Empowering parties to gain advantages in civil, criminal cases

The growing complexity and diversity of socioeconomic activities have led to a surge in cases involving the intersection of criminal and civil liability. Disputes over assets now extend beyond the parties involved, affecting external businesses and individuals.

However, the trial model of “criminal proceedings preceding civil proceedings”, alongside the restrictive nature of criminal proceedings, often leaves affected companies in a passive position. Once civil disputes become entangled with criminal offences, businesses have to await judicial determinations before asserting their rights and recovering losses.

The solution is empowering interested parties to exercise their litigation rights, helping businesses secure an advantage in subsequent civil proceedings. This article explores practical strategies through the lens of a recent case handled by the authors.

Case overview

The defendant, a sales manager at a prominent beverage company, was in charge of sales to a listed retail company. During his tenure, the defendant manipulated internal accounts to fabricate orders on the two companies’ shared system, altered delivery addresses, and diverted goods to his privately rented warehouse. These goods were then sold at below-market prices, resulting in a discrepancy worth tens of millions of renminbi between the goods shipped by the beverage company and those received by the retailer.

The procuratorate charged the defendant with job-related embezzlement, but the beverage company argued that the act constituted fraud, seeking to shift the financial losses onto the retailer. The beverage company also filed a civil lawsuit against the retail company, escalating the dispute.

Breaking the deadlock

The authors, representing the retail company in the case, identified that the core issue lay in the legal classification of the defendant’s actions. To mitigate potential losses arising from disputes over the criminal classification, the retail company was advised to actively engage in the criminal proceedings as an interested party, to clarify the legal facts.

Based on extensive research and internal interviews, the authors’ team pinpointed the goods dispatched by the beverage company as the target of the crime and established that ownership of the goods remained with the beverage company by referencing property transfer regulations. Thus, the civil legal relationship was clarified. The team also analysed numerous business details to demonstrate that the defendant’s abuse of his position was central to the crime.

The court adopted the legal arguments. In the second-instance judgment, the defendant was found guilty of job-related embezzlement, with the shipment discrepancy fully recognised as the criminal amount. This ruling helped the retail company resolve the civil dispute.

Legal provisions

In criminal cases, an “interested party” refers to an external individual or entity with a vested interest in the handling of assets involved in the proceedings, such as a third party who has acquired the disputed property in good faith. In this case, the co-operating party disputing the proceeds of the crime with the victimised entity also qualifies as an interested party.

The legal basis for recognising an interested party is outlined in article 12 of the Opinions on Further Regulating the Disposal of Assets Involved in Criminal Proceedings, issued in 2015 by the General Office of the CPC Central Committee and the State Council. It stipulates that the litigation rights of interested parties must be clarified.

Third parties acting in good faith and other external entities with a stake in the case-related assets must be informed of their litigation rights by public security organs, state security agencies and people’s procuratorates. Courts are required to notify such parties to participate in proceedings and consider their views. Defendants, private prosecutors, or parties in incidental civil litigation dissatisfied with asset disposal, may appeal the decision regarding the assets, while victims or other interested parties may request the procuratorate to file a protest.

In the Interpretations of the Supreme People’s Court on the Application of the Criminal Procedure Law of the People’s Republic of China, updated in 2021, article

279 strengthened protections for third-party rights. It mandates that courts must consider objections raised by third parties regarding the ownership of seized, detained or frozen assets and their proceeds. When necessary, courts may also require third parties to appear in court.

However, the Criminal Procedure Law lacks clear provisions on the litigation rights of interested parties in ordinary procedures, and the concept remains poorly understood by many judicial personnel. As a result, interested parties are often overlooked in judicial practice. It is therefore crucial for such interested parties to take proactive measures to assert and safeguard these rights.

Leveraging litigation rights

The provisions indicate that interested parties have at least the rights to participate in litigation and express their opinions. The question is, how does one effectively exercise these rights?

Gathering materials to identify legal relationships. Collect comprehensive evidence, such as contracts and communication records, and conduct unbiased interviews with informed individuals to establish case facts and identify key disputes. Based on this, analyse the substantive legal relationship from multiple perspectives, including identifying the target of the alleged crime, the legal interests infringed, the rights and obligations of all parties and the criminal constitutive requirements.

Asserting rights to access information. Current regulations do not grant interested parties the right to review case files, creating an inherent information gap with the parties involved. To address this, interested parties should actively seek to attend court hearings to obtain firsthand case information. This not only strengthens their legal arguments but also prepares them for potential future disputes.

Expressing opinions for favourable outcomes. Engage proactively with case handlers to present lawful claims on asset disposition and articulate interpretations of case facts and legal applications. This aids the court in uncovering facts and supports achieving a favourable ruling.

As socioeconomic development progresses, more complex cases involving the intersection of criminal and civil liability will emerge, requiring businesses and entrepreneurs to safeguard their rights strongly and wisely. The success of this case is expected to offer positive reference for addressing such disputes. Today, civil remedies alone are insufficient. Only a comprehensive strategy integrating civil, criminal and administrative approaches can ensure stability and resilience in a dynamic legal environment.

Wang Weining is a founding partner and Fu Xuehang is an associate at Starrise Law Firm