Advice of Beijing Court on the Trial of Cases of Commercial Disputes in Response to the Financial Crisis
· Document Number：No. 373  of Beijing Higher People’s Court
· Area of Law： Banking & Finance
· Level of Authority： Local Judicial Documents
· Date issued：08-19-2009
· Effective Date：08-19-2009
· Status： Effective
· Issuing Authority： Higher People's Court of Beijing Municipality
Notice of Beijing Higher People's Court on Issuing Some Advice of Beijing Higher People's Court on the Trial of Cases of Commercial Disputes in Response to the Financial Crisis
(No. 373  of Beijing Higher People's Court)
Beijing No. 1 Intermediate People's Court, Beijing No. 2 Intermediate People's Court, and Beijing Intermediate Court of Railway Transportation,
The people's courts in all districts and counties, all railway transportation courts,
Some Advice of Beijing Higher People's Court on the Trial of Cases of Commercial Disputes in Response to the Financial Crisis, which were discussed and adopted by the Judicial Committee of Beijing Higher People's Court on August 17, 2009, are hereby printed and distributed to you. Please earnestly implement them by taking into consideration the actualities of your trial practice.
August 19, 2009
Some Advice of Beijing Higher People's Court on the Trial of Cases of Commercial Disputes in Response to the Financial Crisis
(Adopted at the 13th meeting of the Judicial Committee of Beijing Higher People's Court on August 17, 2009)
At present, due to the impact of the international financial crisis, Beijing is having a hard time in economic development and the courts in Beijing are facing new challenges in the trial of commercial disputes. In order to make effective responses, maintain the financial safety of the Capital, ensure the social harmony and stability, promote the sustainable development of the economy of the Capital and equally protect the legitimate rights and interests of all participants of the market economy, we hereby put forward the following advice regarding the work of the courts in Beijing on the trial of commercial disputes in response to the financial crisis:
I. Guiding Thoughts
We should be fully aware of the impact of the financial crisis on the economic development of the Capital, make an assessment and forecast of the economic features of the headquarters in Beijing, and give prominence to the precondition of trying cases in accordance with law, to the judicial trial's “directing” and “protecting” functions in the trial of various kinds of commercial disputes initiated in the courts during the financial crisis. We should not only effectively protect the financial claims but also endeavor to protect the lawful rights and interests of all participants of the market economy. We should protect social harmony and stability of the Capital, promote the sustainable development of the economy of the Capital and strive to provide judicial guarantee for the policy of “maintaining the economic growth, protecting people's livelihood and ensuring stability”. We should enhance our awareness of the overall situation and unify the standards for the application of law. We should, during the trial of commercial disputes, actively direct the parties concerned to settle their disputes through negotiation and mediation, make more efforts to eliminate conflicts, strive to achieve the best legal and social effects, prevent mass disputes and ensure that the lawsuit is “impartial, transparent and expedite and the parties concerned are duly respected”.
1. We should pay attention to the overall situation of economic and social development of Beijing, the overall situation of social harmony and stability of the Capital, and the new information and new problems arising in the judicial sector as a result of the changes of the macro-economic environment so as to have accurate understanding of the situation and properly cope with the issues. Beijing is the hub for the national political, cultural and economic development and plays the role of an economic headquarters. During the work on the trial of commercial disputes, we must implement the overall policy of “maintaining growth, protecting people's livelihood and ensuring stability” in the specific trial practice, and strive to lower the adverse impact of the international financial crisis on the economic development of the Capital through the judgment of special cases and eliminate the risks the participants of the market economy are facing.
2. We should thoroughly carry out the practical work under the topics of “People's Judges Serving the People”, “Attending to the Voices of the People, Visiting A Hundred Families and Providing Services to the People”, give full play to the legal adjustment function of judicial trial in social relations and economic relations, widely consult the advice, suggestions and demands of all walks of life with regard to the trial of commercial disputes and establish long-term communication, coordination and collaboration mechanisms with all relevant departments so as to jointly prevent the financial crisis from triggering systematic economic and social risks, and ensure the smooth implementation of all macro-regulation policies of the state on “boosting domestic demand, maintaining economic growth, adjusting the structure of economy and benefiting the people”.
