Allocation Of The Burden Of Proof Of Fairness Of Related-party Transactions Of Non-listed Companie

Connected transactions usually refer to the legal act of transferring corporate resources or obligations between a company and its affiliates.The issue of connected transactions of non-listed companies has always been the "hardest hit" of corporate governance.Due to the concealment and complexity of connected transactions,the consideration of connected transactions cannot be guaranteed,and connected transactions are easily used by company insiders to gain private interests and damage the interests of the company.In the widely existing connected transaction litigations,the principle of “whoever claims,whoever provides evidence” is usually applied in accordance with the general tort fault principle.The fact that the plaintiff bears the burden of proving the fairness of connected transactions is often discussed in the theoretical and practical circles.In connected transaction disputes,because the plaintiff is not a direct participant in most cases,the level of control and understanding of related-party transactions is weak,the ability to provide evidence is weak,and the distance from relevant evidence is far away,which also causes difficulty of the plaintiff to prove the damage of connected transactions.When the plaintiff claims for compensation due to the damage of the interests of the company,the judge cannot form conclusive evidence of the fact that the elements of the claim form exist,resulting in the loss of the case.Although the substantive law does not make special provisions on the distribution of the burden of proof for connected transaction disputes,in practice,in most cases,the burden of proof of the fairness of connected transactions is borne by the plaintiff.After a series of thinking,there are also some cases in which judges decide to invert the burden of proof according to the principle of fairness,which reflects the judges’ pursuit of fairness and justice in individual cases.How to distribute the burden of proof in a fair and reasonable manner according to the characteristics of different modes of connected transactions,so that the trial process of the case not only conforms to the provisions of civil procedure procedures,but also conforms to the value orientation advocated by the substantive law,is an important issue in connected transaction cases.The first chapter of this paper introduces the current situation of the allocation of the burden of proof for the fairness of connected transactions of non-listed companies,most of the cases are based on the rule of "who claims,who proves",which requires the plaintiff to bear the burden of proof for the fairness of the transaction.But there are also some cases where the judges have the discretion to let the defendant bear the burden of proof for the fairness of the transaction.This paper then explores the current situation of the allocation of the burden of proof in connected transaction litigation from the perspective of practice through empirical analysis and seeks insights.Based on the analysis of sample cases,the following problems are found:there are judges who abuse the burden of proof decision and rule against the plaintiff when the facts of the case can be found out but not yet;there are difficulties for the plaintiff to prove the legitimacy of the contract related to the connected transaction;the performance of due process within the company regarding the connected transaction has a substantial impact on the allocation of the burden of proof in the case,but the law has no clear provision for such influence,and whether due process can be used as a basis for typifying the allocation of burden of proof needs further study.All of these issues suggest that in some cases it may be necessary for a connected person to bear the burden of proving the fairness of a transaction in a lawsuit,thereby better serving the function of the burden of proof and balancing the interests of both parties in the lawsuit.The second chapter analyzes the root causes of the problems exhibited in the litigation at the level of substantive law.The conflict of interest between controlling shareholders and small and medium-sized shareholders in non-listed companies is significant,and connected parties abuse their shareholding advantage to implement connected transactions by using the affiliated relationship,while most connected transactions appear to be a transaction between two parties but depending on one party’s decision in essence.This characteristics create opportunities for the connected parties.The connected parties use the affiliated relationship to infringe the interests of the company,and it is reasonable for connected parties to bear the burden of proving the fairness of the transaction.Besides,the current internal governance procedures of non-listed companies in China are not sound,the disclosure of information on connected transactions is incomplete,the resolution of connected transactions is wrecked,the voting recusal system is not sound,and the current judicial interpretation emphasizes substance over procedure.The internal control procedures of the company cannot prevent and correct the risk of unfair connected transactions,and the legislation and justice focus on the review of the substance of connected transactions and ignore the value of procedural fairness.The third chapter will analyze the allocation of the burden of proof for the fairness of connected transactions in non-listed companies from a jurisprudential perspective.The first section starts from the composition of the burden of proof and the value criteria that should be considered in the allocation of the burden of proof,and analyzes the role and function of the burden of proof under the current allocation of the burden of proof in the context of the case,and then analyzes the application of the values of fairness and efficiency in the "the theory of regulation","the theory of dangerous field" and "the theory of measuring interest" in the context of connected transaction cases.The second section analyzes the legitimacy of the burden of proving the fairness of connected transactions on connected parties from the perspective of jurisprudence.The connected parties controls the connected transactions,and it is easier to prove the fairness of the connected transactions.The connected parties have the duty of fair dealing,and the burden of proving it is also helpful to prevent the occurrence of damages.The forth chapter will explore the suggestions for improving the allocation of the burden of proof for connected transactions of non-listed companies in China.The first section discusses the premise of using due process as the basis for reversing the burden of proof for fairness of connected transactions,under the condition that the disclosure of connected transaction information is complete and transparent and the transaction has passed the vote of disinterested shareholders.The second section specifically discusses the typology of the allocation of the burden of proof for fairness of connected transactions,if the connected transaction is based on having passed due process,the burden of proof shall be borne by the plaintiff;if the disclosure of connected transaction information is open and transparent and the connected transaction is approved by a vote of the non-related shareholders,otherwise,the burden of proof shall be borne by the connected persons.