ABSTRACT
The eviction of a recently auctioned large, operating hotel is a massive, risky undertaking that affects a complex mix of stakeholders and involves employee salaries, severance compensation, payments to suppliers, refund on prepaid cards, and many other accompanying issues that often exceed what the enforcing court can properly address independently. But under the overall management, leadership, and coordination of the Shanghai High People’s Court, the enforcing court can work with the local court to combine their knowledge, experience, and expertise and form a more effective enforcement team.
Eviction is then carried out under “the leadership of the Party committee, coordination of the political and legal affairs commission, oversight of the people’s congress, support of the government agencies, direction of the court, assistance of the relevant government departments, and participation of the general public,” as is required for challenging enforcement and remediation cases. In particular, care is given to strengthening coordination with the local Party committees and government; clearly delineating the responsibilities of police, human resources and social security, culture and tourism, and health departments and of the sub-district office; and properly addressing public disputes and dissatisfaction. This method makes eviction and the subsequent handover of the property possible by respecting and balancing the interest of all stakeholders through a civilized, good-faith enforcement process.
FACTS
In the dispute over financial loan agreement between X Xin Bank Co., Ltd. Shanghai Branch (“XX Bank Shanghai”), the applicant of enforcement action, and Shanghai X Zhi Hotel Investment Management Co., Ltd. (“XZ Hotel”), Shanghai X Meng Investment Development Co., Ltd. (“XM Company”), and Shanghai X X Jie Investment Development Co., Ltd. (“XXJ Company”), the parties subject to enforcement action (“judgment debtors”), the Shanghai High People’s Court issued a final civil judgment ((2022) Hu Min Zhong No. 22), ordering: (1) XZ Hotel to repay the loan principal of RMB1.923 billion plus applicable interest; (2) XZ Hotel to furnish collateral in the form of the entire property located at X Siping Road, Hongkou District, Shanghai (“subject hotel”) which is registered under its name; (3) XM Company and XXJ Company to bear joint and several liability with respect to the repayment obligation.
Because none of the judgment debtors fulfilled the obligations ordered in the effective judgment, the judgment creditor XX Bank Shanghai applied for enforcement action. Upon accepting the case, the Shanghai Financial Court served enforcement notices on the judgment debtors, who ignored them. Therefore, on September 23, 2023, the Shanghai Financial Court held an auction of the subject hotel on the judicial auction platform of Taobao.com. Shanghai X Zi Commercial Management Co., Ltd. (“XZ Commercial Company”) won the bid at RMB 1,643,000,000, which was paid in full within the timeframe specified in the auction announcement.
On October 16, 2023, the judgment debtor XXJ Company filed an objection to the enforcement action on grounds of its leasehold rights over floors 38-39 (officially registered as floors 36-37) and 20 parking lots of the subject hotel. It also requested for the voidance of the auction results and a halt on the transfer of the subject hotel to XZ Commercial Company. Because XX Bank Shanghai, the applicant of enforcement action, provided security for the enforcement action in the form of a written undertaking, enforcement procedures continued. Moreover, the Shanghai Financial Court ruled on October 17, 2023 that XZ Commercial Company had ownership of the subject hotel, with title transfer to be conducted upon service of the ruling on the buyer. This title transfer was completed on December 20, 2023 following tax payment. Despite the ruling and completion of the title transfer, the judgment debtor XZ Hotel continued to occupy and operate the subject hotel, citing two reasons for its refusal to comply: that the objection to the enforcement action was still under review, and that it needed to make arrangements for the nearly 200 employees affected by the ruling. The buyer felt this refusal had harmed its interests and strongly petitioned the Shanghai Financial Court to carry out eviction and hand over the subject hotel.
ENFORCEMENT OUTCOME
Under the advice of the Shanghai High people’s Court and the assistance of the local political and legal affairs commission and government departments, the enforcing court (Shanghai Financial Court) and the local court (Primary People’s Court of Hongkou District of Shanghai, “Hongkou Court”) arrived at the subject hotel on May 11, 2024 to publicly read out and post the eviction announcement and notice. On May 30, 2024, the courts conducted a coordinated enforcement action to evict the remaining occupants of the subject hotel and hand it over to the buyer through an orderly process.
ENFORCEMENT PROCESS
The priorities of the enforcement operation were two-fold: (1) to complete eviction and handover of an operating hotel through collaboration between different courts and between the court and government departments, against obstruction from the judgment debtor; and (2) to carry out the enforcement process in a civilized and good-faith manner, so as to effectively balance the interests of various stakeholders and achieve alignment of political, social, and legal outcomes.
(I) Necessity of Coordinated Enforcement Action
This case involves the eviction of a large hotel that offers accommodation, dining, conference, and fitness services. Spanning more than 70,000 square meters over some 40 floors, the property has approximately 500 guest rooms as well as conference rooms, a banquet hall, kitchens, restaurants, offices, storage warehouses, and underground parking spaces. The eviction would be a major undertaking due to the presence of nearly 200 employees and some 300 guests, 150 goods and service suppliers, and 100 prepaid cardholders. These stakeholders added to the challenge because all of them had filed claims with the court to recover outstanding wages, severance payments, supplier invoices, and card refunds from the insolvent judgment debtor. Further complication came from the fact that the subject hotel was still open and booking many room and banquet guests at the time of the enforcement action.
