Corporate Lending Dispute

Shanghai Oubao Biotechnology Co., Ltd. v. Liaoning Trevi Real Estate Development Co., Ltd. for Corporate Lending Dispute
(Issued on September 19, 2016, as deliberated and adopted by the Judicial Committee of the Supreme People's Court)
Keywords civil action; corporate lending; sham litigation

Key Points of Judgment
When a people's court trying a civil case suspects that it is sham litigation, it should subpoena relevant evidence in its capacity, question the parties in details, and fully and strictly examine any inconsistency between the claims and the relevant evidence and any violation of common sense in the statements and conduct of the parties. Where a conclusion is reached upon full examination that the parties engage in sham litigation by fabricating facts, maliciously colluding, and circumventing laws or state policies to seek illegal benefits, the people's court should punish the parties according to the law.

Legal Provisions
Article 112 of the Civil Procedure Law of the People's Republic of China

Basic Facts
Plaintiff Shanghai Oubao Biotechnology Co., Ltd. (hereinafter referred to as “Oubao Company”) alleged that: Oubao Company lent 86.5 million yuan to Liaoning Trevi Real Estate Development Co., Ltd. (hereinafter referred to as “Trevi Company”) for the latter's development of the real estate project of Trevi International Garden in Donggang City, Liaoning Province. Upon maturity of the loan, Trevi Company refused to repay the loan. Therefore, Oubao Company requested the court to order that Trevi Company repay the loan principal of 86.5 million yuan with interest thereon.
Trevi Company pled that: It recognized the facts in the action initiated by Oubao Company and the loan was fully invested in the real estate project of Trevi International Garden. Since the sale of the properties was slow, it was temporarily incapable of repaying the principal with interest thereon.
The petitioner for retrial, Xie Tao, stated that by fabricating debts, Trevi Company and Oubao Company maliciously infringed upon his lawful rights and interests, and requested the court to find facts and punish them according to the law.
The court found that: From July 2007 to March 2009, Oubao Company and Trevi Company concluded nine Loan Contracts, under which Trevi Company borrowed a total of 86.5 million yuan from Oubao Company with an interest rate of four times the lending rate in the same year. Both parties agreed that the loans should be only used for the real estate project of Trevi International Garden. After signing the loan contracts, Oubao Company made ten remittances, amounting to 86.5 million yuan. However, on the day of or after receiving such remittances, Trevi Company promptly transferred six of them, over 70.5 million in total. Five of them were transferred to Shanghai Hanhuang Industrial Development Co., Ltd. (hereinafter referred to as “Hanhuang Company”), over 64 million yuan in total. During the action instituted by Oubao Company against Trevi Company for repayment, Oubao Company still made three transfers to Trevi Company, 3.6 million yuan in total.
The legal representative of Oubao Company was Zong Huiguang, and Qu Yeli held 73.75%, Jiang Wenqi held 2%, and Zong Huiguang held 2% of the equities of the company. The original legal representative of Trevi Company was Wang Zuoxin, and Hanhuang Company held 90% and Wang Yang held 10% of the equities of the company. On August 16, 2010, the legal representative of Trevi Company was changed into Jiang Wenqi. According to the records at the industrial and commercial authorities, when Trevi Company underwent the modification registration, it was Liu Jingjun that signed for the business license, and Liu Jingjun represented Oubao Company in the original trial as an employee of Oubao Company. Hanhuang Company was formed on March 26, 2002, and Wang Zuoxin was its legal representative. Its predecessor was Shanghai Trevi Cosmetics Co., Ltd., in which Wang Zuoxin held 67% of equities and Qu Yeli held 33% of equities. On October 28 of the same year, Qu Yeli transferred her equities to Wang Yang. On October 10, 2004, Shanghai Trevi Cosmetics Co., Ltd. was renamed Hanhuang Company, and Zong Huiguang was authorized to handle company registration and other formalities. On July 5, 2011, Hanhuang Company was deregistered. Wang Zuoxin and Qu Yeli were husband and wife.
