Thinking long term

China Law & Practice's Annual Review was released at the Awards Ceremony in Beijing this month. Part of the Annual Review comprises insights from leading lawyers. It also includes analysis of the most important news stories of the year. Please click here to view the Annual Review on issuu.

1. From your experience, what types of disputes been most common in the past year? Are there any reasons for the growing emergence of these types of disputes?

We noticed that a large number of disputes involving long-term performance contracts arose during the past year. So-called long-term performance contracts, as opposed to one-off transaction contracts, specifically include long-term supply contracts, long-term distribution contracts and long-term lease contracts.

It is our belief that the increase in these legal actions has clearly been affected by the macroeconomic situation. The slowing down of the economy in China during the past year has made business operators more conservative, with some of them perhaps hoping to recover money by cancelling existing large projects.

At a deeper level, the reason lies in the long-term nature of these contracts. Based on the amplification effect of long-term performance, minor discrepancies in core commercial terms translate into huge shortfalls. In the midst of an unstable economic situation, long-term performance contracts appear more fragile than one-off transaction contracts, and give rise to disputes more easily. We would advise readers to pay particular attention to this.

2. What have been the most important cases that you have worked on this year and why were they challenging? What precedents, if any, did they set for litigation and arbitration in China?

In the past year, we successfully acted as counsel in several disputes the cause of which lay in contracts for the long-term supply of industrial products. The biggest case involved an amount approaching Rmb10 billion. Notwithstanding the fact that these cases do not have guiding significance as precedents, the experience we gained from them is nevertheless worth sharing.

Firstly, these types of disputes have some features in common that are distinct:

• the party wishing to extricate itself from the contract will often make its claim for rescission on the grounds of “material misunderstanding” and “marked lack of fairness”;
• the disputed subject amount tends to be rather large, and regardless of the outcome of the trial, the parties and, at times, even third parties are certain to incur a significant loss;
• the focus of the dispute will usually be the core commercial terms of the contract; and
• because the interests involved in the cases are huge, it is difficult for the parties to reach a settlement.

We would like to put forward the following recommendations in respect of these types of disputes:

A party that wishes to extricate itself from a contract has to take full advantage of the long-term nature of the contract. With respect to its interpretation of the terms “unfair” and “misunderstanding”, it cannot limit itself to the provisions of the contract themselves, but needs to take into consideration the contract term to vividly reflect more specific figures e.g. how large the burden would be were it to fully perform a certain obligation for a certain number of years, or how large a loss it would incur were performance to be carried out at the specified price for a certain number of years.

A party wishing to maintain a contract must first duly keep records of the contract negotiation and conclusion stages. This information could serve as important evidence in a future dispute. Secondly, it needs to maintain a high degree of vigilance for a claim by the other party to terminate the contract, and respond to any such claim in strict accordance with the law. Thirdly, communication with its lawyers needs to be given high priority and best efforts made to have them gain a full understanding of the economic factors underlying the relevant commercial terms so that the lawyers can fully explain the economic basis specified in the contract to the judges or arbitrators outside the court debate. Lastly, the boundaries between concepts such as commercial risk, force majeure and change in circumstances need to be strictly delineated so as to establish a robust defensive position for one's claims.

3. Clients are often concerned that court judgments are not effectively enforced. How do you respond to these concerns and what measures do you recommend to ensure enforcement?

We have noticed that the amended Civil Procedure Law implemented from January 1 2013 has bolstered the enforcement of judgments and rulings. In the section on enforcement procedures, the amended Civil Procedure Law has made numerous improvements at the technical level, e.g. a court can not only make inquiries about the deposits of the person subjected to enforcement, but can also make inquiries about their financial assets; entities that are the subject of verifications are no longer limited to banks, and have been expanded to financial institutions such as securities companies. These changes will bring the enforcement work of courts closer in line with current social reality and enhance the effectiveness and practicability of enforcement. Furthermore, the new law further strengthens the measures involved in the enforcement of judgments and rulings, not only expanding the scope of entities required to assist in enforcement, but also greatly increasing the fines imposed for refusing enforcement. These measures will further increase the compulsory nature of enforcement.

We believe that the amendment of the Civil Procedure Law provides more robust legislative support for the enforcement of judgments and rulings. However, whether the courts at the various levels will fully implement the new legislation and duly promote the enforcement of judgments and rulings remains to be seen.

4. The CIETAC dispute has over the past year cast a shadow over dispute resolution in China. Can you provide an update of the current situation? In addition, how have you been advising your clients during this dispute?

