A rare example of transparency
Joint Venture in China (Part I)
A famous French politician and writer, Alain Peyrefitte, used (after Napoleon, allegedly) the words “When China awakes, the world will shake” as the title of his book published in 1973, which was proven as an anticipation of what happened since leading to the current weight of China as one of two superpowers of the world.
Signs show that the same might be happening with regard to India. A free trade agreement FTA has been signed with Australia (ECTA) and another FTA is in the process of being negotiated with the European Union, with discussions starting in June 2022.
The time has come to take a closer look at the Indian legal system.
Newsletter No. 4 - A Foreign Joint Venture in China before the International Commercial Court of Singapore
We have developed close links in India over a long period of years, through several instruction involving French and Indian companies, from SME’s to MNC’s. We have also a long standing formal relationship between law firms acknowledged by the Bar Council of Paris with a high profile firm in New Delhi.
Our understanding of India is further enhanced by the similarities between Indian law and Malaysian law, where our firm is headquartered
Introduction
From a common base, the one of English common law with local characteristic, India has been and still is a model for Malaysia.
For example, the Malaysian Contracts Act 1950 (Act 136) is a replica of the similar Indian law The Indian Contract Act 1872.
Some chapters of the law on contracts which have been separated and embodied in a distinct statute (“Sales of Goods”, “Partnership”) have been drafted in parallel to each other.
Principles of common law which are not found in all jurisdictions are shared by the two legal systems, such as the unenforceability of clauses that are deemed to create a “restraint of trade” which applies inter alia to non competition clauses in employment contracts.
Other basic concepts are interpreted in a similar manner in both jurisdictions, such as “agency” and “breach of contract”.
Likewise in criminal law, without being similar, the Criminal Procedure Code 2012 (Act 593) and the Code of Criminal Procedure 1973 of India share some of their rules, including some which are of material importance in commerce such as the admissibility of evidence, the plea bargaining and the preventive action of the police.
The Players
The Partners
Ms. Hu, a very wealthy Chinese woman who made her fortune in shopping malls and other real estate investments, and is the president of a clothing company in the People's Republic of China.
Ms. Wang, the daughter of the former, a Harvard MBA, controls a Chinese company called Bachmeer Capital Limited. She is also a Chinese national from the People's Republic of China.
Ms. Ong, a wealthy Chinese woman from Singapore, trained in England, first pursuing a career as a lawyer in her own firm, then transitioning into real estate.
Ms. Suparman, Singaporean and business partner of the former. Professional experience includes a real estate company in Shanghai.
Ms. Ong and Ms. Suparman are both shareholders of a company listed on the Singapore Stock Exchange called KOP Limited, of which they are Executive Chairman and Chief Executive Officer, respectively. This company has various subsidiaries, including KOP Limited and KOSPG.
Mr. Shport, a Russian citizen living in Singapore, is a "small" investor in the project, albeit to the tune of US$1 million.
The Legal Experts
Two experts were brought in to provide their opinions on Chinese law, each holding partner status in a respected law firm in the People's Republic.
They produced a joint document describing the points of legal interpretation on which they were able to reach agreement.
The Entities
- Bachmeer Capital Limited, a Chinese company owned by Ms. Wang.
- "Bodi," the name given to KOPHK's wholly-owned subsidiary in the People's Republic.
- KOP Limited, a Singapore company, listed on the Singapore Stock Exchange, owned and managed by Ms. Ong and Ms. Suparman.
- KOPSG, a Singapore company, a wholly-owned subsidiary of KOP Limited.
- KOPHK, a Hong Kong company located in Shanghai, a subsidiary of KOPSG and Bachmeer Capital Limited.
- "West Hongqiao," a commercial company whose full name is "Shanghai West Hongqiao Commercial Development Co. Ltd.", incorporated by the Qing Pu District (where the project was initially planned to be carried out) in Shanghai Province, to undertake the construction and development of Shanghai Hongqiao Central Business District.
Plot Summary
The project
In early 2012, Ms. Ong and Mr. Shport met in Singapore and discussed a plan developed by Mr. Shport to create a winter sports resort (in a tropical climate!), including ski slopes, hotels, shops, restaurants, and other facilities in Asia. The project was called the "Winterland Concept."
The project was initially considered for implementation in Singapore, but when the plan was rejected by the Singapore Tourism Board, the partners remained undeterred. They signed two memoranda of understanding in 2012 and explored the possibility of implementing the project in Jakarta and Hong Kong.
Ms. Suparman, who had known Ms. Hu and Mr. Wang in the past, introduced them to Ms. Ong. Meetings took place in Shanghai in 2013, following which the parties agreed to "work together," in principle and without further details.
The Creation of a Company in Hong Kong
The agreement between the parties remains vague. Throughout the discussions, it is sometimes referred to as a "collaboration," a "joint venture," or a "partnership."
Its only written expression is contained in the attachment to an email from Ms. Wang to Ms. Ong in May 2013, which describes a highly conventional structure:
- Creation of a company in Hong Kong in which the two partners will be co-shareholders in a 51/49 ratio: 51% for the foreign party providing the bulk of the financing (KOPSG), 49% for the Chinese party providing the necessary interpersonal skills for the supposed success of the project (Bachmeer Capital Limited);
- Creation of a wholly-owned subsidiary of the previous company in the People's Republic of China.
In September 2013, the project took shape. Ms. Wang learned of the Winterland Concept project, and after discussions with Ms. Ong and Ms. Suparman, the three decided to explore the possibility of carrying it out in China.
In October 2013, KOPSG chose the Qing Pu district as the project's location, on Ms. Wang's recommendation.
However, a major obstacle arose, and not a minor one: to carry out the project, a river had to be diverted and a main road destroyed! This, of course, required the approval of the relevant authorities, who signed a framework agreement, but in which these major works were neither mentioned nor authorized, followed by other agreements that were neither binding nor enforceable against the occupants of the premises.
To be continued…
Commercial disputes, arbitration and mediation
In respect of commercial dispute resolution, while court proceedings in India are known to progress slowly, the judiciary’s competence is undisputed. The Parties acknowledge that alternative dispute resolution (ADR), including mediation and arbitration, is available within an ADR-friendly framework
Awards from arbitration in Malaysia in conflicts involving Indian and Malaysian parties where the contract is governed by Indian law can be more easily enforced thanks to the similarities (as acknowledged in the New Delhi Court case of 2010 Sara International Ltd v. Golden Agri International Pte) between the Arbitration and Conciliation Act 1996 of India and the Malaysian arbitration Act.
In conclusion
Just like it was essential for the future to pay attention to China as soon as 1978 with the rise of the reform and openness policy pioneered by Deng Xiaoping, not is the time to do the same with India.
A main difference is that India already enjoys the benefit of a well established legal system
with its roots in the fundamentals of common law and still current bridges with other jurisdictions, especially Malaysia.
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The content above is purely for informational purposes, relating to a selected overview of legislative, regulatory and case law developments in the relevant geographical area, which is not and does not claim to be exhaustive.
It does not constitute legal advice in relation to any particular case and should not be regarded as such. A more detailed doctrinal study on any of the topics mentioned may be requested.
Philippe Girard-Foley is a Registered Foreign Lawyer accredited by the Supreme Court of Singapore before the Singapore International Commercial Court – Certificate of Full Registration under Section 36P Legal Profession Act (Chapter 61).