While judicial mediation has a long history in China, it is still likely to be contrary to most foreign parties’ expectations of what it means to litigate or mediate. Unlike common law jurisdictions, judicial mediation in China is not an alternative dispute resolution mechanism to litigation, but rather it is an integral part of the litigation procedure.

In China, the judge undertakes the roles of mediator and ultimate adjudicator in the same dispute. In practice, the judge will also often strongly urge the parties to mediate. If mediation then fails the parties will find themselves arguing their case before the same judge. This is fundamentally different to common law-style mediation, which although encouraged by the courts, is strictly a private matter for the parties and a third party mediator that is not connected to the litigation.

Chinese litigation and mediation in context

Official Supreme People’s Court (SPC) statistics reflect that in 2009, Chinese courts concluded around 5.8 million civil cases (an increase of 7.7% from 2008). The percentage of contract-related cases concluded by Chinese courts also rose by 8.6% in 2009. The percentage of civil cases resolved by judicial mediation at the First Instance court level have been increasing annually from 38.9% in 2008 to 62% in 2009 and 65.29% in 2010 (for example, more than half the claims are resolved by judicial mediation).

With case loads of this magnitude, it is no surprise that the SPC has been keen to promote mediation as a means of effective case management. In 2010 it released a notice containing several opinions in this area, the Notice of the Supreme People’s Court on Issuing Several Opinions on Further Implementing the Work Principle of “Giving Priority to Mediation and Combining Mediation with Judgment” (SPC Several Opinions), which requires all Chinese courts to give priority to mediation at all stages of the litigation process.

Judicial mediation is part of what the SPC has referred to as a “comprehensive system of mediation”, combining judicial, administrative and people’s mediation which is aimed at effectively eliminating social conflicts (Article 1 of the SPC Several Opinions).
The law dealing with judicial mediation is contained in Chapter VIII of the PRC Civil Procedure Law. Like most Chinese statutes, it provides only a general overview of the basic principles and procedures, including:

The court is empowered to undertake judicial mediation;
The court may invite other parties, including experts, to assist them in the mediation;
 Judicial mediation and any mediation agreement reached as a result must be based on the parties’ consent; and
The court will draw up any mediation agreement and ensure that it complies with the law. Once it is sealed by the court and served on the parties, it is immediately enforceable. Unlike a judgment, a mediation agreement cannot be appealed.

SPC opinions and provisions
The SPC has issued three main pieces of judicial guidance on mediation. They are the SPC Several Opinions, the Several Opinions of the SPC on Further Displaying the Positive Roles of Litigation Mediation in Building of a Harmonious Socialist Society (SPC Opinion), issued on March 6 2007, and the Provisions of the SPC on Several Issues Concerning the Civil Mediation Work of the People’s Court (SPC Provisions), which was issued on September 16 2004. The SPC Opinion was mostly replicated in the Several Opinions. The SPC Provisions provide additional material and rules not contained in the other two Opinions.
This SPC guidance is binding on lower courts and fills in many of the gaps in the Civil Procedure Law. It also reflects what may be referred to as the SPC’s jurisprudential thinking in this area. Through the principles of: 1) giving priority to mediation and combining mediation with judgment and 2) mediation first, the SPC has directed that all lower courts must consider whether mediation is appropriate to a particular case. If it is, then parties must be encouraged to consider mediation.
What to expect from and how to prepare for judicial mediation
What cases will be suitable for mediation?
Most cases, including foreign-related cases, will be classified as “suitable” for mediation. Cases which are not suitable for mediation include: cases which are not allowed to be mediated by law, where a party refuses to mediate, the parties or their agent cannot be served, cases which require further investigation and complex and serious cases (Article 9 of the Several Opinions).
Initiation of mediation
The parties may ask the judge to mediate or the court to refer the matter to an outside party such as the China Council for the Promotion of International Trade (CCPIT) for mediation. In practice, judges very actively encourage the parties to mediate. While “encouragement” by judges is in line with the SPC guidance, the reality is that to a foreign party it can seem like coercion.

The incidence of coercion reflects a combination of high case loads, the fact that judges’ performances are assessed by reference to their case resolution rates and the level of appeals from their judgments (which mediation agreements of course avoid) (Article 22 the Several Opinions).
In the Several Opinions, the SPC warned judges against pursuing mediation against the will of the parties (see Articles 3 and 17 the Several Opinions). This concern is the result of efforts by judges to increase their case resolution rate. The SPC’s Code of Conduct for Judges, released in December 2010, also expressly prohibits mediation against the will of the parties.
If a party is encouraged, or in some instances, required to mediate, one option to consider is whether the judge will agree to refer the matter to an independent third party for mediation, such as the CCPIT (Article 3 of the SPC Provisions). This is, in effect, a delegation of the court’s mediation powers. The court will then confirm the mediation agreement is in accordance with the law. While there is no guarantee that the judge or the other party will agree to this approach, it does provide an alternative to mediation before the same judge who will render a decision on the case.
If however, a party steadfastly refuses to mediate and the matter proceeds to trial, the judge will not treat that party any differently. In other words, while there may be real pressure to engage in mediation, there is usually no separate stigma which attaches to a party for refusing to mediate.

