Dr. Mei Gechlik Founder and Director, China Guiding Cases Project … · 2017. 6. 21. · 1. Basic...

Copyright 2014 by Stanford University

Guiding Cases in PerspectiveTM

指导性案例透视TM

Dr. Mei Gechlik

Founder and Director, China Guiding Cases Project

Derek Qingtao Xie

Associate Managing Editor, China Guiding Cases Project

Guiding Case No. 9: CGCP Annotations

August 2014 (Final Edition)∗

∗

The citation of this piece is: Mei Gechlik and Derek Xie, Guiding Case No. 9: CGCP Annotations, CHINA

GUIDING CASES PROJECT, Guiding Cases in PerspectiveTM, Aug. 2014, available at

http://cgc.law.stanford.edu/guiding-cases/guiding-case-9/. The authors thank Ted Karch for translating the Chinese

version of a preliminary draft into English.

Guiding Cases in PerspectiveTM is a unique serial publication of the China Guiding Cases Project that

identifies the original judgments selected by the Supreme People's Court, examines their transformation into

Guiding Cases, and explores the treatment of the Guiding Cases in subsequent cases.

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I. The Process of Selecting Guiding Case No. 9

Shanghai Cunliang Trading Co., Ltd. v. JIANG Zhidong, WANG Weiming et al., A

Sale and Purchase Contract Dispute (“Guiding Case No. 9” or “GC9”) is one of the guiding

cases (“GCs”) included in the third batch of GCs released by the Supreme People’s Court

(“SPC”) on September 18, 2012.1 Its original judgments are the (2009) Song Min Er (Shang)

Chu Zi No. 1052 Civil Judgment rendered by the Songjiang District People’s Court of

Shanghai Municipality,2 and the (2010) Hu Yi Zhong Min Si (Shang) Zhong Zi No. 1302

Civil Judgment rendered by the No. 1 Intermediate People’s Court of Shanghai Municipality.3

This case was selected as a GC through the following process (see Chart 1):4

1. The No. 1 Intermediate People’s Court of Shanghai Municipality chose this case as a

potential GC and reported it to the Higher People’s Court of Shanghai Municipality.

2. Following discussion, the Adjudication Committee of the Higher People’s Court of

Shanghai Municipality decided to recommend this case to the Office for the Work on

Case Guidance of the SPC.

3. After research and discussion, the Office for the Work on Case Guidance sent the case

to the Second Civil Division of the SPC for examination and comment. Deeming that

the case applied the law correctly and could provide guidance on the adjudication of

similar cases, the Second Civil Division agreed to release it as a GC. On September

3, 2012, the Adjudication Committee of the SPC discussed and concluded that the

case conformed to Article 2 of the Provisions of the Supreme People’s Court

Concerning Work on Case Guidance and thus agreed to confirm this case as a GC and

release it as such on September 18.

1 《上海存亮贸易有限公司诉蒋志东、王卫明等买卖合同纠纷案》(Shanghai Cunliang Trading Co.,

Ltd. v. JIANG Zhidong, WANG Weiming et al., A Sale and Purchase Contract Dispute), CHINA GUIDING CASES

PROJECT, English Guiding Case (EGC9), Nov. 9, 2012 Edition, available at http://cgc.law.stanford.edu/guiding-

cases/guiding-case-9. 2 The first-instance judgment has not been found and may have been excluded from publication.

3 《蒋某等与上海存亮某公司买卖合同纠纷上诉案》（2010）沪一中民四（商）终字第 1302 号 (A

Certain Jiang et al. v. Shanghai Cunliang A Certain Company, An Appeal Case on A Sale and Purchase

Contract Dispute, (2010) Hu Yi Zhong Min Si (Shang) Zhong Zi No. 1302 Civil Judgment), CHINA GUIDING

CASES PROJECT, Guiding Cases in PerspectiveTM

, Guiding Case No. 9 Original Second-Instance Judgment, Aug.

25, 2014, available at http://cgc.law.stanford.edu/guiding-cases/guiding-case-9/. 4 See 最高人民法院案例指导工作办公室 (The Office for the Work on Case Guidance of the Supreme

People’s Court), 指导案例 9 号《上海存亮贸易有限公司诉蒋志东、王卫明等买卖合同纠纷案》的理解与

参照 (Understanding and Referring to Guiding Case No. 9, Shanghai Cunliang Trading Co., Ltd. v. JIANG

Zhidong, WANG Weiming et al., A Sale and Purchase Contract Dispute), 《人民司法·应用》 (THE PEOPLE’S

JUDICATURE·APPLICATION), Issue No. 3 (2013), available at

http://tjfy.chinacourt.org/public/detail.php?id=19098.

