( October 27 ,1995 )
The High People's Courts of All Provinces, Autonomous Regions and Municipalities Directly under the Central People's Government and the Military Courts of the Liberation Army:
We hereby issue you the Summary of the Supreme People's Court of the Symposium about the Handling of Controversies over Futures, and hope you refer to it and have it implemented. All local areas shall submit reports to this Court without delay whenever issues occur in the course of the implementation of this Summary.
Summary of the Supreme People's
Court of the Symposium about the Handling of Controversies over Futures
A symposium was held on from 18th to 21st April 1995 by the Supreme People's Court at Chengdu Municipality of Sichuan Province, with the judicial personnel relating to the handling of controversies over futures of the 14 high people's courts and 6 intermediate people's courts at provincial and municipal levels, which was sponsored by Xi Xiaoming, the deputy director?general of the Economic Division of the Supreme People's Court, with Tang Dehua, the vice?president of the Supreme People's Court presenting himself and launching a speech at the meeting. Upon the careful discussion of the participants in the meeting, some basically accordant opinions to the main issues relating to the present handling of controversies over futures were reached. We hereby state the Summary as follows:
I. Concerning the principles to be observed in the course of handling controversies over futures. It was considered during the meeting that controrersie, over futures are a new kind of cases, it is an important task for the people's courts presently to do a good job in the handling of the controversies over futures justly and without delay that were formed under the blind and disordered situation of futures market in the previous period, protect the legal rights and interests of the parties, crack down on the illegal trades and maintain the normal market order of futures. The handling of this kind of controversies is characterized by strong policy and lacks legal basis; this kind of controversies has their vivid characters to contrast with other economic controversies. Therefore, it shall be required to adhere to the following principles with special attention in the course of the handling of this kind of controversies;
1. Adhering to the principle of applying laws in a correct way. Presently, the law of this Country on futures transaction has not been issued, so the people's courts shall handle controversies over futures on the basis of the General Principles of Civil Law and at the same time in light of relevant administrative regulations and local regulations, as well as with reference to the provisions of nomiative documents on futures transaction formulated by the pertinent departments under the State Council and the local people's governments. However, it shall be not proper to directly quote this kind of documents. It shall be stated clearly drat the provisions on commissioning of the Law on Economic Contracts and the General Principles of Civil Laws shall not be applicable when handling controversies over the agency of futures between a client and the broker company. The handling of controversies over fixtures concerning foreign, Hong Kong or Macao interests shall refer to relevant international practices as well.
2. Adhering to the principle of the confomrity of risk and profits. Both the speculating and the risk characters of futures transaction are strong, which requires a futures negotiant to be provided with risk consciousness. A people's court shall not only protect the legal interests of the two parties of a future txulcaction according to law in the light of the character of futures transaction in the course of handling the relations between risks and interests when handling controversies over futures, but also make correct determination of the risks for them to take respectively which is incompatible with any of the parties only enjoying his interests and not taking any risk, or only taking his risk and not enjoying any interests.
3. Adhering to die principle of the conformity of offence and liabilities. In the course of the handling of controversies over futures, it shall be required to adhere to the principle of the conformity of offence and liabilities, which requiring the carefully analyzing whether each of the parties has offences, the character, the extent of the offences and the relationa of the cause and effect between the offences and the losses, and to determine the specific liabilities for them to take.
4. Adhering to the principle of respecting the legal agreement between the parities. Any and all of the agreements between the parties shall be treated as the foundation of the handling of the controversies between the parities as long as the agreements do not conflict with the provisions of laws, administrative regulations and the traditional practices relating to the futures transaction.
The meeting also concluded that most of the controversies over futures accepted by the people's courts presently happen under the conditions that the !inures market in the previous period was disordered, that the acts of each of the parties in the course of the futures transaction were quite irregular and that the laws and regulations relating to futures transaction were not perfect. Therefore, it shag' be required to take a cautious attitude when accepting and handling this kind of controversies. Administrative or other pertinent departments in advance may salve some of these controversies, and those that are not really solved and must be solved through the proceedings of the court shall be accepted according to law. In the course of the handling, if the controversies are hard to be solved, concern a wide extent or relating to the stability of the society, it shall be required to initiatively listen to the opinions of the administrative organs of futures and other pertinent departments, and request for instructions from the courts at higher levels when necessary in view of the timely, proper and just handling of the controversies.
