Key points in sending a collection letter to domestic party in default

Due to the revision of macro policies, overcapacity in certain industries, financing and operational difficulties of industrial enterprises, etc., manufacturing-type foreign-invested enterprises recently are commonly facing the problem of domestic buyers defaulting on their payments.

Considering the co-operative relationship, the seller will first send a collection letter. As such a letter can signal the limitation of actions, it is of major significance in transactions that span a relatively long period of time. In court, if the defaulting party bases its defence on the limitation of actions, a dispute will inevitably arise ranging from whether the letter was served to the content of the served letter.

Service of collection letters

How does a collecting party show that it has sent the defaulting party the letter, and what does it do if the defaulting party claims that the contents of the letter are not those of a collection letter? With respect to reminders, the Supreme People’s Court takes a stance of presumed service, namely, the reminding party needs to evidence the content and mailing of the reminder, not due delivery.

The Reply of the Supreme People’s Court to the Request for Instructions on Whether a Creditor Can Be Deemed to Have Asserted Its Rights to a Guarantor If It Sent an Overdue Loan Collection Notice to the Guarantor by Express Mail Service During the Guarantee Period but Lacks Evidence of the Guarantor Having Signed in Receipt or Refused Acceptance specifies: “If the creditor sent the guarantor an overdue loan collection notice via the post office by express mail service (EMS) and can provide the counterfoil for, and the content of, the letter sent by EMS, the creditor shall be deemed to have asserted its rights to the guarantor, unless the guarantor has counter evidence that overturns the evidence provided by the creditor.”

The reply addresses a specific situation, namely a creditor asserting its rights to a guarantor. However, in judicial practice, in a situation where a creditor sends a letter directly to a debtor, reference may likewise be made to the provisions of the reply to presume service of the letter.

Relevant judicial cases

In the retrial of the loan contract dispute between Foshan Nanhai District Guicheng Economic Development Company et al and the Foshan Nanhai Sub-branch of Industrial and Commercial Bank of China (ICBC), the Guangdong High Court, referencing the reply, held that the creditor, ICBC, having provided the counterfoil for, and the content of, the letter for collection of an outstanding amount sent by EMS, should be deemed to have asserted its rights to the debtors, Guicheng et al, unless the debtors had counter-evidence overturning ICBC’s evidence.

In the appeal of the lease contract dispute between Xie Minhong and the Chongqing Branch of The Second Urban Construction Engineering Company of Beijing (Beijing Construction), the court at first instance held that although the debtor, Beijing Construction, claimed that it never received any item sent by Xie Minhong by EMS, it failed to provide evidence that could overturn the evidence provided by Xie Minhong.

Defence grounds untenable

Xie Minhong should be deemed to have asserted his rights to Beijing Construction, and accordingly, Beijing Construction’s defence grounds that Xie Minhong’s claim had already exceeded the limitation of actions was untenable. The Fifth Intermediate People’s Court of Chongqing Municipality confirmed the above finding.

From these cases, it can be seen that the courts expanded the application of the reply to the extent that if the creditor is able to provide the counterfoil for, and the contents of, the letter, it can be presumed that the letter was served, whereupon the burden of proof transfers to the debtor.

Some courts have gone even further, applying the provisions of the reply mutatis mutandis in determinations of the facts of whether a decision on the recognition of a work-related injury was served on the employer in employment disputes.

Tolling limitation of actions

In fact, the date on which a letter is mailed – rather than its date of service – should be deemed the point in time when the reminding party asserted its claim, and it is from this that the effect of tolling the limitation of actions – or the counting thereof – arises. For many people this is counterintuitive.

High court’s ruling

In the above-mentioned loan contract dispute retrial, the Guangdong High Court held that, pursuant to article 140 of the General Provisions of the Civil Code, the point in time of the tolling of the limitation of actions is the time when the creditor asserts its demand, and the time at which such demand is served on the other party does not have an effect on the tolling of the limitation of actions.

Likewise, in the appeal of the financial loan contract dispute between the Hanzhong Tiantai Lu Sub-branch of Agricultural Bank of China Limited and Shaanxi Changzheng Transport Group, and the appeal of the loan contract dispute between Xuzhou Suyang Environmental Protection and Thermal Power et al and the Xuzhou Branch of Agricultural Bank of China Limited et al, both the Shaanxi High Court and Jiangsu High Court held that the date on which the bank sent the letter by EMS to the guarantor, not the service date, was the date on which the rights were asserted.

Practical operation

We discovered that in practice there are still many questions of detail: for example, inasmuch as the reply expressly specifies that a creditor send the notice “via the post office by EMS”, does assumed service apply where an EMS other than the post office’s EMS is used (for example where the creditor is abroad)? Also, the reply requires a creditor to “provide the counterfoil for, and the contents of, the letter sent by EMS”; however, how is the linkage between the counterfoil and contents to be confirmed?

Also, how is the defaulting party to adduce evidence in support of the negative fact that it did not receive the express letter? Considering that delivery records cannot be consulted after the retention period has been exceeded, this question is particularly key.

Blake Yang is an associate at Martin Hu & Partners