Haworth & Lexon Law Newsletter (201203)-Law Bridge-Shanghai Law Firm/Lawyer

Haworth & Lexon Law Newsletter
No.3 2012 (Total:No.121) May.8, 2012
Edited by Haworth & Lexon

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Haworth & Lexon Law Newsletter is issued every month, mainly introducing the legal change in the fields of Corporate, Securities, Foreign investment, E-commerce, 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.

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Latest News of Haworth & Lexon

Robin Gerofsky Kaptzan Recently Joined Haworth & Lexon as Legal Counse

Robin Gerofsky Kaptzan recently joined Haworth & Lexon as legal counsel. She is a New York licensed attorney at law with over 25 years business and law practice experience and has been in Shanghai for 14 years. Robin has particular expertise in foreign investment, M&A, restructuring, compliance, corporate governance, employment and intellectual property as well as in commercial, labour, and other disputes resolution and arbitrations. She has represented businesses of all sizes from many countries, including the U.S. listed companies and multinationals in a broad range of industries. Robin also has 9 years commercial litigation experience in the U.S. .Robin has published many articles and frequently gives professional speeches on important occasions. Robin is Joint Chief of American Bar Association’s China Committee and liaison of Shanghai Association of American Bar Association.

Legal Updates Express

On September 7, 2011, the Supreme People’s Court promulgated the Several Provisions on Entrustment of Appraisal and Auction Work by the People’s Courts (Fa Shi [2011] No.21, effective as of January 1, 2012, hereinafter referred to as Several Provisions), specifying the relevant matters and stages involved in entrustment by the people’s courts of appraisal and auction agencies to conduct appraisal and auction. On February 6, 2012, the Supreme People’s Court promulgated the Notice of the Supreme People’s Court on Several Issues Concerning Implementation of Several Provisions of the Supreme People’s Court on Entrustment of Appraisal and Auction Work by the People’s Courts (Fa [2012] No.30, hereinafter referred to as Notice), further specifying some important issues involved in appraisal and auction work entrusted by the people’s court.
Pursuant to the Notice, those higher people’s courts at the levels of province, autonomous regions and municipalities directly under the Central Government may determine the scope of eligibility for appraisal and auction agencies to participate in the appraisal and auction work entrusted by the people’s court in accordance with the value of the property subject to appraisal and auction and the actual condition of the objects to be auctioned.

Based on the Several Provisions, the Notice further specifies that an auction entrusted by the people’s court shall be published on http://rmfysszc.gov.cn, stating auction notice and information and result related to appraisal and auction, unless otherwise provided by relevant laws and regulations that the foregoing publication shall not be made.

With regard to auction entrusted by people’s court as such involving disposal of state-owned assets, the Notice further prescribes that, unless otherwise prescribed by relevant laws and regulations, in the event the object under auction entrusted by people’s court is asset or right or interest of a state-owned enterprise or enterprise controlled by the state, such auction shall be conducted at the exchange platform of state-owned enterprise’s property held by state-owned enterprise’s property exchange institute at the provincial level in accordance with applicable laws, regulations and judicial interpretations.

Furthermore, based on the Several Provisions, the Notice aggravates punishment on breaching acts by appraisal and auction agencies, specifying that in the event agencies and responsible persons engaging in appraisal and auction entrusted by the people’s court fail to perform due obligations or proceed appraisal and auction in violation of laws and regulations or have serious misconduct so as to influence the appraisal and auction results, the people’s courts may suspend or cancel their eligibility to participate in appraisal and auction entrusted by people’s court in accordance with the specific circumstances and punish those agencies and responsible persons acting in violation of laws and regulations in accordance with applicable laws.

Notice on Enhancing Civil Adjudication to Effectively Safeguard People’s Livelihood under Present Situations by the Supreme People’s Court

On February 15, 2012, the Supreme People’s Court promulgated the Notice on Enhancing Civil Adjudication to Effectively Safeguard People’s Livelihood under Present Situations (Fa [2010] No.40, hereinafter referred to as Notice), which came into effect on the same day of promulgation. The Notice puts forward some opinions and suggestions in relation to those social hot issues such as real estate dispute, private lending and labour dispute as well as those disputed issues relating to people’s livelihood.

1. Real estate dispute

Pursuant to the Notice, the people’s courts shall take into account of actual circumstances of the cases so as to accurately determine validity of contracts and lawfully define rights and obligations of the parties concerned. The people’s courts shall prudently apply the principle of change of circumstance and correctly draw a line between change of circumstances and normal market and transaction risks so as to improve predictability of market activities and certainty and creditability of contractual interests and boost healthy development of real estate market.

2. Cases of private lending

Pursuant to the Notice, the people’s courts shall lawfully and accurately determine validity of private lending activities and correctly differentiate lawful private lending activities from fund-raising fraud, illegal absorption of public savings and other criminal acts. The people’s courts shall correctly analyze the essence of claims filed by the parties concerned and judge the validity of relevant agreements made by the parties concerned, and protect lawful private lending activities and the legitimate rights and interests of the parties concerned so as to boost the development of the real economy. The people’s courts shall also strengthen on examination of authenticity of loan notes, further clarify distribution of burden of proof and step up efforts to eliminate usury in all forms and to examine false debts.

3. Cases of labor disputes

Pursuant to the Notice, legitimate rights and interest of employees and healthy development of enterprises shall be properly balanced. For promising enterprises with temporary funding troubles, especially micro, small and medium-sized enterprises, the people’s courts shall encourage the enterprises and employees to tide over the difficult time together by reconciliation and mediation. On the other hand, for enterprises without possibility of continued survival that impair the rights and interest of employees by malicious arrearage of wages, the people’s courts shall expedite the progress of adjudication and intensify property preservation efforts to protect the legitimate rights and interests of the employees.

4. Other kinds of disputes

With regard to civil cases with rural elements, cases of disputes arising from damage caused by traffic accidents, cases of disputes arising from medical damage compensation, cases of marriage and family and cases of disputes arising from consumers’ rights and interests, the Notice puts forward relevant requirements on the adjudication by people’s courts based on the different characteristics of different cases.

Administrative Measures for Floor Area Ratio of Construction Land

On February 17, 2012, the Ministry of Housing and Urban-Rural Development promulgated the Administrative Measures for Floor Area Ratio of Construction Land (effective as of March 1, 2012, hereinafter referred to as Administrative Measures). The Administrative Measures have formulated relevant administrative systems for administration of floor area ratio (hereinafter referred to as “FAR”) of the construction land of which the right to use state-owned land is acquired by manner of allocation or transfer within urban and rural planning areas.

