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Foreign Investment Bulletin July, 2015

2015.08.24 MIAO, Qinghui (Catherine)、PAN, Yiming、PENG, Huiying、MEI, Xinghong

The laws on the recognition and enforcement of judgments and arbitral awards from Taiwan were made clearer and more complete through the promulgation of the Provisions of the Supreme People's Court on the Recognition and Enforcement of the Civil Judgments Rendered by Courts in Taiwan Region and the Provisions of the Supreme People's Court on the Recognition and Enforcement of the Arbitral Awards Rendered in Taiwan Region.


The Ministry of Transportation (“MOT”) revised the Interim Administrative Measures for the Examination and Approval of Wholly Foreign-Owned Shipping Services Companies (the “Interim Measures on Shipping Services Companies”) to further relax market access for shipping services. 


The People’s Bank of China (“PBOC”) issued the Circular of the PBOC on Matters relating to the Investment in the Inter-bank Market with RMB Funds by Foreign Central Banks, International Financial Organizations and Sovereign Wealth Funds in order to further reduce the requirements for overseas investments in the inter-bank market. 


1. The Supreme People's Court Promulgated New Provisions on the Recognition and Enforcement of Civil Judgments and Arbitral Awards Rendered in Taiwan Region


On June 29, 2015, the Supreme People’s Court promulgated the Provisions of the Supreme People's Court on the Recognition and Enforcement of the Civil Judgments Rendered by Courts in Taiwan Region (the “New Judgment Provisions”) and the Provisions of the Supreme People's Court on the Recognition and Enforcement of the Arbitral Awards Rendered in Taiwan Region (the “New Arbitration Provisions”). The provisions became effective on July 1, 2015, thereby making laws on recognizing and enforcing judgments and arbitral awards from Taiwan more clear and complete. 


1.1 Background


The first piece of legal authority concerning the recognition and enforcement of judgments and arbitral awards from Taiwan emerged in 1998 when the Provisions of the Supreme People's Court on Recognition by People's Courts of Relevant Civil Judgments of Courts in Taiwan Region came into force. In the years that followed, the Supreme People’s Court went on to clarify issues in the same domain through three judicial interpretations, which are: (1) a reply of the Supreme People’s Court in 1999 on the conditions under which an application to a people’s court for the recognition of a mediated settlement in Taiwan shall be accepted, (2) a reply of the Supreme People’s Court in 2001 on whether an application to a people’s court for the recognition of a payment order from a court in Taiwan shall be accepted, and (3) the Supplementary Provisions of the Supreme People's Court on Recognition of the Civil Judgments Rendered by Relevant Courts of Taiwan in 2009.


The Supreme People’s Court systematically reorganized the aforementioned four judicial interpretations (the “Former Provisions”) into the New Judgment Provisions and created the separate New Arbitration Provisions to address the recognition of arbitral awards, regarding which the Former Provisions only provided that the rules for the recognition of judgments shall apply mutatis mutandis. The new provisions became effective on July 1, 2015, and the Former Provisions were repealed on the same day.


1.2 Legal Review


1.2.1 The New Judgment Provisions


The New Judgment Provisions did not bring about fundamental change to the system established by the Former Provisions. Rather, they restated the existing rules in a clearer structure and clarified certain issues not addressed by the Former Provisions. That being said, the New Judgment Provisions do have several features that deserve our attention, which are identified below.


(1) Expand the Range of Legal Instruments that can be Recognized


i. Mediation Statements Rendered by Local Mediation Committees and Approved by Courts


Civil disputes can be mediated by the mediation committees set up in the governments of the towns, cities, and districts of Taiwan. A resulting mediation statement can obtain the force of a final judgment, once approved by a court according to the law of the region. The Former Provisions did not permit the recognition of such mediation statement, whereas the New Judgment Provisions permit their recognition. 


ii. Settlement Transcripts


According to the law in Taiwan, a settlement reached by litigants in court (evidenced by a settlement transcript) has the force of a final judgment. However, in the past, people’s courts could only recognize mediation transcripts (the products of mediation conducted in the courts in Taiwan), but not settlement transcripts. The New Judgment Provisions permit the recognition of settlement transcripts.


iii. Judgments, Rulings and Reconciliation Transcripts on Civil Damages Rendered in Criminal Proceedings


The Former Provisions did not address legal instruments concerning civil matters that may possibly be issued in a criminal proceeding in Taiwan. The New Judgment Provisions permit the recognition of judgments, rulings, and settlement transcripts on civil damages rendered in criminal proceedings in Taiwan. 


