The Standing of Plaintiff in Litigation


-----Monica Jiang

The standing of a plaintiff is a procedural problem of great importance in litigation. According to Article 49 in Civil Procedure Law, citizens, legal persons and other organizations may become a party to a lawsuit. The Supreme People's Court has also put the above article into details in the judicial explanation for Civil Procedural Law. Yet the problems concerning being qualified as plaintiff still occurs constantly, some of which, beyond being procedural problems in the proceedings, even affect the final judgments. Starting from some cases I have dealt with in practice, this article will discuss briefly the problem involving the standing of plaintiff in litigation.

Case One: substituted plaintiff

In April 2003, Tang Wan Factory brought a lawsuit against FuYang Co. to FengXian District People's Court for a refund of additional investment payment of 300 thousand RMB.

According to Tang Wan Factory in its indictment, DaTang Factory, a third party, established FuYang Co. with a Singapore company in Feb. 1995, with the cash investment on the foreign side and factory buildings and facilities investment from Tang Wan side. In Feb. 1996, upon the evaluation by some asset evaluation company, the value of the investment assets from TangWan exceeded the agreed value by 300 thousand RMB. Such additional fee was kept down as bookkeeping account payment on PuYang Co.'s account.

DaTang Factory later transferred its equity to TangWan Factory. With a trust deed from DaTang Factory, TangWan Factory continuously asked for a refund of the 300 thousand RMB from FuYang Co. from 1998 on.

Having introduced the situation, FuYang Co. told us that although it does not sound very straight for TangWan Factory, instead of DaTang Factory, to ask for the refund, it yet is true that the 300 thousand RMB has always been kept as bookkeeping account payment. The top leaders of the two parties, DaTang Factory and FuYang Co., had already reached an oral agreement that DaTang would not stand up for the payment because both parties recognized the problems in the initial evaluation report. However, now it should be TangWan asking for the payment.

After reading DangWan Factory's evidences to be submitted to the court and the materials provided by FuTang Co., we found out that we are disadvantaged by the current evidences from the fact perspective and we do not have sufficient fact evidences for rebuttal. However, despite the facts, there is a significant procedural problem in this case, that is, on what basis does TangWan advocate the payment for DaTang.

TangWan has not explained the reason but among the evidences provided by TangWan, two materials can shed some light on the relation between TangWan and DaTang. One is an trust deed reached into in 1998 that DaTang entrust TangWan to gather the payment. Another is a equity transferring agreement signed after the trust deed, in which DaTang transferred all its equities in FuYang Co. to TangWan. Since the trust deed was signed before the equity transferring agreement, the disposition of the refund upon receiving should have been stated it it, but nothing concerning the 300thousand RMB was mentioned in the equity transferring agreement. That is to say, the equity transferring agreement had no proving power as to this case. Then what about the trust deed? Since the equity transferring issue is very clear between DaTang and TangWan, why would DaTang entrust the right to ask for refund to TangWan, adding that the trust issue happened five years ago. Why didn't DaTang bring up the lawsuit itself?

Logically, there is only one possibility, that is, DaTang, as a factory or enterprise does not exist any more. Having checked out the industry and commerce materials, we found out that while TangWan exists in the materials, DaTang was not there. According to General Principals of the Civil Law of the People's Republic of China Article 69, the trust agency shall end when the principal or the agent ceases to be a legal person. Even if the said trust deed was real and effective, TangWan's agency capacity ends with the ending as a legal person of DaTang.

In the court proceedings, we pointed out that since the trust deed from TangWan fell short of the form requisite, we need the plaintiff to provide the proof for the legal existence of DaTang Factory. DaTang's attorney apparently was not prepared for such requirement so the court gave them seven days for material supplement. Seven days later, TangWan did not provide the proof. Therefor, the court ruled that the plaintiff does not have a direct stake in the case, and thus filed the rejection of the complaint.

This case, when looked backed to, looks very easy to resolve. However, if the facts had not been made clear, that the existence of the principal DaTang had not been checked, and that the fact that TangWan had no substantial connection with the complaint had not been found out, then the parties would have been drowned in the fact issues to the advantage of the plaintiff, who created the confusion by showing to be a qualified plaintiff. This case has also reminded us that although the industry and commerce information of the defendant is important, sometimes the problems as the standing of the plaintiff, the connection of the third party with the case can also be key factors that make a difference to the case.

Case two: Plaintiff overseas

This case happened in the United States. A lawyer in our brother law firm in the United States asked us the following question: according to Chinese law, does an enterprise still possess the capacity for civil conduct when its business license is revoked?

Here's the case: a client of their firm was brought to the court in the United States, with the plaintiff an enterprise in Zhe Jiang Province in China. That lawyer hold that the substantial issues of the case should be governed by the US law, while the existence and the capacity of the enterprise should be dealt with under Chinese law.

They found out, through a Chinese lawyer, that because the said enterprise was fined by the tax bureau for they did not pay for their tax in 2001 and because it did not go through the annual examination, the industry and commerce bureau revoked its business license with a notice. In the American lawyer's view, the enterprise not only lack credibility, it also does not exist any more and thus should not stand in the American court.

The question is simple, but we cannot find a simple answer for it. The revocation of the business license of an enterprise does simply answer the question of whether it still has the capacity for civil conduct. Other things still need to be evaluated concerning this issue, for example, if it has established a liquidation group, if the revocation procedure was completed and whether such conduct refers to its operation conduct or liquidation related conduct, or simply its litigation conduct.

By checking for a second time, we found out that although the business license of the enterprise was revoked, it has not established a liquidation group, nor has it been canceled in the industry and commerce database. Then we sent a reply to the American lawyer. First, if the company went into business deals after their license being revoked, its conducts are invalid because the revocation of its license had exploited its operation power. Second, concerning its capacity for litigation, according to Company Law in China, if a liquidation group is established, then before the company is canceled, the group is entitled to represent the company in the court of the US. Now that the company has not established such a group, there is no clear rules in China's related laws and regulations as to the participants standing during the period between business license being revoked and the company being canceled. In practice, courts tend to grant these enterprises the access to litigation.

It is said that the case is still in procedural proceedings due to the plaintiff standing problem. Since Anglo-American law attach great importance to procedures, it is necessary for Chinese enterprises to be procedurally prepared for the litigations overseas. If the Zhe Jiang enterprise, for instance, had established a liquidation group, its standing for a plaintiff would be very clear and would have spent so much time and effort in the procedural aspect. Although our opinion provided to the American lawyer was that Chinese court tend to approve the standing of plaintiff for such enterprises, whether American courts will adopt such an attitude remains to be seen, and such uncertainty may affect the judgment of the lawsuit.

In sum, the above is two typical cases to illustrate some possible problems in the plaintiff standing in a lawsuit for reference for fellow colleagues.

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