Judgment No. 82/2007/KDTM-PT dated august 28, 2007 on claim for cancellation of resolutions ratified by written consultation responses

APPELLATE COURT OF THE SUPREME PEOPLE’S COURT

JUDGMENT NO. 82/2007/KDTM-PT DATED AUGUST 28, 2007 ON CLAIM FOR CANCELLATION OF RESOLUTIONS RATIFIED BY WRITTEN CONSULTATION RESPONSES

Petitioner:  United Concord Internationl LTD (hereinafter referred to as UCI)

Respondent:  Radiant Investments LTD (hereinafter referred to as RIL)

Person with relevant rights and obligations:

1/ Sai Gon Construction Corporation

2/ Mr. Nguyen Van Hao

3/ Mr. Jaya J.B Tan (Dato’Jaya J.B Tan)

FINDING THAT

Representation of the petitioner:

Grand Imperial Saigon Hotel Co., Ltd (hereinafter referred to as GISH), headquartered at 101 Hai Ba Trung, District 1, Ho Chi Minh City, is a joint venture company incorporated and operating in accordance with Vietnam’s law under the investment license No. 908/GP granted by the State Committee for Cooperation and Investment on July 6, 1994 and under the revised investment licenses 1995, 1997, 2002 and 2005.

According to the investment license and revised ones, the joint venture parties of GISH comprise:

Vietnamese party, including: Saigon Construction Corporation (hereinafter referred to as SGC).

Foreign party, including:

+ United Concord International Ltd (hereinafter referred to as UCI), represented by Mr. Nguyen Van Hao, President of UCI.

+ Radiant Investments Limited (hereinafter referred to as RIL), represented by Mr. Jaya J.B Tan, President of RIL.

Based on the certificate No. 1692/KHDT-DN dated April 4, 2006 of the Department of Planning and Investment of Ho Chi Minh City, Mr. Hao holds both positions: President of the Board of Directors and General Director of GISH.

However, RIL and Mr. Jaya J.B Tan sought to illegally alter the aforesaid positions of Mr. Nguyen Van Hao in GISH by proposing the other foreign party, UCI, and Vietnamese party, SGC, to ratify “Resolutions of the Board of Directors” as follows:

- The written resolution in replacement of the meeting of the Board of Directors concerning update of the Charter.

- The written resolution in replacement of the meeting of the Board of Directors concerning substitution of the President of the Board of Directors.

- The written resolution in replacement of the meeting of the Board of Directors concerning substitution of the General Director.

The abovementioned resolutions were signed by members of Board of Directors who are representatives of RIL on August 10, 2006 and members of Board of Directors who are representatives of SGC on August 22, 2006.

On September 30, 2006, members of Board of Directors who are representatives of UCI declared rejection of all three said resolutions.

On October 4, 2006, Mr. Jaya J.B Tan impersonated “President of the Board of Directors” to send a notification letter to joint venture parties and members of Board of Directors to notify the substitution of personnel and convene a meeting of the Board of Directors on October 17, 2006 to require Mr. Nguyen Van Hao to hand over the office, company’s seal and documents relevant to GISH to Mr. Jaya J.B Tan and Paul Wong, and make necessary preparations for re-registration of the company according to the above resolutions.

The said resolutions were not ratified by members of Board of Directors who are representatives of UCI, so they are invalid as prescribed in Article 8.3.1 of Charter of GISH regarding unanimity rule. Therefore, UCI filed a lawsuit petition against RIL to the court, requesting:

Annulment or non-acceptance of validity of 3 resolutions signed on August 10, 2006 and August 22, 2006 by members of Board of Directors who are representatives of RIL and SGC, including: Resolution on Charter; resolution on President of the Board of Directors and resolution on the Director General.

Annulment or non-acceptance of validity of notification letter signed by Mr. Jaya J.B Tan on October 4, 2006 to substitute President of the Board of Directors and General Director and convene meeting of the Board of Directors on October 17, 2006.

