Each party fined 500,000 yuan
The Supreme People’s Court’s second circuit court recently heard an appeal regarding allegedly borrowed money between the appellant Shanghai Oubao Biotechnology Co and the respondent Liaoning Trevi Co. The court ruled that it was a case of malicious collusion and fined the parties 500,000 yuan each.
The case was the first of its kind and gathered nearly 200 observers, including NPC members, news media and students. They said the ruling was just and showed the court’s resolution in maintaining judicial fairness and integrity. Both parties admitted their conspiracy and expressed their regrets. They said they would respect and carry out the ruling.
Oubao filed a lawsuit in the Liaoning higher people’s court, asking for repayment by Trevi of a debt of 86.5 million yuan, plus interest. As Trevi acknowledged the debt, the court ruled in favor of Oubao in the first trial in March 2011.
After the ruling went into effect, Xie Tao, another creditor of Trevi, lodged a complaint at the same court, which revoked the first ruling. Oubao appealed to the Supreme Court.
The Supreme Court’s second circuit court arranged a collegiate bench led by the presiding judge Hu Yunteng, and heard the appeal at the end of September. They listened to Xie Tao and other creditors’ claim about the case involving false creditor rights and reviewed all files from previous court sessions as well as the business files and bank account transaction records of all parties.
A public hearing of the case was held at the Liaoning Normal University’s law school on October 27. The collegiate bench maintained the revocation ruling and determined that the parties be fined 500,000 yuan each for false litigation. Several individuals from the two parties face further rulings based on their involvement and attitude in confessing their misconduct.
Frequent false litigation in civil and commercial cases has severely disrupted the regular litigation process and impaired third parties’ interests and social integrity. The Supreme Court has announced its intention to punish and eliminate this type of case. The case at hand shows the court’s resolve against false litigation and helps create a similar resolve in other courts.
Fight false litigation and maintain social integrity
Loan disputes between Shanghai Oubao and Liaoning Trevi
A false dispute between two companies was exposed as the Supreme Court gave a final ruling and punished both parties for impairing other people’s legitimate interests through malicious collusion. The case was a typical one featuring fabricated facts and a cooked-up debtor-creditor relationship. It brought public attention to this kind of suit.
Debtor fully acknowledged debt to creditor
Shanghai Oubao claimed it had loaned a total of 86.5 million yuan to Liaoning Trevi since July 24, 2007 to help it develop a real estate project in Donggang city, Liaoning. Oubao said that Trevi refused to return the money on the grounds of bad sales, and filed the lawsuit.
Trevi accepted the truth of Oubao’s claim, saying it would try to repay the money with interest as soon as possible.
The Liaoning higher people’s court found that Oubao had the right to make the claim, so ruled in its favor.
After the ruling went into effect, Xie Tao, another creditor of Trevi, lodged a complaint, requesting a retrial of the case. Xie claimed that the two companies maliciously colluded to impair his legitimate interests as an investor in the real estate project and he asked the court to find out the truth.
The retrial revealed the following facts: Oubao wired 86.5 million yuan to Trevi in ten remittances. Trevi then moved out 70.5 million yuan shortly after the money reached the account, 64 million of which was transferred to a company held jointly by the two parties. In addition, Oubao sent further funds to Trevi during the first trial. Oubao has eight shareholders, including Qu Yeli holding 73.75 percent, and Zong Huiguang, who was the company’s legal representative. Trevi’s original legal representative was Wang Zuoxin, who was replaced in that capacity by Jiang Wenqi, a shareholder of Oubao, as part of a funding of 18 million yuan from the joint venture. Liu Jingjun became the representative during the change of registration, while he was an employee of Oubao and had represented that company during the first trial. The joint venture received two million yuan from Wang Zuoxin and one million from Qu Yeli. Wang, Qu’s husband, was the legal representative was the venture’s legal representative.