II. Concerning the jurisdiction of controversies over futures. The meeting concluded that this kind of cases have a strong character of specialization and arc hard to be dandled, therefore, they shall usually be under the jurisdictions of the intermediate people's courts of the places where the defendants stay, the futures exchanges, the brokers' companies or the branch organs of the futures brokers' companies that have obtained their business licenses. In the places where this kind of controversies is comparatively centralized and the judicial personnel are of
I comparatively high quality, with the approval of the high people's courts, basic
people's courts are also entitled with the jurisdictions. The jurisdictions over those controversies over fixtures concerning foreign, Hong Kong and Macao interests shall be subject to the provisions of Chapter 25 of Part IV of the Civil Procedure Law. If a high people's court acts as one of first instance, it shall be rcyuired to h :vc it submitted to the Supreme People's Court for its approval.
III. Concerning the qualification to engage in the busmess of futures transaction. The meeting concluded that the futures brokers' companies that u?aged in domestic brokers' business within the approved scope of business upon the approval anti regitration of pertinent organs before the issuance of the mcem:. Measures on the Registration and Management of Futures Brokers' Companies (hereinafter referred to as the "Interim Measures") of the State Administration for Industry and Commerce on 28th April 1993, shall be cognized to be ones that have the qualification of subject of engaging in business of fixtures brokers. The fixtures brokers' companies that were re?registered or ratified for individual item by the State Administration for Industry and Commerce after the issuance of the Interim Measures, or those that have applied for the registration or ratification within the prescribed period, with the application having not been approved or ratified but the original registration having not been changed or written off, shall be cognized to be ones that have the qualification of subject of engaging in business of fixtures brokers within their ratified scope of business. Those that fill to hand in applications for reregistration at the expiration of the period after the issuance of the Interim Measures, or the administrative organs in charge of the registration after the application make a decision on the changing or writing?off of the original registrations, or the applications shall not be approved or their qualification shall be abrogated upon the auditing of the Chinese Securities Supervisory and Administrative Committee, shall be cognized to be ones that have not the qualification of subject of engaging in business of futures any more as of the formal publicized date by the Chinese Securities Supervisory and Administrative Committee.
The meeting also concluded that those that engaged in overseas fixtures brokers' business within the approved scope with the approval and registration of the pertinent organs before the issuance of Transmitting dated on 16th May 1994 of the General Office of the State Council on the Request for Instructions of the Securities Committee under the State Council on the Opinions on the Adhering to the Controlling of the Blind Development of Futures Market, may be cognized to be ones that have the qualification of subject of business. None of the futures brokers' companies is entitled with the qualification of subject of engaging in overseas futures brokers' business after the issuance of the said document. Few of the national companies whose scopes of business include import and export business and whose ratification is being gone through by the Chinese Securities Supervisory and Administrative Committee may be cognized to be ones that have the qualification of subject before the end of the ratification and shall obtain the Overseas Futures Business Permits issued by the Chinese Securities Supervisory and Administrative Committee after the ratification, otherwise, they shall be cognized w be ones that have not the qualification of subject of business. Those have not obtained the Permits for Foreign Exchange Business and the Permits for Foreign Exchange Futures Business, which are issued by the National Bureau of Foreign Exchange but engage in foreign exchange futures shall be cognized to be ones that do not have the qualification of subject of the said business.
IV. Concerning the legal status of a broker and the bearing of civil liability. The meeting concluded that none of the employees of a futures brokers' company is entitled to bear external civil liability independently and the liability arising from his acts by mandate shall be born by the futures brokers' company where he stays. However, if a broker shall bear the civil liability deriving from any act out of his position by himself.
