Foreword

In recent years, amid economic fluctuations and market instability, property preservation measures have become a widely used risk control method due to their simplicity, lower insurance costs for litigation preservation liability insurance, and high acceptance. This has led to a situation where preservation is applied almost universally for every case. At the same time, reasonable or unreasonable use of this system by parties has led to an increase in disputes over liability for damages due to property preservation applications, which were previously uncommon.

Case Type

According to the “Provisions on the Causes of Civil Cases” published by the Supreme People’s Court, “disputes arising from liability for damages due to property preservation applications” fall under the secondary cause of “tort liability disputes.”

Jurisdiction

The “Reply of the Supreme People’s Court on Jurisdiction over Disputes Arising from Liability for Damages Due to Property Preservation Applications” stipulates that cases related to liability for damages due to property preservation applications during litigation fall under the jurisdiction of the people’s court that issued the property preservation ruling.

Identification of Preservation Errors

Article 105 of the Civil Procedure Law of the People's Republic of China stipulates that if an error is made in the application, the applicant should compensate the respondent for any loss caused by the preservation. Article 1165 of the Civil Code states that if a party causes damage to another’s civil rights due to fault, they shall bear tort liability. Therefore, the core and prerequisite of reviewing such disputes is to determine whether a “preservation error” exists.

1. Infringement Due to Preservation Error: This constitutes general tort behavior, and courts generally apply the principle of fault liability when determining such torts. The principle requires that when an applicant applies for property preservation, they must meet the elements of general tort liability, including intentional or gross negligence, damage to the respondent, and a causal link. If the applicant has exercised due diligence in applying for property preservation and the preservation is reasonably substantiated and aligned with the claims, there is no apparent over-preservation or flaw in the preservation guarantee, the applicant should not be considered at fault.

2. Burden of Proof: Following the general rule of “who claims, proves,” the burden of proof lies with the claimant requesting compensation for damages from the preservation applicant. They must fully prove that the preservation behavior meets the elements of general tort behavior.

3. Preservation Error and Litigation Outcome: Preservation errors cannot be determined retrospectively based on the litigation outcome. The fact that the applicant’s claim is unsupported does not relieve the claimant’s burden of proof. Litigation results are subject to evidence, litigation strategy, and judicial reasoning, which introduce uncertainty. Therefore, basing the determination of preservation error solely on whether the applicant’s claim was upheld would impose an undue burden on the applicant and be overly lenient on the claimant.

Determining the Amount of Loss

In cases such as account freezing, according to guiding cases and the Supreme People’s Court's judicial approach, in cases of confirmed preservation error, damages are typically calculated based on the interest differential between the central bank's loan and deposit rates. Therefore, this calculation strictly considers only direct losses.

Determining the Responsible Party for Losses

To mitigate potential liabilities from errors in preservation applications, most applicants take out liability insurance with an insurer to provide a preservation guarantee. If an error in preservation is confirmed by the court and results in a loss, the insurer should bear the liability for compensation within the insured scope. Any excess beyond this would be borne by the applicant, and the insurer and applicant would not share joint liability.

Conclusion

As a commonly used legal procedure, litigation preservation plays an essential role in enhancing litigation efficiency, promoting settlements, and ensuring the effective enforcement of court judgments. Parties should use this procedure appropriately to aid in litigation, expedite dispute resolution, and avoid unnecessary costs and burdens arising from unreasonable use that could lead to new litigation.

Author Bio

Lawyer Zhang Zhenbin

Zhang Zhenbin, a Communist Party member and partner at Guoyao Qindao Law Firm, serves as the Deputy Director of the Supervision Center for Provincial Offices and Deputy Director of the Youth Lawyers Committee. He holds dual bachelor’s degrees in Law and Philosophy from Southwest University of Political Science and Law and a master’s degree in Civil and Commercial Law from China University of Political Science and Law. He is a certified Level-3 Lawyer (Intermediate Level) and qualified in the field of fund management.

Litigation Achievements

1. Represented a construction group company in a construction project contract dispute against a neighborhood committee and a property company in both the first instance at Jinan Intermediate People’s Court and the second instance at Shandong High Court, securing over 60 million yuan in claims and rejecting nearly 40 million yuan in counterclaims from the opposing party.

2. Represented a construction group company in an arbitration case concerning a construction project contract dispute with a specialized school in Shandong, successfully recovering outstanding project payments of over ten years through mediation by Jinan Arbitration Commission, with full execution of payment.

3. Represented a construction labor company from Nantong in an equipment rental contract dispute with a construction equipment leasing station in Jinan; following a complete loss in the first instance, achieved a full reversal on appeal at Jinan Intermediate People’s Court by focusing on critical evidence and arguments related to apparent agency, securing a favorable judgment.

4. Represented a real estate company in Shandong in a dispute involving liability for damages due to property preservation with an investment company from Shenyang, a construction installation company from Yantai, Mr. Sun, and a real estate development company from Longkou in both the first instance at Shandong High Court and the second instance at the Supreme People’s Court, ensuring that the client bore no liability.

5. Represented a decoration engineering company during the enforcement stage, successfully adding the majority shareholder and natural person shareholder of the debtor as parties to enforce the judgment, enabling the continuation of mandatory execution despite the shareholders’ outstanding capital contribution deadlines.

Non-Litigation Achievements

1. Issued over a hundred legal opinions for construction project bidding.

2. Provided legal opinions for dozens of opening events for real estate companies such as Longfor and Vanke in the Shandong region.

3. Issued thousands of legal opinions for China Pacific Property Insurance Co., Ltd., Shandong and Qingdao branches.

Academic Papers

1. Research on the Protection of Minority Shareholders’ Rights under the Company Law, published in Business 2.0, Issue 9, 2021.

2. Factors Influencing Legal Risks in Construction Contracts and the Need for Preventative Measures, published in China Construction Industry Yearbook, Issue 28, 2022.

Main Honors

1. Outstanding Communist Party Member, 2023.

2. Outstanding Lawyer, 2022.

3. First Prize in the Thematic Speech Contest by the Shandong Lawyers Association.

4. Second Prize for Business Revenue, 2020.

5. Third Prize for Academic Papers, 2019.

6. Best Public Service Award, 2018.