Judgement No. 27/2017/KDTM-PT dated July 21, 2017 on dispute over investment contract and economic contract

THE SUPERIOR PEOPLE’S COURT OF HO CHI MINH CITY

JUDGEMENT NO. 27/2017/KDTM-PT DATED JULY 21, 2017 ON DISPUTE OVER INVESTMENT CONTRACT AND ECONOMIC CONTRACT

On July 21, 2017, the compellate trial was conducted at the office of the Superior People’s Court in Ho Chi Minh City to hear the business case No. 70/2017/TLPT-KDTM dated March 9, 2017 concerning "Dispute over investment contract and economic contract".

Based on the appeal against the First Instance Judgment No. 1265/2016/KDTM-ST dated December 23, 2016 / KDTM-ST dated December 23, 2016 of the People's Court of Ho Chi Minh City.

According to the Decision to Bring the Case to Trial No. 221/QDXX-PT April 7, 2017, between the litigants: *Plaintiff: LRIL

Address:  P.O. Box  957,  Offshore  Incorporation  Centre,  Road  Town, Tortola, British Virgin Islands.   Authorized representative:  Mrs. Tran Thi T, born in 1959 (present).  Address: 131 PXL, Ward 7, Phu Nhuan District, Ho Chi Minh City.

* Defendant: VLA Joint Stock Company

Address: 180 VTS, Ward 7, District 3, Ho Chi Minh City. Authorized representative:  Mr. Truong Van K - Deputy Director.

* Person with related interests and obligations: NLQ1

Address: Floor 29, SGT Center, 37 TDT, Ben Nghe Ward, District 1, Ho Chi Minh City.

Authorized representative:  Mr. Vuong Kieu T2, born in 1983 (present).
Address: 131 PXL, Ward 7, Phu Nhuan District, Ho Chi Minh City.

* Appellant: Plaintiff - LRIL

THE CASE

I- According to the Lawsuit Petition and presentation of the plaintiff's authorized representative:

1) Conclusion of the contract to establish a joint venture

a) LRIL and VLA signed an Economic Contract dated August 27, 2008, on cooperation to establish a joint venture to invest and construct a residential and commercial area on the land area of ​​192,136 m2 at the Lot No. 392, 249 and 452, Block 9A + B - Zone 9 - NTP New Urban Area, BH Commune, BC District, Ho Chi Minh City.

The charter capital of the Joint Venture is VND 1,344,000,000,000, of which:

- LRIL will contribute VND 1,008,000,000,000, accounting for 75% of charter capital;
- VLA will contribute VND 336,000,000,000, accounting for 25% of charter capital.

The joint Venture will transfer the money to VLA Joint Stock Company to compensate and clear the ground for the above mentioned land and VLA Joint Stock Company must hand over all the certificates of land use rights of the occupants on that land area together with a document confirming the completion of compensation and clearance of premises, all related documents (original) to the Joint Venture.

b) Point c, Subsection 4.4, Section 4 of the Contract stipulates the defendant's obligations:  within 120 days from the date of issuance of the Investment Certificate of the Joint Venture Company, make arrangements with the relevant authorities in Vietnam to approve the detailed plan of 1/500 scale made by the Plaintiff to undertake the project on the land.

2) Conclusion of the Joint Venture Contract

On September 25, 2008, LRIL (abbreviated as Company L) and VLA Joint Stock Company (abbreviated as Company VLA) entered into a joint venture contract to set up NLQ1 Limited Liability Company (abbreviated as NLQ1) to carry out the project of construction, development, sale and lease of residential areas, apartments, commercial centers and the provision of related services in lots 392, 249 and 452, Block 9A + B - Zone 9 - NTP New Urban Area, BH Commune, BC District, Ho Chi Minh city (hereinafter referred to as  Investment Project), and ratified the charter of Company VLL.As stipulated in Article 4 of the Joint Venture Contract and Article 7 of the Charter of the Company, the charter capital of the Company VLL is VND 1,344,000,000,000, of which:

- LRIL will contribute VND 1,008,000,000,000, accounting for 75% of charter capital;
- VLA will contribute VND 336,000,000,000, accounting for 25% of charter capital.

3) Agreement dated January 19, 2009 and Agreement dated May 29, 2009 on the amendment of the Economic Contract:

a) On January 19, 2009, the plaintiff and the defendant signed a Revised Economic Contract on the performance of the Investment Project.  This Revised Agreement stipulates the reduction in charter capital of Company VLL from VND 1,344,000,000,000 to VND 1,075,200,000,000 and the change of charter capital contribution route.

Clause 2.2 Article 2 of the Agreement dated January 19, 2009, amending the Article 5 of the Economic Contract as follows:  "The Joint venture Company shall receive, inspect and preserve all certificates of land use rights of the residents on the area of ​​land provided by Party A and the documents confirming the completion of compensation and site clearance are issued by the competent authorities of Vietnam (including the People's Committee of BH Commune, BC District, Ho Chi Minh City and all other proof/evidence".

b) In the Revised Agreement dated May 29, 2009, the parties agreed to extend the time limit for the defendant to make arrangement with authorities in Vietnam to approve the 1/500 detailed plan until July 7, 2009.

