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August 2018
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Application of the List of Dishonest Enforcees (Judgment Debtors)

Authors:David Lee, Fan Qiu

I. The Problem of "Difficulties in Enforcement"


In China, difficulties in enforcement of court judgments have been an outstanding problem for years. Specifically, a legally effective judgment cannot be enforced in a timely and effective manner, which may be attributed to many factors, such as unsound systems of property registration and social credit, low penalties of non-compliance, limited enforcement measures by the court, incomplete mechanisms of enforcement procedures between various administrations and the court. Accordingly, judgment debtors may intentionally escape from enforcement or even violently resist.

 

As shown by the data on www.chinacourt.org, among cases enforced and decided by countrywide courts from 2008 to 2012, in which judgment debtors were in possession of property, over 70% of the judgment debtors escaped, evaded or violently resisted enforcement, while those who voluntarily complied with court judgments accounted for less than 30% of debtors. [1]Difficulties in enforcement lessens court authority, impairs the rule of law, and further damages the good faith successful plaintiffs place on the law and the legal system. In contrast, this situation does not exist (not nearly to the same degree) in the enforcement of legally effective judgments in the U.S. and Europe. Therefore, when dealing with enforcement matters in China, Western clients are likely to criticize the effectiveness of China's legal environment. This hurts everyone's ability to do business in China.

 

II. Establishment of the System of the List of Dishonest Judgment Debtors

 

In order to solve this long-standing problem, Chinese legislative bodies and judicial authorities have been diligently seeking a solution.

 

The legislative embryo of the List of Dishonest Judgment Debtors may be traced back to the provisions of Article 231 of the Chinese Civil Procedure Law (i.e. Article 255 of the current edition) as amended and adopted at the 30th Session of the Standing Committee of the 10th National People's Congress on October 28, 2007, which stipulates that if a person subjected to enforcement fails to fulfill the obligations specified in a legal document, the people's court may adopt, or advise the unit concerned to assist in adoption of, the measure of restricting the person's departure from the country, making records in the credibility system, through the media publishing information about his failure to perform his obligations, or other measures stipulated by law. Accordingly, the legislative body, by legislation, specified that such means as records in the credibility system and publication through the media can be adopted in the enforcement of judgments. Further, as the Supreme People's Court issued the Several Provisions of the Supreme People's Court on Issuing the Info rmation on the List of Dishonest Enforcees (2017 Amendment) on July 16, 2013, the system of the List of Dishonest Enforcees was officially established, which since then has been deemed as a powerful tool to solve the problem of difficulties in enforcement.

 

At the 4th Session of the 12th National People's Congress in 2016, Zhou Qiang, President of the Supreme People's Court, declared a full scale battle to address difficulties in enforcement and put forward a plan to resolve the problem in two to three years.

 

By establishing the system of the List of Dishonest Enforcees, the Supreme People's Court intends to adopt the measure of credit punishment so as to impose huge pressure on judgement debtors, such as financing, administrative examination and approval, market access and qualification accreditation. Through this List, the credit history of judgment debtors will be directly connected to their economic interests, personal or enterprise reputation, transaction opportunity and even the basics of daily life or daily operation. [2]As stipulated in Article 8.1 of Several Provisions of the Supreme People's Court on Disclosing Information on the List of Dishonest Enforcees, People's courts shall inform relevant government departments, financial regulatory authorities, financial institutions, public institutions assuming administrative functions, industry associations, etc. of the information on their lists of dishonest enforcees to enable relevant entities to take credit disciplinary actions against dishonest enforcees in accordance with laws, regulations and relevant provisions in terms of government procurement, bidding and bids, administrative examination and approval, government support, financing credit, market entry, qualification accreditation, etc.

 

On this basis, in March 2014, the Central Civilization Office, the Supreme People's Court, the Ministry of Public Security, the State-owned Assets Supervision and Administration Commission of the State Council, the State Administration of Industry and Commerce, China Banking Regulatory Commission, the Civil Aviation Administration of China and China Railway Engineering Corporation jointly signed the Memorandum of Understanding on Building Integrity and Punishing Dishonesty, which recommended that regarding the dishonest judgment debtors on the List and those subject to the order of the people's court, penal measures, such as restrictions on high consumption, loans, application for a credit card, might be adopted[3].

 

As stipulated in Article 3 of Several Provisions of the Supreme People's Court on Restricting Extravagant Consumption and Related Consumption by Enforcees:

 

Once measures are taken to restrict the consumption by an enforcee who is a natural person, the enforcee shall not commit any of the following acts of extravagant consumption and consumption not necessary for daily life and work:

 

(1) Choosing to fly via plane, a soft sleeper in a train, or second-class on a ship, for travelling;
(2) Spending in multi-star-rated hotels, restaurants, night clubs, golf courses, etc.;
(3) Purchasing real property, or new-construction, or home renovations, or decorating houses in a luxurious manner;
(4) Renting high-class office buildings, hotels apartments, or other office premises;
(5) Purchasing cars that are not necessary for business;
(6) Going on tours or vacation;
(7) Sending children to private schools with expensive tuition;
(8) Spending a large sum to purchase insurance wealth management products; and
(9) Travelling on any seats of any trains of G-prefixed electric multiple units ("EMU") or any seats of first-class or higher of any other EMU trains, and committing other acts of consumption not necessary for his/her daily life and work.

