Decision No. 11/2003/HDTP-KT dated november 06, 2003 regarding dispute over a joint venture agreement

THE SUPREME PEOPLE’S COURT

DECISION NO. 11/2003/HDTP-KT DATED NOVEMBER 06, 2003 REGARDING DISPUTE OVER A JOINT VENTURE AGREEMENT

On November 06, 2003, the cassation trial was conducted to hear an economic case of dispute over the joint venture (JV) agreement between:

- Plaintiff:

 1. Asia Investment and Trading (AIT)

2. Indesen (Hong Kong) Co., LTD

Address:  Rm 1301 13F Shun Tak Center, 200 Connaught Road Central, Hong Kong;

Representative of the plaintiff:  Mr. Thai Hung, Director of Uc – A Co., Ltd.

 Address:  Lot 12, Road No. 2, Tan Tao IP, Binh Chanh District, Ho Chi Minh City.

-Defendant: Saigon Jewelry Company Limited (SJC).

Address:  No. 2D, Nguyen Trung Truc Street, District 1, Ho Chi Minh City.

-Persons with related interests and duties in the lawsuit:

1. Vietnam Export Import Commercial Joint Stock Bank (EXIMBANK).

Address:  No. 7, Le Thi Hong Gam Street, District 1, Ho Chi Minh City.

2. Saigon Finance Joint Stock Company (SFC).

Address:  No. 115, Nguyen Cong Tru Street, District 1, Ho Chi Minh City.

FINDING THAT

Saigon Magnetic Tape Joint Venture Company was incorporated under the JV agreement No. 78/HD-LD signed on November 30, 1992 between:

1. Vietnamese party:  Saigon Jewelry Company Limited (SJC).

2. Foreign party, consisting of two companies of Hong Kong:  Indesen (Hong Kong) Co., LTD and Asia Investment and Trading (AIT).

This JV has been issued with the Investment License No. 648/GP on July 28, 1993 by the State Committee for Cooperation and Investment (presently, Ministry of Planning and Investment). Total investment is USD 10,481,300, including USD 9,481,300 of legal capital.  Vietnamese party contributed 45% of the legal capital by the land use rights for the period of the first 4.5 years and a part of machinery and equipment. Foreign party contributed 55% of the legal capital by technological line, machinery and equipment for production of magnetic tape products.  The operation duration of the JV is 20 years.

During its operation, Saigon Magnetic Tape Joint Venture Company has used all of its technological line, machinery and equipment for production of magnetic tape products as collateral for the loans granted by EXIMBANK and SFC.  By the date of the first-instance trial, the JV owed EXIMBANK USD 498,471.78 and SFC USD 260,000 (excluding interests).

Because of losses from business operations, the Board of Directors of Saigon Magnetic Tape Joint Venture Company has unanimously agreed to apply for dissolution of the JV.  On December 27, 1997, the Ministry of Planning and Investment has issued the Decision No. 284/BKH-QLDA on approval for the dissolution of Saigon Magnetic Tape Joint Venture Company.

On January 06, 1998, a liquidation board has been established to take charge of the liquidation of assets of the JV. On January 13, 1998, the Ministry of Planning and Investment has issued a written approval for the composition of the liquidation board.

On June 15, 1999, the liquidation board submitted the report on liquidation results to the Ministry of Planning and Investment and also requested the later to give an approval for termination of its operation because it has operated over the period prescribed by law.  Difficulties between the JV parties in assets and debts of the JV were also specified in the report on liquidation results.

On July 02, 1999, the Ministry of Planning and Investment issued the Official Dispatch No. 4278 BKH/QLDA giving approval for termination of the liquidation board and providing guidelines for dealing with unsolved issues of the liquidation process for the JV parties. The Ministry of Planning and Investment stated that any dispute should be dealt with in accordance with Article 102 of the Government's Decree No. 12/CP dated February 18, 1997.

Previously, on June 29, 1999, the JV parties has unanimously agreed and signed the Agreement on distribution of JV assets.

On January 11, 2000, the liquidation board has entered into the handover record with the parties of the joint venture so that the JV parties could deal with unsolved issues concerning assets of the JV.

