A riverboat is generally operated by a family. One spouse is usually registered as the owner of the riverboat, while the other acts as one of the crew members. In such circumstances, it must be considered whether one of the spouses could be deemed as a crew member or employee with priority over the riverboat, because this will influence the rights of other creditors. A case heard by the Wuhan Maritime Court and affirmed by Hubei High Court has addressed this issue.
The registered owner of the riverboat involved in this case is F. F and B had a dispute regarding a riverboat sale contract, and the Court arrested the riverboat upon an application by B.
Later, F failed to perform the obligations specified in effective judicial documents during a riverboat mortgage contract dispute between F and a bank. Upon the bank's application, the Court ruled to auction off the riverboat. Accordingly, B and five crew members – including Y, the wife of F – registered their creditor rights after the action process had started. The four crew members other than Y were close relatives of F.
In the lawsuit brought by Y to confirm her creditor right, Y submitted her employment contract with F and an "I-o-U" of 264,000 yuan for unpaid salary, which F had issued to Y after the riverboat had been arrested by the court. Y therefore requested the Court to order F to immediately pay the salary and confirm that Y had priority over the riverboat proceeds with respect to her salary.
The Court negated both the employment relationship between F and Y and the priority claimed by Y.
The Court held that the riverboat constituted joint property owned by F and Y as a married couple, and therefore that F and Y jointly enjoyed the rights and undertook obligations with respect to the riverboat. In view of third parties, F and Y operated as one business entity, and an employment relationship could not be established between F and Y.
According to section 17 of the Marriage Law, any income incurred from production or management during a marital relationship shall be jointly owned by both spouses. In this case, as a certified crew member on board, Y had directly participated in the operation of the riverboat, whose registered owner was F. Further, Y and F had used the operating income of the riverboat as joint property for their family life and to operate the riverboat. Therefore, the riverboat was operated by Y and F jointly.
Meanwhile, section 24 of the Interpretation of the Supreme People's Court about Several Problems Concerning the Application of the Marriage Law of PRC (II) specifies as follows:
During the existence of the marriage, if either the husband or wife undertakes a debt in his or her own name, the debt shall be treated as joint debt of the husband and wife, unless either the husband or wife is able to prove that the creditor and the debtor have clearly stipulated it as a personal debt or to show that the debt is under any of the circumstance as prescribed in the third paragraph of Article 19 of the Marriage Law.
Accordingly, all debts relating to the operation of the riverboat constituted joint debt undertaken by F and Y. Even though F did owe Y unpaid salary, the salary owed was debt relating to the operation of the riverboat, and was thus joint debt that should be undertaken by F and Y. Therefore, the debt was eliminated by Y being a creditor and a debtor at the same time.
The debts owed by F and Y jointly to third parties had resulted in enforcement procedures. If the employment relationship between F and Y and the unpaid salaries owed by F to Y were confirmed and could be paid from the proceeds of the riverboat auction, the proceeds available to pay off the debts owed to third parties would inevitably be reduced, and Y, who should have paid off the debts with F jointly, would avoid paying off the debts, which would infringe the legitimate rights and interests of third-party creditors.
The case shows the courts' position in declaratory actions brought by creditors to confirm their rights in the judicial sale of riverboats. That is, in order to protect the interests of good-faith creditors and to prevent a debtor from colluding with the crew to falsely create debts, the courts will not recognise debts merely based on the debtor's admission, especially if the creditor and the debtor have a close relationship
Where one spouse is the registered owner of a riverboat and the other is a crew member, and one spouse owes a debt to a third party due to the operation of the riverboat, the courts will probably hold that the married couple jointly operate the riverboat and there is no employment relationship between the couple. Thus the courts are unlikely to recognise unpaid salaries owed by one spouse to the other.
This case was adjudicated before the implementation of Civil Code; however, the court's position will likely remain the same.
Section 17 of the Marriage Law has been merged into the Civil Code as section 1062, while section 24 of the Interpretation of the Supreme People's Court about Several Problems Concerning the Application of the Marriage Law of PRC (II) has been amended by section 1064 of the Civil Code.
Section 1064 of the Civil Code stipulates that:
a debt incurred by one spouse in his or her own name during the marriage in excess of daily needs of the family is not a joint debt, unless the creditor may prove that such debt is used for both spouses' daily life or for joint production and operation of the spouses, or such debt incurs according to the expression of intent of both spouses.
The main difference between the new stipulation and section 24 of the Interpretation is obvious: debts that occurred during the matrimony are no longer presumed to be joint debts and the burden to prove the existence of a joint debt has been transferred to the creditor, who must prove that the debt has been used for the joint production and operation of the spouses.
Nevertheless, even under section 1064 of the Civil Code, in a declaratory action relating to the judicial sale of a riverboat, where one spouse is the registered owner of the riverboat and the other is a crew member on board, the court may still not recognise the employment relationship between a married couple and unpaid salaries owned by one spouse to the other, based on the fact that the spouses operate the riverboat jointly.
For further information on this topic please contact Jin Yu-Lai at KaiRong Law Firm by telephone (+86 21 5396 1065) or email ([email protected]). The KaiRong Law Firm website can be accessed at www.skrlf.com.