For the process of selecting Guiding Cases, see《最高人民法院关于案例指导工作的规定》

(Provisions of the Supreme People’s Court Concerning Work on Case Guidance), passed by the Adjudication

Committee of the Supreme People’s Court on Nov. 15, 2010, issued on and effective as of Nov. 26, 2010, CHINA

GUIDING CASES PROJECT, English Guiding Cases Rules, June 12, 2015 Edition, available at

http://cgc.law.stanford.edu/guiding-cases-rules/20101126-english/.

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Chart 1: The Process of Selecting Guiding Case No. 9

II. Comparison Between Guiding Case No. 9 and Its Original Judgment(s)

1. Basic Facts of the Case

Based on the “Basic Facts of the Case” section of GC9, the following table compares

the similarities and differences between GC95 and the original second-instance judgment:

Guiding Case No. 9 Original Second-Instance

Judgment

1

Plaintiff Shanghai Cunliang Trading Co., Ltd.

(“Cunliang Company”) performed its

contractual obligation of supplying goods that

were worth RMB 7,095,006.6 to defendant

Changzhou Tuoheng Mechanical Equipment

Co., Ltd. (“Tuoheng Company”). Tuoheng

Company had already paid RMB 5,699,788

for the goods, but still owed RMB

1,395,228.6.

Essentially the same.

2 Tuoheng Company did not undergo its annual Essentially the same, but did not

5 《上海存亮贸易有限公司诉蒋志东、王卫明等买卖合同纠纷案》(Shanghai Cunliang Trading Co.,

Ltd. v. JIANG Zhidong, WANG Weiming et al., A Sale and Purchase Contract Dispute), CHINA GUIDING CASES

PROJECT, Guiding Cases in PerspectiveTM

, Guiding Case No. 9 Highlighted Edition, Aug. 25, 2014, available at

http://cgc.law.stanford.edu/guiding-cases/guiding-case-9/.

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Judgment

inspection, and its business license was

revoked by the industry and commerce

department. FANG Hengfu, JIANG Zhidong,

and WANG Weiming were the shareholders

of Tuoheng Company, owning 40%, 30%,

and 30% of the shares, respectively. These

shareholders’s idleness in performing their

liquidation obligation led to the loss of

Tuoheng Company’s principal assets and

financial books, etc., and made liquidation

impossible. Enforcement against Tuoheng

Company in other cases was suspended

because the company did not have any assets

available for enforcement.

mention the percentage of shares

owned by FANG Hengfu, JIANG

Zhidong, and WANG Weiming. Did

not clearly mention that enforcement

against Tuoheng Company in other

cases was suspended because the

company did not have any assets

available for enforcement.

3

Cunliang Company claimed that FANG

Hengfu, JIANG Zhidong, and WANG

Weiming should bear joint and several

liability for Tuoheng Company’s debts.

Cunliang Company also requested that [the

court] order Tuoheng Company to pay

Cunliang Company RMB 1,395,228.6 for

payment of goods and pay [separate]

damages for breach of contract and order

FANG Hengfu, JIANG Zhidong, and WANG

Weiming to bear joint and several liability for

clearance of Tuoheng Company’s debts.


4 Defendants JIANG Zhidong and WANG

Weiming defended their positions, claiming:

(1) The two of them had never participated in

Tuoheng Company’s operation and

management.

NOTE: In “Reasons for the Adjudication”

and “Main Points of the Adjudication”

sections (see below), the phrase “actually

participated in [the company’s] operation and

management” is used. But, here, the word

“actually” is missing. Since the shareholders’

liquidation obligations cannot be waived,

regardless of whether there is actual

participation in the company’s operation and

The two persons’ grounds of appeal

did not include this point. But

during the second-instance

proceeding, they provided evidence

to prove that they had not “actually”

participated in Tuoheng Company’s

“operation and management”

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Judgment

management, this omission does not affect

understanding of this case.

(2) Tuoheng Company was actually

controlled by major shareholder FANG

Hengfu, and the two of them had no means to

carry out liquidation [for the company]

No such expressions.