3. We should thoroughly understand and grasp the meaning of the principle of “giving priority to mediation and combining mediation with sentencing”. During the trial of a commercial dispute, we should first consider mediation so as to realize the organic unity of the legal effects and social effects on the basis of effectively eliminating the disputes and conflicts. Second, we should scientifically grasp the basis and conditions for employing the method of mediation or sentencing to settle a dispute and make careful mediation if it is possible to do so; and make a timely judgment if is impossible to make mediation. Third, we should, by focusing on the objectives of settling disputes and concluding cases, intensify the mediation of commercial disputes, increase the proportion of cases whose judgments are enforced in court and the proportion of cases whose judgments are enforced voluntarily by the parties concerned, strive to increase the proportion of cases concluded by mediation and the proportion of cases in which the parties concerned are satisfied with the judgments and put an end to the lawsuits. Fourth, we should strengthen the investigation and research of the mediation work, incessantly summarize the mediation experience, correctly employ the mediation rules and explore the benign recycle of “the more lawsuits appeased and the better the effects”. In the mean time, we should lay emphasis on exploring the diversified forms of effective mediation organizations with the involvement of social organizations in mediation, establish a long-lasting and effective mechanism for specialized people to serve as jurors in mediation, and expand the scope of cases in which jurors are allowed to participate in trials and mediation.
4. We should establish a mechanism for the dynamic monitoring and pre-warning of commercial disputes, lay emphasis on forecasting the trend of development of commercial disputes and improve the capability of preventing and dealing with emergencies and solving sensitive, difficult and complicated issues. As to the commercial disputes for which class actions are lodged within a short time period and involve the same parties, and the commercial disputes which involve social sensitive issues and are extremely easy to trigger mass incidents, we should not only handle them but also timely check, make rapidly responses to, closely track and focus on the research of them and carefully identify their nature and formation background, and shall timely report the problems found to the Party committees at all levels and Beijing Higher People's Court. In the mean time, we should pay attention to persuade the parties concerned, and, if necessary, coordinate with the relevant departments to jointly do a good job in appeasing lawsuits and complaint visits, and ensure smoothness in information transmission and properly handle the relevant work.
(5) While vigorously pushing forward specialized construction of trial organizations and judges for commercial disputes and fostering a team of expertly judges, we should also lay emphasis on giving full play to the expertise of the judges, timely study the trial of the specific commercial disputes under the background of financial crisis and the relevant legal issues so as to accurately grasp and properly deal with them and ensure the quality of trial of the pertinent cases.
II. The guiding principle for the trial of commercial cases
1. About the guiding principles for the trial of financial cases
(1) In order to support the business operation and overall development of the financial sector in Beijing, we should try our best to protect the safety of state-owned financial claims. We should accurately grasp the overall situation which is favorable for the regulation, coordination, risk resistance and sustainable development of the entire financial market, strictly implement the relevant laws, regulations and financial policies and keep in mind the overall requirements and law enforcement belief in responding to the financial crisis so as to equally protect the entire interests of the market participants. Under the present legal frame, we should subject the few financial institutions and corporate bodies that violate the principle of good faith, unilaterally scrap contracts or intentionally break contracts to civil liabilities so as to overcome the financial crisis and avoid commercial risks.
(2) We should correctly apply the Notice of the Supreme People's Court on Issuing the Summary of Minutes of the Symposium on Hearing Cases of Assignment of Distressed Claims Involving Financial Institutions, stick to the principle of “safeguarding the economic safety of the state, the principle of maintaining the stability of enterprises and society, the principle of legality, impartiality, properness and reasonableness and the principle of giving priority to mediation and combining mediation with judgment” as set forth by the aforesaid Summary of Minutes. Considering that such cases are primarily policy-based cases, we should, in trying those cases which are complex or involve many aspects or the social stability, follow the leadership of the local Party committee and government, and may request instructions from Beijing Higher People's Court when necessary. When finding any non-compliance in the disposal of distressed claims, we should timely contact the competent public finance and financial regulatory departments or give judicial suggestions to the financial regulatory departments. When suspecting the commission of any economic crime or finding any clue to a crime, we should timely transfer the cases or clues to the investigation organs. Beijing Higher People's Court will strengthen the supervision and guidance of the trial of such cases and all intermediate courts and grassroots courts should timely sum up the judicial experience so as to jointly, properly and impartially try such cases according to law, prevent state-owned asset losses, and guarantee the smooth disposal of financial distressed claims according to relevant laws and regulations.
