Perspective | An exploration of litigation practices for non-enterprise, privately-run units

According to the provisions on jurisdiction in Chapter II of the Civil Procedure Law of China, basic-level people's courts have jurisdiction over first-instance civil cases; intermediate people's courts have jurisdiction over major cases involving foreign elements, cases with significant impact within their jurisdiction, and cases determined by the Supreme People's Court to be under the jurisdiction of intermediate people's courts; higher people's courts have jurisdiction over first-instance civil cases with significant impact within their jurisdiction; and the Supreme People's Court has jurisdiction over cases with significant impact nationwide and cases deemed by the Court to be under its jurisdiction.
 

Generally, cases with an amount in dispute below 50 million yuan are under the jurisdiction of the basic-level people's court where the defendant is located. However, since non-profit non-enterprise units are usually non-profit social service institutions such as schools and nursing homes, the cases they are involved in often have a significant impact. Therefore, when filing a lawsuit against them, it is necessary to comprehensively consider the circumstances of the case and choose a court with jurisdiction to file the lawsuit.

When suing a non-profit non-enterprise unit, the various investors of the non-profit non-enterprise unit are usually also listed as co-defendants. According to the usual practice of Chinese courts in filing cases, the plaintiff needs to provide the identity information of the defendant, and if the defendant is a legal person, it also needs to provide a business license or an enterprise credit information public disclosure report. The enterprise credit information public disclosure report can be downloaded from the "National Enterprise Credit Information Public Disclosure System".
 

It should be noted that the enterprise registration authority refers to the government agency responsible for managing and supervising the registration of companies, enterprises, or other organizations. It is usually the Administration for Market Regulation, but since non-profit non-enterprise units are social organizations engaged in non-profit social service activities, their registration authority is usually the civil affairs bureau. Therefore, the report cannot be downloaded from the "National Enterprise Credit Information Public Disclosure System"; it is necessary to communicate with the civil affairs department and bring the necessary materials to retrieve the relevant information.

In the evidence collection stage, in addition to collecting and sorting existing evidence, it is also necessary to consider whether the investors of the non-profit non-enterprise unit can be added as co-defendants and required to bear joint and several liability. Regarding whether investors can be added as co-defendants to bear joint and several liability, the following judicial precedents can be used for reference and discussion.

Case 1: Construction Engineering Contract Dispute between Beijing XX University Affiliated Zhengzhou (Xinmi) Foreign Language School, Kou Moujie, and Henan XX Construction Engineering Co., Ltd.
 

Case Number:(2024)豫01民终13005号

Case Summary:This case is a construction engineering contract dispute. The first-instance court ruled that the investor Kou Moujie should bear joint and several liability. In the second instance, Kou Moujie submitted the school's financial report and audit report, arguing that the XX Affiliated School is a legally established non-profit non-enterprise unit (legal person), and Kou Moujie is only the school's founder and should not bear joint and several liability for the school's debts. The school has been legally registered as a non-profit non-enterprise unit legal person, independently enjoying civil rights and independently bearing civil liabilities. 2. Current regulations do not stipulate that the founder of a non-profit school should bear responsibility for the school's debts. Referring to the provisions of the Company Law of the People's Republic of China concerning one-person limited liability companies, the determination that the school founder should bear joint and several liability for the school's debts lacks legality and rationality. According to Article 19 of the Law of the People's Republic of China on the Promotion of Private Education, the registration form of non-profit private schools is a non-profit non-enterprise unit or a public institution, and the Interim Regulations on the Administration of Registration of Non-profit Non-enterprise Units and the Interim Regulations on the Administration of Registration of Public Institutions apply. As a non-profit organization, the XX Affiliated School does not have the possibility of applying the Company Law of the People's Republic of China.

Judgment Result:The appeal is dismissed, and the original judgment is upheld.

