Guiding Case No. 215: Supplementary Civil Public Interest Litigation in Criminal Proceedings On Environmental Pollution by Kunming Min [Redacted] Paper Co., Ltd. et al.

[Key Words]

Criminal; Supplementary Civil Public Interest Litigation in Criminal Proceedings; Environmental Pollution; Unit Crime; Environmental Tort Liabilities; Disregard of Corporate Personality; Joint and Several Liability of Shareholders

[Key Points of Judgment]

Where a company's shareholders abuse the independent status of the legal person and shareholders' limited liability, thereby preventing the company from fulfilling its statutory obligations for ecological and environmental damage remediation and compensation, and where a state-designated authority or legally-prescribed organization claims that such shareholders bear joint and several liability in accordance with Article 20 of the Company Law of the People's Republic of China, the People's Court shall uphold such claim in accordance with the law.

[Legal Provisions]

1．Article 93 of the Law of the People's Republic of China on the Protection of the Yangtze River

2．Articles 83 and 1235 of the Civil Code of the People's Republic of China

3．Article 20 of the Company Law of the People's Republic of China

[Basic Facts]

The defendant, Kunming Min [Redacted] Paper Co., Ltd. (hereinafter referred to as "Min [Redacted] Company"), was incorporated on November 16, 2005, with a registered capital of CNY 1,000,000. Huang [Redacted]hai holds 80% of the shares, Huang [Redacted]fen holds 10%, and Huang [Redacted]long holds 10%. Li [Redacted]cheng serves as the Logistics Factory Director of Min [Redacted] Company. Since its incorporation, Min [Redacted] Company have buried concealed pipes connecting its production workshop discharge pipelines to the Tanglangchuan River, a tributary of the Jinsha River within the Yangtze River Basin.,to discharge production wastewater. Upon assessment, the water quality index in the Tanglangchuan River exceeded the baseline level by 13.0 to 239.1 times during the time of illegal discharge of wastewater by Min [Redacted] Company. This illegal discharge of wastewater caused pollution to the surface water environment of the Tanglangchuan River, resulting in the operation expenses of wastewater pollution treatment facilities reducing by CNY 3,009,662 in total, which, as calculated by the imputed abatement cost method, caused environmental pollution damage of CNY 10,815,021, and impaired the ecological basin function of the Jinsha River downstream of the Tanglangchuan River to a certain extent.

While Min [Redacted] Company's production and operational activities caused ecological damage, its shareholders Huang [Redacted]hai, Huang [Redacted]fen, and Huang [Redacted]cheng additionally engaged in the following conducts: 1. deposited company receivables totaling CNY 124,642,613.10 into personal bank accounts without financial recording; 2. registered nine company-owned properties (market value: CNY 8,920,611) under the names of shareholders and their spouses, thereby occupying the estates without compensation; 3. commingled corporate and personal accounting records, rendering company assets indistinguishable from shareholders', and corporate profits inseparable from shareholder gains. Min [Redacted] Company has completely ceased operations since the occurrence of the case, and the available balance of the corporate account was only CNY 18,261.05.

On April 12, 2021, Xishan District People's Procuratorate of Kunming City, Yunnan Province published the information of the case. During the public announcement period, no state-designated authorities or legally-prescribed organizations filed a civil public interest litigation. Xishan District People's Procuratorate subsequently initiated a public prosecution against Min [Redacted] Company, Huang [Redacted]hai, Li [Redacted]cheng and others for the aforementioned conducts, while also filing a civil public interest litigation supplementary to the criminal proceedings against the company and its shareholders Huang [Redacted]hai, Huang [Redacted]fen and Huang [Redacted]long, requesting the court to disregard the company's independent legal status and to hold shareholders Huang [Redacted]hai, Huang [Redacted]fen and Huang [Redacted]long jointly and severally liable for Min [Redacted] Company's ecological damage compensation.