When might mediation be suggested?
Judges and court staff must consider the suitability of mediation at all stages of the litigation life cycle from filing to appeal, re-hearing and execution (Articles 2, 7, 8, 9, 11 and 12 of the Several Opinions). The court should give the parties some notice of mediation when it considers appropriate.
The most likely times for mediation are when it is first referred to the judge and again just before judgment is handed down (therefore after the judge has heard all of the evidence). At this later stage, the judge will be in a position to put a lot of pressure on the parties by, for example suggesting to one or both parties that its case is not that strong.
Time limits
The standard limits as noted in the SPC Several Opinions are listed below although, in practice, they are usually extended:
At the pre-filing stage. Court officials (case management staff) are obliged to refer parties to mediation organisations before the formal filing of the Complaint (Article 8). There are no time limits prescribed for mediation at the pre-filing. If settlement is reached at this stage there will be no mediation agreement.
After the case is docketed and before it is transferred to the judge or tribunal. The time limit for “summary procedure” cases is less than 10 days and less than 20 days for “general procedure” cases. Parties can extend the time by 10 days by mutual consent (Article 9). Mediation at this stage can be undertaken by the case management staff. If a settlement is reached, a formal mediation agreement will be prepared by the court.
After the case is accepted and before judgment is delivered. The relevant time limits should be between 30 and 60 days (Article 11).

Confidentiality and without prejudice privilege

Judges acting as mediators are required to keep the matters discussed in the mediation confidential, but it is worthwhile to inform the court of an intention to apply for “non public” mediation.

There is no “without prejudice” privilege in China, but Article 67 of Some Provisions of the SPC in Civil Procedure (最高人民法院关于民事诉讼证据的若干规定), implemented on April 1 2001, provides that anything unfavourable disclosed in the mediation cannot be used against the party disclosing this information. In practical terms it is, of course, impossible for any judge to separate those issues when deliberating. Parties to a mediation are well-advised not to disclose any vulnerabilities or otherwise make concessions they would not be prepared to live with at trial.

What to expect in mediation

Mediations are relatively informal but the procedure is similar to the conduct of a trial with the parties making submissions and putting forward evidence. As noted above, the court may invite experts or other third parties to assist the judge, although in practice their ability to influence the outcome of the mediation is somewhat limited in front of the judge.

Where a judge is acting as mediator he or she will meet separately with the parties to discuss the relative strengths and weaknesses of the parties’ cases. The judge will then seek to broker a settlement between the parties.

If the parties agree on terms, the judge will be responsible for ensuring the terms are enforceable. The same judge is often involved in the preparation and execution of the mediation agreement.

Mediation agreements

If a matter settles, the court will draw up a mediation agreement detailing the facts of the dispute and the outcome of the mediation. A “mediation agreement” is a formal court document recording the outcome of the mediation. While it will incorporate the terms of any separate settlement agreement, any such agreement is a private contract between the parties. If it was breached, a separate court proceeding would have to be commenced to enforce it. The mediation agreement is however directly enforceable by the court (on the application of either party alleging breach).

In preparing the mediation agreement, the court will ensure it complies with the law. Other points which should be emphasised include:
 As previously noted, mediation agreements are not appealable;
 Under the SPC Provisions a mediation agreement cannot contain a clause requiring the court to enter judgment in default of performance (Article 10). This contrasts with the common law position where a consent judgment is often held in escrow pending performance;
Failure to reach agreement on costs does not affect the validity of the mediation agreement as the court will adjudicate separately on this issue (Article 14 of the SPC Provisions); and
A mediation agreement can apply to only some of the claims in a proceeding with the balance of the claims proceeding to trial. If both parties consent the court may adjudicate on claims apart from the main litigation claims. The court’s conclusions will then be entered into the mediation agreement (Article 17 of the SPC Provisions).

Other mediation

People’s mediation is aimed at resolving minor private disputes by people’s mediators who are not legally trained. The recently introduced PRC People’s Mediation Law (effective as of January 1 2011) is aimed at strengthening the People’s mediation system and encouraging the mediation of private disputes (relating to compulsory acquisitions, education and health, traffic, labour, environmental, property management and small claims).
One important difference to judicial mediation is that any mediation agreement reached by the parties cannot be enforced directly by the courts. It is simply a contract which, if breached, a lawsuit needs to be brought to enforce it (Article 32). The parties though have the option of applying to the court to confirm the effect of the mediation agreement (for example, that it complies with the law). If the court confirms that it is effective, then it will be directly enforceable as a mediation agreement.
Administrative mediation is a separate topic in its own right. Broadly speaking, it involves the mediation of similar types of private disputes by government officials. It also encompasses other types of disputes such as intellectual property, consumer protection and some administrative decisions by government. One example of this type of mediation in a commercial context is mediation conducted by the State Administration for Industry & Commerce (SAIC) or local Administrations for Industry & Commerce (AICs). The SAIC or local AICs are alternative venues for seeking redress for trademark and contractual disputes. The complainant can submit a dispute to the SAIC or AIC (provided that no arbitration or litigation has been commenced) and, as part of this process, the dispute can be determined by the SAIC or AIC official or can be mediated by the same official acting as mediator.
Final thoughts
While most foreign investors in China prefer arbitration (either offshore or onshore) with their counterparties, some will inevitably find themselves before Chinese courts. This could be either because the litigation does not relate to a contract or they did not consider all the options for dispute resolution prior to entering into that contract.
The main reasons that Chinese courts are not the preferred choice is largely due to the uncertainties and challenges of the process, and the significant cultural and procedural differences to common law litigation. This said, a basic understanding of the judicial mediation process is essential to managing the outcome of the mediation.