Case Analysis:In this case, the second-instance court held that Kou Moujie did not submit evidence in the first instance to prove that the property of the XX Affiliated School was independent of Kou Moujie's own property, and the evidence submitted by Kou Moujie in the second instance was also insufficient to prove that the property of the XX Affiliated School was independent of Kou Moujie's own property. Since the XX Affiliated School is registered as a non-profit non-enterprise unit that does not independently bear civil liability, and Kou Moujie is the sole founder of the XX Affiliated School, the first-instance court's determination that Kou Moujie should bear joint and several liability for the debts involved in the case of the XX Affiliated School is not inappropriate, so the original judgment is upheld. This shows that when the sole founder cannot prove the independence of the property, he or she needs to bear joint and several liability.

Case 2: Housing Lease Contract Dispute of Xu Mouxi, Wu Mouzhong, etc.

Case Number:(2024)冀02民终4675号

Case Summary:This case is a housing lease contract dispute. The appellant believes that Tangshan Fengrun District XX Elderly Apartment is a non-legal person organization. A one-person limited liability company is a for-profit legal person, and the civil rights and liabilities of a one-person limited liability company apply to the provisions of the Company Law of China. Tangshan Fengrun District XX Elderly Apartment is a non-profit non-enterprise unit, and its civil rights and liabilities apply to the provisions of the Civil Code. There is a fundamental difference between a non-profit non-enterprise unit and a one-person limited liability company. Non-legal person organizations cannot be confused with the application of the provisions of one-person limited liability companies. The evidence submitted by the appellee does not prove that the appellant Wu Mouzhong participated in the operation and management of Tangshan Fengrun District XX Elderly Apartment. The income of Tangshan Fengrun District XX Elderly Apartment was not used for family daily expenses. The appellant Xu Mouxi controls the property of the XX Elderly Apartment, and the rent, liquidated damages, and occupation and use fees cannot be deemed as joint debts of the husband and wife. The appellee provided in the first instance the information of the elderly apartment's filing with the civil affairs bureau, the marriage information of the appellant, and the bank business inquiry form, lease contract, and receipt of the elderly apartment, etc., to prove the confusion of personality.

Judgment Result:The appeal is dismissed, and the original judgment is upheld.

Case Analysis:In this case, in October 2019, Tangshan Fengrun District XX Elderly Apartment obtained a non-profit non-enterprise unit registration certificate (legal person) after being approved and registered. The appellant Xu Mouxi is the sole investor. Article 63 of the Company Law of the People's Republic of China stipulates that if the shareholder of a one-person limited liability company cannot prove that the company's property is independent of the shareholder's own property, he or she shall bear joint and several liability for the company's debts. The first-instance court, referring to the above provisions, ruled that the appellant Xu Mouxi should bear the joint and several payment obligation for the fees involved in the case, which is legally justified. This shows that non-profit non-enterprise units with legal person status should refer to one-person limited liability companies, and when the founder cannot prove the independence of the property, he or she needs to bear joint and several liability.

Case 3: Labor Contract Dispute of Zhao **, Tian *, etc.

Case Number:(2021)黔0103民初2479号

Case Summary:This case is a labor contract dispute. The defendant, Qianchun Primary School, is a non-profit non-enterprise unit (individual), and the defendant, Tian *, is its legal representative (person in charge). The defendants Tian * and Qianchun Primary School, having been summoned by this court's summons, failed to appear in court to participate in the lawsuit without justifiable reason. This court conducted a trial in absentia. The two defendants employed the plaintiff to work as a teacher at the defendant Qianchun Primary School. The two parties did not sign a labor contract, and the defendant Qianchun Primary School did not pay social insurance for the plaintiff. On December 10, 2019, the defendant Tian * issued an IOU to the plaintiff, confirming that 5865 yuan was owed to the plaintiff and promising to pay it off before March 15, 2020, after collecting tuition fees. Now that the deadline has passed, and after repeated urging by the plaintiff, the defendant has not fulfilled its payment obligation, so the plaintiff sued this court.