1. FAR as stipulated in contract for transfer of land use right

Pursuant to the Administrative Measures, for land use right acquired through transfer, confirmation on land planning condition, such as FAR, shall be conditions precedent to transfer of the use right of state-owned land. In addition, a contract for transfer of land use right would be null and void in the event confirmation on land planning conditions, such as FAR, is not included in such contract.

2. FAR may not be arbitrarily adjusted

Pursuant to the Administrative Measures, all entities and individuals shall comply with the FAR indicators determined by duly approved regulatory detailed planning, and may not adjust the same without authorization. Adjustments that are genuinely necessary shall be made pursuant to these Administrative Measures. FAR may not be adjusted by manners, such as minutes of governmental meeting, in replacement of procedures prescribed under applicable laws and regulations.

3. Preconditions for adjustment of FAR

Pursuant to the Administrative Measures, adjustments may be made to the confirmed FAR only under specific circumstances. Pursuant to Article 7 of the Administrative Measures, once the use right of state-owned land is transferred or allocated, no project owner or individual may change the determined FAR without authorization. Adjustments may be made only on the ground of satisfaction of any of the following circumstances:

（1） Where the development conditions for the land plot concerned are changed due to revisions to the urban and rural planning;

（2） Where the area and relevant construction conditions of the land plot already transferred by sale or allocation are changed due to construction of urban and rural infrastructure, public service facilities and public safety facilities;

（3） Where pertinent policies of the State and relevant province, autonomous region or municipality directly under the Central Government are changed; or

（4） Where there are other circumstances as prescribed by laws and regulations.

4. Failure to commence construction as scheduled on ground of application of adjustment of FAR shall be deemed as idleness of land.

Pursuant to Article 13 of the Administrative Measures, in the event of failure to commence construction as scheduled due to application for FAR adjustment on the ground of reasons attributable to the project owner or relevant individual, such failure shall be dealt with in accordance with relevant provisions concerning dealing with of idleness of land.

Interim Measures for the Supervision and Management of Overseas Investment by State-owned Key Enterprises

On March 18, 2012, the State-owned Assets Supervision and Administration Commission of the State Council (hereinafter referred to as “SASAC”) promulgated the Interim Measures for the Supervision and Management of Overseas Investment by State-owned Key Enterprises (effective as of May 1, 2012, hereinafter referred to as “Interim Measures”) in order to regulate overseas investment by state-owned key enterprises.
As a matter of fact, the Interim Measures are formulated specially for the state-owned key enterprises under currently existing legal framework on administration of overseas investment.

1. Overseas investment by state-owned key enterprises

Pursuant to the Interim Measures, for the purposes of these Interim Measures, “overseas investment” refers to investment such as fixed asset investment and equity investment made by state-owned key enterprises and their wholly-owned and controlled subsidiaries at all levels (hereinafter referred to as “subsidiaries at all levels”) outside of China and in Hong Kong and Macao Special Administrative Regions.

2. Record-filing of “investment in major business” by state-owned key enterprises overseas

Pursuant to Article 6 of the Interim Measures, the overseas investment management system of a state-owned key enterprise shall be reported to SASAC for record. SASAC adopts record-filing administration over key investment projects in major business covered under annual overseas investment plan of state-owned key enterprises. With regard to key investment projects in major business that are not included in the annual overseas investment plan of state-owned key enterprises but need to be added to the plan, the state-owned key enterprises shall submit the information about the projects to SASAC for record after completion of its internal investment decision-making procedures.

3. Approval on “investment in non-major business” by state-owned key enterprises overseas

Pursuant to the Interim Measures, in principle, state-owned key enterprises may not invest in non-major business overseas. If such investment is required for any special reason, such investment shall be approved by SASAC. The state-owned key enterprises shall submit the following approval materials to SASAC:

（1） Request on Application for approval of investment in non-major business;

（2） Relevant decision-making documents on non-major business investment projects of the state-owned key enterprise;

（3） Relevant documents such as feasibility study reports and due diligence reports on the investment projects in non-major business;

（4） Risk assessment, risk control and risk prevention reports on the investment projects in non-major business;

（5） Other necessary materials.

SASAC shall, in accordance with relevant laws and regulations as well as provisions on state-owned assets regulations, examine and verify the application mainly from the aspects such as the necessity of such non-major business investment projects, impact of such non-major business investment projects on enterprises’ development strategies and development of major business, enterprises’ investment tolerance and risk control abilities, and shall issue written opinions thereon within 20 working days.

Regulations on Administration of Registration of Overseas Manufacturers of Imported Food
On March 22, 2012, the General Administration of Quality Supervision, Inspection and Quarantine promulgated the Regulations on Administration of Registration of Overseas Manufacturers of Imported Food (effective as of May 1, 2012, hereinafter referred to as Regulations). The Regulations lay down regulations on registration and supervision of overseas manufacturing, processing and storage enterprises that output food to China (hereinafter referred to as “Overseas Manufacturers of Imported Food”).

1. Administrative authority of Overseas Manufacturers of Imported Food

The Regulations explicitly provide that the General Administration of Quality Supervision, Inspection and Quarantine of the People’s Republic of China (hereinafter referred to as the “AQSIQ”) shall be responsible for unified administration of registration of Overseas Manufacturers of Imported Food.

The Certification and Accreditation Administration of the People’s Republic of China (hereinafter referred to as the “CNCA”) shall be responsible for organizing and implementing the registration of Overseas Manufacturers of Imported Food, and the supervision and administration thereof.

2. Conditions for registration of Overseas Manufacturers of Imported Food:

Pursuant to Article 6 of the Regulations, conditions for registration of Overseas Manufacturers of Imported Food are as follows:

（1）Veterinary service systems, plantation protection systems, public health administration systems and other registration-related systems of the countries (regions) where such manufacturers are located are evaluated as qualified;

（2）Animals and plantation raw materials used for food exported to China come from disease-free areas; for food exported to China that have the possible risk of spread of animal and plantation epidemic diseases, competent authorities of the countries (regions) where such manufacturers are located shall provide supporting documents and relevant scientific materials that prove the risk has been eliminated or is controllable.

（3）Such manufacturers shall be approved and subject to effective supervision by competent authorities of the countries (regions) where they are located, and their sanitary conditions shall conform to relevant provisions of Chinese laws, regulations and standards.