With the expansion discussed above, all forms of legal instruments that have the effect of a final resolution of a civil dispute may now be recognized in the people’s courts.


(2) More Forums to Choose from


Under the Former Provisions, an application for recognition can be made only to the intermediate People’s Court located in the domicile or habitual residence of the applicant or the locus of the property that is the subject of enforcement proceedings. The New Judgment Provisions added to the jurisdictional options the intermediate People’s Courts located in the domicile and the habitual residence of the respondent as well as the special People’s Courts in all of the aforementioned locations. 


(3) Property Preservation Measures


In the past, an application for preservation measures could not be made before submitting the application for recognition. The New Judgment Provisions permits an application for preservation measures pursuant to the Civil Procedure Law and relevant judicial interpretations either before or after the application for recognition.


(4) Recognition Application for Case Litigated at People’s Court Shall Not be Accepted and Shall Not Cause a Suspension of the Litigation


In the past, if a party to a case being litigated at a people’s court applied for recognition of a judgment in Taiwan rendered for the same case, the people’s court was required to suspend the litigation until the conclusion of the recognition proceeding. The New Judgment Provisions give priority to litigation in the people’s courts. An application for recognition that concerns a case being litigated in a people’s court will no longer cause the litigation to be suspended; such application will not be accepted by the people’s court.  


(5) Time Limits for Application for Recognition and Enforcement Shall Follow the Rules for Enforcement under the Civil Procedure Law


The New Judgment Provisions provide that the provision in the Civil Procedure Law on the limitation period for enforcement shall apply to the limitation period for applications for recognition and enforcement, filed pursuant to the New Judgment Provisions. Although the time limit stipulated in the Former Provisions was generally the same as in the Civil Procedure Law, by referring directly to the Civil Procedure Law, applicants can now apply the general rules on the suspension and discontinuance of limitations to applications for recognition and enforcement under the New Judgment Provisions.


(6) Applications for Recognition of Judgments on Familial Relationships Have No Time Limit


The Former Provisions did not consider the different nature of cases when they stipulated the limitation periods for applications. The New Judgment Provisions provide that the limitation does not apply to applications for recognition of judgments on familial relationships.


(7) Formalities for Power of Attorney Simplified


A power of attorney concerning an application for recognition or enforcement pursuant to the Former Provisions must be notarized in all circumstances. According to the New Judgment Provisions, a power of attorney granted by a person domiciled in the Mainland need not be notarized, and a power of attorney from a person domiciled elsewhere need not be notarized if it has been executed before a judge of a people’s court.


(8) Special Requirement for Default Judgments


The New Judgment Provisions added a new requirement for the application for recognition of a default judgment in Taiwan. The applicant must, at the time of submitting the application, submit proof that the opposing party was properly served before the default judgment was rendered, unless that fact has been stated in the judgment itself.


(9) Expressly Permit Re-Application After an Application was Dismissed


Under the Former Provisions, it was not clear whether an applicant could make a second application for the recognition of a legal instrument after a people’s court had dismissed a previous application for the recognition of the same legal instrument on the grounds that the authenticity and binding effect of the legal instrument could not be ascertained. The New Judgment Provisions expressly permits reapplication in that situation.


(10) Review of Decisions on the Applications


When a people’s court refuses to accept an application for recognition or enforcement, the New Judgment Provisions allow the applicant to appeal such refusal. When an application is dismissed or when a people’s court rules that the legal instrument at issue shall not be recognized, the New Judgment Provisions allow the applicant to apply to the people's court at the next higher level for reconsideration.


(11) Integration of the Cross-Strait Judicial Cooperation Mechanism


The New Judgment Provisions integrated the cross-strait judicial cooperation mechanism, which was introduced in 2009, into the procedures on the recognition and enforcement of judgments rendered in Taiwan. Such mechanisms are used in a range of procedures, from service of documents to investigation of the authenticity and binding effect of legal instruments to determining whether a party has been properly served.


1.2.2 The New Arbitration Provisions


While the New Arbitration Provisions share the same structure with the New Judgment Provisions, the following unique features of the New Arbitration Provisions stand out.


(1) Expressly Permit the Recognition of Settlement and Mediation in Arbitration Settings


During arbitration procedures in Taiwan, if a settlement is reached, either through the parties’ own initiatives or through mediation, a statement of settlement or a statement of mediation will be produced and there will be no arbitration award. In the past, it was not clear whether such a statement of settlement or a statement of mediation could be recognized in a people’s court. The New Arbitration Provisions gave unequivocal and positive answers to both the statement of settlement and the statement of mediation.


