Commercial banks are obliged to assist competent authorities with their enquiries, as well as help freeze and deduct from deposits. Failure to do so will leave the banks, as well as any concerned personnel, liable under the Law on Commercial Banks, the Provisions on the Administration of Financial Institutions’ Assistance with Enquiries, Freezing or Deduction of Deposits, the Circular of the Supreme People’s Court and People’s Bank of China on Execution by the People’s Courts and Assistance in Execution by Financial Institutions in Accordance with the Law, the Measures for Punishment of Illegal Financial Acts, and other relevant provisions.
However, there have been many instances of failure in judicial enforcement due to mistakes by banks. In such circumstances, the question of the banks’ civil liability and the scope of that liability is controversial.
Types of civil liability
In practice, applicants for enforcement mostly sue commercial banks on the grounds of tort liability disputes. Courts take the general tort liability clause in article 1165(1) of the Civil Code (article 6(1) of the former Tort Law) as the basis for civil liability of commercial banks.
The constituent elements of general tort liability include the illegality of the act, the facts of harm, the causation between the illegal act and the facts of harm, and the fault of the act. In accordance with the principle that “the claimant bears the burden of proof”, the plaintiff is responsible for providing evidence for the constituent elements. After finding the defendant liable in tort, the court will assess the defendant’s scope of liability based on an overall consideration of the defendant’s severity of fault, causativeness, the cause of the plaintiff’s debt claim remaining outstanding, and the status quo of the plaintiff’s debt claim.
If a commercial bank’s staff issue the court a receipt of the notice of assistance in freezing deposits that is inconsistent with the facts and, as a result, the winning party’s claim cannot be enforced, it constitutes a tort and the commercial bank should bear the corresponding tort liability. In the process of determining tort liability, judicial practices usually focus on the following points:
Determination of subjective intent. There is a fault in the commercial bank’s act of issuing a receipt of the notice of assistance in freezing deposits that is inconsistent with the facts. Commercial banks have a statutory obligation to assist the authorities. The financial institution assisting in such enforcement must issue a trustworthy receipt. Thus, a commercial bank should perform its duty of care to a high standard when discharging the statutory obligation. A bank issuing a receipt containing inadvertent errors should be deemed as negligent.
Determination of loss. If no assets rather than frozen assets are available for enforcement of the plaintiff’s successful claim, objectively the plaintiff may suffer a loss as the plaintiff cannot have its successful claim fully realised. The amount of the loss should be determined according to the enforcement status of the successful claim. If the enforcement is suspended, there is still uncertainty as to whether the plaintiff has suffered any harm, and the existing evidence cannot prove the specific amount of the loss, the court will dismiss the plaintiff’s claim.
Determination of causations. The receipt issued by a commercial bank is generally believed to be trustworthy. The plaintiff has trust interests in the receipt that is wrongfully issued and may believe that the freeze on the involved account is sufficient and lift other attachments (if any). In such circumstances, there is a causation between the outstanding successful claim and the bank’s wrong receipt. However, if the plaintiff cannot prove the causation between the bank’s issuance of the receipt on the involved account and the outstanding claim, the court will dismiss the plaintiff’s claim.
Determination of the scope of liability. There may be more than one cause of the plaintiff’s successful claim remaining outstanding. If the debtor has no sufficient assets to pay off all its debt to the plaintiff, it is inappropriate for the bank to bear all the loss. The decision should depend on a number of factors including the severity of fault of the commercial bank, causativeness, the cause of the plaintiff’s debt claim remaining outstanding, status quo of the plaintiff’s successful claim and the possibility of enforcement. The court has certain discretion.
If the original property attachments for the plaintiff’s successful claim were otherwise sufficient for full realization, but the parties and the court have lifted the excess guarantee by trusting in the wrong receipt, which eventually results in failure to have the successful claim realised, and the bank may be held liable for all the claim remaining outstanding. If the account in question is insufficient and no other assets are available for enforcement, the root cause of the successful claim remaining outstanding lies in the fact that the debtor lacks sufficient assets for enforcement. The bank will bear the bulk or part of the liability.
According to Chinese laws and judicial practices, a commercial bank issuing a wrong receipt when assisting with inquiries, freezing and deduction as a professional agency will be deemed at fault. The bank should assume the tort liability if the plaintiff produces evidence of any actual loss and the causation between the tort and the actual loss. The liability level varies with specific cases.
From a compliance and risk prevention perspective, banks should attach importance to judicial assistance in the ordinary course of business. Besides compliance and responsiveness in assistance, banks should also ensure accuracy. Banks may fully fulfill their obligations promptly by designating staff and double-checking processes, formulating standard procedures for judicial assistance and regularly providing in-house training on judicial assistance.
In this way, a bank can protect itself or its principal officers from being held legally liable for the negative and unco-operative behaviour of its staff. Bank personnel involved should request law enforcement officers of the competent authorities to clarify anything in the notice of assistance or other legal instruments that is unclear to avoid disputes.
Yao Xiaomin is a partner and Lin Lin is a paralegal at Lantai Partners
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