V . Concerning the handling of disputes over breach of contracts. The meeting concluded that:
1. A fixtures exchange shall bear the liability of the guarantee of the performance of the fixtures contract in the course of futures transaction. When any party of them fails to perform the obligation prescribed in the future contract at the exact time and comprehensively, the exchange shall take its place and perform the contract; if it fails to do so, it shall bear compensation liability. After the performance for the party, the exchange is entitled with the right to have it recovered from the one party that fails to firlfill its obligation.
2. A brokers' company is entitled to refuse the execution of any dictate made by its clients in violation with the relevant laws, administrative regulations, departmental rules and the operating rules made by the exchange; a client who lakes a wrong dictate and causes a loss shall bear the liability by himself. Regarding a dictate lacking of descriptions, if the brokers' company conducts a transaction without the consent of the client who does not admit the transaction afterwards, the brokers' company shall bear the consequences of the transaction; regarding a dictate lacking of only quantity, the practical transaction quantity shall prevail; regarding a dictate lacking of only validation duration, it shall be regarded as one when the commission shall be effective at the date of the commission; regarding a dictate lacking of only price, it shall be regarded as one that shall be transacted on the 11asis of the market price.
3. A brokers' company shall exercise the dictate of its clients correcrfy :ma :a time, and shall take the compensation liability due to wrongly exercising the dictate of the clients and causing losses to the clients.
4. If a client assigns his employees to concretely operate the transaction, the names of the operators shall be determined in the agreement of bailinent or leave the power of attorney issued by their legal representative in the brokers' company. In the course of transacting, the brokers' company shall only carry out the transactions in accordance with the dictates of the operators of the client, if the brokers' company accepts dictates not made by the operators, the brokers' company and the dictator shall co?bear the liability.
5. After the conclusion of a transaction, a brokers' company shall have its cuents informed of the results of the transaction within the prescribed time, and shall take the compensation liability if its delay in doing so results in a loss to the client. However, if the notice is not served in time not because of the brokers' company's fault, it shall be required to treat in accordance with different conditions.
6. A brokers' company or a client shall superadd caution money as per the agreements in the course of a futures transaction. If a brokers' company or a client fails to superadd caution money within the prescribed time after the receipt of the notice of the superaddition of caution money, the exchange or the brokers' company may forcibly balance the futures contract that has not be balanced, and the losses caused by the forcible balance shall be burdened by the brokers' company or the client. An exchange or a brokers' company that forcibly balance before fi,1fi11ing its obligation of notifying, if resulting in a loss to the brokers' company or the client, shall bear the compensation liability.
7. A contract shall be breached if within the prescribed period of complement of a business transaction, the seller does not hand in the valid bill of lading or the purchaser does not pay the full amount of the payment for goods to the account of the exchange, after the complement of the business transaction, if the seller fails to consign the goods as per the prescribed time, quality or quantity, or the purchaser fails to pick up the goods as per the prescribed time, and the party who breaches the contract shall bear the liability of breach of a contract in accordance with the rules made by the exchange. A warehouse that receives the goods of a seller by the mandate of the exchange shall h,1fi11 the checking and accepting liability, and if the warehouse fails to put forward its dissent within the prescribed period or causes a loss due to bad maintenance, the seller shall not bear any liability but the exchange shall take the liability of breach of a contract to the purchaser, and then recover the compensation from the warehouse.
8. A futures brokers' company shall provide equipment in good condition for its member companies to use, and shall take the compensation liability if losses result from the malfitnction of the information equipment to the members or clients. However, if the reason of the equipment malfunction is out of the reasonable controlling scope of the exchange, the exchange may be accepted from liability.
VI. Concerning the handling of controversies over infiingement of rights in the course of futures transactions. The meeting concluded that the people's courts shall carry out careful investigation upon whether there is a relationship of cause and result between the infringement activities and the loss and whether the actors have faults when handling a controversy over infiingement of rights and determine the civil liabilities of the parties in light of the extent of the faults without mistakes. The party that has a fault shall bear the compensation liability to the losses of the party drat does not have any fault; if both of the parties have faults, they shall take corresponding liabilities respectively.