(3) Under the new situation wherein the state is still keeping properly less rigid monetary policies, the money supply is increased rapidly, financial loans are increasing significantly and the capitalliquidity is vigorous, we should pay close attention to the dynamic information of the risks likely to arise in the financial sector during certain stages as well as the analysis of the causes of the said risks, pay attention to preventing systematic risks and strengthen the research of the trial of disputes which frequently arise in certain phases as well as the relevant legal issues. Especially, we should form specialized collegiate benches to investigate and research the relevant legal issues involved in the disputes over housing loans, auto consumption loans, auto consumption loan guarantee insurance, credit cards and financial real right guaranties, and various cases arising in the capital markets involving investments. Beijing Higher People's Court will, on the basis of integrating the investigation and research resources, strengthen the response and guidance to the trial of such cases, timely apply the relevant outcomes. All intermediate courts and grassroots courts shall, on the basis of correct understanding and application of laws and regulations as well as the relevant guiding opinions, formulate concrete response measures and properly deal with such cases.
2. About the guiding principles for the trial of disputes over contracts
We should correctly understand and apply the Guiding Opinions of the Supreme People's Court on Several Issues concerning the Trial of Disputes over Civil and Commercial Contracts under the Current Situation and resolutely subject the parties who break their contracts actively, intentionally fail to perform their contract, dodge the risk of market transactions, evade debts or commit other conducts to legal liabilities.
(1) We should correctly understand and apply the provisions of Article 113, paragraph 1, of the Contract Law of the People's Republic of China regarding the “loss of receivable interest and loss of expected interest”, identify the different types of loss of receivable interest and properly determine the loss of receivable interest. We should pay attention to identifying the following circumstances:
(a) The loss of receivable interest should be defined as “loss of expected net profit”;
(b) The types of loss of receivable interest include loss of production profits, loss of business operation profits and loss of reselling profits;
(c) The amount of compensation for loss of receivable interest to be determined = the total amount of loss of receivable interest – unforeseeable losses – intentionally enlarged losses – the interests of the victim of breach of contract – losses caused by fault – the necessary costs for concluding the contract; and
(d) The exceptions to which the provisions on the loss of receivable interest shall not apply, including the three circumstances, namely malicious fraud, personal casualties and mental damage compensations as prescribed inArticle 113, paragraph 2, of the Contract Law of the People's Republic of China, and the agreed method for computing damage compensations as prescribed in Article 114, paragraph 1, of the Contract Law of the People's Republic of China.
(2) We should correctly understand and prudently apply the “principle of change of situations” as given in Article 26 of Interpretation II of the Supreme People's Court of Several Issues concerning the Application of the Contract Law of the People's Republic of China so as to reasonably regulate and balance the interests of both parties to a contract. Although the international financial crisis has produced an impact on different economic sectors or industries which depend on each other and are closely related to each other, the interest losses involved in the contract disputes still fall into the scope of commercial risks. Therefore, we should, in a specific case, reasonably distinguish and identify the changes in situation and the commercial risks by taking into consideration the concrete situation of the market. We should strictly apprehend the pre-requisites for the application of the principle of change of situations according to law and tighten the examination of the causation between the “unforeseeable losses” claimed by the parties concerned and the failure to realize the objectives of contracts. Especially, we should be more prudent in applying the principle of “change of situations” to the contracts which involve bulk commodities known for their active market attributes and volatile prices and involve risk investment financial products. For a case to which the principle of change of situations is to apply, it must be discussed by the judicial committee of the acceptance court, and a written report on how to handle the said case must be submitted to Beijing Higher People's Court, and Beijing Higher People's Court may request the Supreme People's Court for instructions, if necessary.
