Investment cooperation contract dispute in the United States

Currently, economic trade takes place everywhere, on an international scale. Vietnamese people have the right to invest abroad in accordance with the law.

However, not all investment collaborations yield positive results, and disputes can still arise in international investment cooperation contracts. These disputes stem from investment contracts, business cooperation contracts, and international investment contracts. The following is a real-life case.

Negotiating and signing a contract is the first step to success.

I. CONTENT OF THE DISPUTE

November 2014 in Ho Chi Minh City, individuals:

1. Mr. Th and Ms. Os L – representing the group of shareholders owning 35% of Milk Company.
2. Mr. T and Mrs. N ,

Agreement:

Mr. T and Ms. N agreed to invest in Milk by purchasing 15% of Milk’s unissued shares, valued at $1,500,000 USD, to own 1,500,000 shares (each share priced at $1 USD). The purchase price will be paid in three installments.

• Phase 1: USD 500,000 will be transferred to Mr. Th in Vietnam to be used for purchasing machinery and equipment for Milk after signing this contract.
• Phase 2: The next $500,000 USD will be transferred to Milk’s US account after the funds have been recovered or the new business is established in which Mr. T and Ms. N will own 15% of the shares.
• Phase 3: The remaining $500,000 will be transferred using the same method as Phase 2.

During negotiations to reclaim Milk, one of two things will happen:

+ Case 1: If the milk retrieval process is successful, the terms of this contract will be followed.

+ Scenario 2: If obstacles arise, agree to establish a new enterprise with the following business lines: manufacturing and trading of infant formula and nutritional pharmaceuticals. The enterprise structure will be as follows:

• The registered capital is 10,000,000 USD (including cash and asset value).
• Mr. Th and old shareholders own 70%.
• Mr. T and Mrs. N account for 15%
• Mr. Ch and Mrs. Ng own 5%
• Unissued shares 10%

This document has the following individuals as witnesses: Ng, H, and Th H.

In January 2015, Mr. Th, and Mr. Ng, Mr. T, and Ms. Tr signed a joint venture agreement to purchase Ware House, contributing $2,280,000 USD to the joint venture, with the following proportions:

• Mr. Th contributed 980,000 USD and owned 42.98%
• Mr. T contributed $500,000 and now owns 21.92%.
• Ms. Ng contributed $300,000, owning 13.15% of the shares.
• Ms. Tr contributed 300,000 USD to own 13.15%
• The deadline for completing the contribution is January 15, 2015.

Article 2 of the joint venture agreement for the purchase of the warehouse stipulates the following business plan:

1. The acquisition of a 108,927 sq m warehouse in the United States for $7,600,000 USD will be made using shareholder capital contributions of $2,280,000 USD to cover 30% of the warehouse’s value; and a personal loan of $5,320,000 USD taken out by Mr. Th and Ms. L from a US bank will be used to pay the seller the remaining 70% of the warehouse’s value.
2. The priority is to sign a lease agreement for the existing warehouse purchased from Milk Company. After the 3-year lease expires, Milk Company will repurchase the warehouse for the original value of USD 7,600,000 plus interest of USD 684,000, representing 30% of the total capital contributed by the shareholders. The proceeds from the sale of the warehouse will be used to repay the USD 5,320,000 loan taken out by Mr. Th and Ms. L from the bank (Milk Company will directly assume and repay the bank); the remaining amount will be used to repay the shareholders their initial capital contribution of USD 2,280,000; and the interest of USD 684,000, representing 30% of the shareholders’ capital contribution, will be distributed proportionally according to their ownership percentage.

Article 3. Representative of the consortium

The four shareholders agree and are jointly responsible for appointing and authorizing a representative for the consortium of contributing shareholders to perform the following tasks:

• Representative: Mr. Th
• Perform the following tasks:

• Receiving capital contributions from shareholders into the joint venture.
• The full authority to decide on the form and content of the work and procedures related to individuals, legal entities, and credit institutions in order to complete the business plan outlined in Article II of this contract.

In March 2015, Mr. Th and Ms. Os L [both representing the group of shareholders currently owning 35% of Milk’s shares], Mr. Ch [founding shareholder of Milk INC, owning 85% of the shares – chairman of the company], and Mr. T [founding shareholder of Milk INC, owning 15% of the shares] agreed on the following:

• After completing the first capital contribution of USD 500,000 in Vietnam, Mr. T and Ms. N will make a second contribution of USD 500,000 to Mr. Th and Ms. Os L to pay for equipment purchased by Milk INC and Milk Company. The third contribution will be transferred to Milk INC in the United States. Confirmation of Mr. T and Ms. N’s shares will be issued by Milk Company or Milk INC in the United States in the form of shares representing their investment capital equivalent to USD 1,500,000.

In May 2015, Mr. Th, Ms. V, Mr. T, and Ms. Tr signed a joint company agreement to manage a business involving limited ownership of real estate located in California 92590 and for no other business purposes without the unanimous consent of all parties. The property was to be purchased for $7,550,000 USD.