3. Term of validity of the registration

The Regulations expressly specify that registration shall remain valid for 4 years. Overseas food manufacturers that need to extend registration shall, within one year prior to expiration of the validity period of registration, file extension applications with CNCA via competent authorities of the countries (regions) where such manufacturers are located or in other prescribed ways. For manufacturers that fail to file extension applications within the foregoing time limit, CNCA shall cancel their registration and make announcements of such cancellation.

4. Post-registration supervision over Overseas Manufacturers of Imported Food

Pursuant to the Regulations, where any of the following circumstance occurs to the registered overseas food manufacturer, CNCA shall cancel its registration and report such cancellation to AQSIQ, inform competent authorities of the countries (regions) where such manufacturer is located and make announcements thereof:

（1） Material food safety accidents occurred on relevant imported food due to reasons attributable to overseas food manufacturer;

（2） Food of the overseas food manufacturer is found unqualified during the import inspection and quarantine of food and such disqualification is of severity. ;

（3） It is found through inspection that the overseas food manufacturer has major problems in food safety and hygiene management and cannot ensure the safety and hygiene of its products;

（4） The overseas food manufacturer still cannot meet registration requirements after rectification;

（5） The overseas food manufacturer provides false materials or conceals relevant information;

（6） The overseas food manufacturer leases, lends, transfers, sells or alters registration number.

5. Import of unregistered food

Pursuant to the Regulations, for import of food from unregistered overseas food manufacturers but such are subject to China’s registration administration, entry-exit inspection and quarantine authority shall, in accordance with Article 52 of the Regulations on Implementation of the Law of the People’s Republic of China on Inspection of Imported and Exported Commodities, order suspension of import of such food, confiscate illegal earnings and impose a fine of more than 10% but less than 50% of commodity value.

Notice on Further Relaxing Regulations on the Business Scope, Employees and Business Area of Individual Businesses Established by Hong Kong and Macao Residents, Opinions on Administration of Individual Business Registration Application by Taiwan Residents in Some Mainland Provinces and Municipalities

On March 26, 2012 and March 30, 2012, the State Administration for Industry and Commerce successively promulgated the Notice on Further Relaxing Regulations on the Business Scope, Employees and Business Area of Individual Businesses Established by Hong Kong and Macao Residents (hereinafter referred to as the Notice) and the Opinions on Administration of Individual Business Registration Application by Taiwan Residents in Some Mainland Provinces and Municipalities (hereinafter referred to as the Opinions), which respectively relax relevant standards and conditions for Chinese citizens among permanent residents in Hong Kong and Macao (hereinafter referred to as the Hong Kong and Macao Residents) and Taiwan residents to establish individual businesses in Mainland.

The Opinions put forward relevant opinions on administration of individual business registration application by Taiwan residents.

1. Simplification of formalities for individual business registration application by Taiwan residents

Pursuant to the Opinions, from January 1, 2012, where Taiwan residents apply for individual business registration in nine provinces and municipalities including Beijing, Shanghai, Jiangsu, Zhejiang, Fujian, Hubei, Guangdong, Chongqing and Sichuan, no foreign investment examination and approval is required and administrative departments of industry and commerce of counties, autonomous counties, cities not divided into districts and municipal districts in places where proposed individual businesses are located (hereinafter referred to as “Registration Authority”) could conduct direct registration for such individual business application in accordance with relevant laws, administrative regulations and rules of the State.

2. Business scope of individual business operated by Taiwan residents

The Notice indicates that business scope of the individual businesses established by Taiwan residents may include retailing and catering service but exclusive of franchise. The form of individual businesses established by Taiwan residents is limited to individual operation. Such an individual business shall have no more than 8 employees and a business area of no more than 300 square meters. From April 1, 2012, such an individual business shall have no more than 10 employees and a business area of no more than 500 square meters.

3. Administration on registration of individual business operated by Taiwan resident

The Opinions require that Taiwan residents shall apply for individual business registration in accordance with regulations and rules, such as Regulations on Individual Businesses and the Administrative Measures for Registration of Individual Businesses.

The Opinions emphasize that registration of individual businesses established by Taiwan farmers shall continue to be administered in accordance with relevant regulations on registration administration of individual businesses established by Taiwan farmers in pilot zones for cross-strait agricultural cooperation and pioneer parks for Taiwan farmers.

The Notice further relaxes regulations and standards for business scope, employees, business area, etc. of individual businesses established by Hong Kong and Macao Residents in the Mainland of China.

1. Newly added industries

Pursuant to the Notice, as of April 1, 2012, the following industries could be applied to be added into business scope of individual businesses established by Hong Kong and Macao Residents in accordance with the division standards of the Classification of National Economic Industries (GB/T4754-2002):

（1）The following items under packaging services in the leasing and commercial service industries: services such as classification, sub-packaging, preservation, labelling and sealing of commodities for shopping malls, supermarkets or other customers; services such as distribution, sub-packaging and packaging of goods for chain stores and supermarkets; services provided by distribution companies (centres) such as goods distribution and sub-packaging; sub-packaging and repackaging services for general products; and gift packaging services.

（2）The following items under office services in the leasing and commercial service industries: design and production of signboard and brass plate; design and production of trophy, plaque, medal and banner.

（3）Handicrafts for leisure and recreation in indoor recreational activities (ceramics, sewing, painting, etc.).

2. Restrictions on the number of employees and business area

Restriction on number of employees and business area of individual businesses established by Hong Kong and Macao Residents in all mainland provinces, autonomous regions and municipalities directly under the Central Government is relaxed: (1) Number of employees shall not exceed 10. (2) Business area of individual businesses in ten industries shall not exceed 500 square meters, namely, retailing, catering, resident service and hairdressing, beauty and health care services in other service industries, bathing, repair of home appliances and other daily necessities, import and export of goods and technology, photography and enlarging printing, washing and dyeing, automobile and motorcycle repair and maintenance, and warehousing.

On March 26, 2012, the Supreme People’s Court promulgated the Provisions on Certain Issues Concerning Handling of Cases of Application with People’s Courts for Compulsory Enforcement of Decisions on Compensation for Expropriation of Housing on State-owned Land (hereinafter referred to as the Provisions), explaining and specifying the relevant issues concerning the properly handling cases of application with people’s courts for compulsory enforcement of decisions on compensation for expropriation of housing on state-owned land (hereinafter referred to as the “decisions on compensation for expropriation”).

