Key words: Making up for Evidence, Arbitration, Negotiation for Arbitration, Award, Continuous Collection
Case No.: (2014) Hu Arbitration No.1243
Case Main Points
HP (China) group co., ltd. (hereinafter referred to as HP Company) appointed an attorney to collect the materials payments for RMB tens of millions in long-term arrear by a subsidiary of HNA Group (hereinafter referred to as HNA Company). After preliminary investigation, the attorney found HNA Company is fully capable of performing its payment obligation. However, due to the employee responsible for the business left office without handing over the work and the financial records of the arrears are incomplete, the payment was unpaid. And then, the case is in a state of leaving no one in charge and all the evidence materials provided by HP Company are seriously lacking. In this scenario, the attorney worked out a method in non-litigation for collecting the arrears. At the same time, the attorney conducted to make up for the evidence materials. In the case of failure of arrears collection in non-litigation way, the attorney would initiate the arbitration pursuant to the sale contract signed by both parties. So, the plan of "non-litigation for the first step and arbitration would be followed for solving" was made by the attorney, which was also approved by the HP Company and implemented successfully. Finally, all the established goals were achieved, the arrears were fully recovered for HP Company, and both parties continued to maintain a good cooperative relationship.
Introduction of the Case
HP Company appointed the attorney to collect the materials payments for RMB tens of millions in long-term arrear by HNA Company. And then the attorney immediately contacted the Material Department and Finance Department of HNA Company, the relevant staff said that “the arrears do exist, but the specific number of arrears cannot be determined due to the employee’s resignation without handing over the work; and after the restructuring of HNA Company, all the leaders of HNA Company are ‘airborne’ and none of them is willing to take over this issue".
As HNA Company is a wholly-owned subsidiary of the large state-owned listed company, it has a high profitability and is fully capable of fulfilling its payment obligations. If the evidence materials are complete, and the leader can be found, who can play a key role in solving the issue, HNA Company would be unlikely to repudiate the arrears.
According to results of the preliminary investigation, the attorney formulated the plan of "non-litigation for the first step and arbitration would be followed for solving", which was approved by the HP Company and then implemented.
As the both parties had conducted the transactions continuously with rolling payments for many years, and the total transaction amount is as high as over RMB 1 billion, but the receipts and bills were lost seriously. Thus, it is impossible to form the evidence chain for proving the fact of HNA Company’s arrears and the specific number of arrears. In this scenario, the attorney firstly contacted the former minister of the Material Department, who admitted the arrears do exist but the amount could not be accurate to within one million. And the minister refused to sign the investigation record in the excuse of inconvenient, which was required by the attorney for proving the minister had be transferred to other subsidiaries. At the same time, the attorney continued to contact the current minister of the Material Department and CFO for learning about the HNA Company’s business approval, payment approval, payment process and payment methods, etc.
And the financial personnel of HP Company provided an important clue under the patiently reminding of the attorney. About two years ago, an accounting firm appointed by HNA Company sent an enterprise inquiring letter to HP Company through HNA Company’s enterprise mailbox and acquired HP Company to confirm the amounts of credit’s rights for HNA Company’s restructuring auditing, and HP Company confirmed with sealed and mailed back to the accounting firm. The attorney immediately checked the email, and found the email was sent through the enterprise mailbox and the amounts of credit’s rights were accurate. However, the email is audio-visual materials from the perspective of evidence, and only after notarization can it be effective, and the single audio-visual material cannot be identified the fact of the case. Thus, the attorney immediately accompanied financial personnel of HP Company to the accounting firm appointed by HNA Company and found the accountant showed on the enterprise inquiring letter. And the attorney declared that he was the financial personnel of HP Company, and required the accountant to provide the original copy of the enterprise inquiring letter as the HP Company was conducting an audit. But the accountant only agreed to provide the copy of the enterprise inquiring letter and refused to provide the original copy. In order to reduce suspicion, the attorney and the financial personnel left immediately after obtaining the copy. However, the copy could not prove the validity, and the accountant did not provide the original copy.
In this scenario, the attorney immediately contacted the notary office to notarize the mail contained the enterprise inquiring letter, and the telephone record at the same time. For the telephone record, the accountant, who issued the enterprise inquiring letter, confirmed that the arrears do exist in the proceeding of restructuring audit and the amounts of arrears are the same as HP Company said. Finally, working for making up for evidence materials is completed in full.
Next, the attorney continued to communicate with HNA Company’s Material Department and Finance Department and the deputy minister of the departments directly, and asked them to verify the copy of the enterprise inquiring letter provided by the accounting firm. However, all of them prevaricated for various reasons, and no one was willing to deal with the issue. Thus, the case was at a deadlock.