We have noted that at the end of 2012, the Intermediate People's Court of Shenzhen City rendered a ruling in a case in which an application was made for the vacation of an arbitration award rendered by the South China Commission of the China International Economic and Trade Arbitration Commission. One of the parties in the case claimed that the procedure employed by the South China Commission was illegal on the grounds that the Commission did not apply the new arbitration rules implemented by the China International Economic and Trade Arbitration Commission (Beijing) from May 1 2012. The Intermediate People's Court of Shenzhen City ultimately determined that the South China Commission was an independent arbitration institution and, as such, could apply the arbitration rules that it formulated, and dismissed the application to vacate the arbitration award.

However, at the beginning of 2013, it was rumoured that the Intermediate People's Court of Suzhou City rendered a determination on the validity of an award rendered by the Shanghai Commission of the China International Economic and Trade Arbitration Commission that was completely the opposite of that of the Intermediate People's Court of Shenzhen City. Based on the doubts as to the status of the Shanghai Commission, the Intermediate People's Court of Suzhou City rendered a ruling denying enforcement of its award.

To date we have not been able to secure the original of the Suzhou court's ruling through public channels. However, based on the currently available information, both this case and the Shenzhen case are domestic arbitration cases. Based on the requirements of the Supreme People's Court, if a lower-level people's court wishes to vacate or deny enforcement of a foreign-related arbitration award, it must submit the award level by level up to the Supreme People's Court, which will render the final decision. Based on the domestic arbitration nature of the two cases, for the time being we feel that neither of the rulings in either of the cases reflects the judicial attitude of the Supreme People's Court.

According to reports, a party to the Suzhou case has filed an appeal with the Supreme People's Court. The final ruling of the Supreme People's Court can be expected soon. At that time, the dust will finally settle in the CIETAC dispute and a clear division of the territories in China's arbitration sector will be made.

5. During the past year, which judgments rendered by the PRC's court system have had the most significance, and what effect will they have on future litigation?

We would like to bring the outcomes of three cases to the attention of readers; the final judgment rendered in Haifu Investment v Gansu Shiheng by the Supreme People's Court, the final judgment in Chinachem v China Small and Medium Enterprises rendered by the Supreme People's Court and the judgment at first instance in Fosun International v Soho China et al rendered by the First Intermediate People's Court of Shanghai Municipality.

The Haifu Investment v Gansu Shiheng case is also known as the first valuation adjustment agreement case. In 2012, in its judgment at second instance, the Gansu Provincial Higher People's Court found that a valuation adjustment agreement had the nature of a guaranteed payment and, as such, was invalid in accordance with the law, attracting great attention in the industry for a time. In its final judgment, the Supreme People's Court stated that because the valuation adjustment mechanism between the investor and the target company was inimical to the interests of the target company and the debtors of the target company, it was invalid in accordance with the law. But the court stated that the valuation adjustment mechanism between the investor and the shareholder of the target company, because it did not harm the interests of others and did not violate mandatory provisions of laws, should be recognised as lawful and valid provided that the expression of intent was genuine and valid. This judgment not only soothed the nerves of the investment world that had been stretched taut for some time and recognised the legality of reasonably planned valuation adjustment mechanisms, but the legal analysis may also provide direct guiding significance for other related legal issues. For example, there has been a long debate over the validity of punitive damages clauses specified in contracts but, based on the analysis of the Supreme People's Court in this case, the validity of relevant arrangements should be recognised so long as the expression of intent is genuine and the interests of others are not harmed. For this reason, we would advise readers to pay close attention to how, in future similar cases, judges of courts at every level render extended interpretations based on the legal basis in the judgment of this case.

Notwithstanding the fact that the backgrounds to, and the focuses of, the disputes in Chinachem v China Small and Medium Enterprises Investment and Fosun International v Soho China et al are different, the judgments nevertheless both find their basis in Item (3) of the second paragraph of Article 52 of the Contract Law: “it conceals an illegal objective by giving it a legal form”, both resulting in judgments finding the disputed contracts invalid on this basis. For a long time there was no uniform definition of “it conceals an illegal objective by giving it a legal form”, making it impossible for parties to accurately assess the risk of the invalidity of contracts. With the recent appearance of a large number of disputes over the validity of large or long-term contracts, this shortcoming has become more apparent.

Furthermore, the Chinachem judgment has also made the investment world extremely wary, believing that this case could introduce new uncertainty as to the legality of variable interest entity (VIE) frameworks. This is the second round of massive debate on the legality of VIE after the CSRC VIE internal report incident rumoured in 2011. In 2010, the author served as counsel in an arbitration case involving a dispute over the validity of VIEs and successfully secured an arbitration award declaring the relevant agreements invalid (according to reports, this is the only VIE dispute to date in which a juridical outcome has been obtained). However, looking at the legal analysis of the Supreme People's Court in the Chinachem case, based on the high degree of uncertainty of the above mentioned Item (3) of the second paragraph of Article 52 of the Contract Law, this in fact signifies that the negative attitude of the Supreme People's Court towards VIEs, entrusted investment and other such attempts to circumvent the law is more extreme than that of the arbitrators above, and should make investors very wary. The author would advise readers to continue to watch whether new disputes over the legality of VIEs appear in the litigation and arbitration fields later.