In the original trial, on June 22, 2010, Oubao Company filed an application for property preservation with the Higher People's Court of Liaoning Province (hereinafter referred to as the “HPC of Liaoning”), requesting the HPC of Liaoning to seize, impound, and freeze Trevi Company's property worth 58.5 million yuan. Wang Yang provided security for Oubao Company with her two properties located in Macao Road, Heping District, Shenyang City, Liaoning Province, each with a gross floor area of 236.4 square meters. Wang Zuopeng provided security for Oubao Company with his property with a gross floor area of 671.76 square meters located in Middle Ningshan Road, Huanggu District, Shenyang City. Shenyang Shaqi Cosmetics Co., Ltd. (hereinafter referred to as “Shaqi Company,” whose shareholders included Wang Zhenyi and Xiu Guifang) provided security for Oubao Company with its two workshops with the gross floor areas of 212 square meters and 946 square meters and a tract of land with a usable floor area of 4,000 square meters located in Xiaoyang'an Village, Baita Township, Dongling District, Shenyang City.
As recorded in the Application Forms for Opening Bank Settlement Accounts for Entities completed by Oubao Company and Trevi Company, the addresses were the same: No. 1, Xinxing Road, Donggang City, and the authorized persons were the same too, Cui Xiufang. During the retrial, Xie Tao submitted to the HPC of Liaoning a civil judgment (No. 426 [2008], Final, Civil DivisionIII, No. 1 IPC, Shanghai) of the No. 1 Intermediate People's Court of Shanghai Municipality for a case where Zhang Ezhen and Jia Shike sued against Hanhuang Company and Oubao Company for dispute over a franchising contract. As listed in the judgment, the legal representative of Hanhuang Company was Wang Zuoxin, and both Oubao Company and Hanhuang Company were represented by Zong Huiguang, an employee of Hanhuang Company.
In the trial upon appeal, it was also found that:
Facts on the relationship between Oubao Company and Trevi Company
As showed in the records at the industrial and commercial authorities, Shenyang Trevi Cosmetics Chain Co., Ltd. (hereinafter referred to as “Shenyang Trevi”) was formed on March 15, 2000. Oubao Company held 96.67% of its equities, and Zong Huiguang was the person in charge of its formation. The registered place of business of Shenyang Trevi was a place leased from Shenyang Danfei Professional Skin Care Center, whose person in charge was Wang Zhenyi. On December 23, 2005, Wang Zuoxin, the former legal representative of Trevi Company, signed on behalf of Oubao Company a chain (franchise) contract with a non-party to this case, Zhang Ezhen. On February 28, 2007, on behalf of Trevi Company, Huo Jing signed a Supplementary Agreement on the construction of the project of Trevi International Garden with Shi'an Construction Group Co., Ltd. (hereinafter referred to as “Shi'an Company”). In May 2010, as authorized by Trevi Company, Wei Yali opened a bank account for the company. In September 2011, she also opened a bank account on behalf of Oubao Company. The contact persons registered for both accounts were Wei Yali, and the contact phone numbers were also identical with that of Trevi Company stated in the civil complaint submitted by Oubao Company to the HPC of Liaoning on June 10, 2010.
On September 3, 2010, in a Reply sent by Oubao Company to the HPC of Liaoning, it agreed to provide the property worth 200 million yuan with a floor area of 12,026.91 square meters located at 332 Suhong Highway, Qingpu District, Shanghai Municipality as security for its application for property preservation. In court, Oubao Company acknowledged that the aforesaid property was owned by Shanghai Trevi Skin Care Products Co., Ltd. (hereinafter referred to as “Shanghai Trevi”). Shanghai Trevi was formed on December 9, 2002, its legal representative was Wang Zuoxin, and its shareholders included Wang Zuoxin; Wang Yang and Zou Yan, who were also shareholders of Hanhuang Company; Zong Huiguang, Jiang Wenqi, and Wang Qi, who were also shareholders of Oubao Company. Wang Yang was a director, Zong Huiguang was the vice chairman of the board and deputy general manager, Wang Qi was the deputy general manager, and Huo Jing was a director, of Shanghai Trevi.
