Cassation judgment No. 11/2013/KDTM-GDT dated may 16, 2013 on business case regarding dispute over investment consulting contract between petitioner is dongseo co.,ltd and the respondent hoang lan development and investment joint stock company

THE SUPREME PEOPLE’S COURT

CASSATION JUDGMENT NO. 11/2013/KDTM-GDT DATED MAY 16, 2013 ON BUSINESS CASE REGARDING DISPUTE OVER INVESTMENT CONSULTING CONTRACT BETWEEN PETITIONER IS DONGSEO CO.,LTD AND THE RESPONDENT HOANG LAN DEVELOPMENT AND INVESTMENT JOINT STOCK COMPANY

On May 16, 2013, the cassation trial is conducted at the office of the Supreme People’s Court to adjudicate the business case regarding dispute over Investment Consulting Contract between:

Petitioner:  IS DONGSEO Co., Ltd; headquartered at No. 53-8 Cheongdam-Dong, Gangnam-Gu, Seoul, Korea; address of representative office in Vietnam: 3F The Manor Tower, in My Dinh-Me Tri urban area, Tu Liem district, Hanoi city; represented by Mrs. Nguyen Thi Lan Anh according to the Letter of Authorization dated January 5, 2009 of the Director.

Respondent: Hoang Lan Development and Investment Joint Stock Company; headquartered at 161A, group 15, Nguyen Trai, Ha Giang town, Ha Giang province; represented by Mr. Vu Tuan Anh of the Director.

FINDING THAT

According to the lawsuit petition dated December 5, 2008 and available evidence in the case file:

ILSHIN Construction Industry Co., Ltd (“Ilshin Company”) is an enterprise of Korea, the representative office thereof in Hanoi is headed by Mr. Kim Sin Mo (according to the representative office establishment license of foreign trader in Vietnam No. 01-000967 issued on August 13, 2007 of Department of Commerce of Hanoi city). On July 22, 2008, ILSHIN Construction Industry Co.,Ltd (“Ilshin Company”) merged with IS DONGSEO Co.,Ltd (“Dongseo Company”), the representative office thereof in Hanoi is headed by Mr. Kim Sin Mo (according to the representative office establishment license of foreign trader in Vietnam No. 01-000967 issued on August 13, 2007 of Department of Commerce of Hanoi city).

