At the end of May 2022, there was an "earthquake" in the trade market of non-ferrous metals and other bulk goods. Due to the repeated pledge of aluminum ingot spot warehouse receipts, the aluminum spot market "exploded", affecting many large warehousing entities in Shanghai, Guangdong and other places, and even involving some large state-owned enterprises, involving at least billions of yuan. It is reported that this incident stems from the fact that a well-known trading company found that the number of aluminum ingots was obviously insufficient, and even the ownership was unclear, and there were repeated pledges. Therefore, the aluminum ingots were immediately transferred to other warehouses, and other shippers called the police to seal up the Zhongjin warehouse after hearing that they could not pick up the goods, However, many parties may suffer heavy losses due to fraud by financing parties. The "Zhongjin warehouse" event is the largest non-ferrous metal warehouse receipt pledge "explosion" event since the "Qingdao port" event in 2014, which not only has a serious negative impact on the subsequent financing of bulk goods trading entities, but also is more likely to affect the existing state, structure and system of the financial market in the field of supply chain trade financing. Therefore, understanding the typical legal risks in the field of warehouse receipt pledge and strengthening the internal risk control system on this basis plays an important role in reducing and avoiding the investment risks caused by warehouse receipt pledge business and improving the investment confidence of supply chain trade financing. To sum up, based on the relevant practical experience in handling the "Qingdao port" incident and "steel trade dispute" and other similar financing trade in the past, we preliminarily summarize and share the civil legal risks involved in warehouse receipt pledge as follows, in order to provide some references for investors in the field of trade financing to deal with relevant risks.

1、 Overview of "warehouse receipt pledge"

"Warehouse receipt" is the voucher 1 issued by the custodian to the depositor for picking up the goods. On the one hand, the warehouse receipt is a document of title, that is, if the depositor or the holder of the warehouse receipt endorses the warehouse receipt and is signed or sealed by the custodian, the right to take delivery of the goods can be transferred. On the other hand, the warehouse receipt is a credit document, that is, the warehouse receipt can be used to prove the existence of the legal relationship of the warehousing contract between the custodian and the depositor. In addition, the warehouse receipt also has the evidentiary effect of contract performance, that is, the warehouse receipt can prove that the custodian has received the goods.

"Warehouse receipt pledge" refers to the right of the pledgor to pledge the warehouse receipt to the pledgee in order to guarantee the performance of the debt. When the debtor fails to perform the debt, the pledgee has the right to receive priority compensation for the auction, sale and discount of the warehouse receipt and the goods involved. 2. Usually, the owner of the goods will obtain financing by pledging warehouse receipts to revitalize the capital chain. Because the form and process of warehouse receipt pledge business are simple, the investor is also willing to lend idle funds based on guarantee.

"Warehouse receipt pledge" is a typical pledge of rights, and its establishment process is quite different from that of ordinary chattel pledge. The establishment of the pledge of ordinary movables emphasizes the pledge agreement and the delivery of movables. Although "warehouse receipt pledge" also requires the "delivery" of pledge agreement and rights, based on the particularity of its right pledge, "warehouse receipt pledge" should be established in accordance with the special procedures prescribed by law. Article 441 of the civil code of the people's Republic of China (hereinafter referred to as "the civil code") stipulates that "where a bill of exchange, promissory note, cheque, bond, certificate of deposit, warehouse receipt or bill of lading is pledged, the pledge right shall be established when the certificate of title is delivered to the pledgee; if there is no certificate of title, the pledge right shall be established when the pledge registration is handled. If there are other provisions of the law, their provisions shall prevail". At the same time, Article 59 of the interpretation of the Supreme People's Court on the application of the relevant security system of the civil code of the people's Republic of China stipulates that "if the depositor or the holder of the warehouse receipt records the word" pledge "in an endorsement on the warehouse receipt and the warehouse receipt has been delivered to the pledgee with the signature and seal of the custodian, the people's court shall determine that the pledge right is established when the warehouse receipt is delivered to the pledgee. If a warehouse receipt without a certificate of title can be pledged according to law, the pledge right of the warehouse receipt shall be established when the pledge registration is handled ". Therefore, the establishment of "warehouse receipt pledge" should distinguish between "warehouse receipt without certificate of title" and "warehouse receipt with certificate of title". The former requires not only pledge contract, but also registration (mainly electronic warehouse receipt) 3. The latter, in addition to pledge contract, It needs to be established according to the following elements (whether it is the standard warehouse receipt provided by the commodity futures exchange or the non-standard warehouse receipt issued by the warehousing institution, at present, most warehouse receipts have physical right certificates):

