Cassation judgment No. 20/2009/DS-GDT dated July 30, 2009 regarding dispute over mixed multiple ownership

THE SUPREME PEOPLE’S COURT

CASSATION JUDGMENT NO. 20/2009/DS-GDT DATED JULY 30, 2009 REGARDING DISPUTE OVER MIXED MULTIPLE OWNERSHIP

On July 30, 2009, the cassation trial was conducted at the office of the Supreme People’s Court to hear the civil case of dispute over mixed multiple ownership between:

Plaintiff: Mr. Dau Ngoc Long, born in 1953; residing at 307/1 Nguyen Van Troi, Ward 1, Tan Binh District, Ho Chi Minh City.

Defendant: Phuong Nga Liability Limited Company (hereinafter referred to as Phuong Nga Company); headquarters’ address: No 1/1, National Road 15, Tam Hiep Ward, Bien Hoa City, Dong Nai Province; headed by Nguyen Phuong Nga, Director of the Company.

Persons with relevant rights and obligations: Hero Taiwan Company (Cambodia); headquarters’ address: 138/122 Sang Kartuklaak 1, Khantuok, Phnom Penh, Cambodia; represented by Mr. Nguyen Ngoc Dung, Deputy General Director.

FINDING THAT

Representation of Mr. Dau Ngoc Long in the lawsuit petition dated April 6, 2005 and during the legal proceedings: On March 4, 2003, he and Phuong Nga Company signed a joint venture contract No. 15/2003. Under the contract, he and Phuong Nga jointly contribute capital to cooperate with Hero Taiwan Company to exploit and import timber from Cambodia to Vietnam for sale or re-export, the contract expiry date is December 31, 2003. On the same day, he contributed VND 2,000,000 to Phuong Nga Company.  After the capital contribution, he and Mrs. Nga went to Cambodia to figure out the ability to carry out joint venture.  Later on, Phuong Nga Company and Hero Taiwan Company signed the contract at a time he did not know, but at the end of the agreement between him and Phuong Nga Company, he did not see the Phuong Nga Company importing timber back to Vietnam.  He has repeatedly asked Phuong Nga Company to pay back his contribution, but Phuong Nga Company did not pay. By October 2004, Phuong Nga Company sent him a statement that Phuong Nga Company had paid a total of VND 3,400,695,560 to carry out the joint venture contract with Hero Taiwan Company, in which the cost of airfare, hotel accommodation, transaction fees during the time he and she had been in Cambodia is VND 270,567,960, deducted from the capital contributed by the two parties of VND 4,000,000,000, the remaining sum is VND 299,652,220 for each party, and then Phuong Nga Company unilaterally transferred VND 299,652,220 to the account of Mr. Long. However, he only agreed to bear a half of the cost of travel, accommodation, transactions with Mrs. Nga to Cambodia totaling VND 135,283,980 and not accept other expenses listed by Phuong Nga Company. He claimed that these costs do not have legal proof of payment and many expenditures are negative and in large amounts. Therefore, Phuong Nga Company was supposed to return him an extra sum of VND 1,565,062,800, so he asked the court to force Phuong Nga Company to return this sum and interests from the ending date of joint venture contract between him and Phuong Nga Company (December 31, 2003) until the first instance trial.

Representative of Phuong Nga Company admitted that Phuong Nga Company and Mr. Long have signed a joint venture contract and Mr. Long contributed the capital of VND 2,000,000,000 as presented. After investigation and survey, Phuong Nga Company signed with Hero Taiwan Company some contracts on timber logging and consumption.  However, after signing the contract, Cambodia political crisis occurred, so the logging and export of timber reached deadlock, so far Phuong Nga Company has not received timber; Phuong Nga Company and Hero Taiwan Company have not finalized the contract. Phuong Nga Company spent a total of VND 270,567,960 while Mr. Long and she went to Cambodia to investigate and survey the reality to sign a contract with Hero Taiwan Company.  After signing the contract with Hero Taiwan Company, Phuong Nga Company advanced Hero Taiwan Company the total of VND 3,130,127,600.  In October 2004, Mr. Long needed money, so Phuong Nga Company transferred VND 299,652,220 to return Mr. Long. Phuong Nga Company did not accept the lawsuit filed by Mr. Long, claiming that the contract between Phuong Nga Company and Hero Taiwan Company failed to execute due to objective hindrance.