On January 28, 2008, Hoang Lan Development and Investment Joint Stock Company (“Hoang Lan Company”) and Ilshin Company concluded an Investment Consulting Contract related to the land lot E7, Pham Hung street, Tu Liem, Hanoi. Under the contract, “Party A (Hoang Lan Company) shall, on behalf of Party B (Ilshin Company), contact with competent authorities to seek for any necessary approval for a land lot for Party B (or any party appointed by Party B - hereinafter referred to as “Investment Company”) for implementation of the Project, including seeking for approval for principles and applying for decision on allocation or lease of land (Article II): “(1)- Party A shall, on behalf of Party B, initiate necessary procedures to seek for a land lot from competent authorities of Hanoi city for Party B to implement the Project, including but not limited to the following: (a) Seek for approval for principles of the land lot allocated to Party B or any party appointed by Party B to implement the Project within 4 months since the contract date; (b) arrange the conclusion of official land lease contract between the Investment Company and competent authority of Vietnam and apply for land use right certificate in the name of the Investment Company within 4 months since the date of approval for principles of the People’s Committee of Hanoi city. The time limit prescribed in this Article excludes the period of time for Party B to make preparations and complete legal paperwork at the request of the competent authority; (2)- The land lot sought for the Project of Party B is not tied by any mortgage, completely cleared and meets the following requirements: - Land use purpose: shopping mall, offices and apartments for sale and lease; - floor area ratio: at least 1,200%; - form of investment: wholly foreign-owned; - Project term: 49 years - The parties agree that each requirement above is important to Party B and Investment Company and if it fails to seek for approval for all of requirements, Party B may terminate this contract without paying any fee or damages to Party B. In this circumstance, Party A must refund Party B any amount paid by Party B to Party A in advance under this Contract; (3)- Party A ensures that it is qualified and has legal status to provide services as provided in this Contract. If Party A fails to maintain this assurance resulting in negative effect on legal status of this Contract, Party A undertakes to compensate for any damage suffered by Party B; (4)- Party B ensures to provide any documents and materials deemed necessary and meet any financial requirements for the Project imposed by the competent authority as a foreign investor in order for Party A to apply for an investment certificate for the Project”. Service charge and payment (Article III): “(1)- The parties agree that total charge payable to Party A for services provided for Party B under this Contract is USD 6,000,000 (hereinafter referred to as “Service Charge”); (2)- Service Charge shall be paid in 3 installments as follows:  (a) After concluding this Contract, Party B shall pay an advance of USD 1,000,000. (b) After Party A obtains the approval for principles as prescribed in Article II(1)(a), Party B shall pay USD 3,000,000; (c) After Party B or Investment Company receives a decision on land lease or land use right certificate as prescribed in Article II(1)(c), Party B will pay the remaining amount of Service Charge to Party A; (3) The parties agree that in addition to Service Charge as provided in this Article, Party B is not obliged to pay to Party B any other costs. Any tax possibly imposed on Service Charge under Vietnamese law (if any) shall be totally borne by Party A. The Contract also stipulates the consequences of termination (Article VII): “(1) If Party A unilaterally terminates the Contract or cannot seek for approvals and render the services as provided in this Contract, Party B may send a written notice (hereinafter referred to as “Notice of Termination”) to Party A to terminate this Contract. After terminating this Contract, Party A shall immediately refund any amount received under this Contract to Party B and the Parties shall no longer have obligations to each other under this Contract; (2) If Party B unilaterally terminates the Contract or fails to meet requirements imposed by the competent authority as prescribed in Article II(4) leading to the fact that Party A cannot render the services under this Contract, Party A shall be not obliged to refund any amount received from Party B”.

On January 28, 2008, Mr. Kim Sin Mo - authorized representative of Ilshin Company gave Mrs. Nguyen Thi Mien - General Director of Hoang Lan Company in person USD 1,000,000 in cash.

On May 26, 2008, Ilshin Company sent the Official Dispatch No. 004/2008-IS to Hoang Lan Company with details below: “Request the Company to notify Ilshin Company in writing of your performance progress by May 28, 2008 in order for us to plan subsequent works”. Hoang Lan Company sent the Notice No. 16/TB-DA, stating that: “Please accept our sincere apologies for delay in performance of the Contract dated January 28, 2008…there are certain difficulties that the leader board of city cannot issue a decision immediately to Ilshin Company…”.

On May 28, 2008, Ilshin Company continued sending the Official Dispatch No. 005/2008-IS to Hoang Lan Company with details below:

-  Hoang Lan Company must provide copies of documents proving that Hoang Lan Company has still attempted to initiate the Project.

-  Hoang Lan Company shall arrange a meeting between Ilshin Company and leaders of relevant departments and agencies of Hanoi City in June 2008.

If Hoang Lan Company concurs with Ilshin Company in two above matters, Ilshin Company and Hoang Lan Company will agree on extension of the Contract in order for Hoang Lan Company to keep performing their work. Details shall be certified by the Parties in a contract addendum.

Hoang Lan Company gave no reply to requests in the foregoing Official Dispatch of Ilshin Company.

On June 26, 2008, Ilshin Company continued sending the Official Dispatch No. 010/2008-IS requesting Hoang Lan Company to “give clear answers” about their performance of the Contract by June 30, 2008".

On July 1, 2008, Hoang Lan Company sent the Official Dispatch No. 05/2008-KH-HL with details below: “From October 10 to October 30, there will be a policy approval issued to Hoang Lan Company and ILSHIN to make investment in the Project. Again, please accept our apologies for the delay in performance of the Contract”.