Representation of respondent:

- Do not accept all claims of the petitioner.

- Request the court to recognize validity of the abovementioned resolutions.

- Request the court to compel Mr. Nguyen Van Hao to hand over relevant works to the new President of the Board of Director, Mr. Jaya J.B Tan and the new Director General, Mr. Paul Wong.

Representation of persons with relevant rights and obligations:

- Mr. Nguyen Van Hao: does not make an independent claim but concurs with the opinions and claims of the petitioner. Does not accept the claim of the respondent to hand over the works to Mr. Jaya J.B Tan and Mr. Paul Wong.

- Sai Gon Construction Corporation: Does not make an independent claim but also claims that the abovementioned resolutions are completely legal as represented by the respondent.

- Mr. Jaya J.B Tan and Mr. Paul Wong: does not make an independent claim but concurs with the opinions and claims of the respondent.

In the First Instance Commercial Judgment No. 531/2007/KDTM-ST dated April 4, 2007, the People’s Court of Ho Chi Minh City judged:

Pursuant to Clause 2 and Clause 3 Article 42, Clause 1 and Clause 3 Article 52 of Law on Enterprises 2005 and Article 20 the Government’s Decree No. 101/2006/ND-CP dated September 21, 2006 on re-registration, conversion and change of investment certificates of foreign-invested enterprises in accordance with enterprise and Investment law. Hereby judges: 

Do not accept the lawsuit request of the petitioner claiming annulment or non-acceptance of validity of resolutions on re-registration of operation under new enterprise law, appointment of new President of the Board of Directors and Director General of Grand Imperial Saigon Hotel Co., Ltd and notification letter signed by the representative of United Concord International Ltd on October 4, 2006 concerning these resolutions.

Accept the counterclaim of the respondent and recognize that the abovementioned resolutions signed by members of Board of Directors who are representatives of Radiant Investments LTD and Saigon Construction Corporation on August 10, 20 and 22, 2006 are valid as legal resolutions of the Board of Directors of Grand Imperial Saigon Hotel Co., Ltd; compel Mr. Nguyen Van Hao to hand over relevant works to the new the President of the Board of Directors of Grand Imperial Saigon Hotel Co., Ltd, Mr. Jaya J.B Tan, and the new Director General of Grand Imperial Saigon Hotel Co., Ltd, Mr. Paul Wong.

In addition, the first instance court decided the court fee and announced the appeal right to litigants as per the law.

On April 6, 2007 (case file p. 633), the petitioner filed an appeal against the Judgment No.  531/2007/KD-TM-ST dated April 4, 2007 of the People’s Court of Ho Chi Minh City. The petitioner claims that the First Instance Judgment was passed not in accordance with Vietnamese law and caused serious damage to the interests of UCI.

- On the same date, Dr. Nguyen Van Hao also filed an appeal petition, requesting the appellate court to review the entire of the First Instance Judgment, accept the lawsuit request of the petitioner, and turn down three illegal resolutions.

After hearing representations of the litigants and opinions persons with relevant rights and obligations who are Dr. Nguyen Van Hao, representative of Saigon Construction Corporation and authorized representatives of Mr. Jaya J.B Tan (or  DATÓ JAYA J.B Tan) and Mr. Paul Wong,

After hearing arguments of lawyers of two parties.

CONSIDERING THAT

Grand Imperial Saigon Hotel Co., Ltd (hereinafter referred to as GISH), headquartered at 101 Hai Ba Trung, District 1, Ho Chi Minh City is a joint venture under a joint venture agreement concluded on April 4, 1994 between 1) Vietnamese party, Saigon Architecture Engineering (hereinafter referred to as SA&E) (now is Saigon Construction Corporation (hereinafter referred to as SGC)). 2) Foreign party, including 2 companies: a/ PengKaLen Holdings Berhad (hereinafter referred to as PengKaLem), a corporation incorporated under law of Malaysia. b/ Unitfed Concord International ltd (hereinafter referred to as UCI), a company incorporated under law of Hongkong according to the investment license No. 908/GP granted by the State Committee for Cooperation and Investment) on July 6, 1994 and amended licenses in 1995, 1997, 2002 and 2005.