1. Jurisdiction of the cases

Pursuant to the Provisions, cases that have been filed with people’s courts for compulsory enforcement of decisions on compensation for expropriation shall be heard by basic people’s courts sitting at the place where the housing is located. The higher people’s courts may determine jurisdiction of the competent courts for such cases based on local actualities.

At the same time, people’s courts shall make a ruling on whether approving the enforcement application within 30 days as of the date the case is accepted by the court; in the event of necessity to extend the approval period on occurrence of special circumstance, such extension shall be approved by the higher people’s court.

2. Circumstances where the enforcement application shall be disapproved

The Provisions have listed the circumstances where the people’s court shall make a ruling on rejecting the application for enforcement. Pursuant to Article 6 of the Provisions, where a decision on compensation for expropriation involves any of the following circumstances, the people’s court shall make a ruling on rejecting the application for enforcement:

(1) The decision is of obvious absence of factual evidence;

(2) The decision is of obvious absence of legal basis;

(3) The decision obviously violates the principle of fair compensation and seriously damages the legitimate rights and interests of persons subject to enforcement, or would deprive the persons subject to enforcement of basic life and production and operation safeguard;

(4) The decision obviously breaches administrative purposes and seriously damages public interests;

(5) The decision seriously violates statutory or due procedures;

(6) The decision is made by the entity exceeding authority empowered to such entity;

(7) Other circumstances prescribed by laws, regulations and rules, in which a compulsory enforcement is inappropriate.

3. Enforcement of cases of decisions on compensation for expropriation.

Pursuant to Article 9 of the Provisions, where a people’s court makes a ruling on approving the enforcement, the enforcement shall be organized and carried out by the people’s government at the city or county level that makes the decision on compensation for expropriation, or by the people’s court concerned.

Notice on Strengthening Regulated Administration over Running Foreign-related Schools by the General Office of the Ministry of Education

On March 29, 2012, General Office of the Ministry of Education promulgated the Notice on Strengthening Regulated Administration over Running Foreign-related Schools (Jiao Wai Ting [2012] No. 2, hereinafter referred to as the Notice), putting forward such main opinions as follows on running foreign-related schools.

1. Jurisdiction of the cases

2. Circumstances where the enforcement application shall be disapproved

(1) The decision is of obvious absence of factual evidence;

(2) The decision is of obvious absence of legal basis;

(4) The decision obviously breaches administrative purposes and seriously damages public interests;

(5) The decision seriously violates statutory or due procedures;

(6) The decision is made by the entity exceeding authority empowered to such entity;

(7) Other circumstances prescribed by laws, regulations and rules, in which a compulsory enforcement is inappropriate.

3. Enforcement of cases of decisions on compensation for expropriation.

Notice on Strengthening Regulated Administration over Running Foreign-related Schools by the General Office of the Ministry of Education

1. Administration level of inter-collegiate exchange students training projects shall be improved.

Pursuant to the Notice, institutes running foreign-related schools shall strengthen in-depth understanding on foreign colleges and universities concerned and conclude regulated exchange agreements containing express provisions on enrolling, education and teaching programs, student status files, training programs, academic period, curriculum, courses content, credit mutual recognition, certification and others, and shall strictly implement such agreements so as to promote training quality and the level of inter-collegiate exchange and cooperation.

2. Grasping policies boundary for Sino-foreign cooperation in running schools.

Pursuant to the Notice, as for launch of institutions or projects regarding Sino-foreign cooperation in running schools, the institutions or projects so launched shall go through relevant approval procedures in accordance with the requirements under Regulations of the People’s Republic of China on Sino-Foreign Cooperative Operation of Educational Institutions and its implementing measures as well as relevant normative documents, and carry out activities of Sino-foreign cooperation in running schools after obtainment of the approval. All colleges and universities shall accurately grasp policy boundary for Sino-foreign cooperation in running schools, and shall not conduct any top-up programs, preparatory courses for studying abroad or other foreign-related education programs in the name of Sino-foreign cooperation in running schools.

3. Certification procedures and criterion over foreign diplomas shall be strictly administered.

As required by the Notice, relevant institutions shall regulate the certification procedures and standards of foreign diplomas by strict reference to the requirements on foreign diploma issuance, acquisition and certification so as to safeguard the solemnity of the diplomas and academic certificates system.

4. The principle of public welfare in running foreign-related schools shall be upheld.

As required by the Notice, institutes running foreign-related schools shall charge students in strict accordance with the items prescribed by the State and the standards approved by the people’s governments at provincial level of the place where the colleges and universities are located, and may not add charging items or increase charging rates without approval.

5. Management on use of school buildings and education and management of faculties shall be strengthened.

As required by the Notice, all colleges and universities shall further improve the management system on lease and use of school buildings, and rigidly examine the qualifications of the lessees for running schools and shall sign lease contract with the lessees, in the event the campus place is leased for running foreign-related schools. All colleges and universities shall guide and request faculties to be prudent on participation in the teaching activities in such foreign-related schools, and require the faculties not to participate in teaching activities of the institutions that illegally run foreign-related schools.

6. Supervision of activities of running foreign-related schools shall be strengthened.

As required by the Notice, all local departments concerned shall establish the dynamic supervision system over advertisements related to activities of running foreign-related schools and conduct dynamic supervision over advertisements published via the Internet or other media, involving activities of Sino-foreign cooperation in running schools or activities of issuing foreign diplomas and academic certificates.

The Supreme People’s Court Published the Second Package of Guiding Cases

Following the first package of guiding cases published on December 20, 2011, the Supreme People’s Court published the second package of guiding cases on April 13, 2012.

Among the four guiding cases announced this time, there are two administrative and civil cases each. The No.5 guiding case is a typical case regarding regulation of industrial salt administration, which further demonstrates that the people’s court will not apply during adjudication process those local government rules and regulations which set forth administrative permit and penalties in violation of relevant provisions of laws. This guiding case serves as a reference for not only the industrial salt administration but also administration in other respects. Starting from the legislative intention, the No.6 guiding case has the administrative penalty of “confiscation of property of relatively high value” covered under the scope of administrative penalties subject to compulsory hearing, which fully protects the rights and interests of the administrative counterpart and hence plays a significant role in enhancing the government administration in accordance with laws. No.7 guiding case involves issues concerning application of laws, such as lodging a protest against an effective judgment, withdrawal of a lawsuit, scope of applicability of court rulings under Article 140 of Civil Procedure Laws. Issuance of the No.7 guiding case is of great significance in respect of respect and safeguard of legitimate civil rights and interests as well as litigation rights of the parties concerned, maintenance of the stability of effected rulings, peaceful and complete settlement of cases and promotion of harmonious social construction. No.8 guiding case is a typical case whereby company deadlock is properly settled by accurately application of Article 183 of the Company Law, which not only sets limitation on conditions for company dissolution but also legally protects the shareholders’ rights and hence benefits the corporate governance structure and sound development of market economy.