On July 9, 2008, Ilshin Company sent a reply Official Dispatch No. 012/2008-IS as follows:  “After receiving the Official Dispatch No. 05/2008/KH-HL, we took your response into considerations and decide that we cannot keep waiting until October 2008. We officially declare that ILSHIN decides to terminate the consulting contract between ILSHIN and Hoang Lan signed on January 28, 2008. Request Hoang Lan Company to refund ILSHIN USD 1,000,000”.

On July 25, 2008, Ilshin Company sent the Official Dispatch No. 012/2008-IS asserting the termination of Contract and requesting Hoang Lan Company to refund USD 1,000,000 which was paid in advance.

On July 31, 2008, Hoang Lan Company sent the Official Dispatch No. 06/TB-DA giving other reasons for delay: “The Project E7 - Pham Hung was considered by the leaders. From August 15, 2008, the People’s Committee of city will make a decision to issue the policy approval to Ilshin Company. From August 30, 2008 to September 30, 2009, the People’s Committee of city will issue an official policy approval to IlShin to establish the construction investment project. The performance of Contract between both Companies has moved forward, thus, Hoang Lan Company kindly requests Ilshin Company to keep our cooperation in order for Hoang Lan Company to keep performing the Contract".

On August 4, 2008, Ilshin Company sent a Official Dispatch No. 016/2008-IS specifying that:  “…until August 30, 2008, if Ilshin Company does not receive any document from the People’s Committee of Hanoi City regarding the issuance of policy approval to Ilshin Company to establish the construction project at lot E7, Pham Hung street, Tu Liem, Hanoi, Ilshin Company will immediately terminate the consulting contract signed on January 28, 2008 between two companies. And Hoang Lan Company must, at once, refund Ilshin Company USD 1,000,000 (One million US dollar) which Ilshin Company deposited upon signing of the Contract”.

On September 1, 2008, Dongseo Company, as the successor to Ilshin Company, sent the Official Dispatch No. 010/2008-ISDongseo, officially notifying: “. .terminate the consulting contract signed on January 28, 2008 between Ilshin Company and Hoang Lan Company. Request Hoang Lan Company to refund immediately the advance deposit of USD 1,000,000 (One million US dollar) to Ilshin Company as prescribed in Article VII(I) of the Investment Consulting Contract. Dongseo Company then received the Official Dispatch No. 016/TT-HL of Hoang Lan Company undertaking that: “Hoang Lan Company promises that 15 days after receiving the dispatch of Ilshin Company, if the People’s Committee of Hanoi City does not issue a policy approval to Ilshin Company to establish the investment project, Hoang Lan Company will make no further excuse and agree to terminate the Contract with Ilshin Company and refund USD 1,000,000 (one million US dollar) to Ilshin Company. If Hoang Lan Company does not refund this amount in full, Hoang Lan Company commits to take legal liability”. On September 1, 2008, Dongseo Company sent the Official Dispatch No. 011/2008-ISDongseo agreeing continuation of the Contract with two conditions below: (1) Hoang Lan Company shall sign the certificate of indebtedness; and (2) No later than September 15, 2008, the People’s Committee of Hanoi City will issue a policy approval to Dongseo Company as the investor of the Project at lot E7, Pham Hung street, Hanoi. At the request from Dongseo Company, Mrs. Nguyen Thi Mien - General Director of Hoang Lan Company made a certificate of indebtedness of USD 1,000,000 under the consulting contract signed on January 28, 2008.

Then, Hoang Lan Company still failed to honour its commitment.

On September 17, 2008, Dongseo Company sent the Official Dispatch No. 011/2008-ISDongseo officially notifying the termination of the Investment Consulting Contract dated January 28, 2008 and requesting Hoang Lan Company to refund Dongseo Company USD 1,000,000.

