|
The Case of Company A v. Company B on Dispute over Insufficient Capital Contribution to the Equity Joint Venture of Real Estate and Guaranty Without Authority
Jurisdiction: Arbitration; CIETAC
Date of Decision: July 8, 2000
1.Case Brief
On April 24, 1992, the claimant and Company C of Hongkong concluded the equity-joint-venture contract as mentioned in the case to jointly establish an equity joint venture.
It was stipulated in this contract that the investment sum of this equity joint venture was RMB 44,000,000 and the registered capital was RMB 22,000,000 , among which 9, 900, 000 shall be contributed by the claimant in form of cash of RMB accounting for 45% of the registered capital and 2, 200,000 US Dollars (converted to RMB 12, 100, 000 ) accounting for 55% of the registered capital with cash of 2,118,000 US Dollars and imported equipments of 82,000 US Dollars. Both parties of the equity joint venture should, within 3 months as of the issuance of the business license of the equity joint venture, pay 30% of the capital contribution as respectively subscribed by them and pay off within 6 months.
On May 16,1992, the equity joint venture obtained its business license for enterprise legal person upon approval of establishment.
On December 28, 1992, Company C and the respondent Company B concluded the Agreement on Transfer of Equity, which stipulated that Company C transferred its rights and obligations in the equity joint venture to the respondent.
On January 15, 1993, the claimant and the respondent concluded the Agreement concerning Modification of Contract and the Articles of Association of the Equity joint venture, which stipulated that the claimant and the respondent should, within one month as of the conclusion of the Agreement, pay off all the capital contribution still owed as respectively subscribed by them.
On February 8, 1993, the original examining and approving organ approved the alteration of the foreign party for the equity joint venture.
During the performance of the equity-joint-venture contract, disputes occurred between the claimant and the respondent. So the claimant submitted to arbitration after the resultless negotiation between them.
The final complaints of the claimant were as follows:
(1) The equity-joint-venture contract between the claimant and the respondent should be terminated;
(2) The respondent should pay 82,429.42 US Dollars as damages due to his insufficient payment of the capital contribution;
(3) The respondent should pay RMB 29, 000, 000 and interests thereof for economic loss caused by guaranty provided for loans of the respondent and its interested parties in the name of the equity joint venture; and
(4) The respondent should assume the arbitration fee for this case and the lawyer's fee paid by the claimant.
The claimant claimed in the application form for arbitration as follows:
(1) After the establishment of the equity joint venture, the claimant had paid all his capital contribution in accordance with the contract, but the respondent had not paid all until now, namely 10,139,854.24 Hongkong dollars owed. According to the contract and the articles of association, the respondent should pay 608,391.25 Hongkong dollars to the claimant as damages.
(2) After the establishment of the equity joint venture, by taking advantage of the status of the chairman of the board of directors of the equity joint venture as appointed by it, privately using the seal of the board of directors and keeping from the claimant, the respondent, without the resolution of the board of directors, provided guaranties for loans of its affiliated companies or interested parties for three times totally, which involved in RMB 29, 000, 000 as the guaranty sum in all, seriously disobeied the stipulations of the contract and the articles of association and caused fatal economic lose of more than RMB 29, 000, 000 to the equity joint venture and the claimant.
The claimant, after the session, made the following illustration to the calculation method of the damages it required.
(1) Currency: US Dollar
It was stipulated in Article 10 of the equity-joint-venture contract that the respondent should pay capital contribution of 2, 200, 000 US Dollars, so the damages should be calculated in US Dollars too.
(2) Start time for the calculation: September 1, 1994
In July 1994, the administration of industry and commerce of XX city issued the Notice of Payment for Capital Contribution in a Fixed Time to the equity joint venture, which required the respondent to pay off all the registered capital within one month. Base on this, the respondent should pay off its rest capital contribution before August 31, 1994 at latest, so the start time for the calculation should be fixed on September 1, 1994.