4) Issuance of Investment Certificate:

On January 23, 2009, the People's Committee of Ho Chi Minh City granted Investment Certificate No. 411022000378 to NLQ1; Headquarters:  Floor 29, Saigon Trade Center, 37 TDT Street, BN Ward, District 1, Ho Chi Minh City to perform the Investment Project.

Based on the Investment Certificate, Company VLL's registered charter capital is VND 1,344,000,000,000, equivalent to USD 79,058,823. In which: - The plaintiff will contribute in cash of VND 1,008,000,000,000 equivalent to USD 59,294,117, accounting for 75% of charter capital;

- The defendant will contribute in cash of VND 336,000,000,000 equivalent to USD 19,764,706, accounting for 25% of charter capital.

5) Contract execution:

In accordance with clause 2.1, Article 2 of the Agreement dated January 19, 2009, amending Point b, Subsection 4.5, Section 4 of the Economic Contract, dated February 17, 2009, the plaintiff made the first contribution of USD 14,640,000 to the Company VLL Company's dedicated account. The Company VLL failed to make a capital contribution certificate as prescribed by law, so it is considered as an inadequacy in contribution procedure. On the day of transferring the contribution of capital into the foreign currency account, partial sum of money was transferred to the VND account at the exchange rate of VND 17,489/USD, in VND 170,496,000,000 and then on July 6, 2009, the remaining sum of money kept being transferred to the VND account at the exchange rate of VND 17,803/USD, in VND 85,248,000.

Based on the agreement between the two parties stipulated in Subsection 4.5, Section 4 of the Economic Contract, the Company VLL has transferred VND 255,744,000,000 to the defendant for compensation, site clearance, performance of the Investment Project on February 17, 2009 and on July 6, 2009 according to the transfer receipt of HSBC Single-member Limited Liability Bank (Vietnam).

Under the terms and conditions of the Economic Contract, within 10 months from the date of issue of the Investment Certificate (dated January 23, 2009), the defendant has to complete the compensation and clearance of the entire land plot area of ​​192,136 m2.

The defendant has received the full amount of VND 255,744,000,000 contributed by the plaintiff to the Joint Venture Company but failed to fulfill the obligation to hand over all documents, proof of compensation and site clearance; written confirmation of the completion of compensation and site clearance issued by the competent authority and all other relevant proof or evidence (original) to the Company VLL for inspection and archive as prescribed in Clause 5 of the Economic Contract. On the other hand, the defendant also failed to fulfill its obligations and failed to produce documents proving that it has fulfilled his obligation to contribute capital of VND 336 billion, accounting for 25% of charter capital in cash to charter capital of Company VLL as committed.

Up to now, the defendant has not fulfilled its obligation to arrange for seeking approval of the 1/500 detailed plan from the relevant authorities in Vietnam in accordance with Point c, Subsection 4.4, Section 4 of the Economic Contract and Revised Agreement dated May 29, 2009.

Therefore, the plaintiff and the Company VLL Company cannot determine the area of ​​land where the defendant has compensated and cleared the ground.

On July 16, 2013, the People's Committee of Ho Chi Minh City issued Decision No. 3836/QD-UBND on the revocation of Investment Certificate No. 411022000378, on early termination of the Investment Project (termination prior to the original expiration date)...named "NLQ1 Establishment Project" of Company VLL Company.

The plaintiff's representative had held several meetings with the respondent asking for repayment of VND 255,744,000,000.  On October 2, 2014, the defendant sent to Mr. L King Tin, plaintiff's representative Promissory Note No. 78/DA9A2.  Accordingly, the defendant acknowledges that the plaintiff and Company VLL has paid the defendant the amount of VND 255,744,000,000;The defendant sets out a plan for repaying the above amount to the plaintiff, but does not specify the specific payment schedule, only prioritize the payment to the plaintiff if the project is completely compensated.

After that, the plaintiff's representative had held several meetings with the defendant as well as repeatedly sent the request letter to the plaintiff asking the plaintiff exactly the time of repayment of the above amount but did not receive any satisfactory reply from the plaintiff.

On April 23, 2015, the plaintiff sent the request letter to the defendant to pay the amount as committed.  On April 27, 2015, the respondent received the request letter from the plaintiff (recognized by report of the Courier Company).  However, the defendant has not paid the amount to the plaintiff so far.

6- Provisions of the contract and the law on the obligation to contribute charter capital to a joint venture company:

6.1) Under the terms and conditions of the Economic Contract dated August 27, 2008:

Point c, Subsection 4.4, Section 4 of the Contract on the defendant's obligations:  within 120 days from the date of issuance of the Investment Certificate of the Joint Venture Company, make arrangements with the relevant authorities in Vietnam to approve the detailed plan of 1/500 scale made by the Plaintiff to undertake the project on the land.

Point f, Subsection 4.4, Section 4 of the Contract on the defendant's obligations:  Within 09 months from the date of issuance of the Investment Certificate of the Joint Venture Company, if the defendant has not completed the full compensation and clearance, the defendant has to pay the plaintiff a fine equal to 3% of the total compensation and must continue to complete the compensation and clearance of the land within 30 days from the expiry date.  That means within 10 months from the date of issuance of the Investment Certificate of the Joint Venture Company, the defendant is obliged to complete the compensation and clearance of the whole land, if not completed, it has to compensate the plaintiff for such a breach of Contract.