The meeting also concluded that a brokers' company shall deposit the caution moiicy of its client and its own capital in different accounts, with special finds being used for special purposes, and shall compensate if it misappropriates the caution money of the client and causes a loss to the client. A member company or a client who overdraws shall return the funds of the exchange or the brokers' company it occupies; if a brokers' company allows its members to overdraw, the exchange shall take the liability to the loss thereto; if a brokers' company allows its clients to overdraw, and reaches an agreement with them to share the profits and bear the risks, the client shall take the prescribed liability to the losses resulting from using overdrawn finds to transact; if there are no such agreements, the brokers' company shall take the liability.
VII. Concerning the invalid civil acts relating to futures transactions and their
civil liabilities. The meeting concluded that the following acts relating to futures
transactions shall be cognized as one invalid:
1. Where the brokers' company has not the qualification of subject of engaging in futures brokers' business but engages in futures broke' business;
2. Which is conducted by the opposite party against his true will through seducing by means of cheating;
3. Where the brokers' company produces and scatters fake information, resulting in the client's placing the order;
4. Where the brokers' company discusses secretly or gambles with the client and has other irregular operations;
5. Which violates laws or social public interests.
If any of the above?mentioned invalid acts results in losses of caution money or commissions to the parties, it shall be required to determine the liabilities in light of the relations of cause and reason between the invalid acts and the losses, if the loss of one party is found to be a result of the act of the opposite party, the opposite party shall take the liability of compensating the loss; if the loss of one party pertains to normal risks, other than a result of the act of the other party, the other party shall not be judged to take the liability of compensating the loss, for example, if a client engages in futures brokers' business without authority, if there are evidences to prove that the futures brokers' company has entered and carried out transactions in the futures transaction market as per the dictate of the client, the loss of the client pertains to one with normal risk and the brokers' company shall not bear any civil compensation liability.
The meeting also concluded that the party who exercises an invalid civil act shall be given civil a punishment in accordance with relevant provisions of the General Principles of Civil Law and other laws and on the basis of concrete conditions. Those whose offences constitute crimes shall be transferred to the pertinent organs and investigated into criminal liabilities according to law.
VIII. Concerning foreign exchange transactions with deposit. The meeting concluded that foreign exchange transactions with deposit pertains to a kind of longterm foreign exchange spot transactions other than futures transactions essentially, but they are similar with futures transactions formally. The handling of this kind of cases may be subject to the relevant principles on that of controversies over futures. Both to carry out foreign exchange transactions with deposit without approval of the Securities and Administrative Committee and the National Bureau of Foreign Exchange Administration and for a client to carry out foreign exchange transactions with deposit by an organ that has not been approved and registered are illegal activities. A client is entitled to reclaim for the return of the remaining caution money. When a client claims for the compensation of a loss, it shall also be required to carry out careful analyse on the relationship of cause and reason between the loss and the act, and to handle in light of the principle o¡ê wrongs.
IX. Concerning the burden of producing evidence relating to futures controversies. The meeting concluded that the people's courts shall usually implement the principle of " Those prosecute shall burden the producing of evidence" prescribed in Article 64 of the Civil Procedure Law when handling controversies over futures, but if a client prosecutes and the brokers' company that has not entered and carried out transactions denies, the brokers' company shall burden the producing of evidence. If the brokers' company fails to provide corresponding evidences, it shall be deducted that it has not entered and corned out transactions.
The meeting also concluded controversies over futures are a kind of cases in a new type, hard to be solved and have a strong character of policy. In order to handle this kind of cases without delay and impartially, the people's courts at different levels shall transfer comparatively strong force and set up specialized collegial benches to concretely take the charge of the handing of this kind of cases. The people's courts at higher levels shall strengthen the supervisory instructions of the handing of controversies over futures and complete the judicial task of this group of controversies over futures in an initiative, cautious and reliable way.