During the process of solving the case, the representative of Hero Taiwan Company was absent and did not comment on the content of the dispute between Mr. Long and Phuong Nga Company.

In the first instance civil judgment No. 07/2007/DSST dated June 27, 2007, the People’s Court of Dong Nai province judged:

Rebut Mr. Dau Ngoc Long’s claim for the remaining contributed capital of VND 1,565,063,800 and the overdue interests against Phuong Nga Company.

 In addition, the Court of First Instance decided the court fee and announced the right to appeal of the litigants.

On July 6, 2007, Mr. Dau Ngoc Long filed an appeal claiming that the contracts between Phuong Nga Company and Hero Taiwan Company were falsified because Mr. Dung signed the contract with Phuong Nga Company as a representative of Hero Taiwan Company, but Mr. Dung is a Vietnamese, owner of Dai Hiep Sole Proprietorship in Quy Nhon City, Binh Dinh Province; he requested the Court of Appeal to re-trial the case, compelling Phuong Nga Company to refund him VND 1,565,063,800.

At the Court of Appeal, Long withdrew the claim for late payment interest and asked the Court to compel Phuong Nga Company to refund him VND 1,565,063,800.

In the Appeal Judgment No. 310/2007/DSPT dated September 27, 2007, the Court of Appeal of the Supreme People's Court in Ho Chi Minh City decided to amend the First-Instance Civil Judgment No. 07/2007/DSST dated June 27, 2007 by the People's Court of Dong Nai Province as follows:

The joint venture contract No. 15/2003 PN-HDKT dated March 4, 2003 entered into  between Phuong Nga Company and Mr. Dau Ngoc Long is declared null and void.

Phuong Nga Company headed by Mrs. Nguyen Phuong Nga is responsible for refunding Mr. Dang Ngoc Long VND 1,565,063,800.

In addition, the Court of Appeal decided the court fee and obligation due to delayed sentence enforcement.

On November 07, 2007 and May 20, 2008, the representatives of Phuong Nga Company complained that Mr. Long was the person who introduced Phuong Nga Company and Hero Taiwan Company to sign the contract for logging and import of timber from Cambodia to Vietnam.  In fact, Phuong Nga Company and Hero Taiwan Company have signed many contracts, but due to the political crisis in Cambodia, the production and business activities stagnated; the inability to perform the contract was due to objective constraints.  Phuong Nga Company has spent over VND 3 billion 400 million, in which more than VND 3.1 billion was given to Hero Taiwan Company. The Court of Appeal determined that Phuong Nga Company does not have line of business concerning import of timber and could not prove the damage of the void contract, thereby forcing Phuong Nga Company to refund Mr. Long VND 1,565,063,800 is not correct.

In the Decision No. 236/2007/KN-DS dated March 31, 2009, the Chief Procurator of the Supreme People’s Court appealed the Appellate Judgment No. 310/2007/DSPT dated September 27, 2007 of the Appellate Court of the Supreme People’s Court of Ho Expenditure on Minh City and requested the Council of Judges of the Supreme People’s Court in charge of cassation trial to quash the above Appellate Judgment and the First Instance Judgment No. 07/2007/DSST dated June 27, 2007 of People’s Court of Dong Nai City, remand the case back to People’s Court of Don Nai City for re-conducting the first instance trial as per the law with the following judgment:

Mr. Long and Mrs. Nga agreed to jointly finance the business. The parties signed the contract No.15 dated March 4, 2003 for joint venture, jointly contributing capital to execute the joint venture contract with the Hero Taiwan Cambodia to import timber from Cambodia to Vietnam, the contract ended on December 31, 2003. Now, Mr. Long withdrew the remaining capital of VND 1,565,063,800.  Thus, Mr. Long and Mrs. Nga have been together to survey the operation of Hero Taiwan in Cambodia in terms of  “Capacity, potential, infrastructure, other relationships, etc. in timber supply of Hero Taiwan Company, then Phuong Nga Company and Mr. Dau Ngoc Long agreed to create joint venture in the business of timber import from Cambodia to Vietnam.