On April 20, 2011, Oubao Company filed an application with the HPC of Liaoning for the enforcement of a civil judgment (No. 15 [2010], First, Civil DivisionII, HPC, Liaoning), and on the same day, the HPC of Liaoning registered the case for enforcement. On July 12 of the same year, Oubao Company submitted to the HPC of Liaoning a written application, stating that: “In order to recover funds as soon as possible and reduce the Company's losses, upon consultation with the judgement debtor, the Company will allow it to sell the remaining properties of the project; however, the payments must be collected by the financial personnel assigned by the Company and be deposited in the account designated by the Company.” On September 6, 2011, the HPC of Liaoning issued a Notice of Assisting in Enforcement to the Real Estate Management Office of Donggang City, requiring the Office to directly register the transfer of the aforesaid properties to the buyers, not parties to this case, because the relevant seized properties had been delivered to the enforcement applicant for setoff of debts.
After Oubao Company applied for enforcement, in addition to Xie Tao, other creditors of Trevi Company, including Shi'an Company, Jiangxi Linchuan Construction and Installation Engineering Corporation, and Donggang Qianyang Construction and Installation Engineering Corporation, also reported sham litigation based on fabricated debts between Oubao Company and Trevi Company to the HPC of Liaoning by submitting objections to enforcement and other means.
Members of the liquidation group of Hanhuang Company included Wang Zuoxin, Wang Yang, and Jiang Wenqi, and Wang Zuoxin was the head of it. The liquidation group notified all creditors within ten days of its formation, and on May 14, 2011, published a deregistration notice on Shanghai Business Daily. On June 25, 2012, Wang Zuoxin transferred 16 million yuan equities of Trevi Company held by Hanhuang Company to Wang Yang, and 2 million yuan equities to Zou Yan. On July 9, 2012, the modification registration was conducted with the industrial and commercial authority.
The shareholders of Shaqi Company, Wang Zhenyi and Xiu Guifang, were Wang Zuoxin's father and mother; Wang Ge, a shareholder of Oubao Company, was the daughter of Wang Zuopeng, elder brother of Wang Zuoxin; and Wang Zuoxin and Wang Yang were brother and sister.
2. Facts on fund transfers between Oubao Company and companies involved
For Oubao Company's account with last digits of 8115 (hereinafter referred to as “Oubao Company's account of 8115”), its transaction details from January 4, 2006, to September 29, 2011, showed that mutual fund transfers between Oubao Company and Trevi Company started from March 8, 2006. On March 8, 2006, 3 million yuan was transferred from Oubao Company's account of 8115 to Trevi Company's account with last digits of 4891 (hereinafter referred to as “Trevi Company's account of 4891”), and the purpose noted was “loan.” On June 12, 2006, 8.01 million yuan was transferred from the account to Trevi Company. From August 16 to 23, 2007, almost 70 transfers were made from Trevi Company's account to Oubao Company's account of 8115, and the purpose noted was mostly “payment for goods.” From January 4, 2006, to September 29, 2011, there were transfers in large amounts between the account and the accounts of Shaqi Company, Shenyang Trevi, Hanhuang Company, and Shanghai Trevi, and the purpose noted was mostly “payment for goods” or “loan.”
For Oubao Company's account with last digits of 0357 opened with Donggang Sub-branch of China Construction Bank, its transaction details from August 31, 2010, to November 9, 2011, showed that: On September 15 and 17, 2010, Oubao Company deposited 1.68 million yuan and 1 million yuan in cash in the account respectively; on September 30, 2010, a project payment of 1 million yuan was made out of the account to Donggang Anbang Real Estate Development Co., Ltd.; on September 30, 2010, 1 million yuan was transferred from Trevi Company's account with last digits of 0549 into the account, and on August 22, August 30, and September 9, 2011, 716,985 yuan, 514,841 yuan, and 623,495 yuan were transferred from Trevi Company's account of 0549 into the account; on November 4, 2011, 845,567.87 yuan was transferred from Trevi Company's account with last digits of 5555 (hereinafter referred to as “Trevi Company's account of 5555”) into the account in the name of “court garnishment”; on September 27, 2011, 1,935,000 yuan was transferred into Oubao Company's account of 8115 in the name of “transaction payment,” and on November 9, 2011, 1,579,950 yuan was transferred into Oubao Company's account with last digits of 4548 (hereinafter referred to as “Oubao Company's account of 4548”).
