Zhiming lawyers' creative argument changes long-standing judicial practice

Zhiming lawyers' creative argument changes long-standing judicial practice

Villagers in Shenzhen now have a legal recourse for disputes with joint-stock cooperative companies

Led by our firm's director, lawyer Wang Tengfeng, with lawyers Cao Guanghui and intern lawyer Chu Shen handling the case, the dispute over the revocation of a company resolution between Mai Mouming and a Shenzhen joint-stock cooperative company was initially dismissed by the first-instance court. After our appeal, the Shenzhen Intermediate People's Court recently issued a second-instance ruling: revoking the first-instance ruling and ordering the original court to retry the case. Previously, courts in Shenzhen uniformly rejected or dismissed similar cases. This ruling has changed the judicial practice of Shenzhen courts regarding disputes between villagers and joint-stock cooperative companies, marking a historic turning point. This case has become a benchmark and milestone precedent for successfully seeking judicial relief in such cases in the future.

A certain joint-stock cooperative company in Shenzhen was established through the restructuring of a villagers' collective organization. Mai Mouming is a Class I cooperative shareholder of the company (an original villager). In order to enjoy the favorable policy stipulated in the company's articles of association that "reserved company shares shall be purchased by eligible shareholders in order of household registration time," in October 2016, Mai Mouming registered marriage with Pan Mouxing and subsequently had a son. According to the aforementioned articles of association, Mai Mouming's newborn son should rightfully be confirmed as having shareholder qualification and enjoy the right to purchase reserved shares. However, the company suddenly changed its position, arbitrarily adding and altering the conditions for shareholder subscription eligibility, and in July 2017, in the name of a board resolution, required Mai Mouming to provide a paternity test, failing which he would be deemed to have waived the right to purchase reserved shares. Mai Mouming believed that the board resolution was grossly unfair and infringed upon his lawful shareholder rights. In April 2018, after the first-instance hearing of the case, the court dismissed the plaintiff's lawsuit on the grounds that the company's nature belonged to a villagers' self-governance organization, and the resolution made by the board fell within the scope of villagers' self-governance and was not within the scope of civil litigation accepted by the court. Our shareholder's interests came to an abrupt halt at the very beginning of the rights protection process.

Before the second-instance appeal, our attorney conducted thorough preparations, exhausting the case retrieval system without finding any prior precedents favorable to us. Facing the adverse situation of the first-instance ruling, our attorney, after careful deliberation and research, shifted from mechanically applying the law and adopted creative argumentation. We drafted an innovative representation opinion, directly challenging the unreasonable ruling of the first-instance court and pointedly stating:

I. According to relevant legal provisions, the appellee is an enterprise legal person, not a villager self-governing organization.

Article 2 of the Regulations of the Shenzhen Special Economic Zone on Joint-Stock Cooperative Companies clearly provides that "a joint-stock cooperative company referred to in these Regulations means an enterprise legal person established in accordance with these Regulations, whose registered capital is constituted by the community collectively-owned property converted into equal shares and may include partly raised shares, where shareholders enjoy rights and assume obligations in accordance with the articles of association, and the company bears liability for its debts to the extent of all its assets."

According to Article 111 of the Constitution: “Residents’ committees and villagers’ committees established in cities and rural areas on the basis of residents’ places of residence are grassroots organizations of self-governance by the masses”; Article 2 of the Organic Law of Villagers’ Committees: “Villagers’ committees are grassroots organizations of self-governance by the masses through which villagers practice self-management, self-education, and self-service”; and Article 2 of the Organic Law of Residents’ Committees: “Residents’ committees are grassroots organizations of self-governance by the masses through which residents practice self-management, self-education, and self-service,” it can be seen that only villagers’ committees and residents’ committees are grassroots organizations of self-governance by the masses.

II. Based on the practice of reform and opening up, the disputed resolution made by the appellee's board of directors does not involve villager self-governance at all.

Since the establishment of the Shenzhen Special Economic Zone, significant changes have taken place in the economic development, village and town construction, and living environment of the rural areas within the Zone. In order to adapt to these changes and further develop the economy, raise the living standards of the people, accelerate the socialist modernization of the Special Economic Zone, and achieve the strategic goal of building Shenzhen into an export-oriented, multi-functional international city, the Shenzhen Municipal Party Committee and Municipal Government have long since carried out bold reforms to the management system of rural areas in the Special Economic Zone. Article 4 of the Interim Provisions on the Urbanization of Rural Areas in the Shenzhen Special Economic Zone, issued by the Shenzhen Municipal Party Committee and Municipal Government, explicitly stipulates: “The current management system of rural areas in the Special Economic Zone shall be transformed in accordance with the principles of functional decomposition, classification and rationalization, step-by-step implementation, and continuous improvement. That is, the two major functions of the original villagers’ committees—developing the collective economy and organizing villagers’ self-governance—shall be separated and assumed respectively by new collective economic organizations, residents’ committees, and subdistrict offices.”

The appellee is an urban collective economic organization established and refined on the basis of the former village collective enterprise, independently assuming the function of developing the collective economy. Moreover, Article 18 of the Regulations on Joint-Stock Cooperative Companies of the Shenzhen Special Economic Zone explicitly provides that the target subscribers for company shares include company employees who are not villagers of the village. If a joint-stock company could also practice villager self-governance, would non-villagers not be forcibly subjected to self-governance?! At present, the function of the former villagers' committee in organizing villager self-governance has been replaced by the residents' committee and the subdistrict office. The appellee merely assumes the function of developing the collective economy, and its conduct does not involve the function of organizing villager self-governance at all.

In summary, the times are always developing and changing, and the nature and functions of grassroots self-governing organizations and collective economic organizations have also undergone development and change. In fact, as early as September 2004, Shenzhen’s urbanization restructuring was fully completed, and this young city turned a new page———Shenzhen became the first city in the country without rural administrative divisions and a rural management system, and also the first city in the country without rural areas. However, the trial thinking of the court of first instance did not change in a timely manner and still viewed the relevant issues from the perspective of rural areas and villagers. The Shenzhen Special Economic Zone is a pioneer of reform, and the trial thinking of the courts should also break down barriers and boldly take the lead.

Today, the legal provisions concerning the fundamentally different natures of grassroots self-governing organizations and collective economic organizations are clear and unambiguous, and the functional positioning of the two is well defined. The respondent is by no means a villagers' self-governing organization, but a typical enterprise legal person. The first-instance court's finding that the case "does not fall within the scope of civil litigation accepted by the people's courts as provided by law" is a clearly erroneous judgment made under the misleading influence of rigid adherence to convention and inertial thinking in the application of law! The appellant earnestly requests the second-instance court to abandon the first-instance court's mechanical and rigid view and, based on the actual facts and in accordance with the law, correct the first-instance error!

In the end, our lawyer's strong innovative reasoning and interpretation of the law earned high recognition from the Shenzhen Intermediate People's Court. After careful deliberation and decision, the second instance court revoked the first instance ruling in accordance with the law and ordered the original trial court to reconsider. Lawyer Wang Tengfeng's literary and artistic rights litigation has once again successfully solved difficult and complex cases, creating another classic case for improving the judicial trial process and promoting the progress of the rule of law!