Section 6 of Contract:  In the event that the defendant is unable to fulfill any or all of its obligations under the Contract, the plaintiff may exercise one or all of the following measures:  Re-negotiating with the defendant to solve pending issues; terminating this Contract immediately and terminating the Joint Venture Contract and the Charter and dissolving the Joint Venture Company; requesting the defendant (the defendant will respond at the request of the defendant), within 10 days from the date of the plaintiff's request, the defendant shall return all the amounts actually received from the plaintiff by the defendant or the defendant’s authorized party or the Joint Venture Company plus interest at the rate of 3% per annum on the indemnity, provided that the total amount of interest plus any other fines obtainable by the plaintiff under this contract will not exceed 8% of the value of the defendant's unfulfilled obligations.

Date of issue of Investment Certificate of the Joint Venture Company:  January 23, 2009, the date after 10 months is November 23, 2009. Accordingly, by November 23, 2009, the defendant has to complete the compensation and clearance of the entire land.

6.2) Provisions of the Civil Code 2005 in Viet Nam:

"Article 414. Performance of bilateral contracts

1. With respect to a bilateral contract, where the parties have agreed on a time limit for the performance of an obligation, each party must perform its obligation when the obligation falls due. One party may not postpone performance by reason of the other party not having performed the obligations owed to the former party, except in the cases provided in Articles 417 of this Code.

2. Where the parties have no agreement on which party will perform its obligation first, the parties must perform their obligations concurrently; where obligations are not able to be performed concurrently, the obligation the performance of which will take longer shall be performed first.

Article 415. Right to postpone performance of civil obligations in bilateral contracts

1. The party which is required to perform its obligation first has the right to postpone the performance of such obligation, if the property of the other party has substantially decreased in value such that its obligation is not able to be performed as undertaken, until the other party is able to perform its obligation or has a guarantor.

2. The party which is required to perform its obligation last has the right to postpone the performance of such obligation when it falls due if the party which was required to perform its obligation first failed to do so when such obligation fell due.” 

7) The plaintiff requests the court to consider approving the petition, in specific:

7.1) Ask the VLA Company to reimburse LRIL for the amount of money the plaintiff transferred to perform the project is VND 255,744,000,000.

7.2) The defendant must pay the plaintiff the interest arising on the amount of VND 255,744,000,000, specifically:  

The interest rate is calculated based on the basic interest rate of the State Bank of Vietnam is 9%/year, interest calculation period: from May 12, 2015 to November 6, 2015 (one month); total amount is VND 1,854,144,000.

II- Representation of the defendant:

1) Establishment of NLQ1:

After obtaining the Investment Certificate No. 411022000378 issued by the People's Committee of Ho Chi Minh City on January 23, 2009, the company was established and held a meeting for the first time to appoint the following titles:

- Mr. L King Tin - Chairman of the Board of Directors

- Mr. Dang Tan T2 - Vice Chairman of Board of Directors

- Mrs. Luk Sze Wonsie - Director, legal representative

- Mr. Truong Van K - Deputy Director; Deputy Chairman of Board of Directors and Deputy Director were not assigned any task, even when the Director stayed overseas, she did not give authorization to the Deputy Director.

After the establishment of the Joint Venture, the Director did not operate NLQ1, specifically:

- After receiving the Investment Certificate, she did not make the company's seal.  At this point, the seal is only made by the legal representative of the legal entity.   Company VLA pledged to receive the seal, when the Director enters Vietnam, she will go to the police office to bear her signature, but she still owes this signature up to now.

- No Project Management Board or Control Board is set up to supervise the compensation and together with the Vietnamese party to manage the dossiers related to the project.  It shows that all the compensation work of the whole project 9A2 has been left to the defendant , if the foreign party cannot buy all the project after compensation (with fixed price), Mr. L may only covers 75%, and he has no right to the remaining 25% of the Vietnamese party L and if the foreign party cannot buy all the project after compensation (with fixed price), the Vietnamese side does not agree to sell 25% equal to cost of capital but have to charge interest or higher price agreement  ... The Director often stay overseas, sometimes absent from Vietnam for several years, so she has violated Article 46, Chapter II of the Enterprise Law No. 60/2005/QH11 in Viet Nam dated November 29, 2005 (amended in 2013) on organizational structure of the company: The legal representative may not be absent more than 30 days in Vietnam without giving authorization to the Deputy Director (subordinate)…

Basically, from the beginning Mr. Dang Tan T2 and Mr. L negotiate the project after compensation (with fixed price), Mr. Lam Vinh is the translator.  In the purchase and sale of compensation and many negotiations during a long time only be known by these three people.

2) Conclusion of the Contract:

2.1 Economic Contract dated August 27, 2008:

- Prior to concluding this Economic Contract, the Vietnamese party is the project owner, which has a joint venture with a former partner, in order to accelerate the compensation and clearance, Company VLA re-purchases 10% of the project transfer contract value equivalent to VND 53 billion and then establish a joint venture with Asia Commercial Joint Stock Bank (ACB) named VLA Real Estate Joint Stock Company.

