Balance compensation in financial disputes

    From left: Wang Qiang, Lin Haiquan, Zhang Haoliang, Lü Qi and Paul Zhou

    with the continual innovation of finance, the traditional methods of guarantee have been gradually replaced by “balance compensation”. Paul Zhou, the managing partner of Wintell & Co, and Harry Wu, a partner at the firm, chose the controversial topic of “balance compensation” in financial disputes to discuss with guests for afternoon session of CBLJ Forum 2019.

    Attendees included Zhang Haoliang, director of the Beijing Arbitration Commission (BAC) Business Development/International Case Division, Lin Haiquan, a BAC arbitrator, Lü Qi, the deputy general manager of the Legal Department of China Minsheng Bank, and Wang Qiang, general counsel at Zhongrong International Trust.

    Through case studies, Wu explained and analyzed “balance compensation” with existing legal concepts and rules. From the perspective of arbitration, Zhang Haoliang said that the dispute resolution body would give priority to the true intention of the parties and the commercial substance of the contract. However, Zhang Haoliang added that the BAC would not render a ruling of balance compensation where unnecessary, so as to reduce the impact on external authorities and other contracts.

    Lin Haiquan, who worked in the Supreme People’s Court, said this court is different from courts at other levels. In addition to hearing cases, the Supreme Court also formulates rules. Hence, qualitative determination is of vital importance. Even so, he admitted that it was hard to determine to which scenario “balance compensation” applied. As an arbitrator, he said: “For the handling of new types of disputes, arbitration may be more suitable to balance the interests of the parties than the courts.”

    Wang Qiang, who had recent discussions on the issue with the Supreme People’s Court and regulatory authorities, said that “balance compensation” was more officially recognized as an unconventional method of guarantee. From the perspective of corporate legal affairs, he said there was a significant difference between the obligation to make up for the price difference and the traditional obligation to guarantee. As for how to avoid risks, he said one solution was to express explicitly in the contract that it was not an assurance.

    The media coverage on the roundtable conference is organized based on shorthand transcripts. Any remarks by the guest speakers and scholars represent their own opinions, and not the opinions of the organizations to which they belong. Read the full report of the CBLJ Forum 2019 here.