In June 2015, Mr. Th, Ms. Os L, Ms. N, Mr. Ch, and Ms. Tr entered into a joint venture agreement to contribute capital for business cooperation in Ho Chi Minh City, with the following terms:

1. The capital contribution is USD 7,550,000, equivalent to 30% individual capital and 70% credit capital, of which:

• Mr. Th owns 22.07% of the shares for $500,000.
• Ms. Os L, with $415,000, owns 18.32% of the company.
• Mrs. Nh 750,000usd owns 33.11%
• Mr. Ch 300,000usd owns 13.25%
• Mrs. Tr 300,000usd owns 13.25%
• Mr. Thiet and Ms. Os L received $5,285,000 USD from credit loans.

By the end of April 2015, Ms. Nh, Mr. Ch, and Ms. Tr had made their full contributions to Mr. Th; the deadline for payment was May 6, 2015.

Article 2. Business Plan :

• Acquire a Ware house with an area of ​​108,927 m2 in the United States for 7,550,000 USD, the payment will be made by the shareholders’ capital contribution of 2,265,000 USD to pay 30% of the value of the ware house; and use the loan capital that Mr. Th and Mrs. Os L personally borrowed from a Bank in the United States to pay 70% of the value of the purchased ware house with 5,285,000 USD to the seller. The purchase of the ware house must be completed along with the transfer of ownership through the name of the joint venture representative on June 1, 2015. If the purchase of the ware house is not completed on June 1, 2015, all capital contributions will be immediately refunded to the individuals. [Is the purchase completed? They are suing for this]
• Prioritize signing a contract to re-lease the existing warehouse house purchased to Milk Company or Milk Company, re-lease for 3 years with a rental price of at least 6% of the purchase price/year; after the 3-year lease term, resell it to one of the two companies with the initial value of 8,234,000 USD, of which the profit of 684,000 USD is equal to 30% of the total capital contribution of the shareholders. The money collected when selling the warehouse house will be used to repay the debt when Mr. Th and Mrs. Os L borrow from the bank, collect the remaining amount and return the initial capital contribution to the shareholders; collect the profit of 684,000 USD divided according to the percentage of capital ownership.

Article 3. Responsibilities of each investor in the consortium

• All individuals in the consortium are responsible for the debt of USD 5,285,000 borrowed by Mr. Th and Ms. Os L.
• If the two companies do not rent, the individuals will contribute money according to the capital contribution ratio specified in Article 1 to cover interest payments and related expenses of the warehouse.

Article 4. Representative of the consortium

• All individuals contributing capital to the above mentioned consortium agree to accept Mr. Th’s election to represent the consortium to decide all matters related to finance, tax, repair, maintenance as well as to represent the consortium in dealing with government agencies. Any proposal related to the main vessel of the warehouse house including but not limited to obtaining credit, borrowing, or adding individual partners must be made in writing and accepted by all individuals of the consortium.
• This agreement supersedes all previous agreements; upon signing this agreement, all previous agreements become invalid.

However, the contract does not bear Ms. Tr.’s signature.

In August 2015 in Ho Chi Minh City, Mr. Th, who owned 4,327,000 shares – CEO, Mr. Ch, who owned 500,000 shares, Mr. T, who owned 1,000,000 shares, Ms. Nh, who owned 500,000 shares, and Ms. Os L, who owned 900,000 shares, held a shareholders’ meeting with the following agenda:

• Mr. T and Ms. Nh’s shareholding has been registered under their names in Milk INC and Milk Company.
• Over the past period, Mr. T and Ms. Nh have contributed $670,000 USD to Milk INC, with the remaining amount of $830,000 USD outstanding. Of this, $330,000 USD was due by the end of August 2015 and $500,000 USD by October 2015. Now, Mr. T is unable to travel to the United States, so he and Ms. Nh cannot continue to contribute the remaining $830,000 USD as per the contract. They propose that instead of making a direct payment of $830,000 USD as agreed, the remaining amount be transferred to an EB5 investment project.

In March 2017, according to the minutes of the annual shareholders’ meeting No. 01/0217/BB-ĐHĐCĐ, held at the headquarters of Milk INC, the shareholders included: Mr. Th [voting shares 6,100,000, capital ratio 52.14%], Mr. Nh [voting shares 1,170,000, capital ratio 10%], Mr. Ch [shares 500,000, capital ratio 4.27%], Ms. T.Ng [shares 500,000, capital ratio 4.27%] authorized Mr. Ch, Os L [shares 900,000, capital ratio 7.69%] authorized Mr. Th, Mr. Hg & Ms. Kh [shares 1,170,000, capital ratio 10%] authorized Mr. Nh, T & Ms. Ng [shares 660,000 [or 670,000?], capital ratio 5.64%] authorized Nh, Tr [shares 500,000, capital ratio 4.27%], Lyna [shares 200,000, capital ratio 1.71%] authorized Mr. Th, [authorization from Mr. T and Ms. Nh to Mr. Nh on March 16, 2017 to attend the meeting on March 22, 2017 with an email invitation, signed by 3 people – meaning the meeting took place before the scheduled date] to conduct the meeting with the following content:

Section 1.3.2 states: 1. Following this meeting, Mr. T, Ms. Nh, and Ms. Trg have the full right to sell their shares in the company. Mr. T, Ms. Nh, and Ms. Trg are only responsible for notifying the Company in the event of selling their shares; or if the aforementioned individuals are unable to sell their shares, the company will prioritize repurchasing their shares when it makes a profit; or if the company raises further capital, this capital must be prioritized for production and operational purposes first, followed by the company’s second priority of repurchasing the aforementioned individuals’ shares.