The contract stipulates the responsibilities of each party, in particular:  For Phuong Nga Company, it will be legal entity to import timber to Vietnam, and be responsible for the legal entity in the timber consumption contract when imported to Vietnam.  Mr. Dau Ngoc Long will transfer money into the account of Phuong Nga Company, he will start to execute the contract within 3 days after the contract is signed.

All expenses will be recorded by accounting documents of Phuong Nga Company and Mr. Dau Ngoc Long. The two parties will distribute the profit based on their capital contribution and effort put in the business after paying all expenses and taxes.

The two parties pledge to comply with the above terms and conditions, the party in breach of contract causing material damage shall take legal responsibility and pay compensation to other party. In the course of execution, if any party meets with difficulties and problems, it shall discuss and resolve the dispute with the other, not unilaterally terminating the signed contract.

The two parties should keep each other informed of the progress of the contract. If there is a problem, they will inform each other in writing within 7 days (1 week).  The contract is valid from the date of signing and to December 31, 2003 inclusive.

Thus, Mr. Long is obliged to transfer the money and he actually transferred VND 2 billion (two billion dong only) to Phuong Nga Company, while Phuong Nga Company is obliged to deal and complete all paperwork to enter into a contract for timber import from Cambodia to Vietnam with Hero Taiwan Cambodia, he admitted that he and Mrs. Nga went to Cambodia to meet and work with the Director of the Hero Taiwan Cambodia Company and he agreed to bear the cost of this trip of VND 135,283,980.  At the Court of First Instance, Mr. Long stated that the contract failed to be executed, but there was no evidence to prove that, while in the minutes dated March 22, 2007, he admitted that he and Mrs. Nga went to Cambodia to survey.  Under the terms and conditions the contract, while Mr. Long is obliged to contribute capital, Phuong Nga Company is obligated to complete the paperwork before, during and after the contract with Hero Taiwan Cambodia, import timber from Cambodia to Vietnam and sell timber in Vietnam. In that process, Phuong Nga Company provided the contract No. 115/2003 - HDKT dated March 25, 2003 signed with Hero Taiwan Company, this is the actual work, and the work has been done in accordance with the contract signed between Mr. Dau Ngoc Long and Phuong Nga Company.  Phuong Nga Company has no faults.

In terms of cost, according to the contract, all expenses will be accounted for by accounting vouchers of Phuong Nga Company and Mr. Dau Ngoc Long. According to proof of payment provided by Phuong Nga Company for the court, the Company spent on the purchase of woodwork tools, automobile parts, travel and accommodation expenses for Mr. Nguyen Ngoc Dung, who is the signer of the contract for import of timber from Cambodia to Vietnam and many other expenses, etc.  The total cost is VND 3,130,127,600 with detailed proof of payment.  The contract has not been terminated by the parties, Mr. Dau Ngoc Long and Mrs. Nga have not checked the documents together to determine the legality of the documents and which  documents are illegal according to the law as agreed by the parties in the contract, it is deemed not respectful for the parties' agreement. The Appellate Judgment was only based on Mr. Long 's rebuttal to accept the his claim but not examining proof of payment provided by Phuong Nga Company regarding the paid expenses. It is deemed not respectful for the interest of Phuong Nga Company. Further matters needs to be verified before the trial.

On the other hand, the terms and conditions of the contract only state that profit shall be in proportion to the capital contribution, not stipulate the parties’ obligation to bear the risk, if any, the parties jointly bear the risk.

In terms of legal relationship: While the First Instance Judgment determined that the case is “dispute over mixed joint ownership”, the Appellate Judgment defined it as a “bilateral contract” as prescribed in Article 414 of the Civil Code. This is a partnership agreement whereby the obligations of Mr. Long and Phuong Nga Company are jointly contributing capital (money) and effort to business, for profit purposes.  Therefore, it is supposed to be a civil contract concerning capital contribution for business.

The First Instance Judgment fully rejecting Mr. Dau Ngoc Long’s claim for VND 1,565,063,800 against Phuong Nga Company is ungrounded and the Appellate Judgment full accepting Mr. Long’ claim for VND 1,565,063,800 against Phuong Nga Company is also not grounded.