- On February 25, 2008, Mr. L King Tin sent a letter to Mr. Dang Tan T2 - Vice Chairman of Board of Directors of VLA Real Estate Joint Stock Company to propose a joint venture. Company VLA compensated the ACB’s shareholders for breach of contract and paid back the amount of compensation for clearance of 1,800m2 as well as other expenses related to the project of VND 50,000,000,000. Mr. L all knows these facts.

- Thus, Vietnam spent before the joint venture: VND 53,000,000,000 + VND 50,000,000,000 + VND 12,100,047,430. Total:  VND 115.100.047.430

2.2) Regarding Economic Contract dated August 27, 2008:

- In Clause 4.2, the amount of money that the joint venture company will pay to Party A for compensation of ground clearance of the whole land of VND 7,000,000/m2 is considered the inclusive price with the total amount of VND 1,344,000,000,000, and is paid as follows:

+ The first installment:  VND 460,800,000,000
+ The second installment: VND 115,200,000,000
+ The third installment: VND 345,600,000,000
+ The fourth installment: VND 86.400.000.000
+ The fifth installment: VND 336.000.000.000

Regarding the conversion of the joint venture company into a wholly foreign-owned company with the amount of VND 1,344,000,000,000, this agreement cannot be executed because the foreign party has no money to transfer under the agreement.

- As for the claim made by the foreign party that in the Economic Contract on August 27, 2008, the Vietnam party in the Joint Venture does not give the foreign party the land dossiers related to pieces of land which have been compensated, cleared and no contribution of charter capital, etc. the defendant presented three reasons as follows:

+ First of all, the foreign party has violated the Investment Law in Viet Nam in terms of real estate, specifically at Point i Article 46 of Chapter VI of the Land Law in Viet Nam, amended on November 29, 2013: revocation of investment certificate in case of behind of schedule or non-operation, no compensation for land and property on land. The foreign party has committed complete the compensation within 9 months but it actually lasts more than 6 years, causing severe damage to the company of the Vietnam side.+ Secondly: The foreign party does not have enough money to pay compensation under the contract, only the agreement on payment of conditional compensation in (i) and (ii) with the amount of VND 255,744,000,000 and discontinuity in the investment leading to  the revocation of the Investment and Project Certificate issued by the People's Committee of Ho Chi Minh City.

+ Thirdly: NLQ1 does not set up a Project Management Board or Control Board is set up to supervise the compensation and together with the Vietnamese party to manage the dossiers related to the project.

- In addition, in Clause 7, Article 2 of the Investment Certificate stipulates that the Vietnamese party undertakes to complete the compensation and clearance process and then hand over to the Joint Venture Company to carry out land leasing procedures and subsequent steps, including compliance with laws in force in the field of land and construction, in compliance with Decision No. 44 of the Management Authority For Southern Area Development Of Hochiminh City (MASD). If the contracts and appendices thereof have any terms or conditions not compliance with the provisions of the Investment Certificate and the above Decision 44, it is considered invalid (that are the conditions of the Investment Certificate issued by People's Committee of Ho Chi Minh City and Decision No. 44 of MASD). . .

2.3) The fixed price: is reduced from over VND 10,000,000/m2 to VND 7,000,000/m2 and to VND 5,600,000/m2, it was the pressure from the foreign party that the Vietnamese party has to follow.

- In Article 4.2 of the Appendix dated January 19, 2009 on details of the payment of indemnity committed by Party B as provided in Article 4.5 of the indemnity does not include amounts payable to State agencies and third parties for the right to use the entire land and the right to develop the project, including the amounts specified in Appendix 1 (hereinafter referred to as the "amounts payable").

Thus, supposing that if the foreign party bases on that to cause difficulties for the Vietnamese party, they also fail to find any mistake made by the Vietnamese party.

+ Payment for fixed land compensation for project of foreign party: VND 255,744,000,000. + Vietnamese party’s investment in the project prior to Joint Venture VND 115,100,047,430

- The total land area that the foreign party requests Vietnam to compensate and clear in (i) (ii) is 60,091 m2 x VND 5,600,000 = VND 336,509,600,000.  Deducting from VND 255,744,000,000, the foreign side owes the Vietnamese party VND 80,765,600,000.

- The Vietnamese party has invested in the project until the date on which the People's Committee of Ho Chi Minh City revokes the Investment Certificate: VND 627,247,200,000.  In specific: 112,012 m2 of land x 5,600,000 VND/m2 = VND 627,267,200,000.

- Total amount of Vietnamese party invested in the project:

+ Prior to Joint Venture: VND 115.100.047.430

+ Outstanding amount of the foreign party: VND 80.765.600.000 

+ Until the People's Committee of Ho Chi Minh City revoked the investment license: VND 627,247,200,000Total:   VND 823,133,847,430, deducting: VND 255,744,000,000Thus, Vietnamese party has an excess of VND 567,388,847,430. If the Vietnamese party does not continue to compensate for land clearance of more than 50% of the project land, it will have the Investment Certificate revoked by the People's Committee of Ho Chi Minh City, the project will have nothing left. Therefore, the defendant has no choice but to mortgage houses and land and sell the land plots for building villas in other projects and sell projects in District 1, District 3 and Tan Binh District etc. to focus on the project 9A2, Binh Hung, Binh Chanh as presented above.