According to the amended licenses, GISH comprises:

1/ Vietnamese party, including: Sai Gon Construction Corporation (SGC).

2/ Foreign party, including: a) UCI, represented by Dr. Nguyen Van Hao, the President of UCI.

b) Radiant Investments Limited (hereinafter referred to as RIL), represented by Mr. Jaya J.B Tan, the President of RIL.

In the minutes of the first meeting on August 22, 1994 of the Board of Directors under the joint venture agreement dated April 4, 1994 and the Charter of GISH ratified on April 4, 1994 and approved by the State Committee for Cooperation and Investment, it is clearly specified that the foreign party includes:

- a/ RengHaLen Holdings Berhal (hereinafter referred to as PHB).

- b/ Unitted Concord International (hereinafter referred to as UCI)

and the meeting ratified the decision to appoint: Dr. Nguyen Van Hao as President of the Board of Directors cum Director General of GISH. This decision was approved by the State Committee for Cooperation and Investment and the document No. 1692/KHDT-DN dated April 4, 2006 of the Department of Planning and Investment of Ho Chi Minh City also confirmed the positions of President of the Board of Directors and General Director of GISH held by Mr. Nguyen Van Hao.

After 12 years of construction, GISH hotel was completed and put into operation (1993-2005). Mr. Jaya J.B Tan, representative of RIL, was unable to perform his main duty to ask for a loan of USD 29,316,000 (Twenty nine million, three hundred sixteen thousand US dollar) as assigned by the Board of Directors under Article 7.3 (a) of the Charter). This liability shall be assumed by the foreign party (RIL and UCI) as RIL cannot apply for a loan as indicated in the commitment. Mr. Hao holds the positions of President of the Board of Directors cum General Director of GISH in UCI. It was Mr. Nguyen Van Hao who, by his capacity, personal prestige and support of Vietnam’s Government and domestic banks of Vietnam, took out a loan of more than USD 31 million to build the hotel and honored an undertaking to repay the principals and interests to the banks. Every credit agreement has a term that GISH undertakes that Mr. Hao shall have held the President of the Board of Directors cum Director General of GISH for 5 years without substitution since the date of credit agreements, January 31, 2006.

RIL and Mr. Jaya J.B Tan did not recognize the considerable contribution and the decisive role of Dr. Nguyen Van Hao since 1993 when he initiated the project to find premises and establish the joint venture, construction design until the hotel was put into operation in 2005. They disregarded credit agreements valued at USD 31 million from 5 Vietnamese banks with special incentives exclusively for GISH and Mr. Hao. Ignoring the commitment to the banks in the credit agreement dated January 31, 2006 not to substitute the President of the Board of Directors and Director General, which is stipulated in a separate term as a condition for the loan granted by the banks,  and clearly known by RIL and Mr. Jaya J.B Tan, they still sought to substitute Mr. Nguyen Van Hao from positions of President of the Board of Directors and General Director of GISH by issuing a document not ratified by the meeting of the Board of Directors (required every 3 months). They issued 3 documents below in replacement of the resolutions of the Board of Directors as the meeting of the Board of Directors.

a/ Written resolution in replacement of the meeting of the Board of Directors dated August 10, 2006 pursuant to Article 8.2 (f) of the Charter of GISH and the letter requesting a written resolution in replacement of the meeting of RIL dated August 10, 2006 sent to members of Board of Directors (case file p. 521) with the details below: “The Board of Directors of GISH resolves: GISH will re-register the operation under the new enterprise law”, (case file p. 525) with signatures of 7 out of 10 members of Board of Directors (4 approval signatures of RIL, 3 approval signatures of SGC, no signature of Mr. Ngo Thanh Tung and 2 rejection signatures of UCI).b/ The second resolution - written resolution in replacement of the meeting of the Board of Directors of GISH with the details below:

“Pursuant to Article 8.2 (f) of Charter of GISH and request for a written resolution in replacement of the meeting of RIL on August 10, 2006. This resolution was sent to all members of Board of Directors for approval based on the same documents:

Pursuant to Article 8.1(c) of the Charter of GISH, RIL (previously PHB-PengKaLen Holdings Berhad) has the right to nominate the President of the Board of Directors.

