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2021

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07

Lawyer Zhang Liying from Legal Shengbang said: Is the mediation agreement invalid due to violation of mandatory management regulations?

According to Article 96 of the Civil Procedure Law, "When a mediation agreement is reached, both parties must voluntarily and not be forced. The content of the mediation agreement shall not violate legal provisions. Is the "legal provision" here equivalent to Article 52 of the Contract Law or Article 153 of the Civil Code regarding the invalidity of contracts, which is limited to "mandatory provisions on validity"?


1、 Focus issues

Is the mediation agreement invalid due to violation of mandatory management regulations?

 

According to Article 96 of the Civil Procedure Law, "When a mediation agreement is reached, both parties must voluntarily and not be forced. The content of the mediation agreement shall not violate legal provisions. Is the "legal provision" here equivalent to Article 52 of the Contract Law or Article 153 of the Civil Code regarding the invalidity of contracts, which is limited to "mandatory provisions on validity"?

 

2、 Case Review

In 2001, a certain asset company filed a lawsuit in court over a financial loan contract dispute with a certain motor factory. During the trial, the court presided over mediation, and both parties reached and signed a mediation agreement. The defendant motor factory agreed to use all of its assets to offset the debt. The court hereby issued a civil mediation agreement numbered 283. The content of this mediation agreement is: 1. The motor factory shall repay the outstanding principal and interest with all its existing fixed assets, including land, property, and equipment, before May 25, 2001; 2、 The motor factory assists the asset company in handling the asset transfer procedures; 3、 The litigation fee of 156267.35 yuan in this case shall be borne by the motor factory.

 

But at that time, both parties and the court did not notice an issue, that is, the motor factory is a state-owned enterprise, and its mediation content involves the transfer of state-owned assets such as land and property. According to Article 3 of the Measures for the Administration of State owned Assets Evaluation, If a state-owned asset occupying unit has one of the following circumstances, it shall conduct asset evaluation: (1) asset auction or transfer; (2) enterprise merger, sale, joint operation, or stock operation; (3) establishing a Sino foreign joint venture or Sino foreign cooperative enterprise with foreign companies, enterprises, and other economic organizations or individuals; (4) enterprise liquidation; and (5) other situations that require asset evaluation in accordance with relevant national regulations. Article 4 of the Interim Measures for the Administration of the Transfer of State owned Property Rights of Enterprises stipulates that "the transfer of State owned property rights of enterprises shall be publicly conducted in property rights trading institutions established in accordance with the law, and shall not be restricted by regions, industries, investment or affiliation. If there are other provisions in national laws and administrative regulations, such provisions shall prevail. According to the above regulations, the transfer of state-owned assets should follow procedures such as reporting, evaluation, filing, and public listing for trading. The above regulations are mandatory, and there is a risk that mediation agreements may become invalid due to violations of mandatory regulations.

 

3、 Court Judgment

(1) First instance: According to Article 52 of the Contract Law, the mediation agreement is deemed invalid.

 

In 2015, the original trial court decided to retrial the case after discussion by the trial committee. In the first instance of the retrial, in response to the issue of the effectiveness of the mediation agreement reached by both parties, the court held that according to Article 96 of the Civil Procedure Law, "the mediation agreement must be reached voluntarily by both parties and cannot be forced. The content of the mediation agreement shall not violate legal provisions." According to this provision, the mediation reached by the parties must follow the principles of voluntariness and legality. Although the mediation agreement in this case was reached by the asset company and the motor factory themselves, the motor factory is a state-owned enterprise, and its mediation content involves the transfer of state-owned assets such as land and real estate. According to Article 3 of the "Measures for the Administration of State owned Assets Evaluation" and Article 4 of the "Interim Measures for the Administration of State owned Property Rights Transfer of Enterprises", the transfer of state-owned assets should go through procedures such as reporting, evaluation, filing, and public listing for trading. The above provisions are mandatory, The parties to this case have reached a mediation agreement to determine the assets to be paid, but have not fulfilled the above procedures. In accordance with Article 52 (5) of the Contract Law, which stipulates "violation of mandatory provisions of laws and administrative regulations" and the invalidity of the contract, the mediation agreement reached by both parties should be deemed invalid, and the mediation agreement should be revoked.

 

(2) Second instance: It is believed that the content of the mediation agreement in the Civil Procedure Law shall not violate legal provisions, which is not limited to narrow legal provisions or mandatory provisions on validity. Therefore, the mediation agreement is deemed invalid.

 

In 2016, the asset company appealed to the provincial high court against the judgment of the first instance retrial. The asset company claims that Article 88 of the Civil Procedure Law (1991) stipulates that "the content of the mediation agreement shall not violate legal provisions". The Measures for the Administration of State owned Assets Evaluation and the Interim Measures for the Administration of Transfer of State owned Property Rights of Enterprises are administrative regulations and departmental rules, not laws. The settlement agreement reached between the two parties in 2001 did not violate legal provisions. And the provisions of Article 3 of the Measures for the Administration of State owned Assets Evaluation and Article 4 of the Interim Measures for the Administration of Transfer of State owned Property Rights of Enterprises are both mandatory provisions for management, rather than mandatory provisions for effectiveness. The first instance judgment, based on Article 52 of the Contract Law, determines that the invalidity of the mediation agreement is a legal error. The Provincial High Court has determined that the mediation agreement, as a legal document made by the people's court to confirm the content of the agreement between the two parties, should have a different standard for reviewing the legality of its content from the validity confirmation standard of civil contracts. The term "law" in Article 96 of the Civil Procedure Law, which states that the content of a mediation agreement shall not violate legal provisions, is not limited to laws and should include administrative regulations; Mandatory regulations "are not limited to mandatory regulations on effectiveness, but also include mandatory regulations on management. Therefore, the first instance court determined that the mediation agreement was invalid due to violation of the provisions of the "Management Measures for State owned Assets Evaluation", and revoked the original civil mediation agreement, which was correct and maintained.