(3) Due to poor operations, Tuoheng

Company already bore a large amount of debt

and was insolvent before its business license

was revoked, and Tuoheng Company’s asset

loss was not caused by JIANG Zhidong’s and

WANG Weiming’s idleness in performing

their liquidation obligations.


(4) They had entrusted a lawyer to conduct

the liquidation of Tuoheng Company, but

because Tuoheng Company’s assets had been

looted by creditors on multiple occasions,

liquidation was impossible, and therefore

they could not be considered as having been

idle in performing their liquidation

obligations.


Accordingly, JIANG Zhidong and WANG

Weiming requested that the court reject

Cunliang Company’s litigation claims against

them.


5

Defendants Tuoheng Company and FANG

Hengfu did not appear in court to participate

in the litigation, nor did they make a reply.


Overall, the “Basic Facts of the Case” section of GC9 is largely based on the original

second-instance judgment.

2. Reasons for the Adjudication

The Songjiang District People’s Court of Shanghai Municipality rendered the first-

instance judgment: 1. Tuoheng Company pays Cunliang Company RMB 1,395,228.6 for

payment of goods and corresponding damages for breach of contract; 2. FANG Hengfu,

JIANG Zhidong, and WANG Weiming bear joint and several liability for clearance of the

aforementioned debts of Tuoheng Company. Dissatisfied with the judgment, JIANG Zhidong

and WANG Weiming appealed to the No. 1 Intermediate People’s Court of Shanghai

Municipality, which finally rejected the appeal and upheld the original judgment.

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GC9 quite clearly provides the adjudication reasons of the No. 1 Intermediate

People’s Court of Shanghai Municipality, but there are still differences. Based on the

“Reasons for the Adjudication” section of GC9, the following table compares the similarities

and differences between GC9 and the original second-instance judgment:


Judgment

1

“After Cunliang Company supplied goods in

accordance with the contract, Tuoheng

Company was unable to follow the contract to

make the full payment of goods and should

bear the corresponding responsibility for

payment and for breach of contract.”

Did not mention this point. Since the

second-instance court rejected the

appeal and upheld the original

judgment, and that point was clearly

mentioned in the first-instance

judgment (as summarized by the

second-instance court), this point

was thus indirectly acknowledged by

the second-instance court.

2

“Tuoheng Company is a limited liability

company. Legally, all of its shareholders, as a

whole, should be the company’s liquidation

obligor.”

Did not mention this point.

3

As the shareholders of Tuoheng Company,

FANG Hengfu, JIANG Zhidong, and WANG

Weiming should have promptly organized the

liquidation after Tuoheng Company’s

business license was revoked.”


4

“The Company Law and its related judicial

interpretations do not provide the exceptions

claimed in defense by JIANG Zhidong and

WANG Weiming. Therefore, regardless of the amount of shares JIANG Zhidong and

WANG Weiming held in Tuoheng Company

and whether or not they actually participated

in the company’s operation and management,

both individuals, after Tuoheng Company’s

business license was revoked, had an

obligation to conduct liquidation of Tuoheng

Company in accordance with law within the

time limit prescribed by law.”

NOTE: Articles 20 and 184 of the Company

Law of the People’s Republic of China are

only mentioned in the “Related Legal

Rule(s)” section of GC9.

(1) Directly pointed out the

conclusion that JIANG Zhidong and

WANG Weiming “had an obligation

to promptly form a liquidation group

to conduct liquidation after Tuoheng

Company’s business license was

revoked”. But did not provide the

related reasons as listed in the left

column.

(2) Did not specify in the “[t]his

Court opines” section related legal

rules upon which the court relied. It

merely stated, in its summary of the

first-instance judgment, that “Based

on this, according to […] Article 18

Paragraph 2 of the Provisions of the

Supreme People’s Court on Several

Issues Concerning the Application of

the “Company Law of the People’s

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Judgment

Republic of China” (II), it is held:”

5

“Because FANG Hengfu, JIANG Zhidong,

and WANG Weiming were idle in performing

their liquidation obligation, leading to the loss

of Tuoheng Company’s principal assets and

financial books, etc., and making liquidation

impossible, the acts of FANG Hengfu, JIANG

Zhidong, and WANG Weiming in being idle

in performing their liquidation obligations

violated the relevant provisions of the Company Law and its judicial interpretations.

