On May 23, 2009, the Hubei High Court handed down the final ruling in the Shijiazhuang Branch of China Minsheng Banking Corp., Ltd.’s (“Minsheng”) case against the Wuhan office of China Cinda Asset Management Corporation (Cinda). Lifang lawyers, Mr. Cai Hui and Mr. Xujun, had represented Minsheng before the Wuhan Intermediate People’s Court and Hubei High People’s Court, and both courts rejected Cinda’s claims.

Back in 2003, a group headed by Ge Jianfei, former legal representative of Hubei Wuhan Zhongrong Co., Ltd. (“Zhongrong”), forged or altered special financial seals and Sale of Goods Contracts to appear as if they had dealings with the Dongfeng Motors Direct Sales Corporation. With these instruments,they obtained Banker’s Acceptance drafts(BA) totaling RMB 80 million from the Hubei Branch of the Bank of China(“BOC”). Thereafter, they asked Minsheng to discount RMB 70 million worth of the above BA, and on the BA’s maturity date,BOC paid Minsheng RMB 70 million.

In December 2005, BOC transferred to Cinda, by means of a Creditor’s Rights Assignment Agreement (“Agreement”), all its rights over Zhongrong and Minsheng arising from the above BA payment, and sent an announcement of the assignment to Minsheng.

In December 2007, Cinda sent Minsheng a Joint Announcement of Right Assignment and Debt Collection (“Announcement”), asking Minsheng for payment. Thereafter, Cinda filed a lawsuit against Minsheng, claiming that Minsheng was liable for compens a t ion be c aus e Minsheng’ s negligent actions caused BOC to suffer losses amounting to RMB 35 million.

Minsheng argued that while the Agreementhad transferred a number of different rights over Zhongrong’s debts, it did not include the right to claim compensation from Minsheng as a debtor. In addition, Minsheng did not breach any law or regulation when it discounted the BA and therefore did not infringe anyone’s rights.

The court held that Cinda brought the case based on its Agreement with BOC and the Announcement to Minsheng. According to the Agreement, BOC assigned to Cinda the major rights over Zhongrong’s debts and all of the collateral rights associated with the assignment. But the court held that Minsheng was not bound as a debtor by any contractual relationship. Meanwhile, the legal relat ionships between BOC and Minsheng arising from the purchase of the BA and the relationship arising out of the Agreement with Cinda and Minsheng, were different and independent of each other . The court held that the right to claim compensation for the infringement was BOC’s and it had not been transferred to Cinda. For the same reason, the court held that the Announcement did not have the legal effect of a “notification”. Therefore, the court rejected Cinda’s case because it had not been assigned the right to claim compensation for the infringement and was thereby not the proper plaintiff in the case at hand.

Lawyer’s Note

The source of right is one of the first issues that a court will examine at the beginning of atrail , and differentiating the various legal relationshipsisofparamount importance in complex lawsuits. In the case at hand, the plaintiff confused two legal relationships and enabled the defendant to make a successful source of right defence. The plaintiff should have paid more attention to the legitimacy to its claim, and the source of that claim. That way, it would not have been rejected for being an unqualified plaintiff before a substantive hearing.

By Xu Jun, Lifang & Partners