On December 5, 2008, Dongseo Company filed a lawsuit requesting the court to:

-  Cancel the Investment Consulting Contract associated with the land lot E7, Pham Hung, Hanoi between Ilshin Company and Hoang Lan Company.

-  Compel Hoang Lan Company to refund USD 1,000,000 and late payment charge.

-  Compel Hoang Lan Company to pay material damages of VND 50,000,000 and mental damages of VND 5,400,000.

Representation of defendant:

Admit the conclusion of the Investment Consulting Contract with Ilshin Company as presented by the petitioner. After the Contract was signed, Hoang Lan Company received USD 1,000,000 in cash from Ilshin Company. This is the Service Charge which Hoang Lan Company used to perform the Contract. Hoang Lan Company has performed the work under the Contract without delay, however, due to objective hindrance, such as: the acquisition of Ha Tay and the vicinity into Hanoi Capital…leading to the fact that Hoang Lan Company has defaulted in the performance of the work in an expeditious manner.

As the petitioner terminated the Contract from July 9, 2008, it will not refund the received deposit.

In the First Instance Commerce Judgment No. 93/2009/KDTM-ST dated May 18 and 19, 2009, the People’s Court of Hanoi City, pursuant to Point b Clause 1 Article 29, Article 131 and Article 245 of the Civil Procedure Code; Article 524 and Clause 1 Article 525 of the Civil Code; Articles 16, 17, Clause 2 Article 18 and Article 78 of the Law on Commerce 2005, judged:

“1. Accept the lawsuit request of DONGSEO Co.,Ltd against Hoang Lan Development and Investment Joint Stock Company under the Investment Consulting Contract dated January 28, 2008.

2. Cancel the Investment Consulting Contract associated with the land lot E7, Pham Hung, Hanoi between Hoang Lan Company and ILSHIN Construction and Industry Co., Ltd (now is IS DONGSEO Co., Ltd) signed on January 28, 2008.

-  Compel Hoang Lan Company to refund IS DONGSEO Co., Ltd USD 1,000,000 (equivalent to VND 17,784,000,000 - based on the exchange rate between VND and USD on May 18, 2009 of 1 USD - VND 17,784).

-  Compel Hoang Lan Company to pay the late payment charge equivalent to USD 1,000,000 of USD 20,000 (from September 15, 2008 to May 18, 2009) which is VND 355,680,000.

Total:  VND 18,139,680,000.

Reject other requests of the litigants”.

In addition, the Court of First Instance decided the court fee, liability for interest on delayed judgment enforcement, and announced the appeal right to litigants as per the law.

On May 28, 2009, Hoang Lan Development and Investment Joint Stock Company filed an appeal against the entire First Instance Judgment.

In the Appellate Commerce Judgment No. 147/2019/ KDTM-PT dated October 16, 2009, the Appellate Court of the Supreme People's Court in Hanoi, based on Clause 1 of Article 275 of the Civil Procedure Code, judged:

“Dismiss the appeal of the respondent. Uphold First Instance Judgment. In specific:

1. Pursuant to Clause 2 Article 92, Clause 2 of Clause 95, Clause 4 of Article 524 of the Civil Code.

a) Accept the lawsuit request of DONGSEO Co.,Ltd against Hoang Lan Development and Investment Joint Stock Company under the Investment Consulting Contract dated January 28, 2008.

b) Cancel the Investment Consulting Contract associated with the land lot E7, Pham Hung, Hanoi between Hoang Lan Company and ILSHIN Construction and Industry Co., Ltd (now is IS DONGSEO Co., Ltd) signed on January 28, 2008.

-  Compel Hoang Lan Development and Investment Joint Stock Company to refund IS DONGSEO Co., Ltd USD 1,000,000 equivalent to VND 17,784,000,000 according to the exchange rate between VND and USD on May 18, 2009 of 1 USD - VND 17,784.

