Shifting the burden of proof

By Xiahou Songjie, Dacheng Law Offices
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In December 2006, the developer of a shopping centre and a lessee entered into a premises lease. The contract specifically provided that the term of the lease would commence on “the date on which the leased property opens for business as a whole”. However, it did not specify the date on which the shopping centre was to open for business as a whole.

Delay occurs

For reasons attributable to the developer, the lessee was not able to enter the site for a certain period after the execution of the contract, and was thus prevented from carrying out the necessary fitting out works and commence its operations.

夏侯松杰律师-北京市大成律师事务所-Xiahou-Songjie-Dacheng-Law-Offices
Xiahou Songjie
Partner
Dacheng Law Offices

In March 2007, after the lessee was finally ready to open for business, the developer announced that the shopping centre would open for business on 30 March. However, due to the testing of the water facilities, electrical equipment, elevators and other such items, the shopping centre was not able to open for business as a whole on that date.

On 7 April 2007, the developer was finally able to open the main doors and remove all of the protective facilities, opening the shopping centre for business.

In May 2007, the developer began to send letters to the lessee, reminding it to pay the rent for the next month. However, the lessee felt that the developer still had not opened the shopping centre as a whole for business, making it impossible for the lessee to realize the objectives of the contract and causing it to incur a loss.

Lessee opts for termination

Accordingly, the lessee made it known that it wished to terminate the contract, and demanded that the developer refund the deposit and rent that it had already paid and compensate it for such losses as its fitting out costs. However, it is understood that the real reason that the lessee wished to terminate the contract may have been that it felt that the shopping centre had few customers, and the prospects of making a profit were uncertain.

As consultations between the parties proved unsuccessful, the lessee applied for arbitration in accordance with the arbitration provisions of the contract.

Determining the date on which the shopping centre opened for business as a whole became the focal point in resolving the dispute.

Conventional approach

A conventional approach may have been to assert that the shopping centre had in fact opened for business as a whole on 7 April 2007. However, if the developer proved unable to present relevant evidence, its assertion would not have been accepted by the tribunal. The lessee, however, would have been able to assert that the objectives of the contract could not be achieved, demand termination of the contract and seek damages from the developer.

Accordingly, the developer needed to revise its approach on this key point and change the way it expressed its case, in order to shift the burden of proof onto the lessee.

Change in approach breaks impasse

In arbitration, as in litigation, the burden of proof lies with the party making the assertion.

As the developer’s lawyers in this case, we considered that since there had been no opening ceremony or other publicity when the shopping centre opened for business, it would have been very difficult for the developer to adduce evidence in support of the assertion that the shopping centre had, in fact, opened.

Accordingly, we devised the strategy of using the Supreme People’s Court Several Regulations on Evidence in Civil Actions to shift, to the extent possible, the burden of proof onto the lessee and have it present evidence to prove that the developer had not “opened for business as a whole”.

To achieve this, we devised a complete set of phrases, mainly consisting of negative sentences, for the developer to use. At the hearing, the developer thus argued that commencing from 7 April, it “did not restrict consumers from accessing any place in the building where business was allowed to be conducted or where merchandise was allowed to be traded; did not restrict consumers from selecting lawful business operators in the building at their own discretion with whom to trade; and did not restrict consumers from normal use of the various service facilities”.

The above phrasing has many advantages. The developer made negative statements, rather than statements that affirmed certain facts.

Accordingly, if the lessee was of the opinion that our description was contrary to the facts, the burden would lie with the lessee to prove that on 7 April there were still some parts of the business area or the public facilities whose use or access was restricted. If it was unable to present such evidence, then it would be determined that the developer had fully opened for business on that date, thus eliminating any difficulty that the developer may have had in adducing evidence.

As long as the lessee was unable to provide sufficient evidence to show conclusively that access to certain business areas of the shopping centre was restricted or that use of certain service facilities was prohibited, it was unable effectively to demonstrate to the tribunal the fact of “the shopping centre not being open for business as a whole”.

Easy resolution

Based on this conclusion, the date on which the shopping centre opened for business as a whole was determined, thus leading to the easy resolution of all the questions in the case (such as the date from which the lease term should be counted, the amount of rent payable, the number of days the rent was outstanding, and the question of whether a breach of contract had occurred). In the end, the result of the hearing was an emphatic victory for the developer.

Xiahou Songjie, a partner at Dacheng Law Offices, specializes in litigation & arbitration, enforcement, real estate & construction, corporate law, financing, insurance and investment.

大成律事务所 Dacheng Law Offices

大成律师事务所 — 北京总部
北京市东城区东直门南大街3号国华投资大厦12-15

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