Case Handled by DeHeng Law Offices (Hangzhou) Selected as One of the Top Ten Typical Cases of Foreign-Related Commercial Arbitration by Hangzhou Arbitration Commission/Hangzhou Court of International Arbitration

2024-12-05

Recently, the Hangzhou Arbitration Commission/Hangzhou Court of International Arbitration released the White Paper on Foreign-Related Commercial Arbitration (2016–2024) and the Top Ten Typical Cases of Foreign-Related Commercial Arbitration (Click here for details). A case handled by Huang Jianing, a partner at DeHeng’s Hangzhou Office, representing a securities asset management company in a pledge-style securities repurchase dispute, was selected as one of the top ten typical cases.  

Case 9: Arbitration Court Respects Commercial Practices and Balances Fairness, Appropriately Adjusts Penalty Interest and Liquidated Damages, and Properly Resolves Pledge-Style Securities Repurchase Dispute—Case of Company A vs. Individual A, Individual B (Hong Kong Resident), and Company B.

Significance of the Case:  

The primary legal relationship in stock pledge-style repurchase transactions is the financing relationship between the financier and the securities company, while the secondary legal relationship is the pledge relationship formed by the financier pledging their listed company shares to the securities company. In pledge-style securities repurchase transactions, setting a higher penalty interest rate than general loan penalty interest is a common commercial practice to encourage financiers to take remedial measures promptly in case of default, effectively reducing the risk for the lender and maintaining the stability of the capital market.  

The arbitration court comprehensively analyzed the basic legal relationships of the parties, focusing on facts such as the breach of contract and the date of default. Based on the compensatory nature of penalty interest and liquidated damages, with punishment as a secondary attribute, the court respected commercial practices while balancing fairness. It ultimately adjusted the penalty interest and liquidated damages in accordance with Article 2 of the Supreme People’s Court’s Opinions on Further Strengthening Financial Adjudication Work.