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.