The Chinese legal system and the Stern Hu case

Author: Vivienne Bath, University of Sydney

The trial of Stern Hu and his colleagues in the First Intermediate Shanghai People’s Court has now concluded, and the verdict will apparently be handed down today (2pm Monday 29 March, Shanghai time). The case has attracted a great deal of attention in Australia and internationally. However, many questions about the details and conduct of the case remain unanswered.

On March 18 2009, Qin Gang, a spokesman for the Chinese Foreign Ministry, reportedly said that the case should not be politicised or negatively affect Australia-China relations, as it was an ‘individual business case’. The way in which the Chinese authorities have handled the case, however, suggests that the investigation and trial involve more than purely legal issues.

First, the four Rio Tinto employees were detained in early July 2009, soon after the withdrawal of the Chinalco bid for a stake in Rio and the acrimonious collapse of the annual iron ore negotiations. After they had been held in detention for a lengthy period, it was announced, less than a week before its commencement, that the trial would start on 22 March, the same day that Tom Albanese, Rio Tinto’s CEO, was scheduled to speak at the China Development Forum in Beijing. It is difficult to believe that this was purely coincidental.

Second, the allegations brought against the defendants changed over time. According to initial reports, Hu and his colleagues were detained on suspicion of stealing state secrets. The Ministry of State Security was initially involved in the investigation. But Hu and his colleagues were actually arrested on charges of stealing commercial or business secrets and engaging in ‘non-State-owned enterprise’ bribery. This is a significant change. The offence of stealing state secrets for a foreign organisation is a major one, and the defendant’s rights during the investigation period and the trial are significantly abridged. Infringing on commercial secrets and engaging in commercial bribery are less serious offences.

Third, Rio Tinto has not been implicated by any of the investigations. This is despite the fact that Rio employs the charged men, and any state or commercial secrets would presumably have been acquired for its benefit. In addition, under Chinese law, a bribe involves three elements: the making of a payment, the intention to obtain an illegitimate benefit, and the receipt of that payment. Since Hu and his colleagues were employed by Rio, any provision of illegitimate benefits must have involved acts in the course of their employment at Rio’s expense. But Rio did not initiate the investigation of its employees or seek their prosecution.

Finally, the case involves no other defendants. Who provided the commercial secrets (and thus committed an offence)? Who paid the bribes for the purpose of obtaining an illegitimate benefit and why are they not on trial? According to some reports, RMB70 million was paid to one of the defendants by Du Shuanghua, the then head of privately owned Rizhao Steel. If the amount was paid as a bribe, it was surely substantial enough to justify a prosecution.

Widespread publicity around the trial has subjected the Chinese criminal system to international scrutiny. In the 30 years since the inception of the ‘Open Door’ policy, immense work has been done on the Chinese legal system, and China now has an impressive body of law applicable to investment, business transactions and criminal matters and a substantial group of highly trained and qualified lawyers and judges. This trial could have allowed China to showcase the development of its law, and demonstrate to the world that the Chinese judicial system can provide a fair and impartial trial for all defendants. The detention, arrest and charging of Stern Hu appears to have followed the formal requirements of the Criminal Procedure Law meticulously. Unfortunately, we have no way of assessing whether the trial was conducted fairly or impartially.

Notwithstanding provisions in the Chinese Criminal Procedure Law requiring that trials be held in open court, the court decided effectively to conduct the trial behind closed doors. Although Australian consular representatives were permitted to be present for the portion of the trial relating to the bribery charges, no other observers were allowed in, and the second half of the trial was closed off completely. Setting aside the question of whether the Australia-China Consular Agreement has been breached by this refusal, there was no clear reason for the court’s closure. The prosecution did not have to apply for the court to be closed, and the court did not have to accept such a submission. Steps could certainly have been taken to protect sensitive information if the trial had been open. Even if the court was closed to the general public, the Australian consular representative could surely have been trusted to keep information confidential. As a result, only partial information on the trial has been made available.

The information that has become available has highlighted several other issues relating to the Chinese criminal process.

Three days is a relatively long time for a Chinese court case, but it is objectively a short time in which to hear complex and substantial charges against four different defendants, involving a variety of different transactions. The process seems to have been shortened by the Chinese prosecution practice of producing witness statements as evidence without cross-examination. In particular, it appears that a statement by the alleged payer of RMB70 million was read in court, leaving the defendant to respond that the payment was not a bribe but a loan. Since the person who admitted to making the payment was not in court neither the statement nor the response could be properly tested.

The identity, background and experience of the judges hearing the case, other than the name of the main judge, Liu Xin, has not been revealed. In any case, under the Chinese system, the judges hearing the case do not necessarily decide it. At a minimum, it can be expected that the court’s judicial committee, including the President of the court and other senior judges, has met to consider and decide on the case. It is to be hoped that the judgment handed down by the court later today provides clear reasons for the verdicts and the final decisions that are made. The lack of transparency in the conduct of the case, however, means that the opportunity to demonstrate that the trial was fair and impartial and the verdicts were justified by the evidence has already been lost.

Regardless of the guilt or innocence of the defendants in the case, the investigation and trial of Stern Hu and his colleagues have sent a message to foreign business that politics, business and the law in China continue to be inextricably linked.

