Recently, the legal team led by Attorney Ye Jing at King&Capital Law Firm was retained by a client to represent them in a contract dispute arbitration case. Although the legal relationships in this case appeared straightforward at first glance, the subsequent arbitration proceedings were fraught with complications. The opposing party employed a series of procedural and substantive tactics in an attempt to turn the tide. However, Attorney Ye Jing’s team responded with composure, resolving each challenge one by one through precise legal judgment and expert professional skills. Ultimately, they achieved a resounding victory, successfully helping the client recover millions of yuan in rent and maximizing the recovery of losses for the client, a state-owned enterprise.
I. Basic Facts of the Case
In 2018 and 2019, the client successively entered into two “Training Business Cooperation Agreements” with a certain educational institution. These agreements stipulated that the educational institution would lease two separate plots of land and properties located in the same area owned by the client, with both agreements requiring the payment of fixed periodic returns in the form of rent. However, the agreed jurisdictions under the two agreements differed: the 2018 agreement designated a certain arbitration commission as the venue, while the 2019 agreement stipulated that disputes should be brought before a certain court.
In December 2023, the Client, the Educational Institution, and a Training School jointly signed a “Contract Amendment Agreement” regarding both agreements, stipulating that all rights and obligations under the two agreements would be assumed by the Training School, with the Educational Institution acting as a guarantor under both agreements. It is worth noting that the Educational Institution and the Training School are, in fact, two names for the same entity.
Starting in 2024, the Training School, as the actual user of the two properties, began defaulting on rent payments without cause. After repeated unsuccessful demands for payment, the Client had no choice but to seek the assistance of the attorney in this case. After accepting the case, the attorney reviewed the facts, prepared the necessary materials, and filed an arbitration claim with the Arbitration Commission regarding the contractual dispute involving one of the properties. Simultaneously, a lawsuit was filed in court regarding the contractual dispute involving the other property. Concurrently with the arbitration and litigation proceedings, an application for property preservation was submitted, resulting in the seizure and freezing of the respondent’s bank accounts.
II. Precisely Identifying the Arbitration Clause to Reject the Opponent’s Objection to Jurisdiction
Since the opposing party believed a certain court would be more “influential,” they raised a jurisdictional objection prior to the arbitration hearing. They argued that the 2019 agreement designated that court as the venue, and that the 2018 and 2019 agreements should be treated as a single entity. They contended that since the 2019 agreement opted for court litigation, all disputes arising from the cooperative relationship should be resolved through the courts, and that the Arbitration Commission lacks jurisdiction.
Our counsel clearly pointed out to the Arbitration Tribunal that the 2018 and 2019 agreements differ significantly in terms of the duration of cooperation, specific cooperation areas, fee standards, and, most crucially, the method of dispute resolution; these are two mutually independent contracts. The basis for our arbitration in this case is the 2018 agreement—which contains a clear arbitration clause—and its series of amendment agreements; the arbitral tribunal’s jurisdiction is solid and well-defined.
The arbitral tribunal ultimately fully adopted our position, ruling that the 2018 and 2019 agreements “are two mutually independent agreements,” and that our application for arbitration based on the arbitration clause in the 2018 agreement is lawful and valid.
III. Precisely Identifying Legal Requirements to Reject the Opponent’s Counterclaim of “Facto Rmutatio”
To delay or reduce its payment obligations, the Respondent raised a counterclaim during the hearing, arguing that “this case meets the criteria for facto mutatio and warrants a modification of the contract price.” The opposing party argued that, starting in 2021, the “Double Reduction” policy implemented at both national and local levels had rendered their original “college entrance exam cram school” business unsustainable, forcing them to transition to the lower-revenue “full-time secondary vocational education” program. Coupled with a significant increase in faculty and staff costs, continuing to pay the high cooperation fees stipulated in the original contract would be manifestly unfair; therefore, they requested that the arbitral tribunal apply the “change of circumstances” principle to adjust the contract price.
Our attorney astutely identified a logical flaw in the opposing party’s argument: the timeline. Our attorney pointed out that the various documents pertaining to the so-called “Double Reduction” policy had already been issued and implemented as early as 2021, whereas the training school voluntarily entered into the “Contract Amendment Agreement” as a contracting party to assume all rights and obligations on December 29, 2023. By that time, more than two years had passed since the policy’s introduction, and the relevant policy environment had long been clear. Therefore, the respondent’s so-called “transformation” was a business restructuring undertaken by the training school with full knowledge of—and even in response to—the policy, constituting an autonomous and voluntary commercial decision. The alleged operational difficulties were entirely commercial risks that the school should have foreseen and borne, and had no bearing on the legal doctrine of change of circumstances.
The Arbitration Tribunal’s ruling fully corroborated the professional judgment of the legal counsel: at the time of signing the agreement, the training school “was already fully aware of the existence of the ‘Double Reduction’ policy documents it cited.” Under these circumstances, it voluntarily entered into the agreement to assume the rights and obligations of the contract, which “was entirely a decision and expression of intent made by the training school after fully considering the existence of the ‘Double Reduction’ policy and the fact that it had been in effect for over two years.”
IV. Changing the Respondent Twice: Unraveling the Opponent’s Deregistration Puzzle
Just as the arbitration proceedings were progressing steadily, we received documents from the arbitral tribunal and only then learned that a certain educational institution, acting as a guarantor, had quietly completed its deregistration during the arbitration without notifying the client. After our lawyers submitted an application to change the respondent, they suddenly discovered that the sponsor of the educational institution had also been deregistered without cause.
