“Haworth & Lexon Law Newsletter” is issued every month, mainly introducing the legal change in the fields of Corporate, Securities, Foreign investment, Intellectual property rights, International trade etc. with necessary comment. All the comments do not mean the legal opinion of our firm and the firm does not have any legal liability for such comment. Should you have any interest in any topics or any questions please feel free to contact the firm. You will be expected to have satisfactory response from the professional attorney of our firm.
News of Haworth & Lexon
Latest Laws and Regulations
§News of Haworth & Lexon
In February, 2006, Haworth & Lexon, as the attorney of a large state-owned enterprise, brought a lawsuit to dissolve a joint venture company set up by the state-owned enterprise and a private enterprise in Jiangxi Province. At the beginning of December, 2006, the judgment was issued by Jiangxi Higher People's Court which supported our claim to dissolve the company. It is the first case on company dissolution by a provincial court since the implementation of “Company Law” on January 1, 2006, which has a significant effect on interpretation and application of the Company Law.
The ICFAI University represents the multi-state network of universities in India, and is sponsored by the Institute of Chartered Financial Analysts of India.
ICFAI Books is a series of professional books in the areas of accounting, banking, insurance, finance, marketing, operations, HRM, law, IT, management and allied areas with a special focus on emerging and frontier themes, initiated by the ICFAI University Press. These books seek to provide, at one place, a retrospective as well as prospective view of the contemporary developments in the environment, with emphasis on general and specialized branches of knowledge and applications. These professional books are based on the relevant, authoritative and thought-provoking articles written by experts and published in the leading professional magazines and research journals.
§Latest Laws and Regulations
The Measures provide that individual foreign exchange business can be classified into domestic individual foreign exchange business and overseas individual foreign exchange business according to the parties involved in the transactions, and can be classified into current account individual foreign exchange business and capital account individual foreign exchange business according to the nature of the transactions. The management of the individual foreign exchange business shall be carried out according to these two classifications.
According to the Measures, the government shall undertake management by annual total amount on the individual settlement and purchase of foreign exchanges by domestic individuals. According to the “Rules”, the annual total amount is US$ 50,000 for each individual person. Within the annual total amount, the formalities may be handled just by submitting valid personal identification certificates. For any amount excessive of the total amount, if under current accounts, the formalities shall be handled in the bank by submitting personal identification certificates and the relevant documents to prove such amount; if under capital accounts, it shall be handled according to the relevant provisions of “Measures”.
The Measures allow the individual traders engaged in export and import of goods to open foreign exchange settlement accounts to handle the foreign exchange revenues and expenditures from business under the current accounts. If the individual traders have been filed for foreign transaction rights at the administration of commerce, their foreign exchange revenues and expenditures shall be handled as those of institutions.
The Measures define capital foreign exchange transactions allowed to be undertaken by individuals and set up detailed rules for such transactions. If domestic individuals make direct investments to foreign countries, they may purchase foreign exchanges or remit with their own foreign exchanges, subject to the approval by the administration for foreign exchange, and registration of foreign exchange in overseas investment. Domestic individuals’ revenues from the lawful capital accounts may be settled upon the approval by the administration for foreign exchange.
The Measures eliminate the division between the foreign exchange cash account and the foreign exchange account, and individual non-business foreign exchange revenues and expenditures shall be integrated by the foreign exchange deposit account.
The Measures shall apply to such activities as the wholesale, retail, and lease, etc. of audio and video products including audio tapes, video tapes, gramophone records, compact discs and laser discs, etc. on which contents are recorded.
The Measures make great changes to the “Measures for Administration of Wholesale, Retail and Lease of Audio and Video Products” (hereinafter referred to as “Previous Provisions”) promulgated by the Ministry of Culture on March 28, 2002. One of the great changes is lowering the requirements on establishing wholesaling entity, retailing or leasing entity or individual or chained operation entity for audio and video products. For example, it deletes the provision of the previous Measures which required an audio and video product wholesaling entity to have a registered capital of not less than RMB 1,000,000 Yuan and a fixed business place of not less than 100 square meters, an organizational structure suitable for the business and more than 5 professionals. According to the previous Measures, a chained operation entity should have a registered capital of not less than RMB 5,000,000 Yuan, and for those engaged in chained business all over China, the registered capital shall not be less than RMB 30,000,000 Yuan. However, the new Measures provide that the registered capital shall not be less than RMB 1,000,000 Yuan and for those engaged in chained business all over China; the registered capital shall not be less than RMB 5,000,000 Yuan.