Therefore, they should bear joint and several

liability for clearance of Tuoheng Company’s

debts.”

Provided something similar. But did

not use, in the “[t]his Court opines”

section, statements like “violated the

relevant provisions of the Company

Law and its judicial interpretations.”

It merely pointed out that “there is

legal basis for [requiring] the

shareholders to bear joint and several

liability for Tuoheng Company’s debts and the [Court] should support

this.”

6

“Regarding JIANG Zhidong and WANG

Weiming’s defense claim that Tuoheng

Company had already carried a large amount

of debt before its business license was

revoked, [and as such,] even if they were idle

in performing their liquidation obligation,

[the idleness] had no causal relationship with

Tuoheng Company’s loss of assets… [T]he

circumstance that enforcement against

Tuoheng Company was suspended in other

cases because of lack of assets available for

enforcement could only prove that the

people’s court had not found Tuoheng Company’s assets during enforcement. It

could not prove that all of Tuoheng

Company’s assets had been lost before its

business license was revoked. There existed

a cause-and-effect relationship between the

idleness of the three Tuoheng Company

shareholders to perform their liquidation

obligations and Tuoheng Company’s loss of

its assets and financial books. JIANG

Zhidong and WANG Weiming’s ground of

defense on this point could not stand.


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Judgment

7

“Regarding JIANG Zhidong and WANG

Weiming’s defense claim that Tuoheng

Company had already carried a large amount

of debt before its business license was

revoked, [and as such,] even if they were idle

in performing their liquidation obligation,

[the idleness] had no causal relationship with

Tuoheng Company’s loss of assets… [T]he

circumstance that enforcement against

Tuoheng Company was suspended in other

cases because of lack of assets available for

enforcement could only prove that the

people’s court had not found Tuoheng

Company’s assets during enforcement. It

could not prove that all of Tuoheng

Company’s assets had been lost before its

business license was revoked. There existed

a cause-and-effect relationship between the

idleness of the three Tuoheng Company

shareholders to perform their liquidation

obligations and Tuoheng Company’s loss of

its assets and financial books. JIANG

Zhidong and WANG Weiming’s ground of

defense on this point could not stand.


Overall, there are quite a few differences between the “Reasons for the Adjudication”

section of GC9 and the original second-instance judgment. The analysis of these differences

touches on the reasons for selecting GC9 as a GC, which are discussed below.

III. Reasons for Selecting Guiding Case No. 9

According to the Office for the Work on Case Guidance of the SPC, GC9 was selected

to be a GC because “in adjudication practice, some shareholders of a limited liability

company or some directors and controlling shareholders of a joint stock limited company

have defended their positions on the ground that they are not de facto control persons or do

not actually participate in the company’s operation and management. [Courts in] different

regions understand and handle this differently.”6

The different understanding and

inconsistent approach originated from courts’ different understanding of Article 18 of the

Provisions of the Supreme People’s Court on Several Issues Concerning the Application of

6 最高人民法院案例指导工作办公室 (The Office for the Work on Case Guidance of the Supreme

People’s Court), supra note 4, at 25.

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the “Company Law of the People's Republic of China” (II) (“Provisions (II)”).7 Article 18

states:

Where the shareholders of a limited liability company or the directors and

controlling shareholders of a joint stock limited company do not form a

liquidation group to start the liquidation within the statutory time limit,

causing the depreciation, loss, damage, or disappearance of company

properties, if any creditors claim that the aforesaid shareholders or the

aforesaid directors and controlling shareholders shall bear joint and several

liability for compensation of the company’s debts within the scope of losses,

the people’s court should support the claim in accordance with law.

Where the shareholders of a limited liability company or the directors and

controlling shareholders of a joint stock limited company are idle in

performing obligations, causing the disappearance of main properties,

accounts, and important documents of the company and making it impossible

to conduct the liquidation, if any creditors claim that the aforesaid

shareholders or the aforesaid directors and controlling shareholders shall bear

joint and several liability for clearance of the company’s debts, the people’s

court should support the claim in accordance with law.

Where any of the aforesaid circumstances are caused by the de facto

control persons, if any creditors claim that the de facto control persons

shall bear the corresponding civil liability for the debts of the company,

the people’s court should support the claim in accordance with law.

(Emphasis added.)

