Supreme People’s Court reported that China’s courts received a collective 16.96 million new cases in the first half of 2023, representing a year-on-year increase of about 11%.
“We noticed that while litigation continues to be the prevailing approach, the number of parties opting for dispute resolution through arbitration has also been steadily increasing year after year,” says Sun.
According to the annual report on China International Commercial Arbitration (2022-2023) published by CIETAC in September 2023, the number of cases handled by national arbitration institutions in 2022 increased by 14.3% year-on-year. Despite this, mediation remains a supplemental method of dispute resolution, say Sun and Wang.
Overall, Guo has noticed a trend towards integration and specialisation with the available dispute resolution mechanisms in China. “The main trend of dispute resolution methods in mainland China is the development and promotion of diversified mechanisms,” she says. “China has become one of the countries that most heavily use arbitration to resolve civil and commercial disputes.”
Since the implementation of the Arbitration Law in 1995, China has established more than 270 arbitration institutions, handling more than four million arbitration cases and resolving disputes in various fields of economic and social development.
“The reform of China’s diversified dispute resolution mechanism emphasises co-operation and co-ordination between litigation and mediation, arbitration, administrative rulings, administrative re-considerations and other non-litigation methods,” says Guo. “It takes the complementary advantages of various dispute resolution methods as the core driving force for the operation of diversified dispute resolution mechanisms.
“With the refinement of social division of industries, dispute resolution has also shown a trend of specialisation. For example, there are specialised courts or arbitration institutions to handle different types of disputes, such as business disputes, family disputes, intellectual property disputes, financial disputes and labour disputes.”
At the consumer level, Liu and Zeng say that with the widespread use of the internet and continual technological advancement, online shopping and e-commerce have become integral parts of the daily lives of Chinese people. “Online shopping websites and cell phone applications already launched AI-powered dispute resolution platforms that handle small and simple claims and complaints filed by consumers,” says Zeng. “We believe this will be a continuing trend in the future.”
Another area to watch is the development and availability of third-party funding (TPF) for domestic cases in China. In addition to CIETAC’s ongoing efforts to internationalise and modernise its arbitration rules and improve its IT infrastructure and digital management, its 2023 work includes continuing to explore best practices in international arbitration and innovations, including for TPF.
According to Huang, TPF is still relatively rare in the domestic market. There have been cases of courts finding litigation investment agreements to be invalid, leading to an increased risk to third-party funders.
Yang Chen says the key takeaways from these cases are “that parties should be vigilant regarding the degree of the funder’s control, because a finding of excessive control and interference may cast doubts on the fairness of the legal proceedings and impact the validity of the TPF agreements.
“As there is currently no Chinese law specifically regulating TPF, judicial practice has become a key source in understanding the ambit of TPF in mainland China,” he adds.
Sun and Qiao, of Guantao, cite CIETAC’s reformed arbitration rules, issued on 5 September. The rules provide that parties funded by a third party are obliged to disclose the funding, economic interests, and the name and address of the third party to the tribunal right after signing the funding agreement.
Zeng is confident that, “while TPF is not yet prevalent in China today, it is attracting more and more acceptance and popularity, and has a good potential to prosper in China”.
One of the key pieces of legislation governing the future of dispute resolution in China is the newly amended Civil Procedure Law (CPL), which comes into force on 1 January 2024.
According to Liu, the amendments are “primarily focused on optimising procedures regarding foreign-related disputes and provide clearer guidance on litigating and trying such cases”.
Chen says that, of the 26 amendments, 19 are for foreign civil procedures including jurisdiction, handling of parallel proceedings, service, judicial assistance, and recognition and enforcement of foreign judgments.
Since the CPL came into effect on 1 January 2022, Guo says its pilot results in streamlining civil litigation procedures have developed into a mature legal system. “The Supreme People’s Court has promptly revised relevant judicial interpretation, innovated systems such as judicial confirmation, sole judge trial, small claims, summary procedures and online litigation, which have shown their due effects in judicial practice,” she says.
“It has promoted the separation of complexity, severity and speed of cases, making it more just, efficient, convenient and cost-effective for the people to resolve their ‘easy’ disputes.”
And while technology certainly has the potential to make the lives of legal and judicial practitioners easier, they still have their work cut out for them. “As AI technology matures, the ability of law firms to use AI to handle cases will be a key consideration in the competitive marketplace,” says Huang.