Oubao Company's account with last digits of 5617 opened with Qingpu Sub-branch, Shanghai Branch of Industrial and Commercial Bank of China showed that on July 12, 2012, 500,000 yuan was transferred out of the account to Trevi Company in the name of “loan.”
The transaction details of Oubao Company's account with last digits of 4548 opened with Maluwan Sub-branch, Shenyang Branch of China Construction Bank from October 7, 2013, to February 7, 2015, showed that from January 20, 2014, funds transferred by Trevi Company to this account mostly in the name of “repayment” were transferred again to Wang Zuopeng's personal account and Shanghai Trevi's account mostly in the name of “repayment.”
The transaction details of Hanhuang Company's account with last digits of 4917 opened with Shanghai Branch of China Construction Bank (hereinafter referred to as “Hanhuang Company's account of 4917”) from January 5, 2006, to January 14, 2009, showed that 6.05 million yuan was transferred from Trevi Company's account of 4891 to the account on July 7, 2008, and on the same day, Hanhuang Company transferred the same amount from the account to Trevi Company's account of 5555. The fund transferred from Hanhuang Company to Trevi Company was included in the loan borrowed by Trevi Company, but was not included in the repayment made by Trevi Company to Hanhuang Company. There were also fund transfers in the name of “loan” or “transaction payment” between this account and accounts of Oubao Company and Shaqi Company over the same period.
The transaction details of Trevi Company's account of 5555 from June 7, 2006, to September 21, 2015, showed that on July 2, 2009, 6 million yuan was remitted from the account to Oubao Company's account with last digits of 0801 in the name of “transfer withdrawal”; and from November 4, 2011, to December 31, 2014, more than 30 transfers occurred from the account to Oubao Company's accounts. Particularly, on December 20, 2012, 18 million yuan was transferred into Oubao Company's account of 4548, the largest transfer. In addition, from November 13, 2009, to July 19, 2010, many transfers occurred from the account to Shaqi Company's account in the name of “loan.”
The transaction details of Shaqi Company's account with last digits of 6312 opened with Heping Sub-branch, Shenyang Branch of China Everbright Bank from November 13, 2009, to June 27, 2011, showed that certain funds transferred from Trevi Company to Shaqi Company were transferred back to other accounts of Trevi Company in the name of “transaction payment” or “loan.” For example, on November 13, 2009, 38 million yuan was transferred from Trevi Company's account of 5555 to Shaqi Company in the name of “loan,” but on December 4, 2009, 38 million yuan was transferred back to Trevi Company's another account with last digits of 8361 (hereinafter referred to as “Trevi Company's account of 8361”) in the name of “transaction payment”; on February 3, 2010, 48.27 million yuan was transferred from Trevi Company's account of 8361 to Shaqi Company's account in the name of “transaction payment,” but on February 10, Shaqi Company transferred 5 million yuan to Trevi Company's account of 5555 in the name of “loan” and 19.3 million yuan to Trevi Company's account of 4891 in the name of “remittance”; on March 31, 2010, Shaqi Company transferred 10 million yuan to Trevi Company's account of 8361 in the name of “transaction payment”; and on April 12 of the same year, Shaqi Company transferred 18.06 million yuan to Trevi Company's account of 8361 in the name of “intra-system transfer.” Certain funds transferred from Trevi Company to Shaqi Company flowed into Shenyang Trevi's account. For example, on May 6, 2010, 10 million yuan was transferred to Shenyang Trevi in the name of “loan,” and on July 29 of the same year, 22.72 million yuan was transferred to Shenyang Trevi in the name of “transfer.” In addition, Oubao Company transferred some funds to this account in the name of “transaction payment.”
Both Oubao Company and Trevi Company acknowledged that Oubao Company's account of 4548 and account with last digits of 0357 opened with Donggang Sub-branch of China Construction Bank were controlled by Wang Zuoxin.