(2) Inclusion of Ad Hoc Arbitration


In the past, the people’s courts could only recognize results from institutional arbitration in Taiwan, but not awards from ad hoc arbitration in the region. The New Arbitration Provisions permit the recognition of ad hoc arbitration results. 


(3) Recognition Conditions Tailored for Arbitration


The Former Provisions primarily focused on the recognition of judgments and expected the courts to apply the provisions concerning the recognition of judgments mutatis mutandis when they contemplated the recognition of arbitral awards. The New Arbitration Provisions, for the first time, stipulated the specific conditions under which the people’s courts may recognize arbitration awards rendered in Taiwan.


(4) Provisions Concerning Arbitral Awards that are Challenged in Taiwan


The Former Provisions did not address the situation where the arbitration award under review by a people’s court for recognition is concurrently sought to be set aside in Taiwan. In such situation, the New Arbitration Provisions require the people’s court to suspend the proceedings for recognition or enforcement. If the award will be set aside in Taiwan, the people’s court is required to rule that the award shall not be recognized or to terminate the enforcement proceeding. If the award will be upheld in Taiwan, the people’s court shall resume the recognition or enforcement proceedings.


1.3 Next Step


The New Judgment Provisions and the New Arbitration Provisions mark a new phase in the laws on recognition and enforcement by the people’s courts of instruments resolving civil disputes that are rendered in Taiwan, which laws have been enhanced and made more complete. 


Both the New Judgment Provisions and the New Arbitration Provisions incorporated the general rules set forth in the Civil Procedure Law with respect to matters such as property preservation measures, limitation periods, and costs. The provisions, however, contain no specific guidance on how the general rules should be applied in the scenarios of recognizing or enforcing legal instruments from Taiwan. For instance, while the Measures for the Payment of Litigation Fees shall apply to application costs under the provisions, it is unclear whether the Measures concerning case acceptance fees or application fees should apply. In the past, the people’s courts sometimes processed the applications free of charge and sometimes charged case acceptance fees. Such questions should be answered by future judicial practice and interpretation. 


Will the promulgation of new provisions have an impact on the choice of the method of dispute resolution and the choice of forum by people on the two sides of the Taiwan Strait? Will there be more instances of residents in Taiwan seeking enforcement against the property of debtors that are located in the Mainland? These future developments require our continued attention.


2. MOT Revised Interim Measures on Shipping Services Companies


On July 5, 2015, MOT released the revised Interim Measures on Shipping Services Companies to further relax market access to shipping services. 


2.1 Background


On January 28, 2000, the Ministry of Foreign Trade and Economic Cooperation (latter be renamed to the Ministry of Commerce) and MOT jointly released Interim Measures on Shipping Services Companies. Such measures regulated market access requirements, application documents, procedures for establishment, business scope and minimum registered capital for wholly foreign-owned shipping services companies.  


On August 15, 2011, to further promote the international shipping industry, MOT released the Notice on Strengthening the Examination and Approval of Wholly Foreign-owned Shipping Services Companies.  Such notice relaxed market access for shipping services, broadened the scope of permissible business, and adjusted the procedures for establishment.  


On July 5, 2015, MOT revised the Interim Measures on Shipping Services Company and removed “Interim” from its title. 


2.2 Legal Review 


The main revisions are set forth as follows. 


First, the following requirements regarding registered capital are removed: (1) the minimum registered capital for a wholly foreign-owned shipping services company cannot be less than USD 1 million; (2) the registered capital must be fully paid-up before setting up a branch; and (3) prior to setting up each branch, the registered capital must be increased by at least USD 120,000. 

Second, it absorbed the Notice on Strengthening the Examination and Approval of Wholly Foreign-owned Shipping Services Companies on market access and business scope, which resulted in the following changes.  


(1) Foreign shipping companies are allowed to set up wholly foreign-owned shipping services companies directly.  It is no longer necessary to set up representative offices prior to the establishment of such companies. 


(2) Foreign shipping companies are allowed to set up wholly foreign-owned shipping services companies in the port cities where they have a consistent amount of cargo or passengers.


(3) Wholly foreign-owned shipping services companies are allowed to set up branches one year after the commencement of business. 


(4) Wholly foreign-owned shipping services companies are allowed to advertise to passengers and issue passenger tickets. That is to say, the international cruise lines are allowed to set up wholly foreign-owned shipping services companies to provide services such as advertising and issuing passenger tickets to foreign cruises. 


