The "Minutes of the Nine Civil Courts Conference" is the abbreviation for the "Minutes of the National Court Civil and Commercial Trial Work Conference". It is an important achievement of the 2019 Civil and Commercial Trial Work Conference. It is an important judicial document that aims to unify trial ideas and standardize judges' discretionary power in response to cutting-edge and difficult issues in civil and commercial trials. Although it is not a judicial interpretation, it is no less important than a judicial interpretation, and has a significant impact on the unified trial thinking of the entire court system. As a lawyer, one has to carefully understand and study it. During the study, it was discovered that Articles 52 and 53 of the "Minutes of the Nine Civil Courts Conference" may have a significant impact on the loan issue between construction companies and internal contractors. Therefore, I would like to share and discuss this with you.

 

1. Formation of Loan Relationship between Construction Enterprises and Internal Contractors

 

In the construction industry, a large amount of funds is required for each construction project. Project progress payments are often not paid smoothly, and even settlement is delayed for a long time. Or even if the settlement is made, the project settlement payment has not been received for a long time. In this vicious cycle, construction companies need to pay a lot of money in advance. In engineering construction practice, the construction company, as the general contractor, often entrusts the contracted project to employees who have a labor relationship with the construction unit in the form of internal contracting. The internal contractor is responsible for self-raising funds, independent accounting, and assuming sole responsibility for profits and losses, and pays a certain percentage of the contract fee to the construction company. Therefore, the internal contractor often borrows money from the construction company during the project contracting and operation period. Construction companies are usually more willing to lend money to internal contractors because the general contractor of the project is the construction company itself, and the project progress payment and project settlement payment are controllable. Secondly, construction companies can earn a certain interest spread and increase the income of the construction company.

 

2. General Rules for Determining the Validity of Loans from Construction Enterprises to Internal Contractors Before the Promulgation of the Minutes of the Nine Civil Courts Conference

 

Case: Zhejiang Provincial High People's Court (2015) Zhejiang Business Final No. 92 Civil Judgment.

Court's Judgment Rules:

If a loan contract or loan agreement is signed between the construction company and the internal contractor, stipulating the loan amount, loan period, interest rate, and purpose, which meets the legal characteristics of the loan contract. And the loan agreement has been actually performed, that is to say, the construction company actually pays the loan to the internal contractor or the account designated by the internal contractor in accordance with the agreement of the loan agreement.

 

If the internal contractor fails to return the loan to the construction company on time, the construction company may claim the return of the loan from the internal contractor, and the court will generally accept it and hear it independently of the internal contract.

 

3. Impact of the Promulgation of the Minutes of the Nine Civil Courts Conference on the Validity of Loan Contracts from Construction Enterprises to Internal Contractors

 

(1) Impact of Article 52 [High-Interest Re-lending] of the Minutes of the Nine Civil Courts Conference on the Validity of Loan Contracts from Construction Enterprises to Internal Contractors

 

Article 52 of the Minutes of the Nine Civil Courts Conference stipulates: [High-Interest Re-lending] In private lending, the lender's funds must be its own funds. The private lending behavior of a lender who obtains credit funds from financial institutions and then re-lends them to the borrower at a high interest rate increases the financing cost and disrupts the credit order. According to Article 14, Item 1 of the Judicial Interpretation on Private Lending, such private lending behavior should be deemed invalid.

 

 People's courts should pay attention to the following points when applying this provision:

 

 First, it is necessary to examine the source of funds of the lender. If the borrower can provide evidence that the lender still owes bank loans at the time of signing the loan contract, it can generally be presumed that the lender is obtaining credit funds, unless the lender can provide counter-evidence to overturn it;

 

 Second, the standard for identifying "high-interest" re-lending behavior should be broadly defined. As long as the lender profits through re-lending behavior, it can be identified as "high-interest" re-lending behavior;

 

 Third, the requirement of "the borrower knows or should have known in advance" in this article should not be grasped too harshly.

 

 In practice, as long as the lender has the fact that there are outstanding bank loans that have not been repaid at the time of signing the loan contract, it can generally be considered that the requirement of "the borrower knows or should have known in advance" stipulated in this article is met.