Judgment
On March 21, 2011, the HPC of Liaoning entered a civil judgment (No. 15 [2010], First, Civil DivisionII, HPC, Liaoning) that: Trevi Company should, within ten days after the judgment took effect, repay Oubao Company the loan principal of 86.5 million yuan with interest calculated at the lending rate of the People's Bank of China over the same period from the dates of actual occurrence of the loans to the date of repayment determined in the judgment. After the judgment came into force, Xie Tao, not a party to this case, lodged a petition for retrial, and on January 4, 2012, the HPC of Liaoning entered a civil ruling (No. 8 [2012], Civil, Trial Supervision, HPC, Liaoning) to permit a retrial of the case. Upon retrial, on May 20, 2015, the HPC of Liaoning entered a civil judgment (No. 13 [2012], Civil, Retrial, HPC, Liaoning) to dismiss Oubao Company's claims. Oubao Company appealed. On October 27, 2015, the No. 2 Circuit Court of the Supreme People's Court entered a civil judgment (No. 324 [2015], Final, Civil DivisionII) to determine the case as sham civil litigation, dismiss the appeal, sustain the original judgment, and fine Oubao Company and Trevi Company for sham litigation each in the amount of 500,000 yuan.
Judgment's Reasoning
In the effective judgments, the courts held that a people's court should, while protecting legal loan relationships, legally punish those colluding to harm the lawful rights and interests of others by sham litigation. The dispute in this case focused on whether there was any affiliation between Oubao Company and Trevi Company and whether there was a true loan relationship between Oubao Company and Trevi Company regarding 86.5 million yuan in question.
1. Whether there was any affiliation between Oubao Company and Trevi Company
Article 217 of the Company Law of the People's Republic of China provided that: “The term ‘affiliation' refers to the relationship between the controlling shareholder, the actual controller, a director, a supervisor, or senior executive of a company and an enterprise directly or indirectly controlled by the controlling shareholder, actual controller, director, supervisor, or senior executive of the company and any other relationship that may lead to the transfer of any interest of the company.” As one may see, the affiliated companies as mentioned in the Company Law included not only the cross shareholding of the shareholders of a company, but also other relationships that may result in interest transfer such as the direct or indirect joint control of a company and others by a third party and the lineal blood relations, relations by marriage, or joint investment among shareholders or among actual controllers of a company.
In this case, Qu Yeli was the controlling shareholder of Oubao Company, and Wang Zuoxin was the former legal representative of Trevi Company and the controlling shareholder and legal representative of Hanhuang Company that controlled Trevi Company in the conclusion of the contracts involved. Wang Zuoxin and Qu Yeli were husband and wife, which explained that Oubao Company and Trevi Company were controlled by the couple. Oubao Company alleged that Wang Zuoxin and Qu Yeli had been divorced, but failed to submit the divorce registration paper of the civil affairs department or the effective legal document of the people's court. After the HPC of Liaoning accepted the lawsuit, the legal representative of Trevi Company was changed from Wang Zuoxin to Jiang Wenqi, but Wang Zuoxin was still the actual controller of Trevi Company. In the meantime, Zong Huiguang, shareholder and legal representative of Oubao Company, Wang Qi, and other shareholders thereof, Wang Zuoxin, actual controller of Trevi Company, Jiang Wenqi, legal representative of Trevi Company, and Wang Yang, the current controlling shareholder of Trevi Company, jointly invested in and formed Shanghai Trevi, meaning that there was other common interest relationship between the shareholders of Oubao Company and the controlling shareholder and actual controller of Trevi Company. Oubao Company controlled Shenyang Trevi, and Wang Zuoxin's parents were shareholders of Shaqi Company. It was clear that there were affiliations between Oubao Company and Trevi Company and between the two companies and Shaqi Company, Shanghai Trevi, and Shenyang Trevi.