In this scenario, the attorney suggested HP Company to directly apply for arbitration according to the sale contract. Once the arbitration is conducted, as the HNA Company is a wholly-owned subsidiary of the state-owned listed company, someone would come forward to handle the issue. And for not influencing the relationship between HNA Company and HP Company, HP Company could send an official letter to HNA Company after HNA Company receiving the notice of arbitration, and stated that arbitration is a helpless choice because no one of HNA Company handles the issue through negotiation. In this way, the case can be dealt with in an offensive or defensive way. If HNA Company does not respond to the lawsuit or negotiate, it shows that HNA Company ignores HP Company’s goodwill, and the cooperation does not need to be continued. Once the ruling is made, it can be executed directly. But if HNA Company actively negotiates, the case will be settled through negotiation. And then the arbitration commission will issue a mediation document with compulsory execution. In this scenario, if HNA Company pays the arrears in accordance with the mediation document, the case will be successfully concluded and both parties can continue to cooperate. But if HNA Company fails to perform according to the mediation document and is not willing to cooperate in good faith, HP Company can apply to the court for compulsory execution.
HP Company adopted the attorney’s plan and applied to the Shanghai Arbitration Commission for arbitration. At the same time, HP Company also sent an official letter drafted by the attorney to HNA Company. Thus, HNA Company’s parent company delegated the legal director to negotiate with the attorney, check the notarized mail and the telephone record, and confirm the arrears and their amounts, and finally HNA Company reached a mediation agreement under the auspices of the Arbitration Commission with HP Company, and the Arbitration Commission issued a mediation document with compulsory execution.
In general, HNA Company shall perform the obligations pursuant to the mediation document, but actually, the situations again of prevarication about payment approval, arrangement and methods occur in the performance process by HNA Company. Fortunately, the attorney knew clearly the HNA Company’s internal procedures for payment approval, arrangement and methods at the early stage of case handling. Therefore, in order to safeguard the interests of HP Company and not influence the relationship between HNA Company and HP Company, the attorney personally communicated with all relevant departments of HNA Company and finally recovered all the arrears and the case was successfully concluded.
Case Analysis
I. Large company will also owe money and repudiate the debt.
For the case, HNA Company is a large wholly-owned subsidiary of a state-owned listed company with a large scale, and has high quality in profitability and property status. However, the extremely irresponsible attitude of HNA Company to this case shows that large company also may owe money and repudiate the debt. How can a large enterprise be unclear about the fact of arrears and the amount? The answer can only be neither the employees nor the management are willing to take responsibility.
II. Making up for the evidence materials shall be quick.
Due to the lack of key evidence, HP Company cannot prove the fact of arrears and amount with existing evidence, and cannot state in a reasonable and well-founded way during negotiation, and even litigation (arbitration) cannot be initiated. For the case, direct evidence of the fact of arrears and amount was confirmed in the form of a notarized telephone record at the earliest stage of the case handling by the attorney. If HNA Company informed the accountant that HP Company was collecting the arrears, the key evidence might not be able to be made up.
III. The effect of the plan of "non-litigation for the first step and arbitration would be followed for solving" is significant.
For the case, the attorney tried to handle the case in a non-litigation way with various efforts. However, since HNA Company’s all departments and employees have been prevaricating each other and no one is willing to take over the issue, HP Company can only force HNA Company to negotiate under arbitration application. After applying for arbitration, the attorney on the appointed by the HP Company sent HNA Company the official letter specifying the fact of the case, clarifying the evidence and explaining no one is willing to take over the case after a long period of negotiation, and the arbitration is a helpless choice. In a general way, it can be understood that HP Company’s application for arbitration is indeed helpless. Therefore, the case was settled through negotiation in a friendly way.
IV. The necessity of obtaining enforceable arbitration documents
Even though this case has achieved a good result at the arbitration stage, prevarication and default in payment of HNA still appear in the process of implementation. As the attorney has known well of the related procedures of HNA, including but not limited to the approvals of business transactions, approval of the payment, arrangement of the payment and the method of payment, HNA finally paid the payment in full with the efforts of attorney.
However, if HNA rejects to pay the payment of malice and the attorney hasn’t or unable to note its internal working process, there will be serious obstacles to the process of implement. In this case, the enforceable Letter of Mediation will play a key role in this process. The company is able to apply to the court for the enforcement proceeding directly with this Letter of Mediation. On the contrary, if the parties revoked the action after reaching the Mediation Agreement instead of the Letter of Mediation issued by the court, the creditor has to apply for the arbitration separately for the implement. It wastes time, money and manpower significantly and other unpredictable risks will be likely to appear in the process. Therefore, it is important for creditors to obtain the enforceable Letter of Mediation to prevent the risks and reduce the losses.
Conclusion
With respect to this case, the complementary of the evidence is the key point. In this case, HNA claimed that they are not clear about the debt. In this regard, attorney who helps complement the evidence have key impacts on the success of this case. For the large enterprises, such as HNA, with numerous and complex internal departments, which have low efficiency, prevarication and have no one to take responsibility, “to facilitate the negotiation by litigation” has achieved desired effects. It laid a good foundation for the final negotiated settlement of this dispute. In addition, insisting on obtaining an enforceable Letter of Mediation provides forceful guarantee for the implementation of this case.