The defendant confirmed that in fact Mr. L bought the whole project, so both parties discussed that Party B will pay Party B a fixed amount for compensation and site clearance, after completion, Party A will hand over the whole project 9A2 to Party B as per the law.  Requests regarding capital contribution or claim for handover of dossiers of land that has been compensated are only excuses to blame the Vietnamese party, in fact, the foreign party has no money to continue to pay for compensation and clearance any longer.  In cases where the foreign party does not buy the project and pay a fixed compensation, the foreign party will only pay 75% but not have the right to 25% of the Vietnamese party and cannot compel the Vietnamese party to sell 25% equal to their part of charter capital.  If it is indeed a joint venture, the Vietnamese party's sale of 25% must gain profits. The foreign party only has the money paid to Party A with the conditions of VND 255,744,000,000. Apart from this amount, there is no so-called “amount of money always being stored in the Joint Venture Account” as stated in the Economic Contract, Joint Venture Contract and appendices available to pay Party A compensation …

3) Regarding violations:

- On December 18, 2008, the foreign party sent an official letter to Company VLA stating that they were facing financial difficulties due to the fact that the bank withdrew all or a half of credits promised to grant and the foreign party proposed to terminate the contract early (attached to official letter dated December 18, 2008) of Mr. L. Thus, the foreign party has violated the agreement in Article 10 of the Joint Venture Contract dated September 25, 2008. Mr. L King Tin said that due to the gloomy picture of real estate market in Vietnam, Company L would not continue to invest in the Joint Venture. In fact, the foreign party has deliberately extended the NLQ1 dissolution procedure until the time when the Ho Chi Minh City People's Committee revoked the Investment Certificate and Decision No. 44 dated May 21, 2007 of MAHD is invalid, Mr. L himself signed a Joint Venture Contract with this content.

- On February 25, 2009, the foreign party sent the document No. 02/VLL to MAHD to increase apartments and population indicators in the project 9A2 and MAHD replied in an Official Dispatch as follows:

- Pursuant to Clause b, Article 4.5 of the Economic Contract dated August 27, 2008, agreements on the amendment to Economic Contract dated January 19, 2009 to February 2009, the foreign party pledged sufficient financial capacity to pay the Vietnamese party for the compensation.  According to the commitment, after receiving the Investment Certificate within 07 working days, the foreign party shall pay the Vietnamese party VND 460,000,000,000, but in fact only 05 months after obtaining the Investment Certificate, the first payment was made under the condition that the Vietnamese party must prove that the compensation has been completed, then the foreign party will pay the amount of VND 255,744,000,000. Again, the defendant confirms that the foreign party buys the project in the form of fixed compensation for the entire project, not capital joint venture.

In fact, the Vietnamese party contributes more capital than the foreign party, the above money is not capital contribution but Mr. L requests the Vietnamese party to compensate in advance and prove land plots that have been compensated, then Mr. L promised to pay in 7 (seven) working days the amount of 255,744,000,000 VND.  This agreement is inconsistent with the Investment Law on capital contribution, in violation of Clause 4, Article 39, Chapter II of the Enterprise Law No. 60/2005/QH11 dated November 29, 2005 (amended in 2013), that is capital contribution not in accordance with the form of capital contribution certificate. . . and after 15 days must submit to the registry under the current law.

4) The contract and the appendices thereto.

- Letter from Mr. Ls King Tin sent on February 25, 2008.

- Economic Contract dated August 27, 2008.

- Letter from Mr. L King Tin sent on October 20, 2008, asking for the division of the first payment into 2 times due to the global economic crisis: the first installment is VND 230,400,000,000 and the second installment is VND 230,400,000,000 they failed to do so.

- Agreements to amend Economic Contracts (January 19, 2009 and February 2009) as well as the attached appendices, fixed price of compensation, over VND 10,000,000/m2 in the letter, VND 7.000.000/m2 and VND 5.600.000/m2 in the Contracts, and the Vietnamese party agrees that the reduction in the charter capital to adjust the Investment Certificate is the responsibility of the Director of NLQ1, the legal representative of the legal entity as stated in Clause 6 of Article I of the Investment Certificate but the foreign party neither did it nor authorized the Vietnamese party to do so while the foreign party is the legal representative, so it must sign the application for reduction of the charter capital).
- Pursuant to the Economic Contract dated August 27, 2008, after obtaining the investment certificate within 7 days, the foreign party shall pay the Vietnamese party the amount of VND 460,000,000,000 but in fact they only: + Disbursed to Party A VND 170,496,000,000 within 7 working days from the date on which Party A provides evidence satisfying Party B's request that Party A has completed the compensation and site clearance of 39,048m2. . .

+ Disbursed to Party A the amount of VND 85,248,000,000 approved by the authorities to compensate 18,001 m2 of land for irrigation canals (perennial crops) and 3,042 m2 of rural roads. . .
 
+ Total compensated land is 60,091m2 x VND 5,600,000 /m2 = VND 336,509,600,000.