(1) The depositor or the holder of the warehouse receipt shall record the word "pledge" on the warehouse receipt by endorsement

Warehouse receipt is a typical negotiable securities, so on the one hand, its disposal should meet the formal requirements of "endorsement" of negotiable securities in principle, so as to realize the publicity of the true intention of the pledge of the parties. Therefore, the endorsement of "pledge" by the depositor or the holder of the warehouse receipt is a necessary condition for the establishment of "warehouse receipt pledge".

(2) The warehouse receipt shall be signed and sealed by the custodian

Due to the "voucher attribute" of the warehouse receipt, the custodian knows the specific cargo information represented by the warehouse receipt best, so the signature and seal of the custodian on the warehouse receipt has the nature of confirming the right, which also provides further protection for the pledgee. Therefore, the establishment of "warehouse receipt pledge" also requires the signature and seal of the custodian as a formal element.

(3) The warehouse receipt has been actually delivered to the pledgee

"Warehouse receipt pledge" still belongs to the category of pledge in a broad sense, so "delivery" as the principle publicity element of the establishment of pledge is still applicable to "warehouse receipt pledge".

2、 Typical risks of "warehouse receipt pledge" in civil law

Based on the property of right pledge of "warehouse receipt pledge", the warehouse receipt itself has only conceptual unity with the goods it represents. In short, the goods information recorded in the warehouse receipt may be separated from the actual goods. In this case, if the financing Party (Pledgor) and the warehousing party maliciously collude, it is likely to easily implement "one order multi pledge", "empty order pledge", "forged warehouse receipt" and other acts that maliciously infringe the interests of the financing Party (pledgee) (such as this "Zhongjin warehouse" incident). For example, the typical risks of "warehouse receipt pledge" at the civil legal level are as follows:

Risk of repeated pledge of warehouse receipt

The repeated pledge of warehouse receipts is the root cause of the mine explosion. In order to obtain financing, the financing party bribed the warehouse party or colluded with it, repeatedly issued warehouse receipts to defraud huge financing funds from different investors. In the case of pledge of warehouse receipts with certificates of title, if the warehouse party illegally issues multiple warehouse receipts for the same batch of goods, it is difficult to detect the actual disposition of the goods (sometimes even after full back adjustment) without detailed background investigation by the investor because there is no need to register. Similar to the CICC warehouse incident, the 2014 "Qingdao port" incident also involved the risk of repeated pledge of warehouse receipts. 4. The financing party bribed the warehouse staff, forged the warehouse staff's signature and company seal to open false warehouse receipts for illegal financing activities.

Risk of single and goods collateral

"Single goods with pledge" is also a repeated pledge, but the pledge object is different. In the repeated pledge of warehouse receipts, the subject of repeated pledge is warehouse receipts, while in "single goods with pledge", the financing party not only establishes a pledge on the warehouse receipts, but also establishes a chattel pledge or chattel mortgage on the goods under the warehouse receipts. In the (2017) HMZ No. 288 civil judgment made by the Shanghai Higher People's court, the financing party not only set a warehouse receipt pledge for "electrolytic copper and electrolytic cells in the second and third workshops in the plant", but also set a floating charge for the warehouse. Because the warehouse receipt pledge was not publicized in time, it could not resist the previously registered floating charge, resulting in the creditor's right to repayment holding the warehouse receipt pledge lagging behind the mortgagee.