However, the parties did not divided assets according to the signed Agreement on distribution of JV assets and the handover record dated January 11, 2000. The foreign party has complained to regulatory authorities in Ho Chi Minh City and the Ministry of Planning and Investment about the liquidation of assets of Saigon Magnetic Tape Joint Venture Company.  On June 13, 2006, Department of Planning and Investment of Ho Chi Minh City convened a meeting (with the participation of representatives of investors, EXIMBANK AND SFC) for working out solutions for distribution of assets of the JV upon dissolution but unsuccessful.  The foreign party requested Vietnamese party to comply with the signed Agreement on distribution of JV assets dated June 29, 1999 and the handover record dated January 11, 2000.

On March 30, 2001, Indesen (Hong Kong) Co., LTD and Asia Investment and Trading, represented by Mr. Thai Hung, have jointly filed a petition against SJC to the People’s Court of Ho Chi Minh City requesting for settlement of the parties' dispute over the liquidation of JV assets upon dissolution.  The petition includes the following contents:

1. Request for comply with the Agreement on distribution of assets dated June 29, 1999.

2. Request for comply with the handover record dated January 11, 2000 for raising funds for repay debts to banks;

3. Request for division of the right to use 4,280m² of land located at No. 418/1C, No Trang Long Street, Binh Thanh District, Ho Chi Minh City, to relevant parties;

4. Request for payment by Saigon Magnetic Tape Joint Venture Company for salary, severance allowance, unpaid social insurance and health insurance contributions, and interests on such unpaid amounts to Mr. Thai Hung (who formerly is the General Director of the JV) under the signed labour contract;

5. Request for payment of USD 13,081.95, goods purchase amounts, by Saigon Magnetic Tape Joint Venture Company to Indesen (Hong Kong) Co., LTD;

6. Request for payment of damages totaling USD 453,740.21 to the foreign party due to SJC’s delay in distribution of assets.  

According to the first-instance court’s economic judgement No. 140/XX-KTST dated August 29, 2002, the People’s Court of Ho Chi Minh City decided:

"1. The plaintiff’s request is refused.

2. Regarding the court fees:  Asia Investment and Trading Company (AIT) and Indesen (Hong Kong) Co., LTD are liable to the court fees for solving the first-instance economic case of VND 79,370,000, which is deducted from the advance for the court fees of VND 33,945,399 paid under the Receipt No. 024995 dated July 09, 2001 of the Judgment Enforcement Division of Ho Chi Minh City. The plaintiff shall pay the remaining amounts of VND 45,424,601.

3. From the date on which the judgment takes its legal effect (in case the judgment enforcement authority is entitled to actively make decision on judgment enforcement) or from the date on which the judgment creditor submits the petition for judgment enforcement (with regard to amounts payable to the judgment creditor) until all amounts are fully paid, the judgment debtor must monthly incur interests on outstanding judgement debt arrears according to the interest rate on overdue debts announced by the State Bank of Vietnam.

4. The litigants shall have the right to appeal against this judgment within 10 days from the date of judgment announcement”.

On September 06, 2002, the plaintiff filed an appeal against the judgment of the first-instance court because the plaintiff thought that it was not rational and caused considerable damage to the plaintiff, and thus the plaintiff requested the appellate court to hear the case according to the appellate procedures.

According to the appellate court’s economic judgment No. 50/PTKT dated December 09, 2002, the appellate court of the Supreme People's Court of Ho Chi Minh City decided to reject the appeal and keep all contents of the first-instance court's judgment unchanged, and requested the plaintiff to pay the court fees for solving the economic appeal case of VND 200,000.

While the case was being considered by the Court according to the appellate procedures, Mr. Thai Hung (the plaintiff’s representative) had many time submitted request to regulatory authorities for assistance and protection of legitimate rights and interests of the foreign party in the liquidation of the JV assets.

On December 09, 2002, the Office of the National Assembly sent an official dispatch stating the question of Mr. Tran Luan Kim (a member of the Delegation of the National Assembly deputies of Phu Yen Province) to the Chief Justice of the Supreme People's Court, and also requested the Chief Justice to provide specific guidelines for dealing with this case.