Please refer to an article written by Bailey Xu in column Legal Practices on the No.8 guiding case of the Second Package of Guiding Cases. Haworth & Lexon will continue to follow the guiding cases to be published by the Supreme People’s Court from time to time and will make analyses and comments on those typical cases therein.

Measures of Shanghai Municipality for Recognition and Protection of Well-known Trademarks

On March 14, 2012, Shanghai Municipal People’s Government promulgated the Measures of Shanghai Municipality for Recognition and Protection of Well-known Trademarks (effective as of May 1, hereinafter referred to as the Measures) in order to regulate and specify the recognition and protection of well-known trademarks in Shanghai.

Pursuant to the Measures, for the purpose of these Measures, well-known trademarks of Shanghai Municipality (hereinafter referred to as the “Well-known Trademarks”) shall mean the trademarks well known to the public that enjoy reasonably high reputation in the market of Shanghai Municipality and are recognized pursuant to these Measures. The municipal administration for industry and commerce shall organize a review and adjudication board for well-known trademarks (hereinafter referred to as the “Review and Adjudication Board”) to take charge of the review and adjudication in the recognition of Well-known Trademarks.

1. Fundamental principles for recognition of a Well-known Trademark

Applications for recognition of well-known trademarks shall be made on a voluntary basis pursuant to the Measures. Recognition of Well-known Trademarks shall comply with the principles of openness, fairness and impartiality.

2. Conditions for recognition of a Well-known Trademark

Pursuant to the Measures, a trademark registrant who satisfies the following conditions may apply for recognition of its trademark as a Well-known Trademark:

（1）The trademark registrant is a natural person with Shanghai’s household registry or residence permit, or a legal person or other organization duly established in Shanghai Municipality;

（2）The trademark concerned is free from ownership disputes, has been in registration for 2 years and in actual use for 3 years within the territory of China, and enjoys reasonably high recognition among relevant public;

（3）Products bearing the trademark are reliable and safe in quality, and enjoy favourable market reputation;

（4）Products bearing the trademark have been taking the leading position in relevant peer industry of Shanghai Municipality for the past 3 years in terms of sales revenue, profits, tax contribution and other main economic indicators;

（5）Registrant and users of the trademark have established a product quality complaint and dispute handling system which is in smooth operation;

（6）The trademark registrant has set up the system for use and management of the trademark which is in smooth operation;

（7）The trademark registrant and users have no record of grave violations of laws in the immediately preceding 3 years.

A trademark registrant, who is of non-profit nature, applying for recognition of its trademark as a Well-known Trademark is not subject to the provision of Item (4) of the preceding paragraph.

3. Term of validity of a recognized Well-known Trademark

Pursuant to the Measures, a recognized Well-known Trademark shall be valid for three years, commencing from the date of release of recognition announcement.

4. Use and Protection of Well-known Trademarks

The owner and the user of a Well-known Trademark may use the words and the logo of “Well-known Trademark of Shanghai Municipality” on the packaging and decoration of the approved products (hereinafter referred to as “Products Bearing Well-known Trademarks”), as well as the advertisements or other vehicle of the said products. No any other entity or individual may use the words and the logo of “Well-known Trademark of Shanghai Municipality” without authorization. Anyone uses, without authorization, the names, packaging or decoration unique to Products Bearing Well-known Trademarks, or uses names, packaging and decoration similar to those of the Products Bearing Well-known Trademarks, resulting in confusion among purchasers who mistake other products for the Products Bearing Well-known Trademarks, shall be punished by administrative departments for industry and commerce in accordance with the Anti-unfair Competition Law of the People’s Republic of China and other laws and regulations.

5. Cancellation of recognition of Well-known Trademarks

Pursuant to the Measures, for the Well-known Trademarks that do not conform to the requirements and conditions of Article 27 of the Measures, the administration for industry and commerce shall have the right to cancel such Well-known Trademarks.

Legal Practices

The Supreme People’s Court Published the Guiding Cases to Explain “Where A Company Is Confronted with Serious Difficulties in Operation and Management”

Article 183 of the PRC Company Law as amended in 2005 prescribes that shareholders may apply with the court for dissolution of the company under statutory conditions, i.e. “where a company is confronted with serious difficulties in operation and management, its continued existence may cause grievous losses to the interest of its shareholders and the difficulties cannot be surmounted through other channels”. However, there are many disputes in judicial practices with regard to the application of such Article.

On May 12, 2008, the Supreme People’s Court promulgated Provisions of the Supreme People’s Court on Certain Issues Concerning Application of the Company Law of the People’s Republic of China (II) (hereinafter referred to as the Judicial Interpretation (II) of the Company Law), making detailed explanations on how to apply Article 183 of the Company Law. Pursuant to the Judicial Interpretation (II) of the Company Law, under any of the following circumstances, the people’s court shall accept a claim for dissolution of a company:

(1) The company fails to hold a shareholders’ meeting or a general meeting of shareholders for at least two consecutive years, and the operation and management of the company is confronted with severe difficulties;

(2) The proportion required for adopting a resolution during a voting by shareholders does not reach the statutory proportion or the proportion specified under the articles of association of the company so that no valid resolution of the shareholders’ meetings or the general meetings of shareholders have been reached for at least two consecutive years, and the operation and management of the company is confronted with severe difficulties;

(3) Conflict exists among the directors of the company for a long time, which cannot be settled through the shareholders’ meetings or the general meetings of shareholders, and operation and management of the company is confronted with severe difficulties;

(4) Other circumstances where operation and management of the company is confronted with other severe difficulties and continuance of the company’s existence may cause material losses to the interest of the shareholders.

Each of the above circumstances involves the element that “operation and management of the company is confronted with severe difficulties”, but there is not yet any uniform opinion on what is “operation and management of the company is confronted with severe difficulties”. More diversified opinions are seen on whether the company’s operating loss is an essential condition for determining whether “operation and management of the company is confronted with severe difficulties”. However, the No. 8 guiding case on company dissolution of Lin Fangqing v. Kailai Industrial Co., Ltd. of Changshu City and Dai Xiaoming announced by the Supreme People’s Court on April 9, 2012 provided an explicit answer.