The Measures have also simplified the approval procedures. It is no longer necessary for an established audio and video chained operation entity to apply for a separate License for Operating Audio and Video Products to open direct-operation chained stores or to establish chained operation counters, and it may only report to the administration of cultural affairs of the county level where the store is to be located with a copy of the License for Operating Audio and Video Products issued by the mother company of the chained operation entity.
According to the Measures, whoever applies for establishing an entity engaged in the business of operating audio and video products through internet, it shall go through the formalities for approval and report for record such information as the name of its website or the names of the websites linked to it, its address, its email address and other information to the administration of cultural affairs of the provincial level where it is located.
It shall be referred to the “Measures on Administration of Chinese-foreign Cooperative Enterprises for Distributing Audio and Video Products” for provisions on the Chinese-foreign cooperative enterprises in distributing audio and video products.
The Provisions make strict provisions on the time limits on enforcement by the courts. The enforcement of cases in which the person against whom a judgment or order is issued has assets shall be completed within 6 months after the case is filed. The enforcement of a non-litigation case shall be completed within three (3) months after it is filed. The Provisions make detailed provisions on the different procedures for enforcement. For example, the judge in charge of the case shall be decided within seven (7) days, and the enforcement notice shall be sent within three (3) days and the review of the objection against the enforcement shall be completed within one (1) month.
The Relevant Provisions request the court to make the different enforcement stages and the relevant information known to the pubic by various means, unless the enforcement is related to state secret or business secret. The Relevant Provisions have different requirements on the information which shall be made public at different stages. For example, the names and the contacts of the persons in charge of the cases or the members of the collegiate bench shall be notified to the parties when the enforcement case is filed and the progress of the cases shall also be notified during the enforcement.
According to the Arrangement, the parties concerned may apply to the Mainland courts and Hong Kong courts for recognition and enforcement of enforceable final judgments in civil and commercial cases concerning payments, if they are made by the Mainland courts or the Hong Kong courts under the jurisdiction agreed by the parties in writing. The enforceable final judgments means, in the Mainland, (1) judgments of the Supreme People’s Court; (2) judgments of the first instance which are not allowed to be appealed according to the laws or which have not been appealed after the legal time limits, rendered by the Higher People’s Courts, Intermediate People’s Courts and the basic courts that are authorized to have jurisdictions over civil and commercial cases of the first instance involving foreign factors; judgments of the second instance and effective judgments made after retrials by the superior courts according to the trial supervision procedures. In Hong Kong, it means the effective judgments rendered by the Court of Final Appeal, the Court of Appeal or the Court of First Instance of the High Court, or by district courts.
The court which the parties concerned may file the application to, in the Mainland, is the Intermediate People’s Court located at the domicile, habitual residence of the applicant, or the place where the property is, and in Hong Kong, is the High Court of Hong Kong.
According to the “the Opinions”, network music means the music disseminated by wired or wireless means such as internet or mobile communications network.
The Opinions clearly express the intention to support the development of original network music, to standardize the market order of network music, and to implement the system of review on the contents of the network music products. Any network music products disseminated in China shall be subject to the approval for importation or filing by MOC. Imported network music may only be operated after the review of contents by MOC. If a music has already been reviewed and approved by MOC and is intended to be disseminated through network, the network operator shall go through the relevant procedures. The import of network music may only be operated by entities approved by MOC.
The General Office of the State Council forwarded the “Guiding Opinions on Improving Adjustment of State-owned Assets and Restructuring of State-owned Enterprises” (hereinafter referred to as “Guiding Opinions”), which was drafted by the State-owned Assets Supervision and Administration Commission and approved by the State Council on December 5, 2006.