 

If a unit or individual is included in the List, the operation and consumption thereof will be strictly restricted. The clear goals of these measures is to ensure that when the legal representative (principal head) of the unit subject to enforcement or the individual subject to enforcement cannot take an airplane or a G-prefixed EMU, he or she will be confronted with serious inconvenience in daily life. This measure is intended to place pressure and to deter judgement debtors, greatly increase their cost of dishonesty, and thereby prompt their voluntary performance of obligations.

 

According to the information published by the Supreme People's Court, as of January 2018, only taking one bank as an example, the Industrial and Commercial Bank of China has rejected 1.36 million cases of application for a loan or a credit card made by judgment debtors, involving RMB9.9 billion; as of July 2018, there have been 12.22 million persons restricted in the purchase of flight tickets and 4.58 million persons restricted in purchase of tickets for EMUs, and 2.8 million dishonest judgment debtors have voluntarily fulfilled their judgment obligations due to the pressure from these measures; from January to June of 2018, the sum of money by proper enforcement has amounted to RMB520 billion, with a year-on-year growth of 44.06%[4]. These data show that the joint punishment based on the List of Dishonest Enforcees has achieved a significant and positive effect.

 

III. Related Cases Represented by Chang Tsi & Partners

 

With full use of the List of Dishonest Enforcees, litigation teams at Chang Tsi & Partners have been able to safeguard the interest of its clients in enforcement claims, and in response have received praise from many of its western clients. Also, these successful cases represented by Chang Tsi & Partners reflect the progress in China's legal system.

 

Typical Case:

 

In 2015, upon mediation by Zibo Intermediate People's Court, Chang Tsi & Partners, on behalf of a large transnational hotel group (the Plaintiff), reached a settlement on a dispute over a trademark infringement claim with a hotel in Zibo (the Defendant). The court issued the Bill of Mediation, where Defendant was required to stop infringing the trademark rights of Plaintiff and compensate for Plaintiff's loss. However, Defendant refused to satisfy the judgment according to the effective Bill of Mediation, even after being urged by the court. Chang Tsi & Partners was authorized by the Plaintiff to request Zibo Intermediate People's Court to carry out compulsory enforcement against the Defendant in 2016. Even so, Defendant resisted in performance of its obligations, which resulted in the slow progress of enforcement. During this period, Defendant falsified evidence to show that the infringing marks had been removed (when in actual fact they had not), and this constituted significant impediment to the enforcement. In this circumstance, the attorneys of Chang Tsi & Partners regularly communicated with the court, and conducted a second investigation to acquire the evidence to show that the Defendant had not removed the infringing marks and was still making a profit from such business. These efforts invested by our attorneys urged the judge who was responsible for the enforcement to include the Defendant into the List of Dishonest Enforcees. The inclusion of Defendant, the judgment debtor in the case, into the national List was due to its falsification of evidence, interference with court procedures, and resistance in enforcement. In the end, Defendant suffered the consequences arising from its resistance. With regard to this result, Plaintiff was extremely satisfied with the work of Chang Tsi & Partners.

 

Additional cases:

 

Authorized by a famous transnational group of household supplies (the Plaintiff), Chang Tsi & Partners have achieved more than one success in urging the courts to include those judgment debtors carrying out passive performance of their obligations into the List of Dishonest Enforcees. Following that, relevant punishment and restriction indeed greatly pushed forward the enforcement. In these cases, many dishonest enforcees initiatively contacted attorneys of Chang Tsi & Partners to seek for a settlement, because within 6 to 12 months after they were included into the List, some could not make financing or loan, and some individuals or enterprise operators could not take a flight or a G-prefixed EMU. Even if some enforcees had a poor financial condition, they would rather perform their obligations by instalments than bear the punishment. More than once, Group C expressed its satisfaction with the enforcement work by Chang Tsi & Partners.

 

IV. Summary of Experience

 

We summarize the experience from our handling of many cases concerning enforcement by adopting the List of Dishonest Enforcees:

 

1. After filing an application for enforcement with court, we would request the court to inform the judgement debtor to declare its assets. If the judgement debtor fails to do so, we may then request the court to include the judgement debtor into the List of Dishonest Enforcees or conduct judicial custody against the judgement debtor.

 

2. If the judgment debtor is a small company or individual business, which might be deregistered to escape enforcement, then any shareholder applying for such deregistration shall be added as a judgment debtor into the List.

 

3. When dealing with an administrative authority which engages in regional protectionism or protects the judgment debtor in an illegal manner, we can submit an online report of such improper acts to the Reporting Center for Violation of Law and Discipline committed by court staff, which will urge the court to include the judgment debtor into the List.

 

 

[1] ZHANG Xianming, "A System of the Blacklist of Dishonest Persons to be Built in Courts Nationwide", as published at chinacourt.org, and accessed on July 26, 2018 by https://www.chinacourt.org/article/detail/2013/07/id/1038223.shtml

[2] See note 1.

[3] Memorandum of Understanding on Building Integrity and Punishing Dishonesty", as published by People's Court Daily and accessed on July 27, 2018 by http://rmfyb.chinacourt.org/paper/html/2014-04/01/content_79222.htm.

[4] "The Supreme People's Court: 2.8 million dishonest enforcees have voluntarily fulfilled their obligations", published by china.com and accessed on July 27, 2018 by https://news.china.com/domesticgd/10000159/20180711/32664417.html.

 

For advice on the ability to use the List of Dishonest Enforcees, please contact marketing@changtsi.com.

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