The superior court revoked its first ruling after reviewing all the evidence including that from the first litigation and decided that there was no real legal creditor-debtor relation between the two parties. But, the court didn’t identify false litigation conduct.
Oubao appealed the superior court’s ruling to the Supreme Court, which retrieved bank transaction records and files of all parties involved in the case and investigated into other relevant matters, including the relations and money flow between the two companies.
Analysis exposes false litigation
The matter at issue was whether or not the two companies were related and, if they were, was the 86.5 million yuan a real loan. The court formed a collegiate bench to analyze the evidence.
Qu Yeli was a controlling shareholder of Shanghai Oubao, and Wang Zuoxin was the original legal representative of Liaoning Trevi. Wang and Qu were married, which indicated that the two companies were controlled by the couple. At the same time, Zong Huiguang and Wang Qi, a corporate shareholder and the legal representative of Oubao, and Wang Zuoxin, the actual controller of Trevi, Jiang Wenqi, the legal representative of Trevi, and the current shareholder Wang Yang jointly established Shanghai Trevi. These arrangements indicated that all the companies involved were connected.
Oubao, Liaoning Trevi and other related companies also shared employees, all of whom followed Wang Zuoxin’s instructions.
Oubao’s statement and evidence were inconsistent with evidence from other parties and its behavior was not logical. The loan contract appeared to be faked when all the evidence was considered. Evidence regarding the time of the loans was contradictory, as was evidence about the loan values. Oubao accounted for only the money outflow, and not credits coming in. Money transfers existed in more than one account, which contradicted each other. The purpose of the loan was inconsistent with what was in the contract, and the conduct of all the parties illogical. Neither Oubao nor Trevi were able to explain these evidentiary anomalies. Therefore, the Supreme Court found that real loan relations couldn’t be established. The parties had kept unexplainable and casual money transfer records and complicated relations existed among management personnel. The court therefore ruled that Oubao and Trevi were involved in malicious collusion to impair other parties’ legitimate interests. It dismissed Oubao’s appeal and maintained the ruling of Oct 27, 2015 by the Liaoning higher people’s court. It also fined Oubao and Liaoning Trevi 500,000 yuan each. At the same time, the court announced that Zong Huiguang, Jiang Wenqi and Wang Zuoxin would face further legal consequences based on their involvement and attitudes in confession.
Step up efforts to crack down false litigation
False litigation has run rampant for a while, and the case was typical. Such cases are filed so that the parties can gain unlawful benefit. Some divorce cases are filed so that one party or the other can take title to more properties, others are used to reduce creditor’s compensation, and still others aim to hamper ongoing execution of legitimate court orders. Frequent false litigations in civil and commercial cases have severely disrupted the regular litigation process and impaired the interests and social integrity of third parties. The civil procedural law stipulates that parties engaging in malicious collusion to impair others’ legal interests through litigation, mediation or other approaches will have their actions dismissed and face fines, detention or criminal charges. The Supreme Court has been committed to eliminating false litigation actions, and some regional courts have also treated such litigants sternly. However, false litigation cases may be hard to detect since they involve connected companies and friends. Moreover, there is no regulation standardizing the identification of false litigation, which makes them hard to characterize. The court in the case under discussion said that it solved the identification problem by denying the corporate personalities of the two parties, but that that solution would not be available in cases involving non-related parties. But the good news is that the Amendment to Criminal Law categorizes false litigation as crime, which should be an effective deterrent.
Experts have made suggestions to fight false litigation. Some note that courts at various levels can use the Supreme Court case as guidance, some propose a black list system recording the parties of false litigation actions, some hope that general creditors could be joined to judicial proceedings as third parties when their interests could be impaired, and some call for establishment of standards in determining a creditor’s status in litigation and identifying malicious collusion to file false litigation.
Officials from the second circuit court said that it’s necessary to improve the legal system to better fight false litigation and maintain social integrity. As for now, courts at various levels should increase their awareness of these kinds of cases, improve their skills in identifying them, and hold relevant parties accountable.