-  Compel Hoang Lan Company to pay the late payment charge equivalent to USD 20,000 (from September 15, 2008 to September 18, 2009) which is VND 355,680,000.

Total: VND 18,139,680,000”.

In addition, the appellate court decided the court fee.

After appellate trial, Hoang Lan Development and Investment Joint Stock Company filed a claim for review of Appellate Judgment under cassation procedure; Dongseo Company filed a claim for review of Appellate Judgment under reopening procedure and refers the case file to the competent investigation body for considering criminal liability of Mrs. Nguyen Thi Mien - General Director of Hoang Lan Company.

In the Appeal No. 31/2012/KDTM-KN dated October 3, 2012, the Chief Justice of the Supreme People’s Court requested the Council of Judges of the Supreme People’s Court to review the case under cassation procedure to quash the above Appellate Judgment No. 147/2009/KDTM-PT dated October 16, 2009 of the Court of Appeal of the Supreme People’s Court of Hanoi and First Instance Judgment No. 93/2009/KDTM-ST dated May 18 and 19, 2009 of the People’s Court of Hanoi; refer the case to the People’s Court of Hanoi City for re-conduct the first instance trial as per the law.

At the cassation trial court hearing, the representative of the Supreme People’s Procuracy consents to the appeal made by the Chief Justice of the Supreme People’s Court.

CONSIDERING THAT

Ilshin Company is an enterprise of Korea, the representative office thereof in Hanoi is headed by Mr. Kim Sin Mo, according to the representative office establishment license of foreign trader in Vietnam No. 01-000967 issued on August 13, 2007 of Department of Commerce of Hanoi city. On July 22, 2008, Ilshin Company merged with Dongseo Company. Dongseo Company has representative office in Hanoi, which is headed by Mr. Kim Sin Mo, according to the representative office establishment license of foreign trader in Vietnam No. 01-000967 issued on August 12, 2008 of Department of Commerce of Hanoi city.

On January 28, 2008, Hoang Lan Company and Ilshin Company, represented by Mr. Kim Sin Mo, concluded “the Investment Consulting Contract associated with land lot E7, Pham Hung, Hanoi” (construction of the complex: shopping mall, offices and apartments for sale and lease).

On January 28, 2008, Mr. Kim Sin Mo - authorized representative of Ilshin Company gave Mrs. Nguyen Thi Mien - General Director of Hoang Lan Company in person USD 1,000,000 in cash (case file p. 19, 21).

Since Hoang Lan Company failed to satisfy terms and conditions under the Contract, on September 17, 2008, Dongseo Company sent the Official Dispatch No. 011/2008-ISDongseo officially notifying the termination of the Investment Consulting Contract dated January 28, 2008 and requesting Hoang Lan Company to refund Dongseo Company USD 1,000,000.

On December 5, 2008, Dongseo Company filed a lawsuit requesting the court to:

-  Cancel the Investment Consulting Contract associated with the land lot E7, Pham Hung, Hanoi between Ilshin Company and Hoang Lan Company.

-  Compel Hoang Lan Company to refund USD 1,000,000 and late payment charge.

-  Compel Hoang Lan Company to pay material damages of VND 50,000,000 and mental damages of VND 5,400,000.

The Court of First Instance and the Court of Appeal accepted the lawsuit request of Dongseo Company to cancel the Investment Consulting Contract dated January 28, 2008 between Hoang Lan Company and Ilshin Company; and compel Hoang Lan Company to refund Dongseo Company USD 1,000,000 and incur late payment charge of USD 20,000 out of USD 1,000,000 (to be converted into VND).

