Shanghai Municipality, Implementing Measures for Associations Between Chinese and Foreign Law Firms in the China (Shanghai) Pilot Free Trade Zone

(Issued by the General Office of the Shanghai Municipal People's Government on, and effective as of, November 18 2014.)

Hu Fu Ban Fa [2014] No.63

Article 1: These Measures have been formulated pursuant to the General Plan for the China (Shanghai) Pilot Free Trade Zone and the Ministry of Justice, Official Reply on Approving the Pilot Project Plan for Exploring Methods and Mechanisms for Close Business Cooperation Between Chinese and Foreign Law Firms in the China (Shanghai) Pilot Free Trade Zone in order to launch, in a compliant and orderly manner, a pilot project in the China (Shanghai) Pilot Free Trade Zone (the PFTZ) for associations between Chinese and foreign law firms (Pilot Associations), and to explore methods and mechanisms for close business cooperation between Chinese and foreign law firms.

Article 2: For the purposes of these Measures, the term “association” means that a Chinese law firm and a foreign law firm form an association in the PFTZ, based on the rights and obligations specified in an agreement, whereby, by way of a division of responsibilities and coordination, they provide to Chinese and foreign clients legal services involving the application of Chinese and foreign law respectively, or cooperate in the handling of cross-border and international legal affairs. During the term of the association, the parties maintain independence in their legal status, names and financial affairs, and they each bear civil liability independently.

Chinese and foreign law firms that apply to participate in a Pilot Association shall satisfy the condition of at least one party having set up an establishment in the PFTZ, i.e. the foreign law firm having established a representative office in the PFTZ, or the Chinese law firm (or a branch thereof) being established in the PFTZ, in addition to satisfying the conditions set forth in Articles 3 and 4 hereof.

Article 3: A Chinese law firm applying to participate in a Pilot Association shall satisfy the following conditions:

(1) having been established for at least three years;

(2) being in the form of a partnership;

(3) having at least 20 full-time practising lawyers;

(4) having relatively strong legal service capabilities and compliant internal management;

(5) not having been subjected to administrative penalties or industry sanctions during the most recent three years; and

(6) its head office being in Shanghai (including the PFTZ), or its head office being in another province, autonomous region or municipality directly under the central government but already having a branch in Shanghai (including the PFTZ).

A branch of a Chinese law firm may not apply for an association as one of the entities that is party to the association.

Article 4: A foreign law firm applying to participate in a Pilot Association shall satisfy the following conditions:

(1) having had a representative office in Shanghai for at least three years, or having had a representative office in another city in China for at least three years and already having a representative office in Shanghai (including the PFTZ); and

(2) its existing representative offices not having been subjected to administrative penalties by a Chinese regulator during the most recent three years.

A China resident representative office of a foreign law firm may not apply for an association as one of the entities that is party to the association.

Article 5: A Chinese or foreign law firm may establish a cooperation relationship in the form of an association with only one foreign or Chinese law firm. The association shall be subject to the check and approval of the municipal judicial bureau.

Chinese and foreign law firms participating in a Pilot Association may not establish a cooperation relationship of mutually seconding lawyers to serve as legal counsel with a third party law firm and its branches (or representative offices).

Article 6: A Chinese and foreign law firm wishing to enter into an association shall enter into a written association agreement in accordance with relevant Chinese laws and these Measures. The association agreement shall include the following details:

(1) the names and domiciles of the parties to the association and the names of their persons in charge or managing partners;

(2) the name and logo of the association;

(3) the term of the association;

(4) the scope of business of the association;

(5) the arrangement for the parties' lawyers participating in the association and the parties' respective persons in charge;

(6) the arrangement for the place of business and equipment used in common;

(7) the arrangement for the support personnel, such as administrative personnel and secretarial personnel used in common;

(8) the arrangement for the sharing of the fees derived from, and the operating expenses incurred in, the association;

(9) the arrangement for the practice insurance of the parties' lawyers and the method of bearing liability;

(10) business termination and liquidation of the association;

(11) liability for breach of contract;

(12) dispute resolution; and

(13) other matters.

In general, the term of the association specified in the agreement may not be less than two years.

Article 7: An association name shall be composed of the name of the Chinese law firm plus the name of the foreign law firm (a Chinese to foreign language translated name may be used) plus the words “(PFTZ) Association Office”. The name of an association shall be subject to the check and approval of the municipal judicial bureau.

Article 8: The application for, and approval of, an association between a Chinese law firm and foreign law firm shall be handled with reference to the procedure specified in the Ministry of Justice, Measures for the Administration of Associations Between Law Firms of the Hong Kong and Macao Special Administrative Regions and Mainland Law Firms.

