H Design Ltd. vs D Design Ltd. & D Architect Firm-- Interpretation and Application of the Confusion of Legal Personalities

source：　 date：2014-06-05　 author：

[Key Points]

We represented H Design Ltd., the plaintiff of the case. The main disputes in this case was whether the legal personalities of the two defendants were confused. There is no such rule in the law or precedent case in China when we handled this case. We collected evidences and made analysis from the aspects of confusion of property, management and businesses and based on the principle of independency of legal person and credibility and honesty. Our opinions were accepted by the court and the two defendants were held confused in personality and jointly liable for the debt.

[Fact]

D Architect Firm was a partnership entity in existence since 2003. In 2010, its partners established a company, D Design Ltd., as shareholders.

To meet the requirements on qualification, D Design Ltd reached agreement with H Design Ltd via a written Cooperation Agreement that nine architects of H Design Ltd would be transferred to D Design Ltd, and that for the term of one year from Aug. 2010, any and all projects acquired by H Design Ltd would be contracted under the name of D Design Ltd under its qualification whose revenue would be shared between H Design Ltd and D Design Ltd at the ratio of 13%- 87%.

On Aug. 2010, H Design Ltd acquired the project of GW Town. Due to the delay in obtaining the qualification, D Design Ltd arranged D Architect Firm to sign the contract on this project. On March 2011, D Design Ltd obtained the qualification and signed novation contract with the owner of the project to replace the previous one.

The owner paid compensation for design work in three installments to D Architect Firm who paid 87% of the first two installments to H Design Ltd as agreed in the Cooperation Agreement, but refused to pay full of corresponding amount of the third installment, RMB 830,000 outstanding. H Design Ltd sued D Design Ltd and D Architect Firm as joint defendants, claiming them to be jointly liable for the outstanding amount plus interests.

[Defenses]

The Defendants raised defenses that the GW Town project was contracted by D Architect Firm rather than D Design Ltd., and therefore the Cooperation Agreement shall not apply.

[Our Opinion]

D Design Ltd and D Architect Firm use the same trade name, and have the same investors (shareholders – partners), and the same legal representative. When carrying out business, the two entity names are used randomly which caused confusion on the part of the outsiders.

We collected evidences that during the course of business, the two entities’ names are used in confusion. For example, some official letters were issued in the name of D Architect Firm but chopped by D Design Ltd. We also proved that the main personnel and management and the main business of the two entities are the same. In addition, in the course of the performance of GW Town project, the final and effective contract was signed by D Design Ltd, but the owner paid to D Architect Firm who also accepted the payment.

[Judgment]

The court accepted our opinion and decided the two defendants are confused in personality, and were ordered to pay jointly the outstanding amount pursuant to the Cooperation Agreement.