Vivienne Bath is a specialist in Chinese law and Associate Professor of Law and Director of the Centre of Asian and Pacific Law in the University of Sydney.

7 Comments

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  • On Vivienne Bath’ final point first, if the author had done some research or had read some of today’s reports, it would have been noticed that at least one co-defendants from one Chinese steel mill would be sentence today, or at least was involved in the some of the court hearings.

    How did the author get that fact omitted?

  • On another point, Vivienne Bath states that “The detention, arrest and charging of Stern Hu appears to have followed the formal requirements of the Criminal Procedure Law meticulously. Unfortunately, we have no way of assessing whether the trial was conducted fairly or impartially.”

    While part of the trial was closed to media and others including Australian consular representatives, the part involving the bribery charges was open and an Australian consular official was present, as reported.

    Then how could that be said to be “Unfortunately, we have no way of assessing whether the trial was conducted fairly or impartially”?

    I am not a law expert, but is that part of proper or appropriate law practice, theory or what?

  • Revi

    “…have sent a message to foreign business that politics, business and the law in China continue to be inextricably linked.”

    Ahem… politics, business and the law ARE inextricably linked wherever one goes in the world. BAe’s shenanigans springs clearly to mind, so the author’s statement is either disingenuous rhetoric, unabashed naivete or she is simply ignorant of the the rules of the game (read “business culture”), whether in the PRC or the UK.

  • David Hamilton

    Lincoln writes:

    “On another point, Vivienne Bath states that “The detention, arrest and charging of Stern Hu appears to have followed the formal requirements of the Criminal Procedure Law meticulously. Unfortunately, we have no way of assessing whether the trial was conducted fairly or impartially.”

    While part of the trial was closed to media and others including Australian consular representatives, the part involving the bribery charges was open and an Australian consular official was present, as reported.

    Then how could that be said to be “Unfortunately, we have no way of assessing whether the trial was conducted fairly or impartially”?

    I am not a law expert, but is that part of proper or appropriate law practice, theory or what?”

    Lincoln, I suspect the author would have been happier if the entire trial had been open to scrutiny. Hard to judge if the trial was conducted fairly when much of it still remains secret. It’s like checking to see whether you passed a test at school, but only being allowed to read half of what you wrote.

  • Mr David Hamilton,

    Your suspicion is duely noticed.

    There is no question that the Chinese legal system is different from that in Australia, and what is available in Australia may not always be available in China involving a legal case. I, as a Chinese Australian, am attempting to say that even me myself is completely and totally satisfied with the trial.

    But, have a look at what has been happening in Australia involving this case. Some of Australian media reports or comments have just been incredible!

    For example, even after the admission of receiving bribery by those involved, some media were still talking about they don’t know whether it was under duress or forced admission.

    Tell me if you can please, how do those people on earth know every detail of every case in the world? Why didn’t they contact the Australian consular in Shanghai for that matter or for a bit of clarification?

    Of course, there will be no one to sue them for defamation – they are free to say whatever they wish, that is what their freedom is about!

    Now in terms of your specific point. If the Chinese legal system handles confidential matters in closed fashion if a party to it asks for that, then regrettably one has to accept that is still the case in China. There is no point to score some points either politically or audience purpose, even by misleading methods or information. In this case, at least the bribery part of the court hearing was open. What does that mean? Does it mean “no way of assessing whether the trial was conducted fairly or impartially”? Is that statement right?

    There was clearly something, as opposed to nothing, to use to assess, even though it is incomplete. Why ignore that part and state something that is obviously wrong?

    Give me a break!

  • Samuel Johnson

    I know nothing about the Chinese legal system, so I have a question.

    Are those who pay bribes treated equally to those who receive bribes? Clearly the court has ruled that bribery took place, and to have established that they must have discovered who paid the bribes.

    So when will we see the trial of those who paid the bribes?

    You see, without such a trial taking place, it’s difficult to draw any conclusion other than this case was simply a petulant swipe at Rio Tinto for not accepting a US$19.5bn partnership with Chinalco.

    All bribery is morally repugnant, whether made by a Chinese citizen or an Australian citizen. I hope the Chinese legal system treats people equally, regardless of their race or nationality.

  • Ian Davidson

    Lincoln Fung’s first comment on 29 March was:

    “On Vivienne Bath’ final point first, if the author had done some research or had read some of today’s reports, it would have been noticed that at least one co-defendants from one Chinese steel mill would be sentence today, or at least was involved in the some of the court hearings.

    How did the author get that fact omitted?”

    Maybe the answer why the author got that “fact omitted” was that the Chinese authorities had not disclosed that fact until after the article had been written. Vivienne Bath’s article was posted sometime on Sunday 28 March (no doubt written at least some time before it was posted). Presumable it was only after she had written the article that “today’s reports” on 29 March had disclosed that someone from a Chinese steel mill was to be sentenced on the same day as Stern Hu. As well as the point the author had made about important parts of the trial being closed to Australian consular officials: “Setting aside the question of whether the Australia-China Consular Agreement has been breached by this refusal, there was no clear reason for the court’s closure”, there does not seem to be a clear reason for whatever was occurring to any defendant from a Chinese steel mill (if that was relevant to the trial of Stern Hu) not being disclosed until the actual date of Stern Hu’s sentence.