 

Through the above interpretation, that is to say, under the internal contracting system of construction enterprises, if the construction enterprise has evidence to prove that the construction enterprise still has outstanding bank loans that have not been repaid when signing a loan agreement with the internal contractor, and the interest rate agreed with the internal contractor is higher than the bank loan interest rate, then the construction enterprise's behavior of lending money to the internal contractor may be identified as a high-interest re-lending behavior, which is an invalid contract behavior.

 

(2) Impact of Article 53 [Professional Lenders] of the Minutes of the Nine Civil Courts Conference on the Validity of Loan Contracts from Construction Enterprises to Internal Contractors

Article 53 of the Minutes of the Nine Civil Courts Conference stipulates: [Professional Lenders] refers to the private lending activities carried out by legal persons who have not obtained the lending qualification according to law and are engaged in private lending as a business, as well as non-legal organizations or natural persons engaged in private lending as a business, which shall be deemed invalid according to law. If the same lender repeatedly engages in compensated private lending activities for many times within a certain period, it can generally be identified as a professional lender.

 

The "Minutes of the Meeting on Jointly Issuing Severe Crackdowns on Criminal Crimes Related to Private Loans and Strengthening Collaborative Governance of Private Lending" jointly issued by six departments including the Public Security Bureau, Procuratorate, and Law of Zhejiang Province, clearly recognizes that being included in the "List of Professional Lenders" should generally meet the following conditions:

 

 1. Taking the number of cases accepted and concluded in three consecutive years as the standard, the same or related plaintiff involves more than 20 private lending cases (including pre-litigation mediation, the same below) in civil litigation in the same basic court, or involves more than 30 private lending cases in civil litigation in the same intermediate court and its jurisdiction;

 

 

 2. Within the same year, the same or related plaintiff involves more than 10 private lending cases in civil litigation in the same basic court, or involves more than 15 private lending cases in civil litigation in the same intermediate court and its jurisdiction;

 

 3. Within the same year, the same or related plaintiff involves more than 5 private lending cases in the same intermediate court and its jurisdiction with a cumulative amount of more than 1 million yuan, or involves more than 3 private lending cases with a cumulative amount of more than 10 million yuan;

 

 

 4. If two or more of the following conditions are met, and the number of cases reaches more than half of the provisions in Items 1 and 2, it can also be identified as a professional lender:

 

(1) The IOU is in a unified format;

(2) The defendant argues that the plaintiff is not the actual lender or the plaintiff requires the principal and interest to be paid to a third party;

(3) The principal of the loan is claimed to be delivered in cash without other evidence to support it;

(4) The loan interest is pre-deducted when the principal is delivered, or the interest actually paid by the defendant is significantly higher than the agreed interest;

(5) The plaintiff refuses to appear in court without a legitimate reason or makes false statements about the facts of the case when appearing in court.

 

 In the construction industry, construction companies often undertake several, dozens, or even hundreds of projects simultaneously. Under the internal contracting system, a construction company may borrow money from dozens or hundreds of internal contractors, forming a loan relationship, and the amount of the loan is generally not small. This makes it easy to meet the conditions of a "professional lender" and be identified as such.

 

(III) The validity of loan contracts deemed as "high-interest relending" or involving "professional lenders" and the impact on construction project management

 

 

As stipulated in the Nine-Party Meeting Minutes, once such private lending behavior is identified as "high-interest relending" or a construction company is identified as a "professional lender," the loan contract it signs should be deemed invalid. After the contract is invalidated, the construction company can only request the return of the loan principal from the internal contractor or obtain a fee for the use of funds equivalent to the bank's loan interest rate for the same period.

If a loan agreement was signed before the issuance of the Nine-Party Meeting Minutes and the repayment obligation has not been fulfilled, or due to the issuance of the Nine-Party Meeting Minutes, disputes may arise, leading to lawsuits and a series of adverse effects. Such private loan disputes that are in litigation, or due to the issuance of the Nine-Party Meeting Minutes, may be deemed invalid contracts, resulting in the construction company being unable to realize all of its claims, causing significant losses to the construction company. Internal contractors may also be more cautious about lending to construction companies, leading to more difficult financing for internal contractors, and project construction funds may be disrupted, which is not conducive to the smooth construction of project development.