Considering the court has not clarified if Ilshin Company (now is Dongseo Company) transferred of such amount of foreign currency into Vietnam in accordance with Vietnamese law. It is necessary to clarify this matter on re-resolving the case. If there are justifiable grounds for determining that Ilshin Company (now is Dongseo Company) transferred USD 1,000,000 into Vietnam illegally and it transferred the amount to Mrs. Nguyen Thi Mien in person on behalf of Hoang Lan Company (not via foreign currency account at the bank), it is required to confiscate this amount as it violated regulations of the Ordinance on Foreign Exchange and Clauses 1 and 3 Article 6 of Government's Decree No. 160/2006/ND-CP dated December 28, 2006 on guidelines for the Ordinance on Foreign Exchange. If Ilshin Company transferred this amount into Vietnam legally but gave it to Mrs. Mien in person in cash (not via foreign currency account at the bank), the Contract is deemed null and void as violating regulations of the Ordinance on Foreign Exchange and Clauses 1 and 3 Article 6 of Government's Decree No. 160/2006/ND-CP dated December 28, 2006 on guidelines for the Ordinance on Foreign Exchange, the court shall declare the Contract null and void and address the consequences thereof as per the law. As the Contract is null and void, the receipt of Service Charge between Ilshin Company (now is Dongseo Company) and Hoang Lan Company was made against the laws and regulations; therefore, Dongseo Company may only receive USD 1,000,000 without the late payment charge; this charge shall be expropriated to the state fund.

In addition, at the time when the Parties concluded the Investment Consulting Contract associated with the land lot E7, Pham Hung street, Hanoi, the People’s Committee of Hanoi City issued such land lot to other enterprises to build head offices prior to 2009 (according to the Official Dispatch No. 29/CAND dated September 16, 2010 of Police of Hanoi City). Documents dated August 29, 2008 and September 1, 2008 of Dongseo Company sent to Mr. Pham Quang Nghi - Secretary of Communist Party of Hanoi all stating that: “We learn that the land lot E7 on Pham Hung street has been allocated to other investors previously but they fail to initiate their projects upon expiry of statutory period…

At first instance court hearing, the representative of Dongseo Company admitted: “We know that the land lot E7 was allocated to other investors…” (case file p. 260, 259, 244). So, according to the above-mentioned documents, upon concluding the Contract with Hoang Lan Company, Dongseo Company knew the status of the land lot. Thus, Investment Consulting Contract dated January 28, 2008 is null and void as its subject matter cannot be performed as prescribed in Article 411 of the Civil Code 2005. This failure is caused by faults on both sides.

The Court of First Instance and the Court of Appeal compelled Hoang Lan Company to refund Dongseo Company USD 1,000,000 and compelled Hoang Lan Company to incur the late payment charge of USD 1,000,000. These decisions were ungrounded (as they have not clarified if ILSHIN Company transferred USD 1,000,000 into Vietnam legally) not in accordance with laws and regulations.

-  If the Contract is effective, Hoang Lan Company breached the Contract as it failed to fulfill commitments as stated in the Contract (irrespective of approval   of Ilshin Company to extend the Contract). In this circumstance, Ilshin Company is well-grounded when terminating the Contract and requesting Hoang Lan Company to make a refund.

Alternatively, while resolving the case, the Court of First Instance and the Court of Appeal has not clarified whether Mrs. Mien transferred the amount personally received from Ilshin Company to Hoang Lan Company; how this amount was used. Through verification and taking of evidence, if it is determined that Mrs. Mien did not transfer this amount to Hoang Lan Company and she failed to justify how this amount was used and if this amount was used legally, the case file shall be transferred to the investigation body for considering her criminal liability.

Pursuant to Clause 3 Article 291; Clause 3 Article 297 and Clause 299 of the Civil Procedure Code (amended in 2011).

HEREBY DECIDES

Quash the Appellate Judgment No. 147/2009/KDTM-PT dated October 16, 2009 of the Court of Appeal of the Supreme People’s Court in Hanoi and First Instance Judgment No. 93/2009/KDTM-ST dated May 19, 2009 of People’s Court of Hanoi City; refer the case file to People’s Court of Hanoi City to retry as per the law.