Author biography

Vincent Mu

Vincent Mu is a senior associate at Martin Hu & Partners. His practice areas are shareholder and management dispute, commercial contract disputes, labour and employment disputes, corporate, M&A and labour.

He graduated from Wuhan University where he received his Doctor of Law. He is a member of Corporate Law Committee of Shanghai Bar Association. His working languages are Chinese and English.

长期性的问题

胡光律师事务所的牟笛律师总结了过去12个月的重大争议案例，并对贸仲会争议的最新发展作出分析

1. 根据您的经验，过去1年，什么类型的争议最普遍？什么原因导致这些争议的数目上升？

我们注意到过去一年期间涌现出大量涉及“长期履行”合同的争议。所谓“长期履行”合同，是相对“一次性交易”合同而言，具体包括长期供应合同、长期经销合同、长期租赁合同等。

我们认为，这一类型诉讼的出现显然是受到宏观经济形势的影响。中国经济过去一年的放缓迹象导致经营者逐步趋于保守，部分经营者可能希望通过取消已有的大型项目回收资金。

更深层次的原因则来自于此类合同的“长期性”。基于长期履行的放大效应，核心商业条款上细微的差别都意味着巨大的差额。可见，长期履行合同在动荡的经济形势下比一次性交易合同更显脆弱，也更容易触发争议。我们提请读者对此予以密切关注。

2. 可否介绍一下今年您曾处理的一起重点案件或诉讼？为什么该案件具挑战性？该案件有否为中国诉讼或仲裁建立先例？

过去一年中，我们成功代理了若干起因工业产品长期供应合同引发的争议，其中最大一宗案件的标的金额接近人民币100亿元。尽管这些案件尚不具有“先例性”的指导意义，但其中收获的一些经验仍具有分享的价值。

首先，此类争议具有一些共同的、鲜明的特点：

• 希望摆脱合同的一方当事人通常以“重大误解”和“显失公平”为由提出撤销主张；
• 争议标的金额普遍较高，无论审理结果如何，都注定给双方当事人乃至第三人造成严重损失；
• 争议焦点往往指向合同的核心商业条款；
• 由于案件涉及的利益巨大，双方很难达成和解。

针对此类争议，我们提出以下一些建议：

对希望摆脱合同的一方而言，要充分利用合同的“长期性”。对“不公”和“误解”的诠释不能局限于合同约定本身，而要结合合同期限直观呈现出更明确的数字，例如在若干年内全面履行某义务将造成怎样巨大的负担，或者在若干年内按照约定的价格执行将造成怎样巨大的损失。

对于希望保住合同的一方而言，首先务必要妥善保留合同磋商、缔结阶段的记录。这些信息可能在未来的争议中成为重要证据；其次要对另一方当事人“解除合同”的主张保持高度警惕，严格按照法律规定予以应对；第三则要注重与律师的沟通，力求使律师充分理解相关商业条款背后的经济因素，使律师能够在法律攻防以外向法官或仲裁员充分说明合同约定的经济基础；最后应该严格划分商业风险、不可抗力、情势变更等概念之间的界限，为己方的主张构筑坚实的防御阵地。

3. 客户普遍忧虑法院判决没有得到有效执行。您对此有何看法？判决没有执行的，您会建议采取什么措施？

我们注意到2013年1月1日开始实施的经修改的民事诉讼法对裁判执行进行了强化：在执行程序部分，修改后的民事诉讼法作出了多项技术层面的改进，例如法院不仅可以查询被执行人的存款，还可以查询金融资产；再如核查对象单位也不再限于银行，而是扩展到证券公司等金融机构。这些变化将使法院的执行工作更加贴近目前的社会现实，提高执行的效率和可行性。此外，新法还进一步强化了涉及裁判执行的强制措施，不仅扩大了协助执行单位的范围，同时也大幅增加了对拒绝执行行为的罚款力度，这些措施无疑将进一步提升执行行为的强制性。