According to Article 216, Item 3 of the Company Law of the People’s Republic of

China, “a de facto control person is one who can, through investment relations, agreements,

or any other arrangements, actually control the acts of the company, even though the person

is not a shareholder.”8 In practice, when the courts apply Article 18 of Provisions (II),

different understandings and issues have emerged. First, are “de facto control person” also

“liquidation obligors” as defined by law? If yes, should “de facto control person” also form

liquidation groups within the statutory limit or bear the corresponding liability if they do not?

Second, if the situations stated in Article 18, Paragraphs 1 and 2 of Provisions (II) are caused

by the de facto control persons, may the liabilities of the shareholders of a limited liability

company, or the directors and controlling shareholders of a joint stock limited company, be

reduced or waived?9

The SPC provides some clarifications of the above issues in the “Main Points of the 7 《最高人民法院关于适用〈中华人民共和国公司法〉若干问题的规定（二）》(Provisions of the

Supreme People’s Court on Several Issues Concerning the Application of the “Company Law of the People's

Republic of China” (II)), passed by the Adjudication Committee of the Supreme People’s Court on May 5, 2008,

issued on May 12, 2008, effective as of May 19, 2008, amended on Feb. 17, 2014, effective as of Mar. 1, 2014,

available at http://www.chinacourt.org/law/detail/2014/02/id/147551.shtml. Article 18 was not amended. 8 《中华人民共和国公司法》 (Company Law of the People’s Republic of China), passed and issued on

Dec. 29, 1993, effective as of July 1, 1994, amended three times, most recently on Dec. 28, 2013, effective as of

Mar. 1, 2014, available at http://www.pkulaw.cn/fulltext_form.aspx?Db=chl&Gid=218774. 9 最高人民法院案例指导工作办公室 (The Office for the Work on Case Guidance of the Supreme

People’s Court), supra note 4, at 27.

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Adjudication” of GC9, which reads: “Shareholders of a limited liability company, or directors

and controlling shareholders of a joint stock limited company, should, in accordance with

law, perform liquidation obligations upon revocation of the company’s business license.

They cannot be relieved of the liquidation obligations on the ground that they are not de facto

control persons or do not actually participate in the company’s operation and management.”

In other words, because “de facto control persons” do not have any legal obligations

to organize the liquidation of a company, they are not “liquidation obligors” as defined by

law. Thus, shareholders of a limited liability company, or directors and controlling

shareholders of a joint stock limited company, cannot be relieved of the liquidation

obligations on the ground that they are not de facto control persons.10

Further, because

shareholders of a limited liability company, or directors and controlling shareholders of a

joint stock limited company, are “liquidation obligors” as defined by law, these “liquidation

obligors” should organize liquidation in accordance with legal procedures, regardless of

whether the situations stated in Article 18, Paragraphs 1 and 2 of the Provisions (II) are

caused by the de facto control persons, and their joint and several liability for clearance of the

company’s debts cannot be waived.11

Because this case “confirms the applicable legal standards and is a model example in

constructing rational and orderly procedures for company liquidation”, the Office for the

Work on Case Guidance of the SPC considered it to be “significant” and chose it to be a

GC.12

IV. Brief Comments

With respect to the similarities and differences between GC9 and the original second-

instance judgment and to the reasons for selecting the case as a GC, the authors have the

following observations:

1. The “Reasons for the Adjudication” in Guiding Case No. 9 are unclear.

As mentioned above, the original second-instance court did not specify, in its “[t]his

Court opines” section, the legal rules upon which the court relied. It only stated, in its

summary of the first-instance judgment, that “[b]ased on this, according to […] Article 18,

Paragraph 2 of the Provisions of the Supreme People's Court on Several Issues Concerning

the Application of the “Company Law of the People's Republic of China” (II), it is held”.

GC9 has not fully addressed this deficiency. In the “Reasons for the Adjudication” section of

GC9, it is stated that “[t]he Company Law and its related judicial interpretations do not

provide the exceptions claimed in defense by JIANG Zhidong and WANG Weiming.” GC9,

in the “Related Legal Rule(s)” section, merely gives “Articles 20 and 184 of the Company

Law of the People’s Republic of China”, but GC9 does not provide further explanation. This

inadequate description can hardly help readers to clearly understand the legal basis of this

10

See id. 11

See id. 12

See id. at 25.

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case. The authors provide supplementary discussion here.