Faced with this sudden and complex procedural obstacle, our lawyers swiftly clarified the legal path forward and, in accordance with the law, obtained the deregistration records of the educational institution and its sponsor. These records revealed the members of the educational institution’s liquidation committee, as well as the equity structure of the institution’s sponsor.
Based on this, our lawyers pointed out that, pursuant to Article 71 of the Civil Code, the liquidation liability of private non-enterprise entities may be governed by the relevant provisions of the Company Law and its judicial interpretations. According to Article 11 of the “Provisions of the Supreme People’s Court on Several Issues Concerning the Application of the Company Law of the People’s Republic of China (II),” if the liquidation committee fails to fulfill its notification obligations, resulting in creditors not being repaid, the creditors have the right to claim compensation from the members of the liquidation committee.
Consequently, our counsel was compelled to file two consecutive motions to amend the list of respondents with the arbitration tribunal within a short period. The first motion, filed after discovering that a certain educational institution had been deregistered, sought to add the members of the institution’s liquidation group and the institution’s sponsor as respondents. The second motion, filed after discovering that the institution’s sponsor had also been deregistered shortly thereafter, sought to add the members of the institution’s liquidation group and the shareholders of the institution’s sponsor as respondents.
After deliberation, the Arbitration Tribunal determined that our procedural amendments were necessary and ultimately agreed to change one of the respondents in this case from the educational institution to the shareholder of the institution’s sponsor.
V. Rejecting the Counterclaim for Amendment and Upholding the Validity of the Contract
Despite two consecutive deregistrations failing to disrupt the proceedings, the respondent filed a counterclaim seeking to challenge the contract’s validity, arguing that the series of cooperation agreements in question were invalid due to violations of mandatory provisions of laws and administrative regulations.
The opposing party argued that the land and buildings in question were classified as allocated land. According to the relevant provisions of the *Interim Regulations on the Granting and Transfer of State-Owned Land Use Rights in Urban Areas*, the right to use allocated land may not be transferred, leased, or mortgaged, except as provided for in Article 45 of these Regulations. Therefore, they contended that the agreements in question were void ab initio due to a violation of mandatory administrative regulations, even submitting similar precedents from the Supreme People’s Court to bolster their argument.
Our attorneys mounted a full-scale counterargument and also submitted multiple similar Supreme People’s Court precedents to support our position. We explicitly pointed out that the restrictions imposed by administrative regulations on the transfer of allocated land do not necessarily render a civil contract invalid. Citing the relevant provisions of the “Interpretation of the Supreme People's Court on Several Issues Concerning the Application of the General Provisions of the Contract Section of the Civil Code of the People's Republic of China,” we argued that the legislative purpose of the “Interim Regulations on the Granting and Transfer of State-Owned Land Use Rights in Urban Areas” is to safeguard state interests such as land grant fees, and that these provisions do not constitute “mandatory provisions affecting validity” that directly negate the validity of a contract. Furthermore, the land in question has consistently been used for educational purposes, without altering its nature as “land for science and education” or harming the public interests of the state or society. More importantly, the client has consistently paid taxes to the tax authorities, ensuring the lawful and compliant use of the allocated land. Furthermore, the agreement at issue in this case had been effectively performed for several years. The opposing party, having long occupied and used the premises and derived business profits from them, only raised the issue of the contract’s validity when it refused to pay rent without cause. This action violates the most fundamental principle of good faith and should not be supported by the law.
The arbitral tribunal ultimately fully adopted the core arguments presented by our legal team. The award explicitly stated that the nature of the contract in this case is a lease agreement, and that the leased property “did not exceed the scope of educational use during the applicant’s period of use, nor did it alter the land classification (purpose) of ‘educational and scientific land’ as stated in the land title certificate”; furthermore, “recognizing the contract as valid will not affect the realization of the regulatory objective.” Ultimately, the agreement at issue in this case was confirmed to be legally valid.
VI. Core Claims Fully Supported, Litigation Disputes Simultaneously Resolved
After multiple rounds of legal battles, a certain arbitration commission ultimately issued a ruling highly favorable to our side, almost fully supporting all of the client’s core arbitration claims: the validity of the contract was confirmed; the contractual relationship was completely terminated; the principal amount and interest of the outstanding debt were fully awarded; the return of all premises involved was ordered; the costs of unlawful occupation were borne by the opposing party; and reasonable expenses incurred in asserting rights were supported.
Upon receiving the award, the respondent’s previous defiant attitude instantly crumbled. In a separate case involving a 2019 contract dispute currently pending before a certain court, the respondent proposed mediation with the client, agreeing to settle all litigation claims raised by the client under the 2019 contract dispute.
More importantly, since our legal team filed applications for property preservation with both the arbitration tribunal and the court concurrently with the initiation of arbitration and litigation, the respondent’s bank accounts were frozen. Ultimately, the client successfully recovered all outstanding amounts through the frozen bank accounts, recouping economic losses amounting to several million yuan.
With this, the case has been successfully resolved, marking the comprehensive success of the holistic rights protection strategy designed by our legal team for the client.
VII. Conclusion
The successful conclusion of this case not only recovered substantial financial losses for the client but also, through a well-reasoned and well-supported award, effectively upheld the sanctity of contracts and the authority of the law. It demonstrates that our lawyers’ comprehensive professional strategy—spanning procedural and substantive matters, legal characterization, and evidence organization—withstood the rigorous test of complex adversarial proceedings and ultimately achieved a resounding victory.
The value of legal services lies not merely in securing a favorable judgment on paper, but in transforming legal rights into tangible safeguards of interests through professional strategies and relentless effort. The success of this case is a vivid embodiment of this philosophy.
Translated with DeepL.com (free version)