Damage to the Vietnamese party during the implementation of the Joint Venture: Tax (also known as levy on change in  land use purpose): in Appendix 01 the foreign party committed that before November 30, 2008 it will pay ½ = VND 139,750,000,000 for the total amount payable for 80,000 m2 of residential land, totaling at that time 4,300,000 VND/m2 x 80,000 m2 = VND 344,000,000,000.  Under the Contracts and appendices thereto, the fixed price is VND 5,600,000/m2 at that time (including 50% of residential land tax). Now the price of compensation by investigation and consultation with each household arises a demanding from VND 6 million to 12 million/m2. Loss of the opportunity to cooperate with ACB...delay in completion of the 9A2 project is up to 07 years from 2008 to 2015.  . .

6) Promissory Note dated October 2, 2014.

-  On October 2, 2014, Company VLA sent a request for Promissory Note No.78 /DA9A2 but the foreign party did not give any reply.

- On March 2, 2015, Company VLA issued the document No. 09/VLA to the lawyer Mrs. Tran Thi T, the authorized representative of the foreign party, stating that:  "Our company do not take out a loan, we do not borrow money and we do not owe Mr. L, our Promissory Note regards to the amount that Mr. L paid for the compensation (as agreed). This is our sincere good will, because we will not earn money until the compensated land plots are sold, and prioritize that payment before the sale of land.  But once this dispute is brought to the trial, we will comply with the court’s judgment (no bargaining or voluntariness anymore).” Now, the foreign party files a lawsuit with the court, the Promissory Note dated October 2, 2014 has been no longer valid and is canceled.

7/ Company VLA’s counterclaim:

Pursuant to Article 4.5, Point (i) of the Economic Contract dated August 27, 2008, Company VLA requested a fine of 2% of VND 824,256,000,000 imposed on LRIL according to the breach that the plaintiff did not transfer money to the defendant for contract performance.  The fine is VND 15,045,120,000.

III - Representation of persons with relevant rights and obligations:

1) On January 23, 2009, the People's Committee of Ho Chi Minh City granted Investment Certificate No. 411022000378 to NLQ1; Headquarters:  Floor 29, Saigon Trade Center, 37 TDT Street, Ben Nghe Ward, District 1, Ho Chi Minh City to perform the Investment Project.

Based on the Investment Certificate, Company VLL's registered charter capital is VND 1,344,000,000,000, equivalent to USD 79,058,823. In which:- The plaintiff will contribute in cash of VND 1,008,000,000,000 equivalent to USD 59,294,117, accounting for 75% of charter capital, in cash;

- The defendant will contribute in cash of VND 336,000,000,000 equivalent to USD 19,764,706, accounting for 25% of charter capital, in cash.

By failing to perform the project in conformity with the schedule as committed and the content prescribed in Clause 7 Article 2 of Investment Certificate, therefore, on July 16, 2013, the People's Committee of Ho Chi Minh City issued Decision No. 3836/QD-UBND on the revocation of Investment Certificate No. 411022000378, on early termination of the Investment Project (termination prior to the original expiration date) named "NLQ1 Establishment Project" of Company VLL.

2) Company VLL has the Investment Certificate revoked:

- Since Company VLA does not continue to perform the project, on July 16, 2013, the Chairman of the People's Committee of Ho Chi Minh City Ho Chi Minh City issued Decision No. 3836/QD-UBND, deciding:+ Early termination of the investment project to establish the Company VLL of Company VLL;
+ Revocation of the Investment Certificate issued by the People’s Committee of Ho Chi Minh City to Company VLL; + The Members' Council of the Company VLL shall have to carry out procedures for dissolution of the enterprise as per the law;
+ The Company VLL is responsible for submitting the original Investment Certificate to MAHD and submitting the seal to the seal issuing agency as prescribed.

- Up to now, Company VLL has not carried out procedures for dissolution as prescribed, because:
From the date of receipt of Decision No. 3836/QD-UBND dated July 16, 2013, the Chairman of the People's Committee of Ho Chi Minh City, Company VLL and LR have repeatedly contacted Company VLA to request the VLA Company to hold a meeting of the Members' Council with LR to resolve and settle issues relating to the dissolution of the Company VLL and request the Company VLA to reimburse LR the amount of VND 255,744,000,000 contributed by LR to the Company VLL.  However, the Company VLA did not cooperate and did not hold a meeting of the Members' Council with LR to solve the above issues in accordance with the Decision No. 3836/QD-UBND dated July 16, 2013 of the Chairman of the People’s Committee of Ho Chi Minh City.  Therefore, Company VLL has not carried out the dissolution procedures as per the law so far.

- Up to now, Company VLL has not yet returned the original Investment Certificate to MAHD and submitted the seal to the seal issuing agency as prescribed because:

The Chairman of the People's Committee of Ho Chi Minh City issued Decision No. 3836/QD-UBND dated July 16, 2013, and the Enterprise Law 2005 in Viet Nam and its guiding documents were being in effect at this time, therefore, the dissolution of the Company VLL will be in accordance with the provisions of the Enterprise Law 2005 and its guiding documents.  However, until July 1, 2015, the effective date of the Enterprise Law Act 2014 in Viet Nam, replacing the Enterprise Law 2005, Company VLL still has not been dissolved so the dissolution process of Company VLL from July 1, 2015 will apply Enterprise Law 2014 and its guiding documents.