The Guiding Opinions request to further standardize the approval of enterprise reorganization schemes, and request that strict approval shall be implemented according to “the Notice of the General Office of the State Council on Forwarding the Opinions of the State-owned Assets Supervision and Administration Commission about Standardization of the Work Relating to the Restructuring of State-owned Enterprises”, “the Notice of the General Office of the State Council on Forwarding the Implementation Opinions of the State-owned Assets Supervision and Administration Commission about Further Regulating the Work Relating to the Restructuring of State-owned Enterprises” and the relevant regulations on the transfer of state-owned assets of enterprises, if the restructuring scheme is related to non-state-owned investors to be involved in a wholly state-owned enterprise, and a state-holding enterprise being restructured to a non-state-holding or non-state-involved enterprise. If the restructuring is related to financial or labor security matters, it shall be approved by the relevant agencies of the government, and then be reported to the State-owned Assets Supervision & Administration for coordination and approval. If the matters are related to the public management of the government, it shall be reported to the relevant agencies for approval according to the relevant laws and regulations. Any restructuring scheme involving non-state-owned investors to be involved in a wholly state-owned enterprise, and a state-holding enterprise restructured to a non-state-controlling or a non-state-holding enterprise shall be submitted to Employee Representatives Meeting of the enterprise for review and the opinions of the employees shall be heard. The scheme of employee arrangement shall be implemented after it is approved by the Employee Representatives Meeting.
The Decision has relaxed the requirements that shall be met by a Mainland law firm that applies for association. The previous provisions are “(1) the law firm has been existing for three years after establishment; (2) the number of full-time lawyers shall not be less than 20; (3) It has no record of administrative punishment or guild sanctions within two years before the application for association. No branch of a Mainland law firm may apply for association as one party to the association.” According to the Decision, the requirements for the Mainland law firm applying for association are “(1) the law firm has been existing for three years after establishment; (2) It has no record of administrative punishment or guild sanctions within two years before the application for association. No branch of a Mainland law firm may apply for association as one party to the association.
The Measures have detailed provisions on the standards and calculations of court costs on five categories of cases (including property cases, non-property cases, IP civil cases, labor dispute cases, administrative cases), which are greatly different from the previous provisions. For example, RMB 10 Yuan shall be paid for each labor dispute case; share of the court costs in a divorce case may be negotiated by the parties concerned, and if the negotiation fails, it will be judged by the court. The amount under the litigation claim in a property case shall be paid by adding up to the amounts within different rate brackets. The court costs for a case claiming for less than RMB 10,000 Yuan shall be RMB 50 Yuan, and the amount within the range from RMB 10000 Yuan to RMB 100,000 Yuan shall be paid according to the rate of 2.5%; and so on.
According to the Measures, the court costs of the case shall be paid at half the rate if (1) the case is concluded by way of mediation or the parties concerned apply for withdrawing the claim; (2) the case is tried by a summary procedure; (3) the court decides to try the case together with the counterclaim and the independent application right filed by a third party to the case.
According to the Measures, the court costs shall be prepaid by the applicant. However, the following cases shall be excluded: (1) the enforcement application fees for applying for the enforcement of a legally effective judgment, ruling or letter of mediation made by the people’s court, an award or letter of mediation made by an arbitration institution, or a credit document which the public notarial institution grants the force for compulsory enforcement, shall be paid after the enforcement; (2) the application fees for applying for bankruptcy shall be paid after liquidation.
The Measures also provide that the parties concerned shall not appeal solely for the rules on court costs rendered by the courts.
§ IP Cases
The court ascertained that the trademark “LOGO!” got international registration by Ximeng Jianhua Stock Company (hereinafter referred to as “Ximeng Company”) on October 20, 1999, which was appointed to be used in the 9th Category, the commodities on signal, measurement and counting. Meanwhile, it applied for territory extension protection in China. On July 10, 2000, the State Trademark Office rejected the application for registration in the 9th category on the ground that it lacks distinctiveness. Ximeng Company applied for re-examination to TAEC. TAEC rejected the re-examination application according to the Trademark Law on November 23, 2005. During the re-examination, the right holder of the trademark was changed from Ximeng Company to SIEMENS. SIEMENS cound not accept the decision and filed the administrative lawsuit to Beijing No. 1 Intermediate People’s Court within the time limit for action. The court held that, as “LOGO!” had the meaning of “mark, trademark”, it could not have an effect of distinguishing the commodities and service providers while registering as a registered trade mark such English words with the meaning of “trademark or mark”. So “LOGO!” did not have distinctiveness, therefore the court judged that the decision made by TAEC should be maintained.