According to the appeal No. 04/2003/KT-TK dated May 14, 2003 against the appellate court’s economic judgment No. 50/PTKT dated December 09, 2002 of the appellate court of the Supreme People's Court of Ho Chi Minh City, the Chief Justice of the Supreme People's Court requested the Council of Justices of the Supreme People's Court to hear the case according to the cassation procedure, announce the invalidation of the appellate court’s economic judgment No. 50/KTPT dated December 09, 2002 of the appellate court of the Supreme People's Court of Ho Chi Minh City and the first-instance court’s economic judgement No. 140/XX-KTST dated August 29, 2002 of the People’s Court of Ho Chi Minh City, and transfer the case file to the People's Court of Ho Chi Minh City for re-try the case according to general procedures.

According to the Conclusion No. 44/KL-AKT dated September 12, 2003, the Director of the People’s Supreme Procuracy stated:

Both the question dated December 09, 2002 of Mr. Tran Luan Kim (a member of the Delegation of the National Assembly deputies of Phu Yen Province) and the request for re-hearing of the case of the Chief Justice of the Supreme People's Court were made before the date of the appellate trial. Upon the completion of the appellate trial, none of the litigants and persons with related interests and duties in the lawsuit filed appeal against the appellate court’s judgment and thus this judgment was enforced in accordance with law regulations.

After receiving the appeal from the Chief Justice of the Supreme People's Court, the defendant, SJC, made written representations, enclosed with some documents, on April 02, 2003, that the parties have agreed to authorize EXIMBANK to sell/transfer all assets of the JV according to the asset record signed by four parties for raising funds for repaying debts. Until April 04, 2003, the JV parties met to reach an agreement on recorded assets of the JV. At the meeting, Vietnamese party inventoried machinery and equipment but the land use rights, and the foreign party requested to inventory the fixed assets, including workshop and land, and requested to divide the value of land use rights because the foreign party believed that SJC had contributed the land use rights as capital.  In response to the request for division of the value of the land use rights, the Director of the People’s Supreme Procuracy found that Vietnamese party contributed capital to the JV by the land use rights only for a period of 4.5 years and after the termination of the said period, the JV had entered into the land lease with Ho Chi Minh City Cadastral Department, and no payment of land rental is paid because the JV has been dissolved for 06 years.  According to Clause 4 Article 3 of the land lease, this land lease shall implicitly cease to take effect when the JV is dissolved or declared bankrupt.  Hence, Mr. Thai Hung's request for division of the value of the land use rights is unacceptable and this matter is under the jurisdiction of the People’s Court of Ho Chi Minh City.

For the said reasons, the Director of the People’s Supreme Procuracy deemed that the appeal of the Chief Justice of the Supreme People's Court against the appellate court’s economic judgment No. 50/KTPT dated December 09, 2002 of the appellate court of the Supreme People's Court of Ho Chi Minh City was not necessary and requested the Council of Justices of the Supreme People's Court to reject that appeal of the Chief Justice of the Supreme People's Court and keep the validity of the appellate court’s economic judgment unchanged.

DEEMING THAT

- According to the documents of the case file, Saigon Magnetic Tape Joint Venture Company was incorporated on July 28, 1993 under the JV agreement signed between Asia Investment and Trading Company, Indesen (Hong Kong) Co., LTD and Saigon Jewelry Company (SJC).  On December 27, 1997, the JV is dissolved according to the Decision No. 284/BKH-QLDA of the Ministry of Planning and Investment. The liquidation board has been established and conducted the liquidation of assets of the JV but ceased to operate from July 02, 1999 because it has operated over the prescribed period. The liquidation process was still not yet completed and there were difficulties in distribution of assets, including machinery, equipment and workshop of the JV.  On January 11, 2000, the liquidation board has entered into the record of handover of unsolved issues concerning the JV assets with the investors.  After receiving the handover record from the liquidation board, the JV parties have entered into discussions for solving such issues but unsuccessful.  On June 13, 2000, Department of Planning and Investment of Ho Chi Minh City has convened a meeting with the participation of all parties to work out solutions for liquidate the JV assets but also unsuccessful.

Pursuant to the law regulations on foreign investments in Vietnam, this is considered a dispute case between JV parties over the liquidation of JV assets upon dissolution.  Thus, the petition submitted on March 30, 2001 by Asia Investment and Trading Company and Indesen (Hong Kong) Co., LTD to the Court for dispute settlement is entirely appropriate and conformable with law regulations.