Blank bill pledge risk

The so-called "blank bill pledge" refers to the situation that the financing party and the warehouse party collude to issue warehouse receipts for non-existent goods and Finance Based on them. If the investor's audit is not strict, or the warehouse responds to the audit with the goods owned by others, the investor may also suffer heavy losses based on the false warehouse receipt "empty order pledge". In the (2016) HMZ No. 183 civil judgment made by the Shanghai Higher People's court, the court clearly held that "a French bank is the Pledgee of the disputed goods, and the pledge of a French bank over the disputed goods cannot be established when a company (financing party, Pledgor) has not actually delivered the pledged goods". It can be seen that the "pledge of blank documents" may lead to the adverse consequences of the invalidation of the pledge.

3、 Risk response and suggestions on the civil level of "warehouse receipt pledge" financing

In fact, by carefully observing the typical risks in the above "warehouse receipt pledge" field, we can see that the cooperation of the warehousing party can be said to be crucial. In short, without the cooperation of the warehousing party, the financing party itself is difficult to make waves. Therefore, in dealing with the risks related to the "warehouse receipt pledge", the investor should not only review the financier's credit and the basic situation of the goods themselves, but also pay more attention to the review of the warehouse's credit. Specifically, the financing party may consider the following suggestions when dealing with the corresponding risks:

Before the dispute

(1) Strictly review the credit of the financing party and the warehousing party. Conduct sufficient background investigation on the financing party and the warehousing party. Try to choose the warehousing party with long-term cooperation experience, strict management systematization, high degree of intelligent warehouse system and high internal business reputation in the industry.

(2) Before signing the agreement, strictly review the actual situation of the goods. Carefully examine the source of goods, the circulation of warehouse receipts, and the acceptance records of goods, and send personnel to inspect and count goods on site to ensure the authenticity of goods and ownership from the source.

(3) Implement the audit right in the agreement and regularly send personnel to conduct on-site verification. The investor shall try to agree on a flexible right to check the goods in the pledge agreement, and regularly send personnel to the warehouse to check the actual situation of the goods after the loan, so as to avoid illegal disposal of the goods.

(4) Sign pledge supervision agreement with the warehouse. In view of the important position of the warehousing party, the financing party should try to sign the pledge supervision agreement with the custodian to clarify the warehousing Party's good faith supervision obligations, and prevent and reduce the malicious assistance of the warehousing party to the financing party at the normative level.

(5) Establish a third-party supervision mechanism. In addition to forcing out the audit obligations of the capital and the supervision and custody obligations of the warehousing party, the financing party should try to cooperate with the third-party supervision institution as far as possible, and the third-party institution should carry out independent external supervision and verification of the goods.

After the dispute

(1) Civil legal action against financing party / warehouse party

After the dispute occurs, the financing party can first try to file a civil legal action against the financing party and request it to return the arrears based on the financing agreement. Secondly, the investor can also try to file a civil legal action against the warehouse and request the warehouse to bear the liability for breach of contract or tort. In judicial practice, in the case of repeated pledge of warehouse receipts, since the cooperation of the warehousing party is an essential part of the financing Party's implementation of relevant acts (such as repeated issuance of warehouse receipts), the court usually tends to determine that the warehousing party has malice or fault and should bear at least part of the liability for compensation. 5. When preparing to take civil legal action, the financing party should take the following factors into account:

Choice of cause of action: tort or breach of contract?

The investor can choose to take legal action based on the appropriate cause of action for the specific responsible subject in combination with the specific circumstances of the case and the legal relationship between the parties.

Generally, the investor can file a lawsuit against the financier for breach of contract based on the financing agreement and pledge agreement, and can also file a lawsuit against the warehouse for breach of contract based on the supervision agreement. However, if the financing party and the warehousing party conspire to transfer the goods or commit fraud, the financing party can also request the warehousing party and the financing party to jointly bear the tort liability based on the infringement cause of action.

