11.1 The Difference Between Settlement and Mediation

In China, settlement refers to the fact that the parties resolve disputes through negotiation on their own without the intervention of the court or other organizations. Since there is no need for the intervention of the court or other organizations, the parties can reach a settlement agreement in all stages of the court proceedings. However, the settlement agreement reached by the parties is not legally enforceable. If the other party breaches the settlement agreement, the non-breaching party, rather than directly applying with the court for the enforcement (for enforcement, see Chap. 10) of the settlement agreement, needs to file another lawsuit regarding the breach. The parties can still make a settlement during the enforcement procedure, and apply with the court for suspension of the enforcement procedure after reaching a settlement agreement.

Mediation, different from settlement, is generally conducted under the auspices of the court. If the mediation succeeds, the parties may request the court to issue a mediation statement, which, different from the settlement agreement, is legally enforceable. If the other party fails to perform the obligations specified in the mediation statement, the parties may directly apply with the court for enforcement without further litigation. If the parties reach a settlement agreement on their own during litigation, they may also apply with the court to issue a mediation statement.

In order to encourage the parties to and help them resolve disputes once and for all, Chinese courts can also mediate matters beyond the claims for relief and include such matters into the mediation statement. In addition, if a party not involved in the case voluntarily provides guarantee for a party to the case, the court may also include the party not involved in the case into the mediation and specify its guarantee obligation into the mediation statement.

11.2 Mediation Organized by Organizations Other Than the Court

In China, there are other organizations, in addition to the court, that may serve as a mediator. The most common mediation organizations in China are residents’ committees in urban areas and villagers’ committees in rural areas. There are also mediation organizations set within some chambers of commerce, industry associations and other organizations.

In recent years, due to the growing number of cases, the workload of Chinese courts is getting increasingly heavier, resulting in many cases unable to be handled in a timely manner. In order to improve the efficiency of resolution of disputes (especially minor disputes in everyday life), Chinese courts are now cooperating with the above-mentioned mediation organizations. After the plaintiff files a lawsuit with the court, Chinese courts often first hand over the case to the above-mentioned mediation organizations for mediation without going through the formal case filing procedure. If the mediation succeeds, the mediation organization will arrange both parties to sign a settlement agreement; if the mediation fails, the mediation organization will transfer the case back to the court, which will then go through the formal case filing procedure and initiate the court proceedings. The court may also, during the litigation, refer the case to a mediation organization for mediation with the consent of the parties.

The above-mentioned pre-litigation mediation period is generally 30 days. Considering the time for files transfer between the court and the mediation organization, the pre-litigation mediation period may be longer in practice. If a mediation organization is entrusted for mediation during the court proceedings, the mediation period is generally 15 days (for cases under ordinary procedure) or 7 days (for cases under summary procedure) (for ordinary procedure, see the abstract of Chap. 5; for summary procedure, see Sect. 5.6).

It should be noted that the settlement agreement signed under the auspices of the mediation organization is not legally enforceable as well. If it is necessary to make the settlement agreement legally enforceable, the parties need to jointly apply with the court within 30 days after signing the settlement agreement, and the court will then confirm the enforceability of the settlement agreement; however, the settlement agreement will not be legally enforceable if either party refuses to do so. Therefore, if you are worried that the other party would refuse to perform the settlement agreement, we advise that you insist on the court presiding over the mediation during the court proceedings and issuing a mediation statement.

11.3 Self-admission in Settlement and Mediation

According to the Chinese law, the facts admitted by the parties to reach a settlement agreement during litigation shall not be used as a basis against them in the subsequent litigation, unless otherwise specifically provided by the law or the parties agree to waive this right. This provision on self-admission is consistent with that of many countries around the world.

However, it should be noted that only the facts admitted by the parties “during litigation” for the purpose of settlement or mediation cannot be used as evidence in the subsequent litigation. But the Chinese law fails to further define the term “during litigation”. Some understand “during litigation” as “in court”, while others understand it as “after the court files the case”. We are in the opinion that the mediation conducted by the mediation organization under entrustment by the court before the formal case filing should also fall within the period of “during litigation”.

Given that the Chinese law, principledly speaking, recognizes the probative power of secret recordings (for the probative power of secret recordings, see Sect. 6.7), some dishonest parties may record the process of settlement and negotiation, and assert that the negotiation is not for the purpose of reaching a settlement “during litigation”, and then further claim that the unfavorable statements made by the other party constitute a self-admission. If it is necessary to bring such dishonest practices to a halt, we advise that the parties make it clear at the beginning of the dialogue: this is a settlement negotiation, and any facts admitted in this dialogue shall not be taken as a self-admission, and the dialogue including such statement should be recorded throughout.

Although generally speaking, the facts admitted during the settlement cannot be used as evidence, the admitted facts unfavorable to either side may affect the judge’s inner judgment if the settlement fails. Therefore, during the settlement negotiation, we advise that the parties leave the facts of the case behind as far as possible and discuss the settlement offer only.

11.4 Confidentiality in Settlement and Mediation

As the process of settlement and mediation often involves the parties’ personal privacy, trade secrets or information that the parties are unwilling to disclose to the public, the Chinese law stipulates that: unless otherwise agreed by the parties, the mediation process and the settlement agreement reached shall not be made public; however, for the purpose of protecting national interests, social public interests and the legitimate rights and interests of others, the court may disclose the settlement agreement to the extent it deems necessary. In practice, it is quite rare for the court to take the initiative to disclose the settlement agreement. Not only the court, but also mediation organizations are obligated to keep the mediation process and the settlement agreement confidential. In addition, the parties may also add a confidentiality clause to the settlement agreement.

The parties may blacken the confidential content or excerpt the non-confidential content of the documents submitted to the court or the other party in the process of mediation or settlement: for example, blacken the opposite party of the contract, the contract amount, sensitive terms, or excerpt the relevant parts only, etc. Of course, blackening and excerpts should be limited to a certain range, without affecting the integrity of the whole document, nor covering up the content (such as the preparation time of the document, official seal and signature affixed thereon) critical to the judgment of the authenticity of the document, so as to avoid incurring groundless doubts about the authenticity of the evidence.

(Reference provisions and information for this Chapter).Footnote 1