The Board of Directors of GISH resolves:  The Board of Directors appoint Dato’ Jaya J.B Tan as the position of President of the Board of Directors with immediate effect, in substitution of Mr. Nguyen Van Hao (this document also has 7 out of 10 signatures as indicated in the first resolution) (case file p. 522-523).c/ The third resolution - written resolution in replacement of the meeting of the Board of Directors of GISH with the details below:

Pursuant to Article 8.2(f) of Charter of GISH and the letter requesting a written resolution in replacement of the meeting of RIL dated August 10, 2006 (case file p. 521), this resolution was sent to all members of Board of Directors for approval based on the same documents.

Pursuant to Article 9.1(c) of Charter of GISH on the right to nominate Director General…

The Board of Directors resolves “The Board of Directors approves the nomination of Mr. Paul Wong as Director General of GISH with immediate effect, this document (case file p. 519-520) also bears 7 out of 10 approval signatures, 2 rejection signatures of UCI).

First Instance Judgment No. 531/2007/KDTM-ST dated April 4, 2007 of the People’s Court of Ho Chi Minh City stated that the format, content, conditions (rules for ratification of resolutions) of the said resolutions are all valid. This decision is ungrounded and in breach of the contract and Charter of GISH and Law on Enterprises 2005 of Vietnam. The Judgment is erroneous and subject to revision due to the following reasons:

1/ The articles which were applied to issue 3 above resolutions of GISH are wrong and ungrounded:

All three resolutions applied “Article 8.2(f) of the Charter of GISH and the letter dated August 10, 2006 of RIL. Article 8.2(f) referred to in the resolutions and recognized as the legal basis by the People’s Court of Ho Chi Minh City to issue a document in replacement of the meeting of the Board of Directors was amended with approval of the State Committee for Cooperation and Investment. Article 8.2(f) of the Charter of GISH was amended as follows:

- “Any resolution, in writing, via cable, telex or telefax, of the Board of Directors shall conform to procedures prescribed in Article 8.2(b)”.

Article 8.2(b) of the Charter of GISH clarifies that: “Any meeting of the Board of Directors shall be held if it is convened by the President or required by two thirds of members of Board of Directors, or required by Director General, Deputy General Director, at the legal address of the joint venture: 101 Hai Ba Trung, Ho Chi Minh City, unless otherwise agreed by the joint venture parties…with a notice at least 10 days in advance” (case file p. 329).In fact, RIL sent a notice to Mr. Ngo Thanh Tung at 235 Dong Khoi, District 1, Ho Chi Minh City in Vietnam and required a reply within 7 days. However, RIL has no right to convene such a meeting of the Board of Directors as prescribed in Article 8.2(b) of the Charter. Mr. DaTó Jaya J.B Tan (of RIL) also sent a notice to members of Board of Directors of SGC and UCI (case file p. 521) and required a reply in replacement of a meeting of the Board of Directors within 7 days. This action did not conform to the amended Article 8.2(f) and Article 8.2(b) of the Charter of GISH and violates laws and regulations and Law on Enterprises 2005. It is impossible to recognize the claim for violation of Charter of GISH as filed by RIL and SGC with signatures of members of Board of Directors of RIL and SGC.

