On March 27, LegalOne, an internationally renowned legal services rating and research organization, announced that the case “Reversal of the Second-Instance Judgment in the Dispute Over the Transfer of Trust Beneficiary Rights Between a Subsidiary of Hong Kong’s New Henderson Group and Huarong Company,” handled by the Gongpi Law Firm team, had been awarded a LegalOne Merits rating.
Basic Facts of the Case
This case originated from a transaction in which a Hong Kong-based business acquired non-performing assets in mainland China. Huarong Ruitong Asset Management established a trust with claims against a subsidiary of China Huaxin Group, totaling over 4.2 billion yuan. The trust’s beneficial interests were divided into senior and junior tranches, with the junior tranche valued at 2 billion yuan and transferred to Shanghai Cenye Trading Co., Ltd., a subsidiary of Hong Kong’s New Henderson Group, Gao Jingde, Chairman of the Board of Directors of the New Hengji Group, and twelve companies under the group—including Tianhao Group Co., Ltd., Asia-Pacific High-Tech Investment Co., Ltd., and (Shenzhen) Century Jingyuan Technology Co., Ltd.—provided guarantees. Prior to the signing of the agreement, Shanghai Cenyue had paid a 200 million yuan deposit. After the agreement was signed, Huarong Ruitong failed to complete the registration of the transfer of trust beneficiary rights as agreed. Compounded by factors such as the pandemic, the parties signed two extension agreements regarding payment and guarantees. After the extension agreements expired, Huarong Ruitong still had not completed the transfer registration, and Shanghai Cenyue consequently refused to pay the remaining 1.8 billion yuan in transfer funds, leading to a dispute between the two parties.
Huarong Ruitong previously filed a petition with the High Court of Hong Kong to wind up (declare bankrupt) Gao Jingde and the Hong Kong company to settle the debt, but later withdrew the application. Subsequently, Huarong Ruitong filed this lawsuit with the Beijing Financial Court, claiming that Shanghai Cenyue should pay liquidated damages arising from the failure to pay the remaining purchase price, and that each guarantor should bear joint and several liability. After a first-instance trial, the Beijing Financial Court ruled that Shanghai Cenyue, as the transferee, had breached the contract by failing to pay the transfer consideration. The court ordered Shanghai Cenyue to bear liability for late payment of approximately 420 million yuan, with the guarantors bearing joint and several liability. Shanghai Cenyue and the guarantors appealed the first-instance judgment.
Challenges and Significance of the Case
Trusts and their derivative products are highly specialized and complex. Most corporate operators lack familiarity with them, and professional institutions such as asset management companies and trust institutions often leverage their expertise to design intricate transaction structures, with contractual arrangements frequently disadvantageous to the counterparties. Once a dispute arises, the counterparties are generally at a disadvantage, making the practical handling of such cases particularly challenging for attorneys. Extracting valuable evidence from thousands of pages of case materials and corporate records; employing a “piercing the corporate veil” approach to analyze the underlying trust assets and argue for the invalidity of the trust; devising a comprehensive litigation strategy encompassing administrative complaints, criminal charges, and civil appeals; and utilizing a case-handling methodology involving team discussions and repeated debates—all of these demonstrate King&Capital Law Firm’s professional mastery and practical experience in handling difficult and complex cases. When the court notified the appellants that they were each required to pay a total of nearly 30 million yuan in appeal fees, the legal team vigorously argued their case and engaged in repeated communications. Ultimately, the court agreed to accept a single payment of the appeal fee, saving the client tens of millions in appeal costs. This small victory in the representation process embodies King&Capital Law Firm’s professional philosophy of “living up to the trust placed in us.”
Although the second-instance judgment did not invalidate the contract, it fully accepted the King&Capital Law Firm’s arguments and evidence regarding the opposing party’s breach of contract. The court ruled that the transferee’s failure to pay the transfer consideration constituted the exercise of the right of prior performance, did not constitute a breach of contract, and therefore did not give rise to liability for breach. Consequently, the first-instance judgment was overturned, and all of the opposing party’s claims were dismissed. This judgment corrected the first-instance ruling’s erroneous imposition of a 420 million yuan penalty on the transferee and clarified the judicial principle that “since the other party failed to fulfill its obligation to transfer the trust beneficiary rights (the trust had already been terminated, making the transfer impossible), our party is not required to pay the 1.8 billion yuan transfer consideration.”
This case concerns the protection of investment interests of Hong Kong enterprises in mainland China. The reversal of the judgment serves as a judicial warning against the financial malpractices in mainland China’s financial markets where trusts are used as tools to defraud clients. It is a landmark case that demonstrates judicial justice in mainland China and clarifies the business environment there.
