Pursuant to the PRC Lawyers Law, which became effective on 1 June 2008, the Ministry of Justice has amended the Imposing Penalties on Lawyers and Law Firms for Committing Offences Procedures. The amended Procedures will come into effect on 1 June.
The amended Procedures contain five chapters in 50 articles, with chapters 2 and 3 being the core parts listing the punishable offences of lawyers and law firms. These two chapters explain in detail how the provisions therein apply to and establish the offences for which administrative penalties should be imposed under Articles 47, 48, 49 and 50 of the PRC Lawyers Law. The strict enforcement of the conflict of interest provisions, and the mechanisms for confidentiality obligations under the Procedures, could have a profound impact on the legal profession and the provision of in-house legal services.
Rules get tough on conflicts
Before the publication of the amended Procedures, lawyers and law firms were already prohibited from acting in cases involving a conflict of interest. However, there has been controversy in practice over whether the term “cases” refers to contentious cases only, or whether it covers non-contentious legal matters (see Cases, matters and conflicts of interest in China Business Law Journal Volume 1 Issue 4). The Procedures provide a definite answer to this question, and also extend to other scenarios that constitute a conflict of interest.
A lawyer will breach the conflict of interest provisions (Article 7 of the amended Procedures) if he or she:
- acts for or provides legal services simultaneously to parties with a conflict of interest in the same civil or administrative proceedings or non-contentious legal affairs;
- acts simultaneously for a defendant and a victim, or for more than two
- criminal suspects or defendants in the same criminal case;
provides legal services to a party (or parties) that has (or have) a conflict of interest with the firm through which advice is being given; - has accepted cases which have been handled by a court or procuratorate where he or she has previously served as a judge or a prosecutor;
- has agreed to act in cases which have been handled by an arbitration body where he or she has previously served as an arbitrator or is still serving as an arbitrator.
In practice, it would appear easy to establish the first and second of the above scenarios. However, given that “conflict of interest” is not defined, the scope of application of “the party that has a conflict of interest with the firm” in the third scenario seems unclear. Failure to define this in a legal consultancy agreement may create the potential to trigger disputes between lawyers and their firms. In the fourth scenario, based on the stipulation that “a lawyer may not act as an agent or a counsel in proceedings or otherwise participate in contentious legal affairs handled by the law firm with which he works, within two years after leaving office”, another restriction is imposed on the scope of practice of a lawyer if he has previously served as a judge or a prosecutor.
The fifth scenario may have a significant impact on lawyers who are involved in arbitration and serve (or have served) as arbitrators, because they cannot directly accept and handle cases to be heard by arbitration organizations even if they resign from their position as an arbitrator with an arbitration organization.
A law firm will breach the conflict of interest provisions (Article 27 of the amended Procedures) if it:
- assigns any of its lawyers to act for both the plaintiff and the defendant in the same litigation case, or as a counsel for the defendant and the victim in the same criminal case;
- assigns a lawyer to act for, or to provide relevant legal services simultaneously or successively to, the parties with a conflict of interest in non-contentious legal affairs;
- assigns a lawyer as an agent or a counsel to provide relevant legal services while knowing that the lawyer and his or her close relatives have a conflict of interest in the matter;
- colludes with or permits any of its lawyers to carry out any acts in breach of the conflict of interest provisions in the amended Procedures.
In this fourth scenario, law firms should establish or improve their conflicts disclosure and review systems. If a lawyer has completed the firm’s internal approval procedures, it is likely that law firms will be subject to severe penalties if their lawyers commit a conflict of interest offence, as the judiciary is likely to deem them as having “become aware” and “colluded with or permitted” their lawyers in the commission of such offence.
Confidentiality obligations
There is no single piece of legislation or a discrete set of regulations governing the protection of trade secrets in China. Stipulations regarding the protection of trade secrets are found in various laws and regulations including the PRC Anti-Unfair Competition Law and State Administration for Industry and Commerce (SAIC)’s Prohibition of Acts in Breach of Trade Secrets Regulations. Whether or not law firms are regarded as profit-making “business operators” under the above legislation remains controversial. In practice, law firms will enter into a contract with their clients to specify the law firms’ confidentiality obligations and liability for breach of contract.
However, the confidentiality obligations and administrative penalties of lawyers in the amended Procedures appear to pose a greater threat to lawyers.
Firstly, the original Imposing Penalties on Lawyers and Law Firms for Committing Offences Procedures of 2004 stipulated that law firms, rather than individual lawyers, would be held liable for the disclosure of trade secrets of their clients, while the amended Procedures say it is the individual lawyers who should be held liable directly.
Secondly, the amended Procedures have increased administrative penalties for the disclosure of trade secrets or state secrets by lawyers.
Thirdly, the recently published Protection of Trade Secrets of Central Enterprises Interim Regulations and the PRC Maintaining State Secrets Law include more specific provisions as to the scope of and the policy for the trade secrets of major central state-owned enterprises, and state secrets.
Finally, it should be remembered that the PRC Criminal Law also provides for charges for violation of trade secrets.
