CHINA Law and Practice Contributed by: Peibing Qi, Na Gao and Shanshan Heng, Fangda Partners
4.7 Courts and ADR People’s Courts at all levels, including the Supreme People’s Court, attach great importance to, encour- age and support parties in resolving disputes through ADR procedures. The Supreme People’s Court has repeatedly issued judicial policy documents empha- sising “priority to mediation”, stressing the use of the mediation system to resolve social conflicts, restore relationships between parties and achieve social har- mony. Under PRC law, attorney fee regulation adopts a dual- track system combining government-guided pricing and market-adjusted pricing. • Market-adjusted pricing – currently, most commer- cial legal services are subject to market-adjusted pricing, with fees determined through negotiation between the law firm and the client. Fee structures include hourly rate, fixed fee, percentage fee and contingency fee arrangements. • Government-guided pricing – for a limited number of criminal defence cases, certain civil litigation cases involving people’s livelihood and vulnerable groups, administrative litigation and state compen- sation cases, government-guided pricing remains in effect. 5.2 Third-Party Funding 5. Costs, Fees and Funding 5.1 Legal Fees There are currently no express legal provisions in mainland China prohibiting third-party funding. In practice, the position differs between litigation and arbitration. • In commercial arbitration cases, the rules of major Chinese arbitration institutions and judicial practice have generally recognised the validity of third-party funding. In a November 2022 decision, the Beijing Fourth Intermediate People’s Court confirmed that current laws do not prohibit third-party funding in arbitration. When determining whether a third- party funding arrangement constitutes grounds for setting aside an arbitral award, key considera- tions include whether the arrangement violates
applicable laws or arbitration rules, and whether it impairs the impartial adjudication of the case. The arbitration rules of major institutions, including the CIETAC and the BAC, currently regulate third-party funding, with the key requirement being that parties must promptly disclose such arrangements. • In litigation cases, courts adopt a relatively more cautious stance toward third-party funding. In a May 2022 decision, the Shanghai No 2 Intermedi- ate People’s Court held that a third-party fund- ing agreement in litigation was invalid, primarily on the grounds that such agreements undermine public order and good morals. Third-party funding in Chinese litigation remains at an early stage of development. 5.3 Contingency Fee Arrangement Contingency fee arrangements are permitted under PRC law but are subject to strict restrictions. • Scope of application – contingency fee arrange- ments are primarily applicable to civil and commer- cial cases involving property rights and interests. Such arrangements are prohibited in the following categories of cases: criminal cases; administrative litigation cases; state compensation cases; collec- tive litigation cases; marriage and succession cas- es; and cases involving claims for social insurance benefits, minimum living security benefits, alimony, child support, spousal support, survivor’s benefits, relief payments, work-related injury compensation and labour remuneration. • Maximum fee limits – contingency fee rates are capped by reference to the amount in dispute, with the maximum fee not exceeding 6% to 18% of the claim value. 5.4 Insurance Property Preservation Liability Insurance The most common legal expense insurance in China is property preservation liability insurance for litigation and arbitration. Under this coverage, if wrongful prop- erty preservation by the insured causes losses to the opposing party (respondent), and the opposing party subsequently brings a tort claim resulting in a judg- ment against the insured, the insurer will indemnify the insured within the policy limits.
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