1. China’s Supreme People’s Court has issued new rules to stop criminal investigations from being used to derail civil and commercial disputes [para. 1]. The judicial interpretation, titled Provisions on Several Issues Concerning the Trial of Civil Disputes Involving Criminal Offenses, says a contract linked to a crime is not automatically invalid, and civil cases generally should proceed alongside criminal proceedings [para. 1][para. 2]. The court says the rules aim to strengthen property-rights protections and curb the improper use of criminal procedures to intervene in economic disputes [para. 2].
2. The rules address the longstanding problem of civil claims overlapping with alleged crimes, including the practice of “using criminal proceedings to obstruct civil proceedings” [para. 3]. Judges must not assume a civil lawsuit cannot be brought simply because the underlying conduct may constitute a crime, nor must an accepted civil action yield to a related criminal case [para. 4]. Parallel civil and criminal proceedings are the general approach when criminal proceedings cannot give a party adequate relief, and a civil case ordinarily should not be affected by the criminal case’s progress [para. 5]. A court may suspend a civil case only when essential facts depend on an unfinished criminal trial; a request based solely on documentation that criminal authorities accepted a case should be rejected if those conditions are not met [para. 6]. Courts must scrutinize requests to transfer civil cases on criminal-case grounds: if the cases do not concern the same facts, the court should explain its reasoning and continue the civil case; if core facts depend on the criminal case, the civil case should be suspended [para. 7]. Judges who discover possible crimes or improper criminal prosecutions during a civil trial must promptly refer the material to oversight and investigation authorities [para. 8].
3. Historically, China applied the principle of “criminal first, civil second” in some cases, allowing criminal proceedings to resolve liability and compensation through supplementary civil claims, recovery of illegal proceeds, and restitution [para. 9]. The number of overlapping civil-criminal cases has grown with economic development, and the legal issues have become more complex [para. 10]. Earlier judicial documents, including a 1998 rule on suspected economic crimes, later private-lending rules, and a 2019 national commercial-trial conference summary, had begun to set out parallel-proceedings elements, but the problem of using criminal cases to block civil litigation remained prominent [para. 11].
4. The new interpretation specifies situations where parallel proceedings should apply: when a person commits a crime while signing a contract in the name of a company, unincorporated organization, or another person, but the counterparty seeks civil liability from an entity or person not involved in the crime; when claims are made against guarantors who were not accomplices and the debtor’s signing of the main contract constituted a crime; and when insurance claims involve an underlying tort that is also a criminal offense [para. 12][para. 13]. More than 60% of overlapping civil-criminal cases involve contract disputes, and their fair and efficient handling is directly relevant to market order, the rights of companies and entrepreneurs, and implementation of China’s law promoting the private economy [para. 14].
5. The court rejects the view that contracts connected to criminal conduct are invariably void [para. 15]. Whether contract signing or performance constitutes a crime and whether the contract is valid are separate questions governed by criminal law and the Civil Code [para. 16]. Automatically voiding a loan contract because of loan fraud could also invalidate a related guarantee, harming the victim’s interests [para. 16]. For contracts signed by people whose conduct constituted fraud, contract fraud, or loan fraud, companies and other entities may remain liable if the person had actual or apparent authority; courts should support claims that the contract binds the entity [para. 17]. If the person lacked authority and no apparent authority existed, the claim generally fails, but the entity may be ordered to pay compensation if it was at fault [para. 18]. If an employee signs a contract in a company’s name and then illegally takes or misappropriates assets, the contract can still bind the company, though damages may be reduced if the counterparty was also at fault [para. 19]. For guarantee contracts where the debtor’s signing of the principal agreement amounts to a crime, courts must assess the validity of the principal contract; if the principal contract is valid but the guarantee was obtained through fraud or coercion, a guarantor may seek to rescind it within the statutory period [para. 20].
6. Wang Liming, vice president of the China Law Society and a professor at Renmin University of China, said unclear rules had allowed the criminal-first approach to be distorted into a means of halting civil litigation, cutting off legitimate avenues for civil remedies and leaving creditors’ projects stalled [para. 21]. The new interpretation’s emphasis on parallel proceedings helps protect civil litigation rights and curb efforts to delay cases or evade debts [para. 22].
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