Contributed by Global Law Office.

Introduction

In a recent arbitration, the claimant and the respondent were both large state-owned mining enterprises which had entered into a long-term iron ore transaction. Each year, the parties had signed a sales and purchase agreement, which had set out the manner in which the claimant would sell iron ore to the respondent.

The respondent defaulted on its payments throughout the entirety of the transaction and at the end of 2015 its financial situation became critical. As a result, the claimant terminated the supply of cargo and repeatedly requested payment. However, the respondent was able to make only a few payments of several million renminbi yuan. As of the date of the arbitration's docketing, the total amount of the debt was hundreds of millions renminbi yuan.

Facts

Before the end of 2015, the respondent had been paying its debt in an irregular manner. First, it would issue trade acceptances to the claimant, which would issue a receipt. At the time of payment, the respondent would ask the claimant to return the trade acceptances. The respondent would then transfer the money to the claimant directly.(1) However, when the claimant returned the trade acceptances, the respondent refused to issue a receipt. Because of its long-term business relationship with the respondent and its lower trading position, the claimant had not objected to this practice.

By 2015 the respondent had issued the claimant trade acceptances with a value of more than Rmb6 million, and the respondent had yet to make any payment. Although the respondent had a record of issuing trade acceptances to the claimant and the relevant receipts, the claimant had no proof that it had returned the trade acceptances.

In the arbitration's first hearing, the respondent acknowledged that it had defaulted on its payments. However, it denied the receipt of the abovementioned returned trade acceptances and argued that the claimant should return the acceptances first or file a separate claim regarding bills therefor.

At the time of the first hearing, the claimant had no evidence to prove the return of the acceptances. As such, some of its employees went to the respondent's office and spoke to the person in charge of trade acceptances in order to clarify matter. The claimant's employees made a video recording of this discussion. The respondent was unaware of the video recording and acknowledged the return of the trade acceptances in the communication.

In the second hearing, the claimant submitted the video recording. The respondent objected to the recording's legality and content and the discussion that had been recorded, arguing that it had been made without its knowledge and did not directly show the return of the trade acceptances at issue.

Aside from the video recording, no other evidence proved the return of the trade acceptances. Consequently, whether to admit the video recording was a core issue in the arbitration.

Award

The tribunal accepted the video recording and ordered the respondent to pay the entirety of the debt to the claimant.

Comment

It has long been disputed whether video or audio recordings can be admitted as evidence in arbitration where they are made without the counterparty's consent. In the Reply of the Supreme People's Court regarding Documents Made by Private Recording on the Counterparty's Talk Without His/Her Consent Cannot be Used as Evidences (1995), the court confirmed that audio recordings made without the counterparty's consent cannot be used as evidence.(2) As such, video and audio recordings made without the counterparty's consent have not been widely accepted in arbitration.

However, the Provisions of the Supreme People's Court on Evidence in Civil Proceedings, which took effect in 2002, included only a general requirement that evidence obtained by damaging another party's lawful rights and interests or violating prohibitive legal provisions cannot be used to ascertain the facts of a case.(3)

Following the issuance of the Provisions of the Supreme People's Court on Evidence in Civil Proceeding, the principal of the Number 1 Civil Tribunal of the Supreme People's Court issued an explanation that evidence will be deemed illegal only where it is obtained by methods that:

• damage another party's lawful rights (eg, by violating the public interest or social ethics or breaching the privacy of others); or
• violate prohibitive legal provisions (eg, bugging another party's domicile).

Following the above explanation, the general attitude towards the admission of video and audio recordings made without the counterparty's consent has become more relaxed. Thus, in practice, private videos and audio recordings have gradually become a common form of evidence in arbitration.

Nonetheless, private video and audio recordings made without the counterparty's permission are an ineffective form of evidence, as the counterparty may dispute them for many reasons. For example, they may deny that they are the person speaking in the recording (in this regard, a video recording is more reliable, although it does require greater technical know-how). The counterparty may also object to the legality of such evidence gathering or the integrality or originality of the recording. As such, video and audio recordings are still frequently rejected as evidence, especially in disputes regarding marriage.

In order for a private video or audio recording made without the counterparty's consent to be accepted as evidence, a number of factors should be considered. First, the recording must be integral (ie, it must be the original recording and must not have been cut or edited). Second, it must have been obtained in a legal manner that did not violate another party's legal interest. This is usually judged based on when and how the recording was obtained. Finally, the counterparty's attitude is important; where the counterparty denies the authenticity or legality of the recording, the risk that it will be rejected as evidence will be much higher.

Endnotes

(1) Normally, the taker of a trade acceptance will go to the bank that recorded the trade acceptance for payment. The bank will then pay the taker when there are sufficient funds in the drawer's account.

(2) According to the Reply of the Supreme People's Court regarding Documents Made by Private Recording on the Counterparty's Talk Without His/Her Consent Cannot be Used as Evidences, only evidence that is obtained in a legitimate manner can be used to confirm the facts of a case. Creating an audio recording of a counterparty without their consent is illegal. As such, audio recordings obtained in such a manner cannot be used as evidence.

(3) Article 68 of the Provisions of the Supreme People's Court on Evidence in Civil Proceedings states that evidence obtained by encroaching on the lawful rights and interests of others or violating prohibitive legal provisions cannot serve as a ground for ascertaining the facts of a case.

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