SIEMENS stated that firstly, “LOGO!” was not a daily word or common name, but a random word which had many meanings, so it was internally distinctive if it was designated to be used on certain commodities or service; secondly, the “LOGO!” in capital had a sole meaning, different from “logo” in smaller letters, which was an advanced and interactive (used in Computer Assisted Teaching) language invented by the American Massachusetts Institute of Technology for children; thirdly, “LOGO” and the punctuation “!” constituted a combined trademark with words, which was internally distinctive as a whole. In addition, the applied trademark had been registered in Switzerland and Germany, which had the same standards of review and whose judgment on the distinctiveness of the trademark “LOGO!”, to some extent, may have some significance of reference.
The court held that marks that had no distinctive characteristics should not be registered as a trademark. In this case, the mark was in English, which was not invented. So in judging its distinctiveness, apart from the perspective of pronunciation and shape, whether its meaning in Chinese was distinctive shall also be judged. The meaning of “logo” was “mark or trademark”, and it could not have an effect of distinguishing commodities and service providers while registering such English words with a meaning of trademark or mark as a registered trademark. So “LOGO!” did not have distinctiveness. The general consumers were the people that are going to judge the distinctiveness, and they would understand LOGO in its most common sense, but not as a computer program. Therefore, the conclusion in judging the distinctiveness would not be affected no matter whether “LOGO!” in capital was a computer software program. In addition, the trademark was composed of “LOGO” and “!”, but their combination did not distinguish the applied trademark from the word “LOGO”. The relevant public could not recognize the source of the commodities by “!” or the whole trademark. So it was not distinctive as it did not have the distinguishing effect as a trademark. Finally, the court held that whether a trademark shall be registered should be reviewed according to the Trademark Law of China. Whether the trademark was approved for registration in other countries should not affect the review of trademark in this case.
The court of the first instance held that in the Mainland of China, Xingyuan Company was the holder of the six trademarks including “STARBUCKS”, enjoying the exclusive use right of the trademark, and United Starbucks had the right to use this trademark according to their agreement. Because the series of “STARBUCKS” trademarks had a good reputation all over the world, and “STARBUCKS” was publicized and used in the regions where Chinese was spoken, the trademarks of “STARBUCKS” and “Xing Ba Ke” were more popular and they were known to the relevant public in the Mainland of China. Therefore, the trademarks “STARBUCKS” (in Category 42) and “Xing Ba Ke” (in Category 42) were recognized as well-known trademarks. Xingyuan Company used the words “Xing Ba Ke” earlier than Shanghai Xing Ba Ke Company. Shanghai Xing Ba Ke knew that it had no lawful civil interest in the characters of “Xing Ba Ke”, but still used these characters that were the same as the trademark held by Xingyuan Company in its enterprise name, and also used in the enterprise name for its branch company. Such acts violated the principle of fairness and good faith, infringed the exclusive use right of the well-known trademarks held by Xingyuan Company and constituted unfair competition with Xingyuan Company. The two defendants used the same marks in business as “Xing Ba Ke”, and they also used similar marks to the trademark “STARBUCKS” and the pictures and words of “STARBUCKS”. The defendants Shanghai Xing Ba Ke Company and Shanghai Xing Ba Ke Branch Company should change their enterprise names within thirty (30) days after the judgment came into effect, and the changed names should not contain such characters as “Xing Ba Ke”.
Shanghai Xing Ba Ke Company and Shanghai Xing Ba Ke Branch Company appealed that the first-instance court was unfair in trial procedure and in recognizing the evidence provided by the plaintiffs; it was wrong to recognize the Chinese trademark “Xing Ba Ke” as a well-known trademark. The judgment lacks evidence to affirm that Shanghai Xing Ba Ke Company was vicious. Therefore, it applied for repealing the previous judgment and rejecting the claims of the plaintiff.
The court of the second instance held that Shanghai Xing Ba Ke Company used “Xing Ba Ke” as its enterprise name and also in the enterprise name of its branch company, though it knew that STARBUCKS or “Xing Ba Ke” was a well-known trademark held by a third party, which violated the principle of good faith and commercial morality, and which misled the relevant public to consider that there was some relations between them. The acts of the two appellants constituted unfair competition with Xingyuan Company. The two appellants used logos with the characters “Xing Ba Ke”, “STARBUCKS”, “Shanghai Xing Ba Ke Cafe” and the green round figures with two five-pointed stars in its business operation, which were similar to the trademark “Xing Ba Ke” (in Category 30 and 42), “STARBUCKS” (in Category 30 and 42), and the wording and figure trademark of “STARBUCKS” (in Category 30 and 42), so their acts constituted infringement upon the exclusive use right of the registered trademarks held by Xingyuan Company and the use right of the trademarks enjoyed by United Starbucks. The acts of infringement also constituted unfair competition to the appellees. Therefore, the appellee should stop infringement, make apologies, eliminate the effect of infringement and make compensations.