Under the provisions of Clause 4 of Article 203, Clause 1 of Article 204 of the Enterprise Law 2014 and Clause 5, Article 59 of Decree No. 78/2015/ND-CP in Viet Nam on guidelines for the Enterprise Law 2014, after completing the procedures for dissolution and repayment of all debts, etc. the enterprise shall send the dissolution proposal to the business registration authority and the dissolution dossier contains the certificate confirming the revocation of the seal and the Investment Certificate.
According to the provisions of Enterprise Law 2005 and Enterprise Law 2014, after the dissolution procedures are completed, the enterprise shall return the original Investment Certificate and the seal to the competent authority.

3) The actual situation of Company VLL:

- In the course of dissolution, the Company VLL must have the seal of the Company VLL to carry out necessary procedures as prescribed by law. Because Company VLL has not been dissolved, Company VLL cannot itself return the original Investment Certificate to MAHD and return the seal to the seal issuing agency as prescribed.

- There is still a sum of money in Company VLL’s account. In order to withdraw money from this account, both Company VLL’s seal and the decision of both the LR representative and the VLA representative are required. However, because the representative of VLA does not cooperate with LR to carry out the procedures for dissolution in accordance with the regulations, Company VLL cannot withdraw the money without prior decision of LR representative and representative of VLA.

- The Company VLL was set up by LR and VLA, therefore, it was under the management and management of LR and VLA.  Therefore, Company VLL cannot itself return the original Investment Certificate to MAHD and return the seal to the seal issuing agency as prescribed because of the absence of the decision of LR and VLA. In case the Company VLL itself returns the original Investment Certificate and seal, Company VLA will force the Company VLL to take responsibility for any consequence arising.

- In case Company VLL has not carried out the procedures for dissolution, has not yet settled its obligations on debt, finance and has not withdrawn money in the bank, it cannot return the seal and the original Investment Certificate.

In the First Instance Trade Judgment No. 1265/2016/KDTM-ST; dated December 23, 2016, People’s Court of Ho Chi Minh City judged:

1) Recognizing the memorandum of understanding between the parties on the termination of the performance of the Economic Contract on August 27, 2008 and the Joint Venture Contract dated September 25, 2008 signed between LRIL and VLA.

2) Accepting a part of the lawsuit petition of the plaintiff: Acknowledging the goodwill of Company VLA for reimbursing the amount of VND 255,744,000,000 (two hundred and fifty billion, seven hundred and forty four million) to LRIL.

Reimbursement term:  When the project for investment, construction, development, sale or lease of residential areas, apartments, trade centers and the provision of related services in lot number 392, 249 and 452, Block 9A + B - Block 9 - NTP new urban area, BH Commune, BC District, Ho Chi Minh City completes the compensation and is put into operation, Company VLA will prioritize to reimburse LRIL in advance.

3) Not accepting a part of the lawsuit petition of the plaintiff:

Do not accept the request of the plaintiff claiming Company VLA to pay interest fine for late payment, the amount is VND 1.854.144.000.

4) Accept the counterclaim of the defendant:  LRIL has to pay Company VLA for fines for non-performance of partial contract of VND 15,045,120,000.  In addition, the First Instance Judgment also pronounces the court fees and right to appeal.

On January 4, 2017, the Director of LRIL filed an appeal with the Court of Appeal, requesting the re-trial to compel Company VLA to reimburse the amount of VND 255,744,000,000 immediately, accept the interest required by itself, and refuse the fines declared by the First Instance Judgment.

Perspectives of procurators of the Superior People's Procuracy:  At the appellate court hearing, the defendant withdrew the counterclaims, so Trial Panel is requested to cancel and suspend this matter.

In terms of civil matters: Company VLA has acknowledged debt to L the amount of VND 255,744,000,000, so it is liable to pay to L, but the repayment time and method will be agreed during the judgment execution. The Court of First Instance was incorrect when determining the repayment time and conditions of payment while the parties do not agree that this matter.  The Trial Panel is requested to accept the appeal of L, to amend the First Instance Judgment.

In terms of the interest required by L: VND 255,744,000,000 is the amount that L invested under the Joint Venture Contract.  The Company VLA only acknowledged the amount of money that L has been invested, thus there is no justifiable ground to determine that the interest will be charged from the date of acknowledgement, therefore, Company VLA requests Trial Panel to refuse the request of L.

JUDGEMENT OF THE COURT

Based on evidence available in the case file and statements of the litigants at the appellate court hearing:

[1] Contract termination and debt acknowledgement:  The two parties have mutually agreed to terminate the Economic Contract on August 27, 2006 and the Joint Venture Contract dated September 25, 2008, and acknowledged the debt of VND 255,744,000,000 that the Company VLA is responsible to pay to LRIL (hereinafter referred to as L).  The above agreement is voluntary not contrary to law, the parties do not appeal so the Court of Appeal does not review it.