In this case, the plaintiff and the defendant each holds 50% shares in the company while one is legal representative and the other is general manager of the company. Pursuant to articles of association of the company, resolution of shareholders’ meeting shall be passed by shareholders representing no less than 1/2 voting rights and special matters shall be passed by shareholders representing no less than 2/3 voting rights. After four years as of establishment of the company, conflicts between the two shareholders emerged. The plaintiff required holding of a shareholders’ meeting for many times but was in vain. The court found during the hearing that there was not any shareholders’ meeting from 2006 to 2009. The plaintiff requested to dissolve the company but the defendant claimed that the company operated well and did not conform to conditions as required for company dissolution.

Jiangsu Suzhou Intermediate People’s Court rendered a judgement to dismiss the plaintiff’s claim in December 2009 while Jiangsu Higher People’s Court revoked such judgement in October 2010 and lawfully rendered a judgment to dissolve the company in question. This case was approved by the Adjudication Commission of the Supreme People’s Court through discussions to be announced as the No.8 Guiding Case.

When announcing this case, the Supreme People’s Court expressly points out that operating condition of a company’s organizational structure should be generally analyzed in order to determine “whether the operation and management of the company is confronted with severe difficulties”. Despite the fact that the company is making profits, “the operation and management of the company is confronted with severe difficulties” could be determined in the event the company shareholders’ meeting institution is out of function for a long time and the company’s internal management suffers from serious impediment and comes to a deadlock.

Whether or not the company is profiting is not a precondition for the court to determine whether “operation and management of the company is confronted with severe difficulties”. Operation of the company’s organizational structure, i.e. whether operation of the company shareholders’ meeting and board meeting is in a stalemate and whether effective resolutions thereof could be achieved at such meetings, shall be considered as a substantial indicator in determining whether “operation and management of the company is confronted with severe difficulties”.

Additionally, attention shall be attached to the point that “operation and management of the Company is confronted with other severe difficulties and continuance of the company’s existence may cause material losses to the interest of the shareholders” as prescribed under Judicial Interpretations (II) of Company Law is also a statutory ground whereby shareholders of a company could claim for dissolution of the company. However, this guiding case does not provide an answer on which circumstance falls within the scope of “operation and management of the Company is confronted with other severe difficulties and continuance of the company’s existence may cause material losses to the interest of the shareholders”, such answer requires further probe in the judicial practice.

(The author’s contact information: baileyxu@hllawyers.com)

Solutions to Dispute over Trademarks with the Same Name—A Case Study on “the Narrow Escape of LVMH from Becoming A Cooking Pot Trademark”

[Case Brief]

The plaintiff Louis Vuitton Mo?t Hennessy (hereinafter referred to as “LVMH Group”) registered the “LVMH” trademark on October 17, 2001 in Class 14 of Goods: “precious metals and their alloys and goods made out of precious metals or coated therewith, such as art works made out of precious metal, goods made out of gold or silver (excluding tableware knives, forks and spoons)” (hereinafter referred as the “Cited Trademark”).

On April 10, 2002, Hong Kong Newera Enterprises Co., Ltd. (hereinafter referred to as “Newera”) applied to register the trademark “LVMH” in Class 21 of Goods: “a set of cooking pots and other kitchen utensils” (hereinafter referred to as the “Disputed Trademark”).

LVMH Group had filed an opposition application with regard to the Disputed Trademark during the preliminary approval and publication by the Trademarks Office. The Trademarks Office later granted an approval on registration of the Disputed Trademark by Newera. LVMH Group disagreed with the decision of the Trademarks Office and thus filed an application for re-assessment of the Disputed Trademark with the Trademark Office Review Board (hereinafter referred to as “Review Board”) which later determined that (1) the designated goods carrying the two trademarks are not similar and the two trademarks do not constitute identical trademarks used on similar goods; (2) the evidence produced by LVMH Group is neither sufficient to prove and cite that the registered trademark it holds has already become well known to the public in China and enjoyed high reputation before the registration of the Disputed Trademark nor sufficient to prove that “LVMH”, as the trade name of LVMH Group or its subsidiaries, has already enjoyed high visibility, therefore registration of the Disputed Trademark by Newera could not be judged as having impaired the exclusive right to use the well-known trademark “LVMH” or the trade name right of LVMH Group or its subsidiaries; (3) the evidence filed for the case could not prove that the Disputed Trademark is in violation of relevant provisions on good faith as prescribed under Article 41.1 and Article 10.1 (8) of the Trademark Law. In view of the above, the Review Board granted an approval on registration of the Disputed Trademark by Newera in 2010. In the same year, LVMH Group filed a lawsuit against the Review Board with the court for revocation of the said decision by the Review Board.

In December 2011, the court of first instance ruled after hearing that the trademarks with the same name of “LVMH” used by the two companies were both in foreign language “LVMH” without any specific meaning but with the same character style and hence should be determined as identical marks. With respect to the goods approved to bear the trademarks, although their raw materials differed, but their function, purpose, target consumers, etc. bear relatively high relevance and hence should be determined as similar goods. The trademark applied to be registered by Newera and the registered trademark held by LVMH Group are identical, which is prone to mislead and confuse relevant consumers. Therefore, the court ruled to support the plaintiff’s claim and repeal the previous decision of the Review Board.

[Lawyer’s Analysis]

One of the highlights of this case is cross-class protection of trademarks.

For cross-class protection of trademarks, Article 13 (2) and Article 31 of the Trademark Law have explicit provisions on prohibition of reproduction and imitation of other holders’ well-known trademarks and of infringement on other holders’ pre-existing tradename rights. But as for the present judicial practices, requirement for recognition of well-known trademarks is very strict while trademark dispute duration generally is of quite long duration (e.g. it has been more than ten years since occurrence of the LVMH case). As a result, the pressure of the plaintiff striving to prove that the trademark it holds is a well-know trademark is unimaginably huge with respect to evidence collection and proof production.