The plaintiff stated that it was a limited liability company specialized in sales of a series of Jindie software products, which were developed, produced and supplied by the defendant. In September 2001, the plaintiff established a business cooperation relationship with the defendant. At the beginning of the cooperation, the functions of the Jindie software products were stable. But at the end of 2003, some problems of defects in the design of the products came up, so that the plaintiff had to invest a large amount of personnel and fees for the after-sales maintenance of the defective products and the plaintiff lost many customers, and many accounts payable at the later-stage of performance of contracts could not be recovered. Therefore, it applied to the court to affirm that there was commercial fraud for false publicity on the Jindie software products, and to order that the defendant compensate the plaintiff for its economic losses in the amount of RMB 100,000 Yuan.
The defendant defended that the plaintiff did not have the capacity to sue it for false publicity and the court should reject its claims. The claim of the plaintiff was not true and there was no false publicity on the part of the defendant. Therefore, it applied to the court to reject the claims.
The court held that firstly, the plaintiff and the defendant were the business operators defined under the “Anti-unfair Competition Law”, so the capacity issue should be governed by this law. The Anti-unfair Competition Law did not specify that the business operators thereunder should have competitive relationship. Secondly, competitive relationship could be construed both from a broad sense and from a narrow sense. Competitive relationship, in the broad sense, means that there was no strong relation among the competitors, and the number of competitors is great so that it was hard to define the scope of competitors. Any one who participated in the market activities, regulated and affected by the competition system and the market environment and had a relationship with the effect of unfair competition may claim for such rights. Therefore, the plaintiff has the capacity to sue the defendant according to the Anti-unfair Competition Law. In addition, the plaintiff was the distributor of the software products produced by the defendant. If there was a dispute arising from the quality of software products, the plaintiff might request the parties concerned to undertake the liability for breach of contract according to the contract, or directly request them to undertake the liability for infringement. So it was not improper for the plaintiff to bring this lawsuit of tort. Thirdly, concerning whether the act of the defendant was a false publicity, the court held that the defendant overstated the quality and functions of the products while it represented in publicity materials that “supporting the ORACLE database, and having a priority in similar kinds of products in China”, “fit for management of human resources required by various types of enterprises and public institutions”. According to Article 9.1 of the Anti-unfair Competition Law of China, such acts constituted false publicity, so the court of the first instance made the judgment above.
The plaintiff stated that it was the right holder of the registered trademark “Lan Lianhua THE BLUE LOTUS”. At the beginning of 2004, the plaintiff found that the defendant used the trademark “Lan Lianhua” and similar words of “LOTUS BLUE” in the bar located at Tianhefang of Shicha Sea of Beijing, without the plaintiff’s consent. The plaintiff brought the suit to Beijing No.1 People’s Court requesting the defendant to stop infringement, to eliminate the effects and to make compensations. In July 2004, the court supported the claims of the plaintiff. After the defendant made the compensation, it still used the marks “Lan Lianhua”, “LOTUS BLUE”, similar to the trademark of the plaintiff, on its signboard, glass signboards, outdoor sunshades and wine menus, and it also claimed itself as “Lan Lianhua Restaurant” and “Lan Lianhua Bar” in public. The defendant used, as its company name, the same words as the trademark held by the plaintiff and used these words in a noticeable way. The acts of the defendant infringed the exclusive use right of the registered trademark, constituted unfair competition, and misled and confused the customers. Therefore, the plaintiff requested the defendant to stop infringement, make compensations, and requested the defendant stop using the enterprise name “Lan Lianhuafang” and changed the enterprise name within a limited time.
The defendant defended that according to the principle of “non bis in idem”，the court should have not accepted the case because the plaintiff had sued it for infringement of the exclusive use right of the registered trademark in March 2004, which had been tried by the court and the judgment came into effect. Secondly, it had never used the words “Lan Lianhua” independently, and such words were part of the composition of the enterprise name. So it was lawful use. In addition, it operated the bar for nearly three (3) years, which had certain reputation. But the plaintiff had never used the trademark “Lan Lianhua” after the assignment of the trademark. What is more, it had not provided any corresponding services for a long time after the conclusion of the previous lawsuit. The real purpose of the plaintiff to bring the suit was questionable as the defendant had made good efforts in operating while the plaintiff rashly sued it again for infringement. To sum up, it applied to the court for rejecting the claims of the plaintiff.
