Wednesday, July 1, 2015

China - Proving a Contract is a Forgery in China: The Ink Test Application

By Robin Gerofsky Kaptzan (Senior Foreign Counsel), Haworth & Lexon Law Firm (Shanghai).

After a General Manager of the Shanghai, China foreign invested business lost most of his claims for compensation from his alleged wrongful termination before the Shanghai Labor Arbitration Tribunal, he initiated litigation in the court. In support of his Appeal, the General Manager submitted a “smoking gun” – a document that clearly rendered the Employer 100% liable. In China, it is permitted to submit new evidence when a party has appealed and initiated litigation in the PRC court regarding a labor dispute. His new evidence miraculously supported every claim upon which he had lost at the Labor Arbitration. The outraged Employer, incensed by the fake contract authenticated by the Shanghai company chop (the seal/stamp in China is the equivalent to a signature in most countries), confidently said that the new evidence was a forgery with the chop used without authority and obtained through wrongdoing. The only route to prove the lack of integrity of the document was for the Employer to formally test the authenticity of the document. Although forensic tests confirming the date a document was signed (or chopped) have been used in the USA and other jurisdictions for a while, they are rarely used in China. After having the court imposed equivalent of a forensic test completed, justice was served when the People’s Court of Shanghai Huangpu District rendered a decision smoldering the “smoking gun”.

In China, the equivalent to a forensic test is called an “Ink Test” in order to prove the time when the document was printed, chopped or signed. During a dispute, a party has the right to request the authenticity of a document be tested if it claims the document is a forgery. When making the request, a party has the right to specifically identify the goal of the test – signature, chop, ink, print, etc. If the request is granted, the judge then liaises with a Chinese authentication institution approved by the government to conduct such test.

Before making the request, we were told that all environmental factors are considered and all possible measures available would be used in order to render the final conclusion. We were told there is a risk that the test will be inconclusive, although it is rare for documents allegedly signed more than one year prior to the test to have an inconclusive result. For a document alleged to have been signed within a year of the test, the risk of an inconclusive finding is greater.

In our situation, the General Manager claimed the document (the “smoking gun”) was executed several years earlier as reflected by the printed date on the document. The Employer, however, alleged the fake was created within one month of the submission to the People’s Court. At the hearing authorizing the Ink Test, the People’s Court Judge ordered 1) the General Manager to submit to the Court the original “smoking gun”, and 2) the Employer to cooperate with the expert from the authentication institution to be appointed by the People’s Court Judge (as the authentication institution’s expert will be requesting a variety of the Employer’s original business documents). After the hearing, the Employer was contacted by the authentication institution’s expert conducting the Ink Test and was required to deliver original contracts, invoices, and other corporate documents that contained the company chop for several months before and after 1) the date on the alleged “smoking gun”, and 2) the date the Employer alleged the “smoking gun” was created (immediately after the Labor Arbitration Tribunal’s decision was rendered to the time the General Manager filed his Appeal, about 15 days). After obtaining authorizations regarding confidentiality clauses in some of the documents, the employer submitted the required documents.

The entire process from submitting the request to the Appellate Court Judge to the issuance of the decision was 3-4 months. We were contacted by the authentication institution’s expert 30 days after the Judge granted our request. We were told the test would take 30 to 60 days and it actually was conducted over a period of more than 60 days with the Employer providing additional documents as requested.

There is a basic fee that each authentication institution will charge, which is several thousand reminbi (a few hundred USD). An additional fee is also charged and is calculated based on the amount claimed in the case. If the result is inconclusive, only the basic fee will be charged. Although the cost of the test is paid for in advance by the party requesting the Ink Test, a result that the document is indeed a forgery will transfer the responsibility for the cost of the test to the other party with that amount being included in the final decision rendered by the judge.

As it was possible that the result of the Ink Test could have been inconclusive, we considered every factor that might affect the outcome of the Ink Test before making the Application. Even at the hearing, the General Manager, unsuccessfully, attacked the integrity of the test with arguments (i.e: the original business documents provided by the Employer were forged) that may be successful in a different case if one could not establish the authenticity of the documents provided. In China, the proof that a document is an original is critical in all cases. An Ink Test Application is a bold step in a China civil case but it is something that should be considered when you believe a forgery may have been submitted in your case.

This article is based on a labor dispute commenced in early 2012 before the Shanghai Labor Arbitration Tribunal. The General Manager alleged wrongful termination and claimed compensation for income, expenses, severance and commission in Shanghai. The Employer denied the claims and asserted the General Manager was not entitled to certain compensation requested as he abused the power given by the investor, it was never agreed, and it was non-China compensation. The dispute was tried in the Shanghai Labor Arbitration Tribunal with the Employer effectively succeeding on all financial claims except that the Arbitrator ordered the employee to return to work. This is a right of an employee under the PRC Labor Contract Law, which the General Manger asserted and which the Employer vehemently opposed due to the disruption to the office and fear of the employees. The General Manager initiated litigation in the People’s Court effectively appealing all of the Shanghai Labor Tribunal’s decision and the Employer initiated another litigation to the People’s Court only objecting to the portion allowing the General Manager to return to work. The People’s Court merged the two litigations. In early 2015, the People’s Court rendered the decision confirming that the Ink Test Application conclusively found the “smoking gun” a forgery. Before the time to appeal to the Shanghai Municipal First Intermediate People's Court expired, this matter was concluded through a settlement ad release agreement, a decision that minimized future expenses and risk of baseless claims being brought again in any court. This matter was handled by Keven Cheng (Partner) and Robin Gerofsky Kaptzan (Senior Foreign Counsel) from Haworth & Lexon Law Firm (Shanghai).