[Judgment]

On June 30, 2022, the Xishan District People's Court of Kunming City, Yunnan Province issued Criminal and Supplementary Civil Public Interest Litigation Judgment No. (2021) Yun 0112 Xing Chu 752,, holding that: the defendant Kunming Min [Redacted] Paper Co., Ltd. is guilty of the crime of environmental pollution, and is sentenced to a criminal fine of CNY 2,000,000; the defendant Huang [Redacted]hai is guilty of the crime of environmental pollution, and is sentenced to fixed-term imprisonment of three years and six months, concurrently with a criminal fine of CNY 500,000; the defendant Li [Redacted]cheng is guilty of the crime of environmental pollution, and is sentenced to fixed-term imprisonment of three years and six months, concurrently with a criminal fine of CNY 500,000; the defendant Kunming Min [Redacted] Paper Co., Ltd. shall, within ten days after the judgment takes effect, pay ecological and environmental damages in the amount of CNY 10,815,021 to the Kunming Environmental Public Interest Litigation Relief Special Fund Account for ecological restoration; the supplementary civil public interest litigation defendant Kunming Min [Redacted] Paper Co., Ltd. shall, within the same period, pay assessment and testing fees totaling CNY 129,500 to the Xishan District People's Procuratorate of Kunming City; the supplementary civil public interest litigation defendants Huang [Redacted]hai, Huang [Redacted]fen, and Huang [Redacted]long shall bear joint and several liability for both the ecological and environmental damages and the assessment/testing fees borne by defendant Kunming Min [Redacted] Paper Co., Ltd.

After the pronouncement of judgment, no defendant filed an appeal nor did the procuratorate lodge a protest, whereupon the first-instance judgment has taken effect. The case has proceeded to the enforcement procedure, wherein the value of the property available is sufficient to satisfy the subject matter of enforcement.

[Judgment's Reasoning]

The legally effective judgment held that, during production and operational activities, enterprises shall bear the social responsibility of utilizing resources rationally, adopting measures to prevent and control pollution, and fulfilling environmental protection obligations. The defendant unit, Min [Redacted] Company, disregarded its corporate environmental protection responsibilities, violated national laws and regulations, and directly discharged production wastewater through subsurface pipes without obtaining a pollutant discharge license or taking effective treatment, thereby causing severe environmental pollution. Such conduct conformed to Article 338 of the Criminal Law of the People's Republic of China and constituted the crime of environmental pollution. Defendants Huang [Redacted]hai and Li [Redacted]cheng, respectively as the directly responsible person-in-charge and directly liable person of the defendant Min [Redacted] Company, played substantially equivalent roles in the unit crime and shall therefore be prosecuted for criminal liability. Min [Redacted] Company legally discharged production wastewater directly into the river through concealed pipes without authorization, causing ecological and environmental damages amounting to CNY 10,815,021, and exerting discernible adverse effects on the ecological functions of the downstream Jinsha River basin. Such conduct constituted severe harm to environmental public interests, shall bear not only criminal liability but also civil liability for compensation for ecological environmental damage.

The supplementary civil public interest litigation defendant, Min [Redacted] Company, while pursuing economic benefits, disregarded its environmental protection obligations, causing severe harm to the environmental public interests through its production and operational activities. The compensation for damages and assessment and testing fees borne by Min [Redacted] Company constituted environmental tort liabilities of the company.

Given that Min [Redacted] Company has engaged in substantial and frequent capital transactions with its shareholders Huang [Redacted]hai, Huang [Redacted]fen, and Huang [Redacted]long since its incorporation, and that these three shareholders have unjustifiably appropriated company assets without compensation—conduct which constituted a high degree of commingling between the shareholders’ and the company’s personality—such conduct shall be deemed an abuse of the independent status of the company and shareholders' limited liability under Article 20(3) of the Company Law of the People’s Republic of China. The total environmental tort liabilities currently borne by Min [Redacted] Company amount to CNY 10,944,521, which significantly exceeds its registered capital of CNY 1,000,000. Moreover, Min [Redacted] Company has completely ceased production since the occurrence of the case, with only CNY 18,261.05 remaining in its corporate account. The aforementioned facts demonstrated that the high degree of commingling between Huang [Redacted]hai, Huang [Redacted]fen, Huang [Redacted]long and Min [Redacted] Company has rendered Min [Redacted] Company incapable of discharging its environmental tort liabilities. The company was thus unable to fulfill its statutory obligations for ecological damage compensation, which satisfied the requirements for shareholder's joint and several liability under Article 20(3) of the Company Law of the People's Republic of China. Thus, Huang [Redacted]hai, Huang [Redacted]fen and Huang [Redacted]long shall bear joint and several liabilities for Min [Redacted] Company's environmental tort liabilities.