(3) We should correctly understand and apply the provisions of Article 114 of the Contract Law of the People's Republic of China and Article 29 of Interpretation II of the Supreme People's Court of Several Issues concerning the Application of the Contract Law of the People's Republic of China regarding adjustment of the agreed penalty for breach of contract. With regard to the clause of penalty as stipulated in the contract by both parties concerned which is much higher than the losses resulting from the breach of contract, we should, in light of the concrete circumstance of the case, take the losses that result from the breach of contract as the benchmark, consider such factors as extent of performance of contract, faults of the parties, expected interests, the bargaining power of each party at the time of concluding the contract and whether a standard contract or clause is adopted, and keep a comprehensive balance between fairness and good faith. We should adhere to the nature of penalty primarily as a compensation and secondarily as a punishment, reasonably set the scope of discretion, and fairly determine the liabilities for breach of contract. We should earnestly prevent the parties from agreeing on an excessively high penalty for breach of contract under the excuse of autonomy of will and thus brining obviously unfair consequences. In the mean time, we should avoid undiscriminating application of such standards as a simple fixed rate, and avoid the substantive unfairness possibly caused by mechanistic justice. We should correctly determine the burden of proof. The party in breach of contract bears the burden of proof for the claim that agreed penalty is excessively high, but the party which is not in breach of contract shall also provide corresponding proof for its claim that the agreed penalty is reasonable. If the court of first instance has ruled to adjust the excessively high amount or rate of the agreed penalty for the losses that resulted from breach of contract and if there is no new physical proof, the court of second instance shall affirm the ruling of the court of first instance.
(4) We should correctly apply the Guiding Opinions of Beijing Higher People's Court on Several Issues concerning the Trial of Disputes over Purchase Contracts. When hearing disputes over purchase contracts, not only should we consider the impact of the changes in the macro-economic policies of the state or changes of the market on the fulfillment of contract, but also the survival of enterprises with a prospect of development and small and mid-size labor-intensive enterprises which are facing difficulties. We should properly adjust and balance the economic interests of the parties concerned, but the parties in breach of contract must pay the cost for breach of contract. In the mean time, we should make proper judgments without going beyond the basic principles of the law presently in force.
3. About the guiding principles on the trial of cases involving dissolution and liquidation of companies and unlawful capital withdrawal by enterprise investors
(a) We should pay special attention to the unification of principled and flexible work approaches, hold the investors liable for their faults in investment and subject them to the legal liabilities for their failure to perform liquidation obligation, protect the lawful rights and interests of the employees and creditors of enterprises and avoid the simplistic trial from sparking further conflicts.
(b) We should carefully research and deal with the cases triggered by business investors' unlawful withdrawal of investment for the purpose of dodging debts. We should do a good job in making plans on controlling relevant persons and properties, conserving proofs, appeasing the employees and creditors, etc. Not only should we protect the development of non-public economy and protect the legitimate rights and interests of the investors according to law, but also make subject the investors who illegally withdraw the investment to dodge debts to legal liabilities.
(c) As to the lawsuits triggered by the abnormal withdrawal of investments and the malicious dodging of debts by foreign investors of the three types of foreign-funded enterprises, we should, during the trial of such cases, pay more attention to protecting the litigation rights and substantive rights as well as the interests of all parties concerned according to law so as to properly and impartially settle such disputes, taking into consideration the peculiarities in the application of laws and policies to cases involving foreign parties or three types of foreign-funded enterprises.
(d) Beijing Higher People's Court will, on the basis of summarizing the in-depth investigation and research, issue in good time relevant guiding opinions on the trial of cases involving dissolution and liquidation of companies.
4. About the guiding principles for the trial of enterprise bankruptcy cases
We should strictly comply with the Opinions of the Supreme People's Court on Several Issues Concerning Correctly Trying Enterprise Bankruptcy Cases to Provide Judicial Protection for Maintaining the Order of Market Economy, accept and try enterprise bankruptcy cases according to law and establish a benign operating mechanism for corporate bodies to exit the market.
(1) We should correctly apprehend the role of the Enterprise Bankruptcy Law in guaranteeing fair and orderly compensation for claims, improving the competition mechanism of selecting the superior and eliminating the inferior, optimizing the allocation of social resources, adjusting the industrial structure and saving the enterprises in difficulty. We should comprehensively apply the procedures as prescribed in the Enterprise Bankruptcy Law and give full play to their role in adjusting the market economy.
(2) We should give full play to the dynamic role of justice, focus on making explanations to and coordinating the parties concerned and shall reasonably apply the bankruptcy-based re-organization and reconciliation procedures. To apply a compulsory approval re-organization plan for purposes of saving an enterprise in difficulty, we should ensure that the creditors who oppose the draft plan on re-organization may obtain, during the restructuring, the debt settlement interests which they would have obtained in the bankruptcy liquidation. In the meanwhile, we should, on the basis of finding out facts, ensure that the shareholders, actual controllers, directors, supervisors and other senior managers who have caused the bankruptcy of the enterprises assume the corresponding civil liabilities according to law, and timely transfer those criminal suspects to the relevant criminal investigation organ or prosecutorial organ.