The court held that the approved effective date of the registered trademark was October 7, 2001 and it was assigned on November 7, 2003. The plaintiff registered the enterprise name of “Lan Lianhua” on October 17, 2002. The defendant registered the enterprise name of “Lan Lianhuafang” on October 13, 2003. The court affirmed that the exclusive use right of the registered trademark was earlier than the enterprise name acquired by the defendant. Though the trademark was assigned to the plaintiff after the registration of the enterprise name by the defendant, considering the infringement act was in a continuous state, the plaintiff had the right to claim for rights to the defendant as the right holder. The defendant called itself “Lan Lianhua Bar” in business without the character of “Fang”, and used “Lan Lianhua” in public on its website and the newspaper of “City Weekly”, which made it possible to be confused with the source of the service. So it constituted unfair competition, and it should be liable to stop infringement and eliminate the effect. Meanwhile, as a party who had once been imposed sanction to, this act of infringement using only different media, was intentional. So it is reasonable for the defendant to take the compensation liability again, and it should compensate the plaintiff RMB 40,000 Yuan, including the reasonable expenses of the plaintiff. The court also judged that Beijing Lan Lianhuafang Restaurant Co., Ltd. should stop using the company name “Lan Lianhua” and stop using the words “Lan Lianhua” in its services.
The plaintiff stated that it applied to the State Intellectual Property Office for a patent for utility model on “A Coin Checking and Separating Machine” on August 4, 2003, which was granted patent right on August 18, 2004, and the patent number was ZL03268358.8. The “Euro Coin Machine” produced and sold by the defendant was a fake imitation of the patented product of the plaintiff, and its internal structure, assembling means and application scope were the same as the claims stated in the patent claim, completely falling into the scope protected by the patent claim. The infringement committed by the defendant caused great economic losses to the Plaintiff. Therefore, the plaintiff applied to the court to make a ruling that the defendant should stop infringement, destroy the modules for producing the infringing products, parts and storages, and make compensations to the plaintiff and bear the relevant fees for investigation and evidence collection as well as court costs.
The defendant defended that the invention of the plaintiff was not patentable, and it had already applied for invalidation of the patent, although the final decision had not been issued yet. And the suspected infringing product did not fall into the protected scope of the invention, so it did not constitute infringement.
The court held that the plaintiff was the right holder of the patent for a utility model called “A Coin Checking and Separating Machine” with the patent number ZL03268358.8, and the patent right should be protected by the law. The suspected infringing product fell into the protected scope of the patent held by the plaintiff. The technology scheme of the coin checking and separating machine produced and sold by the defendant was the same as that of the plaintiff, so it infringed the plaintiff’s patent right for utility model and the defendant should bear the relevant legal liabilities. The plaintiff considered that the modules used for coin receiving tube, bottom board, main shell body, revolving plate, bottom of revolving plate, funnel and gear wheel were special modules that should be destroyed. The court did not support the claim to destroy the production modules used for these parts because the main shell body, bottom board, revolving plate, bottom of revolving plate and coin receiving tube were current technology and the plaintiff did not describe the relationship between the parts and the patent in this case. However, the funnel was the key inventive point of the patent involved in this case, so the court supported the claim to destroy the modules used to produce the funnels.
§ Analysis of Cases
Background of the case:
On December 20, 1991, Far East Company entered into a “Development Contract” with China International Yacht Club (hereinafter referred to as “the Club”), a party not involved in this case. The Club transferred the use right of a land, with an area of 100,000 square meters, to Far East Company at the price of RMB 8,000,000 Yuan.
On January 29, 1993, Far East Company and Jinli Company entered into a “Joint Development Agreement”, which transferred a land of 860,000 square meters to Jinli Company at the price of RMB 2752 Yuan. Jinli Company paid RMB 13.5 million Yuan in total（can be converted into a land of 25000 square meters）to Far East Company thereafter.