At the cassation court hearing, the representative of the Supreme People’s Procuracy requests the Council of Judges of the Supreme People’s Court to accept the Appeal of the Chief Procurator of the Supreme People’s Procuracy.

CONSIDERING THAT

Pursuant to the "Joint Venture Contract" No. 15/2003 PN-HDKT signed by Mr. Long and the representatives of Phuong Nga Company on March 03, 2003; the Receipt No. 01 dated March 4, 2003 of Phuong Nga Company; the presentation of Mr. Long and the legal representative of Phuong Nga Company: Mr. Long and Phuong Nga have agreed to jointly contribute capital to carry out the joint venture contract with Hero Taiwan Company to log and import timber from Cambodia to Vietnam for consumption or re-export, the contract will terminate on December 31, 2003.

According to the above contract, Mr. Long contributed VND 2,000,000,000 to Phuong Nga Company; Mr. Long and Mrs. Nga went to Cambodia to survey the possibility of the contract and accepting a half of the cost of the survey (according to the proof of payment provided by Phuong Nga Company) of VND 135,283,980; Phuong Nga Company returned Mr. Long VND 299,652,220.

Mr. Long asked Phuong Nga Company to return him VND 1,565,063,800 for the reason that Phuong Nga Company failed to import the timber upon expiry of the contract; meanwhile, Phuong Nga Company refutes Mr. Long’s claim based on the ground that Phuong Nga Company succeeded in signing the joint venture contract with Hero Taiwan Company, spent on the contract execution and the failure to import timber was due to objective reasons.

In the joint venture contract between Phuong Nga Company and Mr. Long dated March 4, 2003, at the contract conclusion, Phuong Nga Company does not have line of business of import of timber. Therefore, the Court of Appeal declaring joint venture contract null and void is grounded. The Court of First Instance was wrong when determining that the contract has been valid since the parties signed and executed the contract.

In the process of resolving the case, while Mr. Long claimed that he did not personally deal with the representative of Hero Taiwan Company and did not know Hero Taiwan Company,  the representatives of Phuong Nga Company said that he has personally signed many contracts with Hero Taiwan Company in terms of logging and processing of timber and transferred money many times to the representative of Hero Taiwan Company, and the representatives of Phuong Nga Company presented some joint venture contracts between Phuong Nga Company and Hero Taiwan Company, payment orders for Mr. Nguyen Ngoc Dung, Mr. Nguyen Binh (representatives of Hero Taiwan Company), Mr. Vo Thanh (driver of the vehicle with license plate 65N-2128), with the amount of more than VND 3.1 billion, aiming to prove that Phuong Nga Company has signed contracts and has advanced money to Hero Taiwan Company, to execute the agreement with Mr. Long.

Reviewing the proof and documents presented by Phuong Nga Company, the testimonies of the litigants, the Hero Taiwan (if true), a Cambodian company, founding that:

In the joint venture contract between Phuong Nga Company and Hero Taiwan Company, the representative of Hero Taiwan Company is always Mr. Nguyen Ngoc Dung. However, in some contracts, Mr. Dung signed as the Deputy General Director of Hero Taiwan Company, in other contracts, Mr. Dung signed as the Director of the Hero Timber Production and Exporting Plant; the position and the full name of the representative are written in a foreign language.

The "Cost Grand Summary" stamped with the Hero Taiwan Company specified that in the period from February 7, 2003 to January 2004, Hero Taiwan Company was advanced VND 3.130.127.600 from Phuong Nga Company.

Payment vouchers, advance payment proof specify that Phuong Nga Company paid or advanced Mr. Nguyen Ngoc Dung (Hero Taiwan Company), Mr. Nguyen Binh (Hero Taiwan Company) and Mr. Vo Thanh (driver of vehicle with license plate 65N-2128), totaling VND 3,109,626,000; in which the sum of VND 2,621,627,000 was paid or advanced for unknown reasons and the remaining sum was paid or advanced for repairs, vehicle overhaul, machinery for spare parts, totaling VND 488,000,000.