Considering L’s statement regarding the reimbursement term: At the first instance court hearing, the representative of L has not agreed or committed with the Company VLA on the payment period of the debt.  The Court of First Instance fixes the time limit for Company VLA to pay L "... when the project for investment, construction, development, sale and lease of residential areas ... has completed the compensation and has been put into operation, Company VLA will prioritize the payment to L in advance”.  The First Instance Judgment is against the will of L because L does not have agreed on this matter.  On the other hand, such judgment is inconsistent with the Law on Civil Judgment Enforcement, because in the course of judgment enforcement, the parties have the right to agree on the judgment enforcement and the right to request the enforcement of judgment.  The court does not have the right to declare the time and conditions for the enforcement of judgment if the parties do not mutually agree upon.  Therefore, the court accepts L's request in this matter.
[2] For the counterclaim of the Company VLA about the fine of VND 15,045,120,000.

At the appeal hearing, upon the completion of argument of Truong Van K - Deputy Director of Company VLA and the authorized representative of VLA's Director, withdrew the entire counterclaim.  Considering the withdrawal of the counter-claim by the authorized representative of Company VLA at the appellate court is voluntary, not contrary to the provisions of law.  As a result, the Trial Panel of Court of Appeal dismissed and suspended the counterclaim of Company VLA.

[3] L's claim on the interest of amount of VND 255,744,000,000, which has been sent to Company VLA since Company VLA acknowledged the debt. Considering that:

In document No. 30/VLD dated December 16, 2012 of Company VLA commits to pay the Company L's contribution to the Company VLL for 18 months, if after 18 months the Company has not paid fully, the interest rate agreed upon by both parties will be charged.  However, the fact that the two sides have no agreement on interest rates as well.  Therefore, the court refuses L's request in this matter.

With reference to court fees: Because the appeal is partially accepted, L does not have to pay court fees.  However, L has to pay the court fee amount of interest on the request not being accepted.  Company VLA is liable for the charges payable to Company L. For the above reasons;

HEREBY DECIDES

Pursuant to Clause 2, Article 308 of the Civil Procedure Code in Viet Nam, accepting a part of the appeal of LRIL.  Accepting the withdrawal of counterclaim of Company VLA.  Revising the First Instance Judgment No. 1265/2016/KDTM-ST dated December 23, 2016/KDTM-ST of the People's Court of Ho Chi Minh City.

Hereby judges: 

1/ Recognizing the memorandum of understanding between the parties on the termination of the performance of the Economic Contract on August 27, 2008 and the Joint Venture Contract dated September 25, 2008 signed between LRIL and VLA.

2/ Accepting a part of the lawsuit petition of the plaintiff: Compelling Company VLA to reimburse the amount of VND 255,744,000,000 (two hundred and fifty billion, seven hundred and forty four million) to LRIL.

3/ Not accepting the request of the plaintiff claiming Company VLA to pay interest fine for late payment, the amount is 1.854.144.000 VND.

4/ Canceling and suspending the counterclaim of Company VLA requesting LRIL to pay VND 15,045,120,000 of fine for failure to perform the contract.

5/ With regard to court fees:

- Company VLA has to pay the court fee on the amount payable of VND 363,744,000, which is deducted from the advance amount already paid of VND 136,446,500 (according to the advance payment of court fee No. AE/2011/02579 dated February 2, 2016 of the Department of Civil Judgment Enforcement of Ho Chi Minh City), Company VLA also has to pay the amount of VND 227,297,500.

- LRIL has to pay the court fee for the unaccepted amount of VND 67,624,320 (deducted from the paid advance of VND 182,831,000) (according to the receipt of the advance payment of No. AG/2010/08809 dated June 26, 2016 of the Department of Civil Judgment Enforcement of Ho Chi Minh City) and reimburse LRIL an amount of VND 115,206,680.

- Appellate court fees: LRIL has not to pay the appellate court fee. VND 200,000 of court fee advance will be reimbursed to LRIL according to the receipt No. AA/2016/0031890 dated January 13, 2017 of the Department of Civil Judgment Enforcement of Ho Chi Minh City.

From the date on which the judgment creditor files a request for judgment enforcement, if the judgment debtor has not completed the judgment, monthly they still have to pay interest on the delayed amounts paid to the judgment creditor at the overdue interest rates average on the market at the time of payment, corresponding to the delayed payment period.

In case the judgment or court decision is enforced as per regulations in Article 2 of the Law on enforcements of civil judgments in Viet Nam, the judgment creditor and judgment debtor are lawfully allowed to reach an agreement on judgment enforcement, request judgment enforcement, be subject to voluntary execution or coercive judgment enforcement in compliance with regulations in Article 6, 7 and 9 of the Law on enforcement of civil judgments, and the effective period of judgment enforcement shall comply within provisions in Article 30 of the Law on enforcement of civil judgments.
The Appellate Verdict shall take legal effect from the date of pronouncement.


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Judgement No. 27/2017/KDTM-PT dated July 21, 2017 on dispute over investment contract and economic contract

Số hiệu:27/2017/KDTM-PT
Cấp xét xử:Phúc thẩm
Agency issued: Tòa án nhân dân cấp cao
Field:Kinh tế
Date issued: updating
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