As for the choice of cause of action, in principle, the burden of proof of the investor in the lawsuit of breach of contract is lower than that of infringement. It is only necessary to prove the existence of a contractual relationship and the violation of the contract by the opposite party. In the lawsuit of infringement, in addition to the infringement itself, the investor also needs to prove the "fault" of the infringer. Of course, in the lawsuit of breach of contract, the financing party can only claim to bear the liability for breach of contract from the opposite party of the contract, while in the lawsuit of infringement, the financing party can pull all responsible parties, including the financing party and the warehousing party, into the legal procedure "package" to investigate their legal liabilities.

Dispute resolution: litigation or arbitration?

As for the way of dispute resolution, it first depends on whether there are relevant agreements between the parties to the dispute. The financing party may bring a lawsuit to the court with jurisdiction according to the effective agreement, or submit it to the relevant arbitration commission for arbitration if there is an arbitration agreement. In the absence of relevant provisions on dispute resolution, a lawsuit shall be filed in a court with jurisdiction in accordance with the relevant laws and regulations of civil litigation.

Litigation and arbitration have their own advantages and disadvantages. The advantages of the litigation procedure lie in the relatively low cost of case acceptance, the rich trial experience of the judge, and the right relief through the second instance / retrial. The disadvantages lie in the relatively long time-consuming procedure (the second instance is final) and the relatively low confidentiality (based on the principle of public trial). The advantages of the arbitration procedure are that the procedure takes relatively short time (the first arbitration is final), the confidentiality is high, and the arbitrators are more professional in specific fields, but the disadvantages are that the arbitration fee is high and it is difficult to object to the final result of the first arbitration. In addition, in the litigation procedure, the investor can freely choose infringement or breach of contract as the cause of action, especially in the case of choosing infringement litigation, it can pull all the subjects at fault into the legal procedure. Compared with litigation, the arbitration agreement is only binding on the signing body. Generally, it is difficult to bring the third party who has not signed the arbitration agreement into the arbitration procedure.

Based on the above, the financing party can choose a more favorable dispute resolution method when signing the contract according to the actual situation of the transaction and its own needs, and choose the corresponding litigation or arbitration way to resolve the dispute after the dispute occurs.

How to determine the jurisdiction court of the case?

As for the jurisdiction of the case, if the dispute is settled by arbitration, it shall be under the jurisdiction / authority of the Arbitration Commission agreed in the arbitration agreement. If the dispute resolution method is litigation, the court of jurisdiction may have many different choices according to different causes of action and the amount of the subject matter.

In litigation cases, if the financing party brings legal action with breach of contract as the cause of action, it can also bring a lawsuit to the people's court where the contract is performed in addition to the jurisdiction of the people's court where the defendant is located. The place of contract performance varies based on the type of agreement. Of course, if the parties expressly agree in the agreement that the court closely related to the agreement is the competent court, the provisions of the jurisdiction agreement shall prevail. In addition, for the financing party, it can also try to claim that the court of its own location has jurisdiction according to "if the currency is paid, the place where the party receiving the currency is located is the place of contract performance".

If the financing party takes infringement as the cause of action, the people's court at the place of infringement also has jurisdiction, including the place of infringement and the place of infringement result, in addition to the place where the defendant is located. In principle, the court where the warehouse is located has jurisdiction over the infringement litigation of warehouse receipt pledge. In addition, for the financing party, it can also try to claim that the infringement result occurs in its own location, and then advocate that the court in its own location has jurisdiction.

Based on the above, the investor can choose the jurisdiction court that is relatively more favorable to him to start the proceedings according to the actual situation of the case, the convenience of starting property preservation measures and other factors.

The execution of civil legal action after winning the lawsuit

The investor should also consider the implementation after winning the civil legal action, otherwise, even if he wins the civil legal action, it will be useless. Specifically, in terms of action strategies, the following factors should be considered:

First of all, the investor should focus on the property preservation measures of the case. The result of property preservation can be said to determine the success or failure of the final implementation to a great extent. Especially in the case of warehouse receipt pledge financing dispute, the financier may have already broken the capital chain in the process of highly leveraged financing, and even be on the verge of bankruptcy. How to seize the opportunity to preserve the property of the responsible party is decided