However, is the cross-class protection of trademarks feasible only when the trademark is proved as well-known trademark The answer is definitely no. Pursuant to Article 28 of the Trademark Law, if a trademark for which a registration application is filed is identical or similar to another’s trademark that has been registered or preliminarily approved for use on the same or similar goods, the Trademark Office shall reject the application and refuse the publication. However, can the goods be determined as goods not similar with one another on the sole ground of classification of the goods The answer is no. For example, in the administrative proceeding case of “Plover” trademark dispute [(2011) Zhi Xing Zi No.37], the Supreme People’s Court held that the Distinction between Similar Goods and Services may serve as a reference for judging on whether goods or service is similar but shall not be rigidly or simply used as distinction basis or standards. The comparison of similarity between goods shall be made based on actual circumstances on a case-by-case basis. Pursuant to the provisions of the Interpretation of the Supreme People’s Court on Certain Issues Concerning the Application of Law in the Trial of Civil Cases Involving Trademark Disputes, comparison of similarity of goods shall be made from perspectives of function, purpose, production department, sales channel, target consumers, etc. or from the perspective whether the public generally believe that the goods have a particular association between each other and whether confusion could easily be caused.

In the LVMH case, the court supported the claim of LVMH Group on the ground that the two kinds of goods bear relatively high relevance in the aspects of function, purpose, target consumers, etc., which are prone to mislead and confuse the consumers.

Therefore, in dispute over trademarks with the same name, companies holding well-known trademarks should not only demonstrate the popularity of their trademarks but also pay attention to the similarity between of the goods bearing the trademarks with the same name with respect to function, purpose, production department, sales channel, target consumers, etc.

(The author’s contact information:celinechen@hllawyers.com)

Legal Liabilities Arising from Failure to Renew Labour Contracts on a Timely Basis upon Expiry

In March 2007, A (employee) started working for B (employer). In early 2012, the labour contract renewed by A and B expired, but this time B failed to renew such labor contract with A for reasons attributable to B while A did not raise any objection in this respect and continued working for B. Recently, B found that the labor contract with A had already expired and hence intended to unilaterally dismiss A. B consulted the author about the legitimacy and feasibility of such proposed dismissal.

The author supposes that the above issues bothering B can be analyzed from the following three perspectives: 1) Is B able to unilaterally dismiss A under the present circumstances 2) What liabilities shall be borne by B arising from its failure to renew the labor contract with A in a timely manner 3) What action shall B take to prevent further legal risks

The Interpretation on Certain Issues Concerning Application of Laws in Trying Cases Involving Labor Disputes (Fa Shi [2001] No.14) promulgated by the Supreme People’s Court in 2001 (hereinafter referred to as “Interpretation”) and the Notice on Identification of Labor Relationship (Lao She Bu Fa [2005] No.12) promulgated by the Ministry of Labor and Social Security in 2005 (hereinafter referred to as “Notice”) both confirm that employer may unilaterally terminate labour contracts with employee under the circumstance of de facto labour relationship. However, the foregoing confirmation as established under the Interpretation and Notice is, in essence, in conflict with the Labour Contract Law promulgated in 2008, despite of the fact that the Interpretation and Notice have not been declared nullified so far. Pursuant to the Labour Contract Law, unilateral termination of the labour contract by the employer shall satisfy certain conditions prescribed under applicable laws. It will put the employees in a very disadvantaged circumstance if the employer is entitled to the right to unilaterally terminate labour contracts under the circumstance that employer failed to sign a new labour contract in writing with employee due to reasons attributable to employer itself.

Therefore, the author supposes that whether an employer is able to unilaterally terminate the contract or not will depend on specific circumstances: 1) if the employer fail to sign written labour contracts with employee due to reasons attributable to the employer itself and the employer requires unilateral termination of the de facto labour relationship with employees without justified cause, then dismissal of employee will probably be deemed as illegal dismissal by the employer; 2) if the employer intends to make up for renewal of labour contracts with employee but the employee refuses on such renewal, then employer may unilaterally dismiss the employee on the ground that the employee is reluctant to sign written labour contracts. Under such circumstance, the employer shall pay economic compensations to employee based on service term of such employee; 3) if the employer intends to renew labour contracts in a timely manner but the employee refuses on such renewal and on continuance in performance of labour relationship. The foregoing refusal by the employee shall be deemed that the employee unilaterally terminates labour contract. Under such circumstance the employer shall pay remunerations to the employee for their actual service term but is not obligated to pay any economic compensation; 4) if any circumstance whereby termination of a labour contract could be made in accordance with the Labour Contract Law occurs during the service period of the employee, the employer may rescind or terminate the labour relationship with employees accordingly.

With respect to the legal liabilities arising from the employer’s failure to renew labour contracts upon expiration, in addition to obligation of the employer to renew the labour contract, the employer is subject to Article 82 of the Labor Contract Law which further prescribed that “where an employer fails to conclude a written labor contract with an employee for more than a month but less than a year from the date the employee starts working for the employer, the employer shall pay to the employee two times his or her salary for each month without having a labour contract in writing”. However, there are some disputes in judicial practices with regard to the phrase “from the date the employee starts working for the employer”. Some holds that “the date the employee starts working for the employer” refers to the first day when the employer and the employee establish labour relationship, therefore the Article 82 of the Labour Contract Law is not applicable to the circumstance of renewing a labour contract; while others claim that labour contracts shall be renewed immediately upon expiration if the employer wish to maintain employment with the employee, thus the day immediately following expiration date of the labour contract also falls into the scope of “the date employee starts working for the employer”; if the labour contract is not renewed within one month after expiration thereof, the employer shall pay employee two times of salary for each month without having a labour contract in writing pursuant to Article 82 of the Labor Contract Law. The author is in favour of the later, i.e. where the employer fails to conclude a new written labour contract with employee for more than a month but less than a year as of expiration date of previous labour contract, the employers shall pay employee two times of salary for each month without having a labour contract in writing.

The author supposes that, employer shall timely track on term of labour contracts with employees, employees’ intents on renewal of labour contracts and other pertinent information in order to avoid such issues as failure to renew labour contracts in a timely manner due to employers’ negligence. If any of such issues has already occurred, the employer shall communicate with employees on a bona fide basis and issue written requests to employees to make up for the renewal; if the employees refuse on the renewal, the employer may terminate the labour relationship with employees by sending a prior written notice, and pay economic compensations pursuant to Article 47 of the Labor Contract Law; and if employees refuse to sign written labour contracts with the employer and, at the meanwhile, discontinue the performance of labour relationship with the employer, the employer may terminate the labour relationship without paying any economic compensations. For all the above matters, the author suggests all the documents should be signed and accepted by employees in writing or sent to employees by registered mail in order to preserve relevant evidence favourable to the employer.