Additionally, after the subject hotel was sold in an auction, XXJ Company—while also a judgment debtor in this case—had challenged the auction as a non-party on grounds of its leasehold interest, demanding the enforcement process be suspended pending result of its objection. The judgment debtor XZ Hotel also continued to operate the subject hotel and refused to relinquish it, citing the same reason and the fact that it needed to make arrangements for the 200 affected employees.
XX Bank Shanghai, the party who applied for enforcement, dismissed the objection for lacking legal and factual basis, and provided a written undertaking as security. Therefore, pursuant to Article 15 of the Supreme People’s Court’s Interpretation on Issues concerning the Application of Enforcement Procedures under the Civil Procedure Law, the court should continue with the enforcement procedures. Nevertheless, protest and obstruction from the judgment debtors still created additional complications and major obstacles to eviction.
The materiality, difficulty, and complexity of the case necessitated a joint enforcement action to diffuse risks and conflicts and ensure orderly proceedings.
(II) Division of Enforcement Responsibilities
This joint enforcement action involved three levels of court: a high court, a specialized (intermediate) court, and a primary court. As the enforcing court, the Shanghai Financial Court had primary responsibility in this case, in particular in the drafting and execution of the enforcement plan. The Hongkou Court would be the assisting local court that would resolve conflicts and disputes and provide enforcement support. The Shanghai High people’s Court, the superior court in this case, would supervise, direct, and coordinate the enforcement team.
Through elaborate planning, multi-phase implementation of the eviction procedures, and effective resolution of disputes, the Shanghai Financial Court and the Hongkou Court carried out 5 coordinated enforcement actions under the guidance of the Shanghai High people’s Court, involving close to 200 enforcement officers. The eventual successful eviction and handover of the subject hotel upheld the authority of the law and helped build a business environment that respects the rule of law.
(III) External Safeguards through Administrative-Judicial Coordination
The subject of eviction in this case was a luxury hotel located in the city center, which came with broad and significant public impact that exceeded what one people’s court could address independently. This called for an eviction carried out under “the leadership of the Party committee, coordination of the political and legal affairs commission, oversight of the people’s congress, support of the government agencies, direction of the court, assistance of the relevant government departments, and participation of the general public,” a model that was particularly suited for challenging enforcement and remediation cases like this. In this case, the enforcing (intermediate) court worked closely with the primary and high courts internally, and with the local Party committee and local government agencies externally, so as to maintain social stability, defuse risks, balance stakeholder interests, and judiciously resolve public disputes and dissatisfaction.
Before posting the eviction announcement, the Shanghai Financial Court (“Court”) was in close contact with the local police authority to keep abreast of the hotel’s business and security situation. Through the Shanghai High people’s Court and the Hongkou Court, the Court also reached out to the local political and legal affairs commission to obtain more local support. With its arrangement, the three courts held coordination meetings with the local police, human resources and social security, culture and tourism, and health departments and the sub-district office, both to brief them on the case details, the challenges ahead, and the assistance requested and to assign responsibilities between them. These preparations made the eventual eviction and handover of the hotel possible.
During the actual enforcement process, the local police maintained public order and responded effectively to unforeseen events. The department of human resources and social security and the labor arbitration commission sent staff to the hotel to explain employment law and policies and the application procedures for employment-related arbitration, helping ease the concerns of the affected employees. The culture and tourism issued new license and permit to the buyer and handled complaints from hotel guests. The health department dispatched paramedics and ambulances to the location and the fire department was also ready to respond to emergencies. Lastly, the local sub-district office sent staff members to witness the eviction process. These coordinated efforts helped ensure a safe and smooth enforcement process and mollified the various stakeholders, ensuring fair results for all parties and, thus, the alignment of political, social, and legal outcomes.
SIGNIFICANCE
The eviction of a recently auctioned large, operating hotel is a massive, risky undertaking that affects a complex mix of stakeholders. The Shanghai High people’s Court’s decision of a joint operation enables the enforcement process to benefit from holistic management, leadership, and coordination and builds synergy among the local government departments to create an effective enforcement team. This model reflects judicial activism in the new era and offers an effective solution to major, difficult, and complex enforcement cases.
Throughout the eviction process, the people’s courts ensured it was conducted under “the leadership of the Party committee, coordination of the political and legal affairs commission, oversight of the people’s congress, support of the government agencies, direction of the court, assistance of the relevant government departments, and participation of the general public,” as is required for challenging enforcement and remediation cases.
In particular, care was given to strengthening coordination with the local Party committees and government, clearly delineating the responsibilities of the relevant authorities, and properly addressing public disputes and dissatisfaction. This has resulted in a civilized, good-faith enforcement process that respects and balances the interest of all stakeholders.
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