The amendments to the Charter of GISH, change of registration, nomination, substitution, dismissal of President of the Board of Directors and Deputy President of the Board of Directors, General Director, Deputy General Director, Chief Accountant of GISH are particularly important issues which are separately stipulated in the joint venture agreement (Article 14.2(1) and Article 8.1, Article 8.3(1) of the Charter of GISH and Article 9.1(c) of the Charter of GISH. These particular issues are mainly decided by members of Board of Directors by unanimity rule. At the court hearing, the respondent (RIL), represented by Mr. Tran Tuan Phong, also recognizes it. The unanimity rule is stipulated in the Charter and joint venture agreement of GISH, which does not conflict with and contravene Article 52 of Law on Enterprises 2005 of Vietnam. All major issues proposed must be passed by every participating members of Board of Directors.

Following a resolution ratified by the meeting of the Board of Directors, if the joint venture wishes to change the Charter and joint venture agreement of GISH, substitute President of the Board of Directors or General Director, necessary paperwork must be completed and the resolution must be approved by the State Committee for Cooperation and Investment (Article 21 of Charter and Article 23.5 of joint venture agreement) (case file p. 376, 318).

2/ With respect to contents of and conditions for ratification of 3 above rules of the Board of Directors of GISH presented by RIL and SGC. The First Instance Judgment states that there were 8 out of 10 members of Board of Directors approved the resolutions and 2 out of 10 members of Board of Directors disapproved (Mr. Tung sent his approval signature to the resolutions subsequently). So, 5 members of Board of Directors who are representatives of RIL and 3 members of Board of Directors who are representatives of SGC, accounting for 81% of charter capital, cited Point a and b, Clause 2, Article 52 of the Law on Enterprises 2005 (stating the minimum rate of 75% of stakes or 65% of stakes) to claim their rights to cast the votes and sign the resolutions in replacement of the meeting of the Board of Directors. This claim goes against the regulation of Article 52 of the Law on Enterprises. Article 52 of the Law on Enterprises clearly states that “at least 65% of members of Board of Directors participating in the meeting” rather than signing the documents proposed by RIL and the Law on Enterprises 2005 stipulates that “specific rate shall be regulated by the charter of company". As stated in the Charter of GISH and joint venture agreement of GISH, settling issues by written documents in lieu of a meeting of the Board of Directors means incompliance with the Charter of GISH and joint venture agreement of GISH and misapplication of Article 52 of the Law on Enterprises 2005.

The First Instance Judgment applied Article 14.2.2 of the joint venture agreement and Article 8.3.2 of joint venture charter, and stated that the majority rule will replace the unanimity rule. In this dispute, First Instance Judgment declared that the majority rule will replace the unanimity rule and used the majority rule in the case that RIL and SGC signed 3 documents instead of a meeting of the Board of Directors. This declaration is even more wrong. Any amendment to the charter of joint venture company and joint venture agreement shall be made in conformity with the procedures prescribed in the agreement and charter and be approved by the State Committee for Cooperation and Investment prior to its application. While the charter of joint venture company and joint venture agreement has not been amended, First Instance Judgment applied its amendment. First Instance Judgment itself gave an explanation on behalf of members of Board of Directors, instead of the charter of joint venture company and joint venture agreement and claimed that Article 8.3(2) of the joint venture charter apparently replaces Article 8.3(1) of the joint venture charter to regularize the 3 resolutions which are in incompliance with the charter of joint venture company and joint venture agreement to be in accordance with Article 52 of the Law on Enterprises 2005. This explanation is ungrounded and illegal, and should be annulled.

It is not coincidental that the charter of joint venture company and joint venture agreement approved by the State Committee for Cooperation and Investment clearly state: “Major issues below must be decided by the Board of Directors by the unanimity rule (100%) (Article 14-2-1-joint venture agreement and Article 8-3-1 of joint venture charter) and approved by the State Committee for Cooperation and Investment (Article 23.5 of joint venture agreement and Article 21 of joint venture charter). Therefore, 3 above resolutions proposed by RIL to be ratified in writing are supposed to be ratified in the meeting of the Board of Directors by the unanimity rule (100%). RIL and SGC did not comply with the joint venture charter and abide by the joint venture agreement and the Law on Enterprises 2005. The lawsuit request and appeal filed by UCI and Mr. Nguyen Van Hao request the court not to accept the legal validity of the said 3 resolutions and to annul two resolutions on President of the Board of Directors and Director General signed by members of Board of Directors who are representatives of RIL and SGC on August 10, 2006 and August 22, 2006. In specific:

- Request annulment of notification letter signed by Mr. Jaya J.B Tan on October 4, 2006 to a) substitute the President of the Board of Directors and General Director and b) convene meeting of the Board of Directors on October 17, 2006.