(3) Period for the calculation: six months
The both parties of the equity joint venture should pay off the their respective capital contributions within six months as stipulated in the equity-joint-venture contract, while in accordance with Article 5 of Some Provisions concerning the Capital Contribution by the Parties to a China-Foreign Equity joint venture Enterprise, the equity joint venture should be treated as being dissolved automatically in case the respondent failed to pay off the capital contribution in accordance with the contract. Therefore, the period for the calculation of damaged was fixed to only 6 months.
(4) Base for the calculation (that is the capital contribution owed): 1,373,823.71 US Dollars
According to the Reply Paper as issued by XX Accounting Firm on May 17, 2000, the capital contribution, which was owed and ought to be paid by the respondent, was 1,373,823.71 US Dollars, which should be considered as the base for calculating the damages.
(5) Proportion for the calculation: 1%
It was stipulated in Article 38 of the equity-joint-venture contract that, if one party failed to pay off the capital contribution, the other party abiding by the contract had the right to claim damages of 1% of the capital contribution owed for each one month against the delinquent. Therefore, the damages should be calculated at the proportion of 1%.
(6) Calculation formula: 1,373,823.71 US Dollars×1%/month×6 months=82,429.42 US Dollars.
The respondent submitted none written materials for defenses.
2.Awards
(1)
The equity-joint-venture contract between the claimant and the respondent shall be terminated;
(2)
The respondent shall pay damages of 82,429.42 US Dollars to the claimant;
(3)
The respondent shall assume the economic loss of RMB 29, 000, 000 and the interests thereof calculated at the bank lending rate of the same term caused to the equity joint venture by the loan guaranties provided in the name of the equity joint venture;
(4)
The respondent shall assume all the arbitration fees for this case; and
(5)
Other complaints of the claimant shall be overruled.
The respondent shall, within 30 days as of this decision was made, complete the payment of the sums as listed in the aforesaid items (2) and item (4), and the item (3) shall be implemented in the process of the liquidation of the equity joint venture.
3.Comments
Legal matters in relation to this case are mainly as follows:
(1)
Law application
It was stipulated in Article 41(Application of Laws) of the equity-joint-venture contract in this case that the conclusion, effectiveness, explanation, performance and disputes resolution of this contract should be governed by the laws of the People's Republic of China. Therefore, the arbitral tribunal confirmed that the disputes in this case should be governed by laws and relevant administrative regulations of China.
(2)
Capital contribution
In accordance with the relevant stipulations in the equity-joint-venture contract, the claimant should contribute RMB 9, 900, 000 in the form of cash accounting for 45% of the registered capital and the respondent should contribute 2, 200 US Dollars (converted to RMB 12, 100, 000 ) accounting for 55% of the registered capital with cash of 2,118,000 US Dollars and imported equipment of 82,000 US Dollars. Both the parties of the equity joint venture should, within 3 months(namely before August 16, 1992) as of the issuance ( on May 16, 1992) of the business license of the equity joint venture, pay 30% of the capital contribution as respectively subscribed by them and pay off within 6 months (namely before November 16, 1992).
In accordance with the relevant stipulations of the Agreement concerning Modification of the Contract and the Articles of Association of the Equity joint venture as concluded between the claimant and the respondent on February 8, 1993, the claimant and the respondent should, within one month as of the conclusion of the Agreement, pay off all the capital contribution still owed as respectively subscribed by them.
On the basement of the aforesaid stipulations, the final contribution time should be February 15, 1993 as agreed by the claimant and the respondent.
The capital-verification report as issued by XX Accounting Firm on April 24, 1993 indicated that the claimant had invested RMB 9,900,000 to the equity joint venture up to April 20, 1993 accounting for 100% of its payable capital contribution and 6,379,947.39 Hongkong dollars (converted to RMB 4,672,481.31 ) by the respondent accounting for 38.62% of its payable capital contribution.
In July 1994, the Administration of Industry and Commerce of XX City issued the Notice of Payment for Capital Contribution within a Fixed Time, which required the equity joint venture to notify the respondent to pay off all the registered capital within one month as of the receipt of this Notice. However, the respondent failed to pay the left capital contribution.
As seen from the aforesaid facts, the claimant had, according to the stipulations of the equity-joint-venture contract, performed its obligation of capital contribution, but the respondent had only partly performed with 1,373,823.71 US Dollars owed.