我们认为，民事诉讼法修改对于裁判的执行提供了更有力的立法支持。与此同时，各级法院能否充分落实新立法，切实推进裁判执行仍有待进一步观察。

4. 过去一年有关贸仲会的争议令中国的争议解决蒙上阴影，现在的情况如何？另外，在争议期间，您对客户提供了什么建议？

我们注意到，深圳市中级人民法院在2012年年底曾对一起申请撤销中国国际经济贸易仲裁委员会华南分会仲裁裁决的案件作出裁定。该案件中，一方当事人以华南分会没有适用中国国际经济贸易仲裁委员会（北京）于2012年5月1日开始实施的新仲裁规则为由主张华南分会程序违法。深圳市中级人民法院最终认定华南分会属于独立仲裁机构，有权适用自己制定的仲裁规则，并驳回了撤销仲裁裁决的申请。

然而，2013年初，传闻称苏州市中级人民法院对中国国际经济贸易仲裁委员会上海分会的一项裁决的效力作出了与深圳市中级人民法院截然相反的认定。基于对上海分会身份的质疑，苏州市中级人民法院对其裁决裁定不予执行。

目前我们并未从公开渠道获得苏州市中级人民法院裁定的原文。但根据现有信息来看，本案与深圳案件一样均属国内仲裁。根据最高人民法院的要求，下级人民法院如欲撤销或不予执行涉外仲裁裁决，必须层报至最高人民法院，由后者作出最后决定。基于两起案件的国内仲裁性质，我们暂时认为两案件的裁定均不反映最高人民法院的司法态度。

据悉，苏州案件的当事人已经向最高人民法院提起申诉。最高人民法院有望在近期作出最后裁定。届时，贸仲之争将真正尘埃落定，中国仲裁界的版图也将得到一个清晰的划分。

5. 过去一年中，中国法院系统作出的哪些判决具有指标性意义，它们将对未来的民事诉讼活动产生怎样的影响？

我们提示读者关注三起案件的裁判结果，分别是最高人民法院对海富投资诉甘肃世恒案作出的终审判决、最高人民法院在香港华懋诉中小企业投资有限公司案中作出的终审判决以及上海市第一中级法院在复星国际诉Soho中国等公司案件中作出的一审判决。

海富投资诉甘肃世恒案又称“对赌协议第一案”。2012年，甘肃省高级人民法院在本案二审判决中认定“对赌协议”具有保底性质，依法应归于无效，曾一度引发业内高度关注。最高人民法院在终审判决中指出，投资人与所投资目标公司之间的对赌安排因有损目标公司及目标公司债务人利益依法应归于无效，但投资人与所投资目标公司股东之间的对赌安排无损他人利益、不违反法律强制性规定，在意思表示真实有效的前提下应当承认其合法效力。这一判决不仅安抚了投资界紧绷已久的神经，承认了合理规划的对赌安排的合法性，同时其法律分析还可能对其他相关法律问题提供直接的指导意义。例如，当事人在合同中约定的惩罚性赔偿条款的效力长期具有争议。但依据本案中最高人民法院的分析，只要意思表示真实且不损害其他当事人利益，相关安排的效力就应当得到承认。为此，我们提请读者密切关注未来类似案件中各级法院法官如何对本案判决的法理依据作出延伸解释。

香港华懋诉中小企业投资有限公司案和复星国际诉Soho中国等公司案尽管争议背景和争议焦点均有不同，但判决依据却殊途同归地指向《合同法》第五十二条第二款第（三）项“以合法形式掩盖非法目的”，据此分别判决系争合同无效。“以合法形式掩盖非法目的”的内涵长期以来始终缺乏统一的界定，导致当事人无法对合同的无效风险作出准确评估。随着近期大型、长期性合同效力的争议的大量涌现，这一缺憾无形中得到了进一步的凸显。

此外，香港华懋案判决还引起了投资界的高度警觉，认为该案可能对VIE架构合法性带来新的不确定性。这也是2011年传闻中所谓“证监会关于VIEs的内部报告”事件后第二轮针对VIEs合法性的大讨论。2010年，笔者曾代理一起涉及VIEs效力争议的仲裁案，并成功获得宣告相关协议无效的仲裁裁决（据悉该案也是迄今为止唯一获得裁判结果的VIE争议）。

但从此次最高院在华懋案件中的法律分析来看，基于前述

《合同法》第五十二条第二款第（三）项的高度不确定性，实际上意味着最高人民法院对于VIEs、委托投资等类似法律规避行为的否定态度更甚于之前仲裁员的看法，足以引起投资者的高度警惕。笔者提请读者继续关注诉讼、仲裁领域未来一段时间是否会出现针对VIEs合法性的新争议。

作者简历

牟笛

牟笛律师是胡光律师事务所的资深律师。他处理的业务包括股东与管理层争议、商业合同纠纷、劳动争议、企业、并购业务。

牟笛律師畢業于武漢大學，具有法學博士學位。他是上海市律協公司法業務研究委員會委員。他的工作語言為中文及英文。