- Request the validity of certificate made by the Department of Planning and Investment of Ho Chi Minh City No. 1692/KHDT-DN dated April 4, 2006 to confirm the personnel of GISH. These requests should be accepted and all judgments in the First Instance Judgment should be annulled and the entire decision of First Instance Judgment should be revised.

The First Instance Judgment was also wrong when stating that RIL and SGC made a counterclaim to ask for recognition of validity of the said three resolutions. It was not an independent counterclaim against the petition of the petitioner, the request and grounds given by RIL and SGC were only for protecting their interests against the request of the petitioner.

Therefore, the said 3 resolutions given by RIL and SGC in replacement of a meeting of the Board of Directors do not have legal validity. So, Mr. Dato’ Jaya J.B Tan is not the President of the Board of Directors and Mr. Paul Wong is not the Director General  of GISH.  Mr. Nguyen Van Hao is still the President of the Board of Directors cum Director General  of GISH, who has been approved by the State Committee for Cooperation and Investment and re-certified in the document No. 1692/KHDT-DN dated April 4, 2006 of the Department of Planning and Investment of Ho Chi Minh City. Mr. Nguyen Van Hao is not required to hand over relevant works to Mr. Jaya J.B Tan and Mr. Paul Wong as decided by the First Instance Judgment.

Because the entire petition of the petitioner and appeal of UCI and Mr. Nguyen Van Hao are accepted, the first instance commercial court fee and advance of appeal fee are amended in accordance with Decree No. 70/CP.

According to facts and matters, pursuant to Article 275 and 276 of the Civil Procedure Code,

HEREBY DECIDES

Wholly revise the First Instance Judgment:

Accept the lawsuit petition of UCI and lawsuit and appeal request of UCI and appeal of Mr. Nguyen Van Hao.

Judges:

1/ Do not accept the lawsuit request of the petitioner claiming annulment or non-acceptance of validity of resolutions on re-registration of operation under new enterprise law, appointment of new President of the Board of Directors and Director General of Grand Imperial Saigon Hotel Co., Ltd (GISH) and notification letter signed by the representative of Radiant Investments Limited (RIL) on October 4, 2006 concerning these resolutions.

2/ Accept the lawsuit request of the petitioner not to accept the validity of three resolutions signed by members of Board of Directors who are representatives of RIL and Saigon Construction Corporation on August 10, 20 and 22, 2006 deemed as legal resolutions of the Board of Directors of GISH (including: resolution on re-registration; resolution on the President of the Board of Directors and resolution on Director General). Mr. Nguyen Van Hao is the President of the Board of Directors cum General Director of Grand Imperial Saigon Hotel Co., Ltd. Mr. Nguyen Van Hao is not required to hand over relevant works to Mr. Jaya J.B Tan and Mr. Paul Wong.

3/ Court fees:

a) UCI does not have to pay an amount of first instance commercial court fee and an amount of appellate commercial court fee. Refund the advances of first instance court fee and appeal fee to UCI and Mr. Nguyen Van Hao (according to the receipt No. 003353 dated November 6, 2006 and receipt No. 004749 dated April 7, 2007 and receipt No. 004689 dated April 10, 2007 of volume No. 0094-0095 of Judgment Enforcement Division of Ho Chi Minh City).

b) RIL (Radiant Investments Limited) has to pay an amount of first instance commercial court fee of VND 500,000 (deducted from the advance of VND 250,000), so RIL must pay the remaining of VND 250,000 (two hundred fifty thousand dong).

The Appellate Judgment shall take legal effect from the date of pronouncement./.