Meanwhile, there is no document in the case file which identifies whether the Hero Taiwan Company is allowed to do business in Vietnam under the Investment Law.  The contracts signed between the Phuong Nga Company and Hero Taiwan Cambodia, the "Cost Grand Summary" stamped by the Hero Taiwan Cambodia Company presented by Phuong Nga Company are only photocopies, without any certification or consular legalization by the Cambodian authorities, so it is not enough to determine that there is a so-called Hero Taiwan Company of Cambodia in reality.

Phuong Nga Company has presented proof of payments and advances for representatives of Hero Taiwan such as Mr. Nguyen Ngoc Dung, Mr. Nguyen Binh, Mr. Vo Thanh, but there is also no definite basis to prove that they are representatives of the Hero Taiwan Company and the Hero Taiwan Company has actually received these amounts.  In addition, the payments are international payments of import-export contracts and joint venture contracts with foreign economic organizations.

On the other hand, contracts between Phuong Nga Company and Hero Taiwan Company are affixed with the stamp of Hero Taiwan Company, Mr. Dung is the representative of the Company with many different positions, but the case file does not have any Letter of Authorization or other documents proving that Mr. Dung is the legitimate representative of Hero Taiwan Company, to sign contracts and receive advance payment from Phuong Nga Company while Mr. Dung is a Vietnamese.  In fact (as verified by the Court of First Instance), Mr. Dung is the owner of Dai Hiep Sole Proprietorship (headquartered and registered in Quy Nhon City, Binh Dinh Province), and Dai Hiep Company has signed a contract to import timber from Hero Taiwan Company. But so far Dai Hiep Sole Proprietorship has also stopped operating and Mr. Dung is also not present in Binh Dinh Province.

In this case, it is supposed to verify whether or not there is a genuine Hero Taiwan Company in Cambodia; whether Mr. Dung and Mr. Binh are the authorized representatives of the company Hero Taiwan Company to sign contracts and receive money from Phuong Nga company. Whether or not Phuong Nga Company’s advance of a large amount of money to Mr. Dung and Tien Phuong is in line with the regulations on financial management and international payment. Whether the amount of money actually was transferred to Hero Taiwan Company (if it exists) or individuals self-dealing with each other on behalf of Hero Taiwan Company; whether contracts signed between Phuong Nga Company and Hero Taiwan Company are true.

The Court of First Instance and the Court of Appeal are ungrounded when resolving the case without verification of above issues.

In addition, in practice there is evidence that proof and documents related to Hero Taiwan Company represented by the Phuong Nga Company show signs of tampering and criminal signs involving foreign elements. The Courts were supposed to apply Clause 2, Article 91 of the Civil Procedure Code to transfer the case to the Investigation Agency for consideration and settlement in accordance with the provisions of law, and apply Clause 4, Article 189 of the Civil Procedure Code to issue a decide on the temporary suspension of the settlement of civil cases.

The Court of First Instance and the Court of Appeal were wrong when disregarding the sign of crime when resolving the case and not proposing and transferring the file to the competent investigation body for consideration and settlement.

In addition, according to the documents presented by Phuong Nga Company, apart from Mr. Dung, Mr. Binh and Mr. Thanh also received the money, but the Court of First Instance and the Court of Appeal have not taken their testimonies, had them engage in cross-examination or participate in legal proceedings persons with related interests or obligations.

HEREBY DECIDES

1. Quash the Appellate Civil Judgment No. 310/2007/DSPT dated September 27, 2007 of the Court of Appeal of the Supreme People's Court in Ho Chi Minh City and the quash the First Instance Civil Court No. 07/2007/DSST dated June 27, 2007 of the People's Court of Dong Nai Province on the case of "joint mixed ownership dispute" between the plaintiff Mr. Dau Ngoc Long and the defendant Phuong Nga Liability Limited Company; persons with related rights and obligations Hero Taiwan Company (Cambodia).

2. Remand the case file to the People's Court of Dong Nai province for the first instance re-trial in accordance with the provisions of law.

Grounds for quashing the First Instance Judgment and Appellate Judgment:

The Court of First Instance and Court of Appeal had not sufficient grounds for resolving the case without clarifying whether or not Hero Taiwan Company (Cambodia) exists in reality. Moreover, if the case has criminal signs related to foreign elements, the Court was supposed to transfer the file to the investigation agency and suspend the case.