Wu v. Ge, a dispute over a entrusted wealth management contract
-- Determination of the validity of futures practitioners' acceptance of discretionary entrustment in their personal name
keyword
- civil
- Entrusted wealth management contract
- Futures trading
- Prohibitions on Practice
- Futures practitioners
- The contract is null and void
Basic facts of the case
The defendant Ge was the manager of the investment department of a futures company, and he was assigned by the company to provide investment guidance to the plaintiff Wu. In April 2011, the plaintiff opened a futures account with the defendant's futures company, with an opening amount of RMB 5,993,610.53. In May of the same year, the defendant accepted the plaintiff's carte blanche, and the two parties orally established a contractual relationship of entrusted wealth management, and the traders hired by the plaintiff carried out futures and stock trading operations according to the defendant's trading instructions. Between July 2011 and February 2013, the plaintiff paid a total of $195,300 to the defendant. In May 2013, the defendant borrowed the plaintiff's trading software dongle, and thereafter the defendant directly used the plaintiff's account for trading operations. On July 15, 2013, the defendant signed a letter of undertaking to bring the total assets of the plaintiff's account to 6 million yuan by December 31, 2013, and the defendant would be responsible for compensation if it failed to do so. On September 17 of the same year, the defendant again signed a commitment to make an average monthly income of more than 1%, and the shortfall would be made up. On November 17 of the same year, the defendant again signed a letter of undertaking stating that he had not made up the amount and mortgaged his own property, but then crossed out the above content.
As the plaintiff's account began to suffer continuous losses since December 2, 2011, the loss of the account was RMB 1,219,310.53 as of November 18, 2013, when the plaintiff closed the position. The plaintiff then sued the court to demand that the defendant return the profit of $195,300 that it had previously paid to the defendant and that the defendant should compensate for the damages. The defendant argued that the $195,300 was due to him, and argued that the letter of undertaking was not an expression of his true intentions, that the guarantee clause of the undertaking was invalid and that the losses should not be borne by him, and counterclaimed that the plaintiff should pay $51,000 for his labor expenses from March to November 2013.
On June 23, 2015, the Shanghai Changning District People's Court rendered the (2014) Chang Min Er (Shang) Chu Zi No. 1251 Civil Judgment: 1. The oral entrustment wealth management contract entered into in May 2011 between the plaintiff (counterclaim defendant) Wu and the defendant (counterclaim plaintiff) Ge is invalid; 2. The defendant (counterclaim plaintiff) Ge shall reimburse the plaintiff (counterclaim defendant) Wu for the financial loss of RMB 731,586.32 within 10 days from the effective date of this judgment; 3. The defendant (counterclaim plaintiff) Ge shall return the plaintiff (counterclaim defendant) Wu RMB 195,300 within 10 days from the effective date of this judgment; 4. The remaining claims of the plaintiff (counterclaim defendant) Wu are rejected. 5. The counterclaim of the defendant (counterclaim plaintiff) Ge is rejected. After the verdict was announced, Ge appealed to the Shanghai No. 1 Intermediate People's Court. On September 25, 2015, the Shanghai No. 1 Intermediate People's Court rendered the (2015) Hu Yi Zhong Min Yi (Min) Zhong Zi No. 2655 Civil Judgment, rejecting the appeal and upholding the original judgment.
Reasons for the Adjudication
The effective judgment of the court held that, on the issue of the validity of the contract, the court should take the initiative to examine whether the contract at issue violated the mandatory provisions of laws and administrative regulations, or whether there was any violation of the prohibitive provisions of other norms and thus harmed the public interest.