On March 24, 1999, the Administrative Commission of Holiday Resort adjusted the construction land of the Club; so Far East Company could not deliver the land near the sea to Jinli Company according to the contract. In March 2002, Aojinli Company delivered the “Loan Claiming Notice” by means of notarized service, stamped by Jinli Company and Aojinli Company, which defined the owner of the creditor’s right was Aojinli Company.
In September 2002, Aojinli Company brought a lawsuit to the court where Far East Company was located, requesting Far East Company to return the payment. After the trial of the first instance and the second instance, both courts held that Aojinli Company was not the party of the “Joint Development Agreement”, so they rejected the suit initiated by Aojinli Company.
In April 2004, Jinli Company and Aojinli Company brought a lawsuit to the previous court together, which claimed that the Joint Development Agreement was invalid, and Far East Company should repay the amount of RMB 13.5 million Yuan to Jinli Company and pay the relevant interests, and assume the court costs.”
During the trial of the first instance, the defendant Far East Company questioned the capacity of Jinli Company and Aojin Company, which was one of the disputed focuses of this case.
The court of the first instance held that: firstly, the nature of the Joint Development Agreement, executed between Far East Company and Jinli Company was a contract on transfer of the use right of state-owned land. The land acquired by Far East Company under the Certificate of Use of State-owned Land was not the land agreed to be transferred. Therefore, Far East Company did not acquire the use right of the land agreed to by the parties to be transferred. The Joint Development Agreement was ineffective and Far East Company should take the major liability for the ineffectiveness of the contract.
Secondly, concerning the capacity, the court of the first instance held that:
So the court of the first instance judged that Far East Company should return the land transfer fee to Jinli Company and pay part of the interest.
Far East Company could not accept the judgment of the first instance so it appealed to the Supreme People’s Court.
The Supreme People’s Court held that the primary issue was how to recognize which party may claim to Far East to return the principal of RMB 13.5 million Yuan and the interest, Jinli Company or Aojinli Company.
Firstly, whether the suit instituted by Jinli Company could be supported:
The Supreme People’s Court held that though the Joint Development Agreement was concluded between Jinli Company and Far East Company, but the communication and payment after the conclusion of the contract were between Aojinli Company and Far East Company. Moreover, Jinli Company and Aojin Company delivered the “Loan Claiming Notice” together, which specified that the owner of the creditor’s right was Aojinli Company, and stated the real intention to transfer the creditor’s rights by notarized means. Therefore, the owner of the rights had been changed from Jinli Company to Aojinli Company, and Jinli Company did not have the capacity of a creditor to claim for its rights against Far East Company.
Secondly, whether the suit brought by Aojinli Company should be supported by the court:
The Supreme People’s court held that as Aojinli Company had once claimed for its rights against Far East Company in another case, which had been rejected by the court, the suit brought by Aojinli Company on the same subject matter should not be supported.
The Supreme People’s Court finally judged that withdraw the previous judgment and rejected the application of the two plaintiffs.
This case gives an example on the party who has the right after the contract is transferred and can be used for our reference.
The focus of this case is who the subject of the Joint Development Agreement was, and whether the transfer of the contract between Jinli Company and Aojinli Company can be established. According to Article 79 and Article 80 of the Contract Law, the creditor may transfer all or part of the rights and interests under the contract to a third party. The transfer does not need the consent of debtors, but notice should be given to the debtors. Therefore, once the transfer is completed, the previous creditor is not the subject of the contract any more, and has lost the capacity to claim as the creditor in its own name.
In this case, the Supreme People’s Court held that the actual party performing the contract was Aojin Company, and Jinli Company and Aojin Company had notified Far East Company for the change of the subject. Therefore, the court held that Jinli Company had transferred the rights under the contract to Aojin Company. Jinli Company should not claim for its rights.
Concerning the difficult situation that Jinli Company and Aojinli Company could not exercise their rights, the lawyer thinks Aojin Company might as well apply, based upon the judgment of the Supreme People’s Court, for re-trial of the case which Aojin Company filed against Far East Company independently. As the original court held that Aojin Company was not the party to the Joint Development Agreement and rejected the application of Aojinli Company, while the Supreme People’s Court had affirmed the transfer of the creditor’s rights and Aojin Company had acquired the relevant rights, therefore, Aojin Company had the right to claim for its creditor’s rights against Jinli Company. The judgment of the Supreme People’s Court is inconsistent with the judgment of the original court, so Aojin Company should have the right to apply for re-trial to the original court.