According to the bank confirmation letter:

• In 2014, Ms. Nh transferred 2,139,000,000 VND to Mr. Th’s bank account.
• In 2015, the amount was 1,083,500,000 VND.
• In 2015, the amount was 1,881,905,200 VND.

According to the Confirmation Letter from the Bank – Ho Chi Minh City Branch:

• In 2015, Ms. Nh transferred 8,556,000,000 VND to Mr. Th [transfer details: Investment payment, phase 1 (second installment) according to the signed investment contract]

According to the Confirmation Letter from the Cho Lon Branch of the Bank:

• In 2015, Ms. N transferred 2,834,000,000 VND to Mr. Th [transfer details: money transfer according to agreement for capital contribution to warehouse investment].

According to the Confirmation Letter from the Saigon branch of the bank:

• In 2015, Ms. Nh transferred 3,024,000,000 VND to Mr. Th [transfer details: transfer of funds according to the agreement for capital contribution to warehouse investment].
• According to Ms. Th.H’s bank account statement from 2015, she transferred 2,000,000,000 VND to Mr. Th.

In May 2018, Ms. Nh filed a lawsuit against Mr. Th, demanding the return of VND 27,395,874,200, including VND 21,518,405,200 that Mr. Th had received, and accrued interest calculated at the basic interest rate of the State Bank of Vietnam from April 2015, amounting to VND 5,877,469,000. The amount claimed was from a joint venture in the purchase and sale of real estate.

• In November 2019, Ms. Nh filed an additional lawsuit requesting that Mr. Th be compelled to pay an additional 9,786,000,000 VND, the amount Mr. Th had received from Ms. Nh in the United States.
• The first-instance judgment of the Court regarding the property dispute partially accepted Ms. Nh’s claim. It ordered Mr. Th to pay 21,518,405,000 VND in principal that Ms. Nh had transferred, and interest at the basic interest rate announced by the State Bank of Vietnam corresponding to the period of delayed payment at the time of payment, which was 9% per year, calculated from September 2019 to the date of the first-instance trial, amounting to 8,363,437,692 VND.
• Mr. Th is required to pay the first-instance court fees of 310,018,429 VND.

Mr. Th’s representatives requested Inter Justice Law Firm to provide legal advice on resolving the investment cooperation contract dispute and to represent his interests in the appellate court.

If reconciliation is not possible, intervention from the judicial authorities is necessary.

II. DEFICIENCIES OF THE DEFENDANT – MR. TH AT THE FIRST INSTANCE LEVEL

• The company US Milk failed to provide documentation proving its existence and operation.
• Do not provide the warehouse ownership documents.
• What documents prove the warehouse rental agreement? How is the revenue from the warehouse rental used? Did Mr. Th and Ms. Os L take out a bank loan as agreed?
• Documents proving the reporting to shareholders on the company’s operations, including profits and losses, and dividend payments to shareholders, etc.

III. RELATED LEGAL PROVISIONS

• Investment Law
• Civil Code

IV. DEFENSE LAWYER’S OPTIONS

• The request to amend the judgment rejects the plaintiff’s claim; because:
• [1] Based on the contracts and minutes, it can be confirmed that the parties contributed capital to establish the company and purchased a warehouse for business. According to the agreement, the company would open an account at Wells Fargo Bank and had actually opened an account there.
• [2] The content of the money transfer from Ms. Nh and Mr. T to Mr. Th is consistent with the contents of the contracts, minutes, and agreements between the parties.
• [3] Mr. Th is the intermediary who received money from Ms. Nh and Mr. T according to the agreement of the shareholders to establish the milk company and buy the warehouse. Mr. Th is not the actual beneficiary through the loan/gift/investment cooperation transactions to implement the project in Vietnam with the money transferred by Ms. Nh and Mr. T according to the contracts and agreements, to implement the business plans. Furthermore, since the company has been established and the warehouse has been purchased, the entity responsible for reimbursement must be the actual beneficiary [US milk company, milk company inc, warehouse].
• [4] The case of Mr. Th returning the investment money only arises when:
• + Mr. Th and Ms. Os L transferred ownership of the warehouse [according to the warehouse investment capital contribution agreement]
• + The purchase of the warehouse must be completed along with the transfer of ownership through the name of the joint venture representative. If the purchase of the warehouse is not completed, all capital contributions will be immediately refunded to the individuals [Article II.2 Joint Venture and Business Cooperation