- The judgments of the first-instance court and the appellate court, including the liquidation of the JV is not yet completed, the liquidation is not carried out in accordance with law regulations, the JV parties are requested to re-start the liquidation process and are entitled to file another petition to the Court for settlement in case of failure to reach an agreement, and the plaintiff’s petition is rejected, are not appropriate and conformable with actual factors of the case. The abovementioned judgments of the first-instance court and the appellate court were made without the consideration of the dispute’s contents about the liquidation of the JV agreement but they all rejected the plaintiff’s requests and forced the plaintiff to pay the entire court fees. This is not rational.  Thus, the part of judging contents conflicts with its part of deciding contents and it is difficult for the plaintiff to file another petition according to such decisions.

- Pursuant to Article 41 of the Government’s Decree No. 24/CP dated July 31, 2000 elaborating on the implementation of the Law on foreign investments in Vietnam, unpaid salaries, social insurance contributions, taxes and other debts of the JV must be paid first in the course of liquidation and dissolution of the JV.  Pursuant to the said regulation, the request of Indesen (Hong Kong) Co., LTD requesting Saigon Magnetic Tape Joint Venture Company to pay an amount of USD 13,081.95 as unpaid goods purchase amount and the request of Mr. Thai Hung for payment of his salary, severance allowance, social insurance and health insurance contributions, etc. are related to the dissolution of the JV.   Thus, such requests must be considered and settled by the Court together with the liquidation and dissolution of the JV. The Court should not request the litigants to file another petition for resolution of such requests after the completion of liquidation and dissolution of the JV.

- In this case, the request for payment of USD 13,081.95 as unpaid goods purchase amount of Indesen (Hong Kong) Co., LTD is independent of Mr. Thai Hung's request for payment of his salary, severance allowance, social insurance and health insurance contributions, etc. Thus, Indesen (Hong Kong) Co., LTD and Mr. Thai Hung must participate in the proceeding in the capacity of persons with related interests and duties.  The fact Mr. Thai Hung has been accepted by the first-instance court and the appellate court as the representative of the plaintiff should be re-considered because the interests of Mr. Thai Hung conflict with those of the plaintiff.

- Following the appeal No. 04/2003/KT-TK dated May 14, 2003 of the Chief Justice of the Supreme People's Court, the parties may have reached an agreement or performed some liquidation tasks such as the transfer of machinery and equipment to EXIMBANK for debt recovery purpose.  According to the complaints dated July 15, 2003 and dated August 01, 2003 of Asia Investment and Trading Company and Indesen (Hong Kong) Co., LTD, the parties could not reach an agreement on settlement of other complicated issues concerning the liquidation of the JV assets such as the land use rights and unpaid salaries, social insurance contributions and other debts. Thus, the dispute between the parties over the liquidation of assets of Saigon Magnetic Tape Joint Venture Company needs to be settled definitely. For these reasons, if the validity of the appellate court’s economic judgment No. 50/KTPT dated December 09, 2002 of the appellate court of the Supreme People's Court of Ho Chi Minh City is kept unchanged as requested by the Director of People’s Supreme Procuracy, the dispute cannot be settled definitely.

For the said reasons and pursuant to Clause 3 Article 80 of the Ordinance on settlement of economic cases,

THE COURT DECIDES

The appellate court’s economic judgment No. 50/KTPT dated December 09, 2002 of the appellate court of the Supreme People's Court of Ho Chi Minh City and the first-instance court’s economic judgement No. 140/XX-KTST dated August 29, 2002 of the People’s Court of Ho Chi Minh City are invalidated. The case file is transferred to the People’s Court of Ho Chi Minh City for re-trying according to general procedures.

Grounds for invalidating the first-instance judgment and the appellate judgment:

- The plaintiff’s petition is rejected by the first-instance court and the appellate court inconsistently with law regulations and actual factors of the case.

- The fact Mr. Thai Hung has been accepted by the first-instance court and the appellate court as the representative of the plaintiff should be re-considered because the interests of Mr. Thai Hung conflict with those of the plaintiff.

- The dispute between the parties over the liquidation of assets of Saigon Magnetic Tape Joint Venture Company needs to be settled definitely.