There were also personnel commingled between Oubao Company and Trevi Company and other affiliated companies. First, senior executives were commingled. Jiang Wenqi was shareholder and director of Oubao Company and legal representative of Trevi Company, and also participated in the liquidation of Hanhuang Company. Zong Huiguang was legal representative of Oubao Company and an employee of Hanhuang Company. Oubao Company alleged that Zong Huiguang resigned from Hanhuang Company in May 2008, but the facts found in the civil judgment (No. 426 [2008], Final, Civil DivisionIII, No. 1 IPC, Shanghai) of the No. 1 Intermediate People's Court of Shanghai Municipality showed that during the trial of the case from August to December 2008, Zong Huiguang still participated in the litigation as an employee of Hanhuang Company. Wang Qi was a supervisor of Oubao Company and a director of Shanghai Trevi, and also represented Shanghai Trevi in administrative litigation as an employee of Shanghai Trevi. Wang Yang was a supervisor of Trevi Company and a director of Shanghai Trevi. Wang Zuoxin was the former legal representative and actual controller of Trevi Company, and on behalf of Oubao Company and Hanhuang Company, signed chain (franchise) contracts with non-parties to this case. Second, regular employees were also commingled. Huo Jing was an employee of Oubao Company and represented Oubao Company in the original trial of this case. On February 23, 2007, on behalf of Trevi Company, she signed a construction contract with Shi'an Company. She was also a director of Shanghai Trevi. Cui Xiufang was the accountant of Trevi Company. On January 7, 2010, she opened a bank account on behalf of Trevi Company, and on August 20, 2010, she opened a bank account on behalf of Oubao Company after this lawsuit was filed. Oubao Company stated in court that Wei Yali was an employee of Trevi Company. In May 2010, as authorized by Trevi Company, she opened a bank account for the company. In September 2011, after the lawsuit was filed, as authorized by Oubao Company, she opened a bank account with Maluwan Sub-branch, Shenyang Branch of China Construction Bank for the Company, and the contact person of the account was Wei Yali. Liu Jingjun was an employee of Oubao Company. In the original trial and enforcement procedures, Liu Jingjun represented Oubao Company, and on March 17, 2009, she handled enterprise registration and other matters on behalf of Trevi Company. In the name of an employee of Trevi Company, Liu Yang represented the company in this lawsuit, and as designated by Wang Zuoxin, also represented Shanghai Trevi in relevant lawsuits.
The aforesaid facts sufficiently explained that the personnel of Oubao Company, Trevi Company, and other affiliated companies were not strictly differentiated and they actually obeyed instructions from Wang Zuoxin and acted as employees of different affiliated companies according to their tasks. In its appeal, Oubao Company stated that: Since the beginning of lending in 2007, it dispatched relevant personnel to Trevi Company to oversee the use of investment funds by Trevi Company and assist Trevi Company, but five months before the first transfer of the loan amount to Trevi Company as alleged by Oubao Company, Huo Jing had participated in Trevi Company's contracting activities. Considering the roles the so-called “dispatched personnel” in Trevi Company, it was clear that the aforesaid personnel comprehensively participated in Trevi Company's contract conclusion, financial management, and representation in litigation, rather than mere oversight. This allegation of Oubao Company was not believable. The determination of the HPC of Liaoning that Oubao Company and Trevi Company were affiliated companies controlled by the couple Wang Zuoxin and Qu Yeli was well-founded.
2. Whether there were true lending relationships between Oubao Company and Trevi Company regarding 86.5 million yuan in question
In accordance with Article 90 of the Interpretation of the Supreme People's Court on the Application of the Civil Procedure Law of the People's Republic of China, a party should provide evidence to prove the facts on which its claims were based or to refute the facts on which the claims of the opposing party were based; where a party failed to provide evidence or the evidence provided was insufficient to support the facts claimed by it, the party bearing the burden of proof should face the adverse consequences. Article 108 thereof provided that: “For evidence provided by a party who bears the burden of proof, if a people's court is convinced of a high possibility of existence of the facts to be proved upon examination of evidence and consideration of relevant facts, it shall hold that the facts exist. For evidence provided by a party to refute the facts claimed by the party who bears the burden of proof, if a people's court deems it unclear whether the facts to be proved are true or false upon examination of evidence and consideration of relevant facts, it shall hold that the facts do not exist.” Where there was any affiliation between the parties, to prevent sham litigation by malicious collusion and infringement upon others' lawful rights and interests, the people's court must strictly examine whether there was any true lending relationship.