 

(3) Reexamination: uphold the original judgment

In 2017, the Supreme Court conducted a retrial of the case and ultimately upheld the verdict of the second instance.

 

4、 Analysis of Judgment Thinking

The key to the trial of this case lies in two aspects: firstly, the nature of the mediation agreement and whether the mediation agreement is equivalent to a general civil contract, thus applying the provisions on the effectiveness of general civil contracts. The second issue is the issue of legal interpretation, and how to understand the provision in Article 96 of the Civil Procedure Law that "the content of a mediation agreement shall not violate legal provisions".

 

(1) Regarding the nature of the mediation agreement

 

1. Understanding of the provisions on contract invalidity in the Contract Law and the Civil Code.

 

As is well known, both the previous Article 52 of the Contract Law and the current Article 153 of the Civil Code adopt an attitude of distinguishing between mandatory norms of effectiveness and mandatory norms of management in determining the effectiveness of civil legal acts. For those who violate the mandatory provisions on effectiveness, the contract can only be deemed invalid. For those who violate the mandatory provisions on management, their effectiveness should be determined based on the specific situation.

 

2. Should the mediation agreement in this case be equivalent to a general civil contract, thus applying the provisions of the Contract Law on the invalidity of contracts?

 

Although the first instance court found the mediation agreement invalid, it invoked the provisions of Article 52 of the Contract Law when applying the law. The act of the first instance court invoking Article 52 of the Contract Law as the basis for judgment reflects the fact that the first instance court recognizes that mediation agreements are equivalent to general civil contracts, thus directly applying the provisions of the Contract Law on contract invalidity.

 

The second instance court, starting from the nature of the mediation agreement, believes that the mediation agreement reached under the auspices of the people's court is different from the contract freely reached by the parties, and its legality requirements should be expanded. The review criteria for the legality of the content of the mediation agreement should be different from the validity confirmation criteria of civil contracts.

 

The Supreme Court did not make a direct evaluation of the court of first and second instance's determination of the nature of the mediation agreement, but skillfully applied the broader rules of principle. On the grounds of "the principle of voluntariness, fairness, compensation for equal value, honesty and credibility in civil activities", the Supreme Court found that the mediation agreement violated this principle and was invalid, which in fact avoided the determination of the nature of the mediation agreement in this case.

 

(2) Legal Interpretation Issues Regarding Article 96 of the Civil Procedure Law

 

Article 96 of the Civil Procedure Law stipulates: "In order to reach an agreement through mediation, both parties must voluntarily and not be forced. The content of the mediation agreement shall not violate legal provisions." This is the principle of legality that civil mediation should follow. If this provision is violated, the mediation agreement shall be invalid.

 

But the question is, how should the "legal provisions" in Article 96 of the Civil Procedure Law be understood? This issue can be further divided into two points: firstly, does "legal provisions" belong to a narrow sense of law, which is limited to laws formulated by the National People's Congress and its Standing Committee? Secondly, should "legal provisions" be limited to whether they are mandatory provisions for effectiveness or regulatory purposes?

 

1. The first and second instance courts, as well as the Supreme Court, both believe that the "legal provisions" stipulated in Article 96 of the Civil Procedure Law are not limited to laws formulated by the National People's Congress and its Standing Committee. Therefore, they have cited the provisions of the "Measures for the Administration of State owned Assets Evaluation", which are formulated by the State Council and belong to administrative regulations. There is not much theoretical controversy about this point. From the perspective of legislative purposes, the "legal provisions" stipulated in Article 96 of the Civil Procedure Law should also include administrative regulations, otherwise there may be a risk of "administrative regulations" being "elevated" by the people's court's mediation agreement.

 

2. During the trial, the first instance court did not distinguish between effectiveness mandatory provisions and management mandatory provisions, resulting in inconsistencies in the actual application of the law. The first instance court applies both the "Management Measures for State owned Assets Evaluation" and the "Interim Measures for the Management of Transfer of State owned Property Rights of Enterprises" as mandatory administrative provisions, as well as the provisions of Article 52 (5) of the Contract Law, which clearly cannot achieve the purpose of proving the invalidity of the mediation agreement. The asset company was also very sensitive to this error and focused on debating this point in the second and second trials, which also sparked the discussion in this article.

 

The second instance court clearly pointed out that Article 96 of the Civil Procedure Law is understood as a special provision of the Civil Procedure Law on the effectiveness of civil mediation agreements. Whether it violates the mandatory provisions on effectiveness or the mandatory provisions on management, the mediation agreement will be invalid, which is the difference between civil mediation agreements and general civil and commercial contracts.

 

During the retrial, although the Supreme Court did not directly reason or determine this issue, it ultimately upheld the judgment of the second instance, believing that it was not inappropriate. This at least indicates that the Supreme Court does not hold any objections to the views of the second instance court.

 

Note: The case involved in this article is the dispute over the financial loan contract between China Eastern Asset Management Co., Ltd. Heilongjiang Branch and Harbin Second Electric Machinery Factory [Case No.: (2017) Supreme Court Civil Zai No. 225]