Article

Facts:

On Dec. 10, 2012, the plaintiff signed NO. 1200603104 shipbuilding agreement (“shipbuilding agreement”) with Zhenghe Co., Ltd., and Xinwei Co., Ltd., all parties agreed Zhenghe Co., Ltd. shall build No. ZH670069 ship (“ship”), and the price of the ship was RMB 224 million in total. The plaintiff shall pay Zhenghe Co., Ltd. in 5 installments. And Zhenghe Co., Ltd. shall offer an advanced payment L/G to cover the first 4 installments, guarantying the plaintiff could get its money back if Zhenghe Co., Ltd. failed to build this ship, before the plaintiff’s first payment.

Thus, on Dec. 14, 2012, Zhenghe Co., Ltd. signed a L/G agreement with the defendant. Both parties agreed that the beneficiary was the plaintiff.

And later on the same day, the defendant iussued No.2012-028 L/G. The L/G read, the defendant bore the joint liability guarantee under the NO. 1200603104 shipbuilding agreement. The maximum amount of the guarantee was RMB 179.2 million, and did not exceed Zhenghe Co., Ltd. actually got from the plaintiff. This L/G expired on Otc. 31, 2014.

After receiving this L/G, the plaintiff paid the first 4 installments (in total RMB 179.2 million) on Dec. 17, 2012, Dec. 27, 2012, Jul. 31, 2013, Jan. 15, 2014, as the shipbuilding agreement said.

However, Zhenghe Co., Ltd. could not deliver the ship on time. On Oct. 23, 2014, and Apr. 20, 2015, the plaintiff, defendant, Zhenghe Co., Ltd. and Xinwei Co., Ltd, agreed that Zhenghe Co., Ltd shall deliver the ship before Aug. 31, 2015, and the advanced payment guarantee period was extended to Sep. 30, 2015.

On Mar., 2015, Zhenghe Co., Ltd. applied for bankruptcy to Dinghai Court.

On Jun. 30, 2015, the Dinghai court accepted Zhenghe Co., Ltd.’s bankruptcy application.

Knowing this, on Sep. 22, 2015, the plaintiff announced to the Zhenghe Co., Ltd. that the plaintiff terminated the shipbuilding agreement, and asked Zhenghe Co., Ltd. to pay back the advanced payment and pay the appropriate interest immediately.

On Sep. 24, 2015, the plaintiff asked the defendant to pay RMB 179.2 million under the L/G within 10 business day. Or the defendant shall bear the overdue payment liability of breaking the contract and the relevant fees.

The court also found that, On Dec. 12, 2012, the plaintiff transferred its creditor’s right of RMB 89,639,425.18 to Hongji Co., Ltd. at the price of RMB 85 million under the ship finance lease agreement with Hongji Co., Ltd. And Hongji Co., Ltd. paid the plaintiff at the end of the 2012.

On Dec. 17, 2013, the plaintiff transferred its creditor’s right of RMB 79,99 million to Baijie Co., Ltd. at the price of RMB 63.6 million under the ship finance lease agreement with Haiyu Co., Ltd. And Haiyu Co., Ltd. paid the plaintiff at the end of 2013.

Both transfers of the creditor’s right did not notify the debtor. The plaintiff continued to seek repayment from the debtor in the following years.

Legal Analysis:

Legal Issue(s):

  1. Whether the procedural of the first trial was legal?
  2. Whether the L/G in this case was legal and valid?
  3. Whether the plaintiff was entitled to get its indemnity from the guarantor (the defendant) directly, and whether the calculation of the interest was right?

Legal Rule(s): Art. 44(1), The interpretation of the Supreme People's Court on the application of the People's Republic of China Guarantee Law, during the guaranty period, when the court accepts and hears the debtor’s bankruptcy case, the creditor may not only claim to the court, but also claim to the guarantor

Disposition – for each legal issue: The court overruled the defendant’s claim, and affirmed the trail court’s judgement.

Holding & Reasoning for each issue:

(2015) Z. M. C. Z. Zi 230 affirmed the Ningbo Maritime Court had the jurisdiction on this case. In the first trial the plaintiff claimed indemnity under this L/G, and the plaintiff added a claim to confirm the validity of this L/G. Thus, the procedural of the first trial was legal.

As for the price of the ship, during the bargain, the defendant did not argue the price of the ship was unreasonable. Since the financial leasing agreement and shipbuilding agreement specifically regulated the size, the drawings and the price of the ship, the price of the ships was reasonable.

As for whether the transfers of the right were authentic, and whether those transfers had a relationship with the price of the ships, the legal relation between shipbuilding agreement and agreement of transfer of creditor’s rights was different. And the defendant did not show any evidence to prove its claim that those transfers were part of the “fraud”.

Thus, the L/G was valid.

Since the defendant had a joint liability guarantee on the L/G, according to Art. 44(1), The interpretation of the Supreme People's Court on the application of the People's Republic of China Guarantee Law, during the guaranty period, when the court accepts and hears the debtor’s bankruptcy case, the creditor may not only claim to the court, but also claim to the guarantor. Thus, the plaintiff was entitled to claim to get indemnity from the defendant.

As for the interest of the L/G, since the L/G itself did not include the interest, the defendant paying the plaintiff interest (from the date of filing of the suit to the date of performance determined by the first trial court) was actually a liability of not performance or delay in performance.

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The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of the ICC or Coastline Solutions.