Oubao Company filed a lawsuit to require Trevi Company to repay loans of 86.5 million yuan with interest thereon. Although it provided the loan contracts and transfer vouchers, there were undeniable inconsistencies between its statements and evidence and other admitted evidence. Many statements and acts of the parties were contrary to common sense, as described in the following seven aspects:
First, in view of the process of formation of agreement on the loans, it was possible that the loan contracts were false. Oubao Company and Trevi Company made unclear statements on the particulars of the offer and acceptance in the lending relationships. Especially, as the legal representative of Oubao Company, which was the creditor, and the person handling the contracting, Zong Huiguang was uncertain about details such as the time and place of conclusion of each loan contract and the persons on both sides who handled the contracting of each loan contract. Each loan involved a large amount, but the parties failed to make clear statements on the contracting details or even the general process, which was unreasonable.
Second, as to the time of borrowing, the evidence provided by the parties was inconsistent. The statements of Oubao Company and the loan contracts provided by it showed that the lending relationship between Oubao Company and Trevi Company started in July 2007. After Oubao Company appealed to the Supreme People's Court, the audit report submitted from an audit firm authorized by Oubao Company showed that Oubao Company started to lend money to Trevi Company from December 2016. However, the transaction details of bank accounts of Trevi Company and Oubao Company showed that before December 2016, there were two huge transfers of 11 million yuan each in Oubao Company's account of 8115 only. On March 8, 2006, Oubao Company transferred 3 million yuan to the account of Trevi Company in the name of “loan,” and on June 12 of the same year, transferred 8.01 million yuan thereto.
Third, as to the loan amounts, the claims of the parties were inconsistent. After filing a lawsuit, Oubao Company first alleged that the cumulative loan amount was 58.5 million yuan from July 2007, but changed the amount to 86.5 million yuan during litigation. In its appeal, it alleged a total loan amount of 108.5 million yuan. With repeated changes in the loan amount, Oubao Company could only provide loan contracts involving 86.5 million yuan. The bank transfer vouchers submitted in court by Xie Tao proved that in addition to the loan of 108.5 million yuan alleged by Oubao Company, 44 million yuan was remitted to the account of Trevi Company in the name of “loan.” Oubao Company acknowledged that the excess was transferred at the request of Wang Zuoxin and was not an actual loan. This acknowledgement proved that Oubao Company entered the purpose of the transfer in the bank vouchers at will. The amounts recorded in the transaction details of bank accounts as subpoenaed by the court showed that the amount of funds transferred by Oubao Company to the accounts of Trevi Company in the name of loans far exceeded the aforesaid amounts claimed by Oubao Company. There were other large amounts transferred to the accounts of Trevi Company in the name of “loan,” which, however, were not included in the loans as claimed by Oubao Company.
Fourth, in view of fund transfers, Oubao Company only kept track of funds flowing out of its accounts, and never recorded incoming funds. During the loan periods as specified in the loan contracts, before such periods, or even after the litigation began, the fund transfers between accounts of Oubao Company and Trevi Company included transfers from Oubao Company to Trevi Company and transfers from Trevi Company to Oubao Company. However, Oubao Company only calculated the amount of funds transferred out of its accounts, without mentioning any amount received from Trevi Company.
Fifth, in view of fund transfers among all affiliated companies, there were circular transfers among accounts of two or more parties. As mentioned above, a comparison of the accounts of Oubao Company, Trevi Company, Hanhuang Company, and Shaqi Company revealed that after Trevi Company transferred its funds to the account of Oubao Company through the account of Hanhuang Company, such funds were transferred back to the account of Trevi Company. In this way, a false increase of loans was caused. Similar practices also existed in fund transfers between Trevi Company and other affiliated companies.
Sixth, the actual use of the loans was contrary to the purposes of the loan contracts. Article 2 of the loan contracts provided that the loans should be only used in the real estate project of Trevi International Garden, but after the funds were transferred into the account of Trevi Company, Trevi Company immediately transferred most of the funds to Hanhuang Company and Shaqi Company in the name of “loan” or “repayment,” and such funds finally flowed to Oubao Company and Shenyang Trevi controlled by Oubao Company. Oubao Company argued that Trevi Company transferred the funds to Hanhuang Company to repay loans provided by Hanhuang Company, which was not true because the amount of loans between Hanhuang Company and Trevi Company as stated by Oubao Company was inconsistent with the actual transaction amount between the accounts of the two companies and most of the funds flowed back to Oubao Company or a company controlled by Oubao Company.
