China – Circular Of The Supreme People’s Court On The Issuance Of The 30th Batch Of Guiding Cases – Focused Analysis Of Case No. 167 On Subrogation Litigation.

Sales Contract Dispute Between Beijing Datang Fuel Co., Ltd. and Shandong Baifu Logistics Co., Ltd.

Basic case details: Since January 2012, Beijing Datang Fuel Co., Ltd. (“Datang”) and Shandong Baifu Logistics Co., Ltd. (“Baifu”) entered into 41 procurement contracts, under which Baifu would sell ferronickel, nickel ore, cleaned coal, metallurgical coke, and other goods to Datang.  The parties agreed to use rolling settlements for payment in the course of performing the contracts, but the amount of each payment did not correspond to the amount of payment agreed in each contract.  Datang paid Baifu a total of RMB 1,827,867,179.08, and Baifu issued VAT invoices to Datang for a total of RMB 1,869,151,565.63.  Datang asserted that the aggregate value of the goods supplied by Bafu was only RMB 1,715,683,565.63, and the excess payment of RMB153,468,000 should be refunded.

In November 2014, Datang as the plaintiff, filed a creditor’s subrogation lawsuit with the Ningbo Intermediate People’s Court in Zhejiang Province naming Ningbo Wanxiang Imp & Exp Co., Ltd. (“Wanxiang”) as the defendant and Baifu as a third party.  The court handed down the (2014)-Zhi-Yung-Shang-Chu-Zhi No. 74 Civil Decision, in which it ordered Wanxiang Company pay RMB 36,369,405.32 to Datang.  In 2016, Datang applied for compulsory enforcement, but since Wanxiang had no property available for enforcement, the court terminated the enforcement procedure in 2017.

Datang then filed this lawsuit with the Shandong Provincial High People’s Court and named Baifui as the defendant in requesting an order to compel Baifu to return the principal and interest.  The court of first instance only ruled to return the payment of RMB 75,814,208.13.  Datang appealed to the Supreme Court to contest the first instance decision.

Results of the adjudication: In 2019, the Supreme People’s Court handed down the (2019)-Supreme-Law-Final Civil Decision No. 6.  Firstly, the lower court’s decision was reversed.  Secondly, Baifu shall refund the RMB 153,468,000 in goods payment to Datang, and thirdly, Baifu shall compensate Datang for the loss of interest while Baifu has possession of the payment amount (calculated by the benchmark interest rate of the People’s Bank of China for the same type of loan for the same period on the basis of RMB 153,468,000 from November 25, 2014 to the date of actual payment by Baifu).  Fourthly, all other claims of Datang were rejected.

Reasons for the adjudication: The Supreme People’s Court held that regarding the (2014)-Zhejiang-Yong-Shang-Chu-Zi No. 74 civil decision involving the RMB 36,369,405.32 claim, Datang has the right to claim such an amount separately from Baifu.

Article 20 of the Interpretation of the Supreme People’s Court on Issues Concerning the Application of the Contract Law of the People’s Republic of China (I) (“Contract Law Interpretation (I)”) provides that if the subrogation right in a subrogation lawsuit between the creditor and the subordinate debtor is established upon review by the people’s court, the subordinate debtor shall perform the repayment obligation to the creditor, and the corresponding debt relationships between the creditor and the debtor and between the debtor and the subordinate debtor shall be extinguished.  Based on the foregoing, a prerequisite for concluding that the corresponding debt relationship between the creditor and the debtor has been extinguished is the performance of the corresponding repayment obligation by the subordinate debtor to the creditor.  In the enforcement part of this matter, since Wanxiang had no property to enforce and the court terminated enforcement, the debt relationship between Datang and Baifu was not extinguished, thus Datang may make a separate claim against Baifu.

Secondly, this case does not violate the res judicata principle.  Pursuant to Article 247 of the Interpretation of the Supreme People’s Court on the Application of the Civil Procedure Law of the People’s Republic of China, the main condition for determining if a lawsuit constitutes a duplicate complaintis whether the parties, subject matter of the litigation, and the claims are the same, or whether the litigation claims are substantively denying the results of the earlier lawsuit.  A subrogation lawsuit is not the same as a lawsuit against the debtor.  From the perspective of the parties, the creditor is the plaintiff in the subrogation lawsuit and the subordinate debtor is the defendant, while the creditor in a lawsuit against the debtor is the plaintiff and the debtor is the defendant, so the defendants in both cases are not the same.  From the perspective of the subject matter and claims, although the subrogation lawsuit requires the subordinate debtor to perform the obligation of repayment to the creditor directly, it pertains to the claim between the debtor and the subordinate debtor, while the repayment from the debtor in the lawsuit against the debtor pertains to the claim between the creditor and the debtor.  These two are different in the scope of the subject matter and the legal relationship.  From the angle of the elements of the complaint, a subrogation lawsuit is different from a lawsuit against the debtor in that a subrogation lawsuit requires not only satisfying the elements under the Civil Procedure Law but also those under Article 11 of the Contract Law Interpretation (I).  Based on the aforementioned differences, the subrogation lawsuit and a lawsuit against the debtor are not based on the same grounds, and there are merely some legal connections between the two.  Therefore, Datang’s current case does not constitute a duplicate complaint.