Article 184 of the Company Law states:13

Where any company is dissolved according to the provisions of Article 181

Items (1), (2), (4), or (5) of this Law, a liquidation group should be formed

within fifteen days after the occurrence of the cause of dissolution so as to

begin the liquidation. The liquidation group of a limited liability company

is composed of the shareholders, while that of a joint stock limited

company is composed of the directors or other people as determined by

the shareholders’ meeting. Where no liquidation group is formed within the

time limit, the creditors may apply to the people’s court to designate relevant

persons to form a liquidation group. The people’s court should accept the

application and promptly form a liquidation group to carry out the liquidation.

(Emphasis added.)

That article merely confirms that shareholders of a limited liability company have

liquidation obligations after the company is dissolved. It does not clearly provide what

liabilities the shareholders should bear if they do not perform those obligations.

Article 20, Paragraph 3 of the Company Law states:14

Where a shareholder of a company abuses the independent status of the

corporate legal person and the shareholder’s limited liabilities to evade

payments of debts and to seriously harm the interests of the company’s

creditors, [the shareholder] should bear joint and several liability for the

company’s debts.

If shareholders of a limited liability company are idle in performing their liquidation

obligations, it is not clear from the above article whether they are considered to “abuse[] the

independent status of the corporate legal person and the shareholder’s limited liabilities.”

However, Article 18, Paragraph 2 of the Provisions (II) connects these two articles together to

provide: “Where the shareholders of a limited liability company or the directors and

controlling shareholders of a joint stock limited company are idle in performing obligations,

causing the disappearance of main properties, accounts and important documents of the

company and making it impossible to conduct the liquidation, if any creditors claim that the

aforesaid shareholders or the aforesaid directors and controlling shareholders shall bear joint

and several liability for clearance of the company’s debts, the people’s court should support

the claim in accordance with law.” Therefore, Articles 20 and 184 of the Company Law and

Article 18 of the Provisions (II) are the legal bases of GC9.

Another ambiguity in the “Reasons for the Adjudication” section of GC9 is that it

does not clarify the meaning of being “idle in performing obligations” as stated in Article 18,

13

Company Law of the People’s Republic of China, supra note 8, Article 184. Through the 2013

amendment, Article 184 became Article 183. The reference to Article 181 in the text of this article, after the

amendment, is to Article 180. The amendment did not otherwise change this content. 14

Id., Article 20. Article 20 was not changed by the 2013 amendment to the Company Law.

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Paragraph 2 of the Provisions (II). According to the “Reasons for the Adjudication” section

of GC9: “JIANG Zhidong and WANG Weiming’s agent entrustment contract entrusting a

lawyer to conduct the liquidation, as well as the lawyer’s proof, could prove only that JIANG

Zhidong and WANG Weiming intended to conduct liquidation of Tuoheng Company.

Actually, no liquidation of Tuoheng Company was conducted. Accordingly, [the court] could

not ascertain that JIANG Zhidong and WANG Weiming had performed their liquidation

obligation in accordance with law. Therefore, it did not adopt JIANG Zhidong and WANG

Weiming’s ground of defense on this point.” It is thus clear that the SPC seems to have

equated “idle in performing obligations” with “actually, no liquidation […] was conducted”.

If, however, the liquidation obligor has tried his or her best, but, due to objective

circumstances or the fact that other shareholders with bad faith do not cooperate, he or she

cannot actually organize the liquidation, is he or she still consider to have been “idle in

performing obligations”? If the answer is affirmative, is this adjudication result fair?

2. The “Main Points of the Adjudication” was prepared by the SPC to carry special significance.

In the “Basic Facts of the Case” section of GC9, it is mentioned that FANG Hengfu,

JIANG Zhidong, and WANG Weiming were the shareholders of Tuoheng Company, owning

40%, 30%, and 30% of the shares, respectively. It is also mentioned that defendants JIANG

Zhidong and WANG Weiming defended their positions, claiming that “Tuoheng Company

was actually controlled by major shareholder FANG Hengfu, and the two of them had no

means to carry out liquidation [for the company].” None of these descriptions were included

in the original second-instance judgment. In addition, the following paragraph is included in

the “Reasons for the Adjudication” section of GC9, while no similar references can be found

in the original second-instance judgment:

Tuoheng Company is a limited liability company. Legally, all of its

shareholders, as a whole, should be the company’s liquidation obligor. … The

Company Law and its related judicial interpretations do not provide the

exceptions claimed in defense by JIANG Zhidong and WANG Weiming.

