64 65 CHAPTER 4 investment company to acquire the equity interests of the orchard company and there was no evidence proving that such investment funds were changed into loans.As for the issue of joint responsibility, the reason why Shi claimed to have a loan relationship with the investment company and demanded repayment of principal and interest could not be established. Under this premise, Shi demanded that the real estate company, the orchard company, etc. bear joint and several liability for satisfaction for the debts of the investment company, and there was no evidence. Therefore, all of Shi’s litigation claims were dismissed. After court of first instance pronounced the verdict, Shi entrusted me to represent him in court of second instance procedure of this case to file an appeal. The Supreme People’s Court of the People’s Republic of China (hereinafter referred to as the Supreme Court) adopted my opinion of representation, and court of second instance changed the original sentence to support Shi’s lawsuit claim. The investment company filed a retrial petition to the Supreme Court against the second instance sentence. I, as a lawyer, was entrusted to represent the retrial procedure in this case. The Supreme Court once again adopted my defense opinion and ruled to dismiss the retrial petition of the investment company. CONTROVERSY FOCUS In the second instance procedure, the Supreme Court has concluded that the focus of the controversy: 1. Whether the equity transfer payment is a loan; 2. Does the investment funds stipulated in the Memorandum include equity transfer funds; 3. Should the advance payment claimed by Shi be deducted from the portion that he should bear in proportion to his equity interest; 4. Is the finance of the certain investment company and the real estate company confused. In the retrial procedure, the Supreme Court has concluded that the focus of the controversy: 1. Regarding the nature of the equity transfer payment advanced by Shi; 2. Calculation of interest on advance payment of equity transfer funds; 3. Regarding joint and several liability of the real estate company. DEFENSE OPINION 1. The second instance stage of the Supreme People’s Court The background and legal relationship of this case are complex and intricate. In the case where the first instance court ruled to dismiss all the litigation claims of Shi, I accepted Shi’s commission to intervene in the second instance and retrial procedures of this case, comprehensively collected and organized the evidence materials submitted by all parties, explored and restored the true expressions and intentions of all parties in the whole transaction process, and analyzed and clarified the legal relationship of this case, in order to effectively appeal, debate, and reply, also proposed the following defense opinions to the Supreme Court: There are two main factual issues in this case: firstly, the source and destination of funds for the acquisition of a certain orchard company by both parties; The second is the subsequent fund arrangement, operational management, and income distribution after the acquisition of a certain orchard company. Therefore, this case should be based on relevant laws, regulations, and judicial interpretations, to determine the aforementioned facts and apply the law. Firstly, the facts of source and destination of fund of the parties in an acquisition of the orchard company; Secondly, the facts of arrangement for subsequent funds after the acquisition of the orchard company, business management and income distribution. Therefore, determination of the aforesaid facts shall be carried out and the law shall be applicable on the basis of the relevant laws and regulations and judicial interpretations in this case. (1) There are two legal relationships in this case: lending and investment There are actually two legal relationships in this case, that is the borrowing and lending legal relationship formed based on Shi’s advance payment for the investment company, and the funding source of the company’s investment on the project after the acquisition of equity of the orchard company. The former is the premise and foundation of the latter. The fact of this case is that the investment company did not have funds and used the funds provided by Shi to purchase the equity of the orchard company. Shi had the funds to provide financial support for the investment company and had already paid the funds to the investment company. The investment company received the funds and paid them to the original shareholders of the orchard company. One party provided the funds, while the other party used the funds. The two parties reached an agreement on the use of funds. Even without a written loan contract, if one party fulfills its main obligations and the other party accepts it, a private lending relationship is established. As for the memorandum between the two parties, which stipulates that the orchard company will be invested by both parties in its operation and management, it is a matter of the company’s shareholders and the company’s investment on the project, and does not affect the establishment of the aforementioned lending relationship. However, the court of first instance confused the two laws and mechanically misinterpreted the former Contract Law of the People’s Republic of China (hereinafter referred to as the “Contract Law”) and the Provisions of the Supreme People’s Court on Several Issues concerning the petition of Law in the Trial of Private Lending Cases when hearing lending relationships. Excessive emphasis is placed on the requirement that there must be a written agreement between the lender and the borrower or a receipt for the loan, but not the legal provisions on the substantive determination of the nature of the act, especially the provisions of the Judicial Interpretation on Private Lending, which emphasize the actual lending act, emphasize the requirement of substantive evidence. The court of first instance also misunderstood the legal relationship of borrowing and lending as an investment legal relationship, which completely deviated from the facts of this case. The Supreme Court, after a second instance, adopted the my defense and ruled to revoke the first instance sentence and support Shi’s lawsuit claim. 2. The retrial stage of the Supreme Court Due to the investment company’s objection to the second instance sentence and petition for retrial to the Supreme Court, I was entrusted to the retrial procedure and has submitted the following written opinions: Firstly, the facts in the second instance sentence are clearly determined, and the evidence is fully and correctly applicable to the law. Firstly, the second instance sentence determined that the equity transfer payment advanced by Shi for the investment company was essentially a loan, with sufficient evidence and accurate determination. Secondly, the second instance sentence determined that the loan interest involved in the case was based on an annual interest rate of 6.5%, which is based on the facts and is accurate. Thirdly, the second instance sentenced determined that the investment funds stipulated in the Memorandum did not include the equity transfer funds, and the determination was accurate. Fourthly, the second instance sentence determined that the real estate company and the investment company bear joint and several liability, which is legally justified. Secondly, the 9 so-called “new evidence” submitted by the investment company did not meet the legal requirements for “new evidence”, and its contents could not overturn the second instance sentence and did not meet the conditions for retrial. After a retrial review, the Supreme Court once again adopted the my defense opinions and eventually ruled to dismiss the retrial petition of the investment company. CASE ANALYSIS I. The case involves a large amount of amount with complicated circumstances. Great difficulty after the court of first instance sentence After the court of first instance sentenced, I was entrusted to intervene the case. The Supreme Court adopted my defense and changed the original sentence in favor of Shi’s claim. Subsequently, in the stage of retrial review, the Supreme Court adopted my defense again and dismissed the retrial petition filed by the investment company. This case successfully recovered the client’s loss in the amount of approximately RMB600 million principal and interest. II. Accurately understand and apply the legislative intent of private lending relationships set out in legal provisions and judicial interpretations I determined the basic facts of the case and applied the law based on applicable laws, regulations and judicial interpretations. From Article 196 and Article 197 of the Contract Law, I have concluded that the establishment of a lenderborrower relationship is not a necessary condition based on the agreement of a written contract, and other forms agreed by the parties concerned are not excluded. Article 1 and Article 2 of the Judicial Interpretation on Private Lending issued by the Supreme People’s Court further clarified that the nature of private lending is “financing actions” and the existence of an agreement on the borrowing and repayment between parties based on substantial lending activities could not be ruled out. III. Explore the true expressions and intentions of parties in the transaction process and clarify the complicated legal relationship I first explored the true expressions and intentions of the parties from the materials generated throughout the transaction, accurately defined and effectively extracted the two major factual issues and clarified the two complex legal relationships: loan and investment in this case, that is to say, the legal relationship of loan formed based on the advance payment made by Shi for the investment company and the fund source of the company’s investment on the project after it acquired the equity interest of the orchard company. The former is the premise and foundation of the latter. It requires the attorney involved to have strong legal basis, accurate CHAPTER 4
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