Seventh, the acts of Oubao Company, Trevi Company, and companies affiliated to them in the litigation and enforcement procedures were contrary to common practices. After Oubao Company filed the lawsuit, there were still mutual transfers between it and Trevi Company; Trevi Company continued to transfer large amounts of funds to the accounts of Oubao Company, but in the process of litigation and enforcement, made no defense against Oubao Company based on such repayment; Oubao Company applied for property preservation to the HPC of Liaoning, but Wang Yang, a shareholder of Trevi Company, provided her own properties as security for Oubao Company, which should otherwise be the opposite interested party; the property located in Qingpu District, Shanghai Municipality as provided by Oubao Company as security in the original trial was surprisingly owned by Shanghai Trevi, whose legal representative was Wang Zuoxin; Oubao Company and Trevi Company acknowledged in court that the bank accounts of Oubao Company opened with Donggang Sub-branch of China Construction Bank and Maluwan Sub-branch of Shenyang Branch of China Construction Bank were controlled by Wang Zuoxin.
Both Oubao Company and Trevi Company failed to provide any reasonable explanation of the aforesaid inconsistencies and violations of common sense. As one may see, Oubao Company failed to provide sufficient evidence to prove any true lending relationship between it and Trevi Company regarding the loans in question. In addition, the subpoenaed transaction details of accounts of Oubao Company, Trevi Company, and affiliated companies revealed that there were random transfers among Oubao Company, Trevi Company, and other affiliated companies and among various accounts of the same company, and the purposes of transfers were entered at will. Corroborated by other evidence admitted, the court believed that the debts claimed by Oubao Company were fabricated by using transaction payments between it and Trevi Company and its request for Trevi Company's repayment of 86.5 million yuan loans with interest on the basis of fabricated debts should not be supported. Therefore, it was not inappropriate for the HPC of Liaoning upon retrial to dismiss Oubao Company's claims.
With respect to whether Oubao Company and Trevi Company maliciously colluded in this lawsuit to infringe upon the lawful rights and interests of others, first, both Oubao Company and Trevi Company knew the debtor-creditor relationships between Trevi Company and Xie Tao, petitioner for retrial, and other creditors. In the process of enforcement of the relevant judgment, after Oubao Company applied for enforcement, it did not consent to the court's auction of the seized properties; instead, it continued to permit Trevi Company's sale of such properties. Once Trevi Company sold one property, it immediately applied to the court for releasing the property. When being questioned in court by the judges, Oubao Company made unclear statements on the number of seized properties that had been sold by Trevi Company and the amount of debts that had been repaid by Trevi Company. This showed that Oubao Company filed the lawsuit not for repayment of debts to it but for protective seizures through judicial procedures to prevent other creditors from being repaid with Trevi Company's such assets. Their purposes of infringing upon others' lawful rights and interests by fabricating debts in malicious collusion were apparent. Second, the facts that the personnel of Oubao Company and Trevi Company were commingled and their bank accounts were all controlled by Wang Zuoxin indicated that the two companies were owned by the same person and they had lost the independent personality of a company as a juridical person. Article 112 of the Civil Procedure Law of the People's Republic of China provided that: “Where the parties, maliciously in collusion, attempt to infringe upon the lawful rights and interests of other persons by litigation, mediation or any other means, a people's court shall dismiss their claims, and impose a fine or detention on the parties according to the severity of the circumstances; and if it is criminally punishable, they shall be held criminally liable in accordance with the law.” The allegation of Xie Tao, retrial petitioner, that a sham lawsuit was filed by malicious collusion between Oubao Company and Trevi Company to infringe upon his lawful rights and interests and his request for punishing the relevant parties and liable persons were well-founded in law and should be upheld.
(Judges rendering the effective judgment: Hu Yunteng, Fan Xiangyang, and Wang Guoxian)