Enforcement and the need to develop social honesty

By Jeremy Zhou, Boss & Young
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Sometimes, winning a judgment means nothing to the plaintiff, since enforcement has been a serious and difficult problem under China’s legal system in past decades. All a People’s Court can do is seize, freeze or sell the properties of, or impose a fine or detention on, the person subject to enforcement according to the Civil Procedure Law.

Jeremy Zhou Partner Boss & Young
Jeremy Zhou
Partner
Boss & Young

However, those people subject to enforcement either have little fear of no more than 15 days detention, or have already concealed or transferred their properties long before the legal enforcement.

It therefore seems necessary, and urgent, for the Chinese government and the People’s Courts to improve the situation with several provisions and opinions having been issued in succession.

In July 2010, Several Provisions of the Supreme People’s Court on Restricting High Consumption of Judgment Debtors was issued, in which the natural person, or the legal representative, or key person-in-charge of the person, of an organization subject to enforcement is subject to restriction of high consumption, or big spending.

Under the high consumption restriction, the person subject to enforcement is prohibited from expenditures such as: taking an airline or the soft berth of a train; conducting any elaborate activities at luxury hotels, night clubs or golf courses; purchasing real estate and carrying out extravagant housing renovation; leasing premises such as high-grade offices, hotels and apartments; purchasing vehicles not necessary for business operations; paying high insurance premiums; travelling and vacationing; or even enrolling his or her children in private schools with high fees.

With these measures the situation of enforcement has improved, but not by much, since these methods only serve to restrict high consumption. More comprehensive and effective methods are badly needed.

In July 2013, Several Provisions of the Supreme People’s Court on Announcement of the List of Dishonest Persons subject to Enforcement was issued. Any person subject to enforcement who has the ability but fails to perform obligations determined in an effective legal judgment, and falls under any of the circumstances – such as obstructing or resisting enforcement, evading enforcement by fraudulent litigation or false arbitration, concealment or transfer of property, violating the property reporting system, etc. – must be included in a list of dishonest persons subject to enforcement and imposition of credit-related punishment.

The List of Dishonest Persons Subject to Enforcement is circulated to relevant government departments, financial regulators, financial institutions, institutions that assume administrative functions, trade associations etc., and such relevant entities may impose credit sanctions against the dishonest persons in the aspect of government procurement, bidding, administrative examination and approval, government support, financing credit, market access, and accreditation. This is the first time that failing to perform the obligations of a judgment becomes a problem of dishonesty. By the end of August 2016, 1.55 million dishonest persons had been prohibited from taking trains, 4.7 million had been prohibited from taking airplanes, and 66,954 persons had been prohibited from registering as the legal representative, director, or supervisor of an organization. Large numbers of persons subject to enforcement have to perform their liabilities when facing these restrictions.

With this improvement, the Opinions on Accelerating the Advancement of Establishing System of Supervision and Sanctions towards Dishonest Persons Subject to Enforcement were jointly issued by the General Office of the Communist Party of China Central Committee and State Council in September. To date, this is the most comprehensive legal document towards the person subject to enforcement, including 11 different types and 37 different items of disciplinary actions.

Dishonest persons subject to enforcement are subject to restrictions on: joining the CPC; holding public office, industry-specific eligibility; engaging in specific industries or projects; government support or subsidies; honour and credit; special market trading; high consumption; and exits. Strengthened daily supervision and inspections, increased criminal penalties and other encouraged restrictions are also in place.

By establishing and developing social honesty, the person subject to enforcement not only faces the penalties implemented from judicial department, but from various other aspects, from work to lifestyle.

While having a better enforcement situation, we acknowledge that this is just the beginning of developing social honesty, and it is a complicated and comprehensive system. To further improve, the situation needs the co-operation of all departments from the courts, public security and the treasury to education, human resources, transport, etc.

The author believes that with the better co-operation of all departments, the development of social honesty, and the balance of benefit and cost of keeping faith, the difficulty of enforcement will be gradually improved and advanced in the future.

JEREMY ZHOU is a partner at Boss & Young in Shanghai.

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