Recently, the Sixth Circuit Court of the Supreme People's Court issued a retrial judgment, annulling the judgments of first and second instance, and supporting the retrial applicant represented by Jincheng Tongda & Neal Law Firm in all its applications for rescission of the Equity Acquisition Agreement, refund of all equity transfer funds of CNY70.29 million, and dissolution of the joint management measures for the joint management account, as well as the guarantor's assumption of guarantee liability.
In this case, the retrial applicant entrusted Jincheng Tongda & Neal Law Firm to apply for retrial to the Sixth Circuit Court of the Supreme People's Court. Zhen ZHAO, a senior partner of Jincheng Tongda & Neal Law Firm, led the case, and the team members also included senior lawyers Tian HAO and Yu CHEN.
Jincheng Tongda & Neal Law Firm applied to the Supreme People's Court for retrial on behalf of Guangzhou Juanxing Business Service Co., Ltd. (hereinafter referred to as “Juanxing Company”), and the amount involved in this case was nearly CNY 100 million. On June 30, 2022, the Sixth Circuit Court of the Supreme People's Court made a retrial effective judgment on this case, revoked the first and second instance judgments of Shaanxi Higher People's Court and Xi'an Intermediate People's Court, and changed the judgment to support all retrial requests of Juanxing Company. The client won a comprehensive victory in the retrial of this case.
The plot involved in this dispute is located in Qinling Villa Reserve. In this case, the Supreme People's Court adopted the reason of “change of circumstances” advocated by JT&N lawyer team, and resolved to terminate the transaction contract involved in the case. This case marked the first case to apply the judgment of change of circumstances since the promulgation of the Civil Code of the People's Republic of China, and will have benchmarking significance for the subsequent courts to apply change of circumstances.
1. Complexity and importance
This case is a good example that was completely changed in the retrial stage. Juanxing Company initiated a lawsuit as the plaintiff of the first instance. After the first and second instance procedures represented by other law firms, Xi'an Intermediate People's Court and Shaanxi Higher People's Court held that all the claims of Juanxing Company were rejected.
The illegal villa project in Qinling Mountains has been widely concerned by public opinion. Under the circumstances that many villa projects around the plot involved in the case have been demolished and the real estate company has suffered heavy losses, JT&N team was entrusted at such a critical moment and represented Juanxing Company to apply to the Supreme People's Court for retrial. The team confirmed the change of circumstances as a breakthrough agency idea, thus successfully urging the Supreme People's Court to arraign the case. Finally, the Supreme People's Court amended the judgement and supported Juanxing Company's retrial request for dissolution of the Equity Acquisition Agreement and return of all investment funds.
2. Lawyer's work
After taking over the case, JT&N team applied for retrial on behalf of Juanxing Company. This case involved multiple claim bases. The team combed the evolution history of the local land planning system in detail, repeatedly communicated with the local planning and other administrative departments to confirm the future development supervision measures, and finally confirmed the change of circumstances as the breakthrough agency idea of this case.
In the process of retrial, the team submitted the Xi'an Qinling Ecological Environment Protection Plan, the latitude and longitude information of the plot involved in the case, and the evidence that the surrounding villa projects were demolished. In this way, he fully demonstrated that the contract in this case is about equity transfer and is actually a real estate project for joint land development, and proved that the plot involved in the case belongs to the “construction control zone” in the Qinling protected area. According to the requirements of Xi'an Qinling Ecological Environment Protection Plan, except for major national and provincial projects and major infrastructure construction such as energy, transportation, water conservancy and national defense, as well as people's livelihood projects, environmental protection projects, ecological projects and agricultural projects such as education, medical care, village sewage and garbage treatment facilities and Qinling protection and restoration supporting facilities, other development and construction shall not be carried out, and the purpose of the contract has been determined to be impossible to achieve. At the same time, through the investigation order, the Supreme People's Court was urged to consult the Xi'an Qinling Ecological Environmental Protection Administration, High-tech Branch of Xi'an Natural Resources and Planning Administration, Qinling Ecological Environment Protection and Comprehensive Law Enforcement Bureau of Xi'an High-tech Zone and other departments about whether the plot involved in the case belongs to the planning scope of nature reserves and whether it can be developed and constructed.
Since the Interpretation II of the Supreme People's Court of Several Issues concerning the Application of the Contract Law of the People's Republic of China established the principle of change of circumstances in 2009, the courts have been very cautious in applying the principle of change of circumstances to terminate contracts, so there are few precedents for reference. JT&N lawyer team started from a careful analysis of the bulletin cases such as (2019) ZGFMZ No.246 and (2016) ZGFMZ No.61. He refined the gist of the judgment, grasped the judgment thinking of the court, and based on the basic legal facts of this case, demonstrated that the promulgation of Xi'an Qinling Ecological Environment Protection Plan has led to significant changes in the basic conditions of the contract under this case, which constituted the cause of the change of circumstances. Thus, the application of Juanxing Company has sufficient claim basis.
Thanks to the unremitting efforts of JT&N team, the Supreme People's Court finally adopted the above agency ideas. The retrial judgment found that “six months after the signing of the contract, the state's policy on developing real estate on the plot involved in the case has undergone major changes, which is beyond the scope of normal commercial risks and has a serious impact on the performance of the contract. It can be determined that the circumstances changed during the performance of the contract.” Accordingly, Supreme People's Court retried and changed the judgment to support Juanxing Company's retrial request to terminate the Equity Acquisition Agreement and return all investment funds.
After the retrial judgment of this case was made, JT&N lawyer team applied to Xi'an Intermediate People's Court for compulsory execution on behalf of Juanxing Company at the first time, and recovered all the investment funds in the co-managed account, fully safeguarding the legitimate rights and interests of Juanxing Company.
3. Influence
This case marks the first case of applying the judgment of change of circumstances since the promulgation of the Civil Code of the People's Republic of China. It will be of benchmarking significance for the subsequent courts to apply any change of circumstances and can be used as a reference for courts all over the country. At the same time, the Supreme People’s Court has also contributed valuable judicial wisdom through this case, providing an important reference for judicial practice, as to how the judicial organs should break the contract deadlock and balance the interests of all parties when the policy adjustment leads to the failure to achieve the contract purpose of the parties.
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