Joint Tortfeasance Penetrating Layers Of Nested Legal Relationships

Joint tortfeasance: Penetrating layers of nested legal relationships

Companies compromised by interconnected wrongdoing committed by multiple senior personnel can claim joint tortfeasance for a better chance of penetrating the multi-layered legal relationships that would otherwise complicate any efforts to seek relief

IIn recent years, the authors have dealt with a number of cases in which the person in charge, or the company’s CEO, or the managing partners of the partnership used their positions to harm the company’s interests. In such cases, the offenders, using their influence over corporate decision-making or control over official seals, compelled the companies to make certain decisions, or enter into capital contributions, loans, sales agencies or other pretend agreements with their related parties, which the related parties proper identities and basis to obtain benefits. Such transactions in fact conceal the illegal purposes of capital evasion, false capital contribution, embezzlement of dividends or misappropriation of corporate property.

BIG TAKEAWAY POINTS

The final damage of these cases is often caused by the superposition of multiple interrelated acts carried out by multiple perpetrators. Offenders based on different identities and legal conduct can be evaluated and fall into different legal categories, forming multi-layered, nested legal relationships involving Contract Law, Company Law, Partnership Enterprise Law or Property Law.

Chen Zhuo, Tian Yuan Law Firm
Chen Zhuo
Partner
Tian Yuan Law Firm
Tel: +86 138 1041 7260
Email: chenzhuo@tylaw.com.cn

These cases can be quite complex and difficult. In terms of subject matter, a focus on any isolated part of the action may be insufficient to reveal the full intent – ​​a malicious attack on the company’s interests – resulting in an inability to obtain adequate relief. In terms of procedure, due to the separate nature of pretend agreements and their different clauses on dispute resolution, it can be difficult to bring solvent infringers under a single lawsuit or arbitration, while the ineffective alternative of case-by-case lawsuits excessive costs of litigation or arbitration fees, as well as time.

In terms of technicality, without the other party providing evidence, it may be difficult to precisely apportion multiple actions and their damages based on existing evidence, while separate lawsuits may suffer from a lack of solid factual basis.

URGENTLY THE DILEMMA

To ensure adequate remedy, economic proceedings and, if possible, one-time resolution of conflict, it becomes necessary to penetrate the multiple layers of legal relations. In this regard, the authors believe that joint tortfeasance is a viable approach for the following reasons:

      1. It places no limit on the number of tortfeasors or torts, allowing it to cover multiple tortfeasors and legal actions;
      2. There are statutory requirements for the constitution of joint tortfeasance, while the existence of contractual or other relations between subjects is not considered as a basis for judgment;
      3. Jurisdiction of joint tortfeasance is subject to determination according to the legal provisions, which means that there is an opportunity to break through the limitation of dispute resolution arrangement in multiple contracts.

This litigation strategy is also conceptually accepted by legal practice. “Where directors or senior managers directly harm the company’s interests, breach their duties and take advantage of their positions, the conduct is essentially a willful offense and is no different in nature from other common offences. Where directors or senior managers conspire with others, or act in collaboration to commit a harmful act, this falls under the scenario of joint liability described in article 1168 of the Civil Code,” states article 35 of the sentencing guidelines of the Second Civil Division of the Higher People’s Court of Guangxi Zhuang Autonomous Region on various issues regarding the trial of corporate dispute cases.

Likewise, where other staff, fully aware of the misconduct of directors or senior managers, help to jeopardize the company’s interests and cause such damage, this falls under the scenario described in article 1169 of the Civil Code . Persons found to have jointly committed a tortious act, or to have aided or abetted the commission of such an act, shall assume joint and several liability.

PRACTICAL SUGGESTIONS

Yin Yutong, Tian Yuan Law Firm
Yin Yutong
Associate
Tian Yuan Law Firm
Tel: +86 138 1139 4158
Email: yinyutong@tylaw.com.cn

Since courts have their own division of labor, each accustomed to handling certain types of legal relationships but not others, along with the traditional philosophy of “one lawsuit per legal relationship,” they may tend to break up the lawsuit when faced with multiple . low nested legal relationships. In this regard, lawyers must make certain preparations in advance.

From the substantive perspective, strong arguments must be made for the overall fact of joint tortfeasance, with emphasis on proving the perpetrators’ cooperative intent and established joint action or assistance. Considering the normally higher burden of proof under common torts, if there is a special subject tort liability that is clearly established by law, lawyers can take advantage of the presumption of liability and skewed burden of proof under the special provisions by first establishing what the liability of special probationers, and then argue for joint or assisted tort involving other tortfeasors.

This can take some of the burden of proof off the company’s shoulders. In civil-criminal crossover cases, transcripts and investigative findings in the criminal proceedings can again be used as evidence to claim civil wrongdoing. Furthermore, it is possible to prove a lack of independence in the subjects’ declarations of intent based on their mutual relationships or any improper control exercised among themselves.

In terms of proceedings, lawyers can, when necessary, remind the court to pay attention to and respect the plaintiff’s right of disposal, and avoid separating the actions manually. The claimant is entitled, insofar as it is permitted by law, to bring a legal action on his chosen legal relationship, and the relevant facts and reasons are in line with the principle of disposal. The scope of the trial must therefore be limited to the plaintiff’s choice, and the case must not be divided on the basis of other involved but uncontested legal relationships.

Furthermore, in complex cases, the nature of legal relations can go through several back-and-forth interpretations. Consequently, a premature division of the case that ignores underlying ties and simply fits the pieces into existing legal models may end up being a step back from the goal of substantively resolving disputes.


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