(3)
Guaranty
The arbitral tribunal, upon investigation, found that:
Xu XX as the representative appointed by the respondent, during his occupation of the chairman of the board of directors of the equity joint venture, without the discussion and decision of the board of directors, privately used the properties of the equity joint venture to provide guaranties for loans granted by banks to the respondent's affiliated companies by keeping from the claimant and other directors as well as utilizing his post, among which, the equity joint venture was used as the warrantors respectively for loan of RMB 5,000,000 granted by XX sub-branch of the Bank of China to the cooperation between Company D and Company C on December 1, 1992, loan of RMB 15,000,000 granted by XX sub-branch of the Bank of China to XX estate company (a solely Company owned by company C in the mainland of China) on February 8, 1993 and the loan of RMB 9,000,000 granted by XX sub-branch of the Bank of China to Private Company E set up by Xu XX on September 12, 1993.In all the aforesaid guaranties, Xu XX signed or sealed with the statues of the legal representative of the equity joint venture, and affixed the seal of the equity joint venture or that of its board of directors. Moreover, the warrantees were the respondent's affiliated companies for all.
On July 9, 1997, the Confirmation of the equity joint venture was signed by Luo XX, the chairman of the board of directors of the equity joint venture appointed by the respondent, which declared, "Company D, XX estate company and Company E borrowed RMB 29, 000, 000 in total from XX sub-branch of the Bank of China, among which, RMB 16, 170, 000 was imprested by the Part of Hongkong for the equity joint venture's use. As a result of this intermediation, the equity joint venture should pay RMB 16, 170, 000 and its interests to XX sub-branch of the Bank of China on two occasions. I, as the legal representative of the equity joint venture, agree to the stipulations of the Intermediation Paper that the equity joint venture should pay and bare joint liabilities."
The arbitral tribunal considered that it was a significant matter to provide outwards guaranties to the equity joint venture. According to the related provisions of Article 33 of the Regulations for the Implementation of the Law of the People's Republic of China on Equity joint ventures Using Chinese and Foreign Investment, Article 16 of the equity-joint-venture contract and Article 17 of the Articles of Association of the Equity Joint Venture, all the significant matters of the equity joint venture must be discussed and determined by the board of directors. The chairman of the board of directors of the equity joint venture appointed by the respondent, privately provided guaranties in considerably high amount to the respondent's affiliated by violating the stipulations of the law and the articles of association for the benefit of the respondent itself, which injured the interests of the company and the claimant and the respondent had breached the contract speciously. The respondent should undertake the responsibility of breach of contract and compensate the economic lose resulted from his conduct.
(4)
Complaints
(a) Whereas the respondent had speciously breached the contract with regard to the payment of the capital contribution and the provision of outwards guaranties, in accordance with the stipulations of Article 37 of the equity-joint-venture contract that, in case one party failed to perform or violated the obligations under the contract and the articles of association, the party abiding by the contract had the right to report to the original examining and approving organ for terminating the contract in accordance with the stipulations of the contract in addition to claiming compensation from the delinquent party, the arbitral tribunal supported the complaint of terminating the equity-joint-venture contract, and the equity joint venture should be dissolved and conduct liquidation according to the law and the contract;
(b) The arbitral tribunal considered that the calculation base and method of damages as submitted by the claimant were reasonable, to which the respondent had no objection, so the arbitral tribunal awarded that the respondent should pay damages of 82,429.42 US Dollars to the claimant;
(c) Because the respondent used the equity joint venture's properties to provide outwards guaranties to its affiliated companies, which injured the interests of the company and the interests enjoyed by the claimant as one party to the equity joint venture in the equity joint venture, the respondent should assume the economic lose of RMB 29, 000, 000 and the interests thereof calculated at the bank lending rate of the same term caused to the equity joint venture by the loan guaranties provided in the name of the equity joint venture; and
(d) The arbitral tribunal overruled the complaint of lawyer's fee, because the claimant failed to provide concrete sum and relevant evidence.
|
|
|
Awarded by CIETAC on 2000-07-18
|
|
|