The Chinese and foreign law firms that intend to apply for an association shall jointly submit a written association application, their association agreement and other required materials to the municipal judicial bureau. If the application satisfies the specified conditions, the municipal judicial bureau shall grant its approval and issue an association permit. If it does not satisfy the specified conditions, the municipal judicial bureau shall withhold its approval and inform the applicants in writing.

If, upon expiration of the term of the association, the parties resolve to renew the same, they shall submit the renewed association agreement to the municipal judicial bureau for the record. If the parties resolve to terminate their agreement, they shall apply to the municipal judicial bureau in both of their names for deregistration.

Article 9: The Chinese and foreign law firms involved in an association may jointly, in the name of the association, accept engagement by concerned parties or other law firms to handle Chinese and foreign legal matters within their respective approved legal practice scopes of business by way of a division of responsibilities and coordination, or cooperate in handling cross-border and international legal matters. A foreign law firm participating in the business of an association and the foreign law firm's China resident representative offices, representatives and employees may not handle Chinese legal matters.

Article 10: Where a Chinese law firm and a foreign law firm cooperate in handling legal matters in the name of their association, they may bill their clients as one, and distribute the same in accordance with their association agreement; or, alternatively, they may bill their clients separately based on the legal matters that they each handled in the association, provided that they inform their clients thereof in advance.

Article 11: If the parties to an association cause a client to incur a loss due to illegal practice or fault in the course of carrying out association business, the party at fault shall solely be liable for, or the parties shall share liability for, compensation in accordance with their association agreement.

The parties to an association, together with their lawyers involved in association business, shall separately, in accordance with relevant provisions, enrol in lawyers' practice liability insurance in their respective names.

Article 12: The Chinese and foreign law firms involved in an association shall use a place of business and office equipment in common, practise joint handling of matters and may use support personnel such as administrative personnel and secretarial personnel in common. The place of business used in common shall be chosen from the Chinese law firm (or its branch) in the PFTZ or the foreign law firm's Shanghai representative office established in the PFTZ. The sharing of expenses for the place of business, office equipment and support personnel used in common shall be specified in the association agreement.

Article 13: The association between a Chinese law firm and a foreign law firm shall terminate if:

(1) the term of the association expires and the parties do not apply to renew it further;

(2) the parties terminate the association pursuant to an agreement;

(3) either of the parties ceases to exist or goes bankrupt;

(4) the China resident representative office of the foreign law firm is deregistered in accordance with the law; or

(5) another circumstance under which the association shall be terminated pursuant to the law applies.

If an association is terminated, the parties shall apply to the municipal judicial bureau for deregistration.

Article 14: Pilot Associations shall be regulated by the municipal judicial bureau in accordance with the Ministry of Justice, Official Reply on Approving the Pilot Project Plan for Exploring Methods and Mechanisms for Close Business Cooperation Between Chinese and Foreign Law Firms in the China (Shanghai) Pilot Free Trade Zone and these Measures, with the Pudong New Area judicial bureau entrusted with responsibility for the day-to-day monitoring and guidance of associations and the carrying on of their business.

The Chinese and foreign law firms involved in an association shall submit a report on the association to the municipal judicial bureau through the Pudong New Area judicial bureau within the first quarter of each year.

Article 15: If a Chinese law firm and a foreign law firm commit a violation of laws or regulations in the course of their association and its business activities, the same shall be investigated and dealt with by the municipal judicial bureau in concert with the relevant district or county judicial bureau.

In a case where a Chinese law firm or its lawyers have committed a violation of the law for which administrative penalties shall be imposed pursuant to the law, the municipal judicial bureau or the relevant district or county judicial bureau shall handle such case in accordance with relevant provisions of the PRC Lawyers Law and the Measures on Penalties for Violations of the Law by Lawyers or Law Firms. In a case where a foreign law firm's China resident representative office or its representatives have committed a violation of the law for which administrative penalties shall be imposed pursuant to the law, the municipal judicial bureau shall handle such case in accordance with relevant provisions of the Regulations for the Administration of the Resident Representative Offices of Foreign Law Firms in China and the Ministry of Justice, Provisions for the Implementation of the «Regulations for the Administration of the Resident Representative Offices of Foreign Law Firms in China».

Article 16: The municipal judicial bureau shall report information on Pilot Association related work and regulation thereof to the Ministry of Justice in a timely manner.

Article 17: These Measures shall be effective as of the date of issuance.