(3) During the trial of an enterprise bankruptcy case, we should earnestly protect the lawful rights and interests of employees, protect the interests of the employees according to law and guarantee the employees' right to participate in the bankruptcy procedure. Especially, we should attach importance to the trial of cases involving liquidation, restructuring and reconciliation of real estate companies and labor-intensive enterprises, correctly apply the legal procedures, do a good job in making explanations to and coordinating the creditors, debtors and employees of the enterprises and earnestly protect the lawful rights and interests of the creditors and employees of the insolvent enterprises.
III. We should properly employ the relevant litigation remedies and try our best to give play to the role of the litigation procedural mechanism in eliminating various social conflicts.
1. As to indebted enterprises which are having financial difficulties but are still operating normally and have a prospect of development, we should be prudent to employ the property preservation measures. We may consider that, through enterprise reorganization, custody or guaranty and other flexible methods, the creditors can give a reasonable grace period to the indebted enterprises so as to maintain the indebted enterprises' “cash flow” for development and operations in the long run, help the debtors to overcome their temporary financial difficulties, enable them to maintain, resume or even develop their production and business operations, and finally ensure the realization of the financial claims.
2. As to enterprises which intend to transfer their properties and dodge their debts, we should take more rigid property preservation measures so as to effectively control the properties of enterprises against which lawsuits are lodged and prevent the indebted enterprises involved in the lawsuits from transferring the effective assets or committing other conducts which may seriously impair the interests of the creditors and employees.
3. We should earnestly implement the Provisions of Beijing Higher People's Court on Several Issues Concerning Property Preservation (for Trial Implementation) and the tenets of the Conference of Courts of Beijing on the Trial of Commercial Disputes, taking into consideration the requirement of “being prudent in employing the property preservation measures” in the context of financial crisis.
(1) We should make a preliminary analysis and judgment before we take property preservation measures. On the precondition of fully considering the correlative factors between the disputes and financial crisis and the protection of creditors' rights, we should be prudent in adopting the property preservation measures provided that the condition for “pouring water to cultivate fish” is satisfied.
(2) To take property preservation measures, we should have a proper understanding of the debtor's solvency, credit standing and employees and the applicant's purpose for property preservation. If the indebted enterprise has a good credit standing, is short of money but is still operating normally and has a prospect of development, or if the applicant only wishes to impose pressure on the indebted enterprise but is ready to accept flexible means of preservation and guaranty, we should focus on persuading the applicant of property preservation to accept property preservation accomplished by way of guaranty or “flexible sealing-up of properties (i.e., allowing the party against which an property preservation application is filed to physically occupy and use the non-monetary properties which have already been sealed up during the process of litigation but not to transfer them without permission of the court). For industrial enterprises suffering from the impact of the financial crisis, we should strive to obtain the understanding of the applicant, try our best not to seal up the real property which will affect the production and operations of the enterprise, and try our best to reduce the freezing the cash flow of the enterprise.
(3) On the precondition of being prudent in adopting the property preservation measures, each court shall rapidly try and conclude the relevant cases and enter into enforcement procedure as soon as possible so as to prevent the loss of enforceable properties.
(4) To conduct any property preservation under the present economic situation, we should make a careful analysis of the actual information of each case, and then make a decision on the basis of the actualities. The preservation of the courts should not prevent the indebted enterprises from carrying out normal production and business operations leaving the employees without the necessities for living or triggering any new conflict. For a preservation which may produce such consequences, each court should strictly follow the administrative procedure of examination and approval of the head of the tribunal or designated president of the court, make a good plan in advance and handle the relevant work in a timely and proper manner.
4. As to the commercial disputes which relatively abound and whose creditors are financial institutions or auto financial service companies (referring to the corporations that incorporates the manufacturing, sale and loans), if a creditor pleads for preservation of property, the corporate enterprise with good assets and having the ability to repay the debts may be allowed to provide a guaranty for the preservation of property by means of credit guarantee so as to appropriately reduce the cost of litigation and mitigate the burden of the enterprise in question.