Lastly, it absorbed the Notice on Strengthening the Examination and Approval of Wholly Foreign-owned Shipping Services Companies on approval authority.  The provincial commerce authority is the competent approval authority.  The procedures for establishment are adjusted to require that the company: (1) obtains the approval from the provincial commerce authority (after the provincial commerce authority receives MOT’s consent); (2) satisfies the formalities for establishment registration; and (3) obtains an Operation Permit for a Wholly Foreign-owned Shipping Service Company.   


2.3 Next Step


We will monitor whether the Measures on Shipping Services Companies will further promote the development of wholly foreign-owned shipping services companies. 


3. PBOC issued Circular of the PBOC on Matters relating to the Investment in the Inter-bank Market with RMB Funds by Foreign Central Banks, International Financial Organizations and Sovereign Wealth Funds


On July 14, 2015, PBOC issued Circular of the PBOC on Matters relating to the Investment in the Inter-bank Market with RMB Funds by Foreign Central Banks, International Financial Organizations and Sovereign Wealth Funds (“Circular”) to further reduce the requirements for overseas investments in the inter-bank market. 


3.1 Background


On April 30, 2000, PBOC promulgated Measures of the PBOC for the Administration of Bond Transactions in the National Inter-Bank Bond Market, according to which only the following enterprises are allowed to enter the national inter-bank bond market: (1) commercial banks with legal person status inside the territory of China and their authorized branches, (2) non-bank financial institutions and non-financial institutions that have legal person status inside the territory of China, and (3) branches of foreign banks allowed to operate the RMB business with the approval of PBOC. 


On August 16, 2015, PBOC issued Circular of the PBOC on Issues Concerning Pilot Investment in Inter-bank Bond Market with RMB by Three Types of Institutions Including Overseas RMB Liquidation Banks.  Accordingly, the three types of overseas institutions (i.e., overseas central banks or currency authorities, RMB liquidation banks in Hong Kong and Macao, and overseas banks providing RMB settlement in cross-border trades), may upon approval by PBOC engage in bond investment in the inter-bank market, to the extent of the approved amount.


On March 13, 2013, PBOC released Circular of the PBOC on Matters Relating to Qualified Foreign Institutional Investors (“QFIIs”)' Investment in Inter-bank Bond Market, under which, QFIIs with qualifications that have been granted by China Securities Regulatory Commission (“CSRC”) and with investment quotas approved by State Administration of Foreign Exchange (“SAFE”), may apply to PBOC for access to the inter-bank bond market, and upon the consent of PBOC, may invest in the same in accordance with the approved investment quotas.  According to Administrative Measures for Domestic Securities Investments by QFIIs, QFIIs means any overseas fund management institution, insurance company, securities firm or any other asset management institution that has been approved by CSRC to invest in China's securities market, and that has obtained an investment quota from SAFE.


In order to further improve the efficiency of investment in the inter-bank market by foreign central banks or monetary authorities, international financial organizations, and sovereign wealth funds ("the relevant overseas institutional investors"), on July 14, 2015, PBOC issued the Circular to further reduce the requirements for overseas investments in the inter-bank market.


3.2 Legal Review 


The Circular simplified the approval system for relevant overseas institutional investors to enter the inter-bank market by requiring an investor to send by mail the original copy of the Chinese Inter-bank Market Investment Registration Form or submit the said form via an inter-bank market settlement agent on their behalf to PBOC (i.e., a filing system).  Such institutions may engage in the relevant business once the filing is complete. 


In addition, the relevant overseas institutional investors may determine the scale of their investments, without the limitation of an approved investment quota. 


Further, the Circular specifically provides that the relevant overseas institutional investors shall act as long-term investors, and conduct transactions based on the reasonable needs of maintaining and increasing the value of assets.  The relevant overseas institutional investors shall entrust PBOC or other inter-bank market settlement agents capable of processing international settlements, to carry out transactions and settlement on their behalf.  Where the relevant overseas institutional investors entrust inter-bank market settlement agents to conduct transactions and settlement, they shall sign settlement agency agreements and submit the same to the PBOC Shanghai Head Office for filing, in accordance with the relevant provisions. 


Matters not covered in the Circular shall be covered by the relevant provisions of the Circular of the PBOC on Issues Concerning Pilot Investment in Inter-bank Bond Market with RMB by Three Types of Institutions Including Overseas. 


3.3 Next Step


The Circular simplifies the formalities and broadens the channels for overseas international investment in the inter-bank market with RMB funds.  It reflects the vision of opening up the capital market and achieving capital account convertibility in China.  It is also an important measure to broaden backflow channels of RMB and accelerate the internationalization of RMB.  


The implementation of the Circular, other new policies concerning the backflow channels of RMB and relevant supporting legislation and practice.

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