Judgment Result:The defendants Tian * and Guiyang Yunyan District Qianchun Primary School shall jointly pay the plaintiff Zhao ** a labor fee of 5865 yuan within ten days of the effective date of this judgment.

Case Analysis:In this case, the court believes that the defendant Qianchun Primary School, as a non-profit non-enterprise unit (individual), should bear responsibility in accordance with the relevant civil law provisions for individual industrial and commercial households. As a non-corporate non-profit non-enterprise unit, although it has the qualifications of a civil subject, enjoys civil rights and bears corresponding civil obligations, its property does not have complete independence, and its person in charge should bear joint external responsibility with it. Therefore, the defendant Tian * should bear joint repayment responsibility for the debts of the defendant Qianchun Primary School. This shows that non-profit non-enterprise units of an individual nature, when the investor fails to provide evidence of property independence or the evidence is insufficient, also need to bear joint and several liability.

Case 1: Cao Yanling v. The Golden Pyramid Cultural and Art Training School and Li Ying - Housing Lease Contract Dispute
 

Case Number:(2022) Lu 02 Min Zhong 9329

Case Summary:This case is a housing lease contract dispute. The appellant provided evidence proving that the investor, Li Ying, received the rent and deposit that should have been received by the legal representative account of the Golden Pyramid School into her personal bank account. The appellant has provided evidence of Li Ying's personal bank transfer records for collecting rent, which has been admitted by the appellee during the first instance trial. Moreover, Li Ying also stated in the court trial that this personal bank account was also used to pay salaries to the Golden Pyramid School. The fact that her personal funds and the Golden Pyramid School's legal income funds are mixed has caused the legal person Golden Pyramid School to lose its independent legal personality, resulting in a confusion between the appellee Li Ying and the appellee Golden Pyramid School's legal personality. The legal person Golden Pyramid School has lost its independence as the contracting party.

Judgment Result:Uphold the original judgment; Li Ying does not bear joint and several liability.

Case Analysis:The main reason why the court did not support Li Ying bearing joint and several liability in this case is that the current Civil Code does not stipulate that investors of non-profit legal persons shall bear joint and several liability. At the same time, the effective judgment of the first instance also determined that in the process of handover between Jiao Jie and Li Ying regarding the Golden Pyramid School, the rent had already been dealt with, and Li Ying did not conceal the school's assets. Therefore, Li Ying does not have any fault or error and does not affect the school's normal independent operation. Therefore, if the appellant can provide evidence proving that Li Ying's actions violate relevant administrative regulations or substantially cause damage to the funds of the Golden Pyramid School, they can file another lawsuit against Li Ying.

Case 2: Beijing Institute of Technology v. Weifang City Kuiwen District Chengming Art Training School and Liu Xiaonan - Infringement of Copyright, Trademark Rights and Unfair Competition Dispute

Case Number:(2019) Jing 0491 Min Chu 23428

Case Summary:This case involves a dispute over copyright, trademark rights, and unfair competition. The plaintiff claims that the defendants arbitrarily used the plaintiff's school name, registered trademark, and campus photos to maliciously associate themselves with the plaintiff's special program for poor students, causing confusion among many uninformed students and the public, attempting to obtain improper benefits, and seriously damaging the plaintiff's legitimate rights. At the same time, Liu Xiaonan, as the person in charge of Chengming Art School, should bear joint and several liability for the above-mentioned infringement with Chengming Art School. The two defendants made respective counterarguments.

Judgment Result:Liu Xiaonan does not need to bear joint and several liability.

Case Analysis:In this case, the main basis for the second-instance court's non-support of Liu Xiaonan's joint and several liability is that Chengming Art School holds a non-profit non-enterprise unit (individual) registration certificate and should belong to the category of other organizations. It can independently assume civil liability externally. Therefore, Beijing Institute of Technology's request for Chengming Art School and its head, Liu Xiaonan, to bear joint and several liability lacks factual and legal basis. This shows that the type recorded in the non-profit non-enterprise unit registration certificate is a key factor affecting the final court judgment.