In the end of this passage, the author would like to remind the readers of the fact that different cities or regions may have different policies on renewal of labour contracts. If this case takes place in Shanghai, the employer may request the employee to sign a fixed-term labor contract when making up for renewal of the labor contract with the employee; but if in Beijing, the employer can only request the employee to make up for a labour contract with an open end since the employee has already signed successively two fixed-term contracts with the employer.

(The author’s contact information:kevincheng@hllawyers.com)

◆ Chongqing Office Column

Case Interpretation: May “International Investment” Be Used in A Company Name

[Case Brief]

During incorporation process of a company, investor of the company intended to name the company as “XX International Investment Co., Ltd.” while the handling personnel at the administration for industry and commerce replied that the name containing “International” could not be approved and should be removed from the company name in order to pass the examination. The handling personnel further explained, pursuant to Article 10.2 of the Implementing Measures on Administration of Enterprise Name Registration (hereinafter referred to as “Implementing Measures”), an enterprise may use “国际” (International), and other characters in its name, only if such characters are used as determiners for that specific sector, but in fact there is not such sector as “International Investment”

The investor was very confused and argued why “International Investment” was not a sector since there were many companies specializing in international investment. The investor added, the company was to engage in international investment and cooperative activities and the business of the proposed company would be hindered without the word “International” in its name.

[Interpretation]

Preapproval of a company’s name is a relatively simple procedure but a primary procedure for investors in a company’s incorporation process. A temporary account used for capital contribution and verification could be opened and the prior approval (if any) required for company incorporation could be applied for only after the company name is pre-approved. Therefore, pre-approval procedure of a company name is of great significance to company incorporation; in particular, investors would be bothered in the event that a company name most favoured by him or her cannot be approved.

With regard to the feasibility of “International Investment” to be used in the company name in question, there are two different opinions:

One dominant opinion is put forward by administration for industry and commerce handling this company name pre-approval procedure (hereinafter referred to as “AIC”). According to AIC, “International Investment” is not an independent sector but such sectors as international tourism and international freight forwarding each is an independent sector, therefore the AIC could grant approval on “International Tourism Co., Ltd.” and “International Freight Forwarding Co., Ltd.” but not “International Investment Co., Ltd.”. Judging from this, if “International Investment” could be approved, it could lead to the conclusion that all enterprises may have “International” covered under their names, if there is not any restriction

Another opinion is that although “International Investment” is not an independent sector listed in the Standards for the Categorization of Industries of the National Economy but “investment” is a sector. Article 10.2 of the Implementing Measures prescribe that an enterprise may use “中国”(China), “中华”(China), “全国”(National), “国家”(State), “国际”(International) and other characters in its name, only if such characters are used as determiners for specific sector. Based on the foregoing, “International” could be understood as a determiner for the sector of “investment” and thus should be approved.

Both of the above two opinions make certain sense from their own perspectives . At present, there are many regional AIC that have approved enterprise names containing “International Investment (Shares) Co., Ltd.”, while some explicitly rejects inclusion of such “International Investment” and AIC in some area conduct pre-approval of enterprise name containing “International” on the basis of opinions from the leader. Therefore diversified opinions are seen among AICs in different regions with respect to approving enterprise name with the word “International”. However, provisions of the Measures that “International” and other words used in enterprise names shall be used as determiners of specific sectors are much too simple and general and are prone to cause misunderstanding and ambiguities in practices. Therefore, further clarification from competent AIC is required.

(The author’s contact information: garyjia@hllawyers.com)

Legal Review: Is A Contract Sealed by Only One Party Formed

[Case Brief]

A Chongqing Company concluded a “sales contract” with a Shandong Company, covenanting that 20% of the total contractual amount should be made in advance and the remaining amount should be settled upon arrival of goods.

After the Chongqing Company mailed the contract in two originals to the Shandong Company, business personnel from the Shandong Company replied: affixation of seal could not be realized for the time being as the management personnel was on a business trip; the payment would promptly be made and please deliver the goods immediately upon receipt of the payment. After receiving the advance payment, the Chongqing Company immediately arrange delivery of the goods to the Shandong Company. The Shandong Company rejected to accept the goods and pay the remaining amount, claiming that the contract was not formed on the ground that the contract was not sealed by the Shandong Company. What’s more, the Shandong Company further requested the Chongqing Company to return the advance payment.

As inquired by the Chongqing Company, is this kind of sales contract formed

[Legal Review]

Circumstances similar with the foregoing are commonly seen in cross-region transactions. Since there is a spatial distance between the transactional parties, formalities for signing and sealing a contract usually take a long time, which gives rise to occurrence of the circumstance whereby the transaction parties have already started performance of their contract (including making advance payment, delivering goods, etc.) despite the absence of one party’s seal on the contract.

With regard to whether the contract is formed, there are two different opinions:

The first opinion: pursuant to Article 37 of the PRC Contract Law, “if, in making a contract in the form of a contract instrument, a party has already performed the major obligations and the other party has accepted the performance before signature or sealing by the parties thereunto, the contract shall be considered as formed”. In a word, even if the sales contract in dispute has not been executed, but the advance payment made by the Shandong Company and the goods delivered by the Chongqing Company are sufficient to prove that the two parties were willing to accept such sales contract. It is just a matter of procedure with regard to signature and seal on the contract, but real intent of both parties shall matters.

The second opinion: the Shandong Company made the advance payment which was accepted by the Chongqing Company, but such advance payment accounted for a rather small portion of the contractual amount, thus it could not be deemed that the Shandong Company had performed major obligations under the sales contract. Therefore, the aforesaid legal provisions could not be applied to this case.

Another key issue of this case is that the Chongqing Company could hardly prove the contents of the phone call made by the business personnel of the Shandong Company.

To sum up, although there is probably a reason behind the fact that performance takes precedence of signing and sealing of a contract, potential risk of such practice could be endless. Different jurists and judges hold different opinions in this regard, which leads to uncertainties on result of cases involving this kind of issue and even could bring forth the circumstance of “the same cases end up with different rulings”. Enterprises should try their best to avoid this kind of risk. In this case, if the Chongqing Company is desirous to realize sales in a flexible manner, it may request the business personnel of the Shandong Company to confirm the contract contents by manners which are easy for evidence collection, such as emails. By doing so, the Chongqing Company could realize sales and, at the meanwhile, prevent potential risks.

(The author’s contact information: garyjia@hllawyers.com)