In this case, the entrusted wealth management contract at issue was entrusted with a futures practitioner, and according to Article 25 of the Regulations on the Administration of Futures Trading promulgated by the State Council, a futures company shall not guarantee profits to its customers. It is not allowed to agree to share benefits or risks with customers in the brokerage business. Article 14 of the Measures for the Administration of Futures Practitioners, formulated in accordance with the Regulations, further clearly stipulates that futures practitioners shall not make improper promises or guarantees when providing professional services to clients, and shall not engage in futures trading in their own name or in the name of others. For securities industries of the same nature as the futures industry, the Securities Law of the People's Republic of China also clearly stipulates the same prohibitions. The purpose of the above-mentioned legislative norms on the prohibition of professional practitioners in the financial market is to maintain the order and security of transactions in the entire financial market, and then to safeguard the public interest. On the one hand, the futures and securities markets are special markets for many public investors, with special industry attributes of public interest, high risk and high credit requirements, and the professional ethics and self-discipline of financial professionals are the basis for the survival of financial activities as a special form of reputation. Therefore, strict prohibitions have been formulated for futures practitioners. On the other hand, the order of the securities and futures markets has a significant impact on the lifeline of national economic development and social security and stability. If securities and futures practitioners have certain industry information and customer transaction information, and there is information asymmetry and interests are not completely consistent with investors, if employees are allowed to accept discretionary entrustment, it is very easy to lead to market manipulation, insider trading, using customer accounts and funds to speculate on financial products, frequent transactions to obtain high commissions and damage the interests of investors, and other issues that violate the principles of open, fair and impartial trading in the financial market, and disrupt and undermine the trading order and transaction security. This leads to chaos in the trading order of the entire financial market. Therefore, in the current social, market, regulatory and institutional environment, from the perspective of maintaining the safety and fair trading order of the financial market, the relevant laws and regulations strictly prohibit securities and futures practitioners from privately accepting discretionary entrustment from customers. The legal consequences of violating this prohibition will disrupt the order and security of financial market transactions, and then damage social order and social public interests.
In this case, the defendant's conduct at issue clearly violated the prohibition of futures practitioners from accepting discretionary entrustment from clients, and the violation of this prohibition disrupted the trading order and security of the financial market, which was bound to lead to harm to the public interest. Therefore, the entrusted wealth management contract signed by the trustee as the trustee is a situation that violates the prohibitions of legal norms and harms the interests of the public, and should be found invalid in accordance with the law, and the two letters of commitment as supplementary content should also be invalid. According to the provisions of the Contract Law, the property obtained as a result of an invalid contract shall be returned, and the party at fault shall compensate the other party for the losses suffered thereby, and if both parties are at fault, they shall bear the corresponding liabilities. As a professional practitioner in the futures industry, the defendant has a higher professional cognitive ability than ordinary market entities within the scope of business it can engage in, and should have known the adverse consequences of the illegal agreement between the two parties, but still accepted the client's carte blanche to directly conduct futures trading operations and collect commissions, and its degree of fault was obviously relatively large, and it should bear the main fault liability for the plaintiff's losses. As an investor, the plaintiff had been clearly informed in the Notice to Customers signed by the plaintiff that it was not allowed to require the futures company or its staff to conduct futures trading in a discretionary manner, but it still had carte blanche to entrust the defendant to conduct the transaction, and only raised objections after two years of continuous losses, so it was also at secondary fault for the losses. Therefore, taking into account the degree of fault of both parties, the court decided that the plaintiff and the defendant should share the plaintiff's losses in accordance with the ratio of 4:6.
Summary of the trial
Futures practitioners accept the discretionary entrustment of the client to conduct transactions in their personal name, which is strictly prohibited by the relevant laws and regulations of the futures industry. Based on the characteristics of the futures industry and the financial industry of futures practitioners, the behavior of futures practitioners who violate the prohibition of engaging in business and accept entrustment in their personal names to conduct financial management is an act that disrupts the order of the financial market and should be invalid, and the entrusted wealth management contract concluded therefrom is also invalid. If losses are caused, the losses shall be apportioned according to the fault of all parties. As professional practitioners, futures practitioners who violate the rules have higher professional cognitive ability and should bear the main responsibility for fault; The client is also at fault and should bear the liability for secondary fault because the client knows that the futures practitioner is not allowed to accept the client's carte btu engagement.
Associate indexes
Articles 146, 153, 154 and 157 of the People's Republic of China Civil Code (Articles 52 and 58 of the People's Republic of China Contract Law implemented in 1999 are applicable in this case)
First instance: Shanghai Changning District People's Court (2014) Chang Min Er (Shang) Chu Zi No. 1251 Civil Judgment (June 23, 2015)