Therefore, regardless of the amount of shares JIANG Zhidong and WANG

Weiming held in Tuoheng Company and whether or not they actually

participated in the company’s operation and management, both individuals,

after Tuoheng Company’s business license was revoked, had an obligation to

conduct liquidation of Tuoheng Company in accordance with law within the

time limit prescribed by law.

Apparently, the SPC’s inclusion of these additional details in GC9 is to provide a

basis for the “Main Points of the Adjudication” of GC9, quoted above and provided here

again for quick reference:

Shareholders of a limited liability company, or directors and controlling

shareholders of a joint stock limited company, should, in accordance with law,

perform liquidation obligations upon revocation of the company’s business

license. They cannot be relieved of the liquidation obligations on the ground

that they are not de facto control persons or do not actually participate in the

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company’s operation and management.

The “Main Points of the Adjudication” found in GGs were all added by the SPC when

they prepared GCs. Their exact legal force is not provided by the Provisions of the Supreme

People’s Court Concerning Work on Case Guidance. But the above analysis suggests that the

SPC specifically added to the “Basic Facts of the Case” and “Reasons for the Adjudication”

sections of GC9 some details that are not found in the original second-instance judgment is to

make the “Main Points of the Adjudication” clearer. This prudent editing reflects the

significance of the “Main Points of the Adjudication”. However, questions such as exactly

how significant these “Main Points of the Adjudication” are and how judges of subsequent

cases should apply them in similar cases still await SPC’s further explanation.

3. The Scope of the “Main Points of the Adjudication” in GC9 is broader than the basic facts of the case.

The parties involved in this case were “shareholders of a limited liability company”.

There were no “directors and controlling shareholders of a joint stock limited company”, as

covered by the “Main Points of the Adjudication”. The inclusion of the latter phrase reflects

the SPC’s intention to use this case to clarify Article 18 of the Provisions (II), as that

provision covers both phrases. However, this also raises a series of questions that must be

considered: is it necessary for the “Main Points of the Adjudication” of a GC to be tied to the

facts of that case? How is the appropriate scope to be determined?

Take a case that is similar to GC9, with the only difference being that the relevant

defendants are not the subjects of liability stated in Article 18 of the Provisions (II), (i.e., “the

shareholders of a limited liability company, or the directors and controlling shareholders of a

joint stock limited company”). The defendants are instead non-director shareholders of a

joint stock limited company, with shares not reaching the level for controlling ownership.

Under these circumstances, should courts refer to GC9 during adjudication? There may be

various points of view, including:

First Point of View: Yes, they should refer to GC9. Since “directors and controlling

shareholders of a joint stock limited company” covered by the “Main Points of the

Adjudication” section of GC9 exceeds the scope of the facts of that case, it seems that the

scope can be further broadened and judges can then refer to GC9 to handle situations

involving “non-directors and non-controlling shareholders of a joint stock limited company”.

Second Point of View: No, they should not refer to GC9. This is because the “Main

Points of the Adjudication” section of GC9 only refers to “shareholders of a limited liability

company, or directors and controlling shareholders of a joint stock limited company”.

Third Point of View: No, they should not refer to GC9. This is because, even though

the “directors and controlling shareholders of a joint stock limited company” covered by the

“Main Points of the Adjudication” of GC9 exceeds the scope of the facts of that case, it does

not exceed the scope of the relevant provision, that is, Article 18 of the Provisions (II).

Therefore, the “Main Points of the Adjudication” can include other subjects of liability stated

in the provision, namely “directors and controlling shareholders of a joint stock limited

company”.

Final Edition


14

If the Third Point of View is plausible, it would seem even more important for the

SPC to identify relevant legal rules and judicial interpretations in the main body of GCs. As

mentioned above, GC9 merely mentions “the relevant provisions of the Company Law and its

judicial interpretations”, but does not specify Article 18 of the Provisions (II). It is, therefore,

evident that if the scope is too broad, when courts handling subsequent cases consider

whether the pending case is “similar” to a GC, they will more likely conclude that the case is

similar to a GC and then refer to the GC. If the scope is too narrow, the application of GCs

will be affected. Striking the right balance is certainly not easy, and is an issue that often

confronts other legal systems that also refer to or apply cases.

Dr. Mei Gechlik Founder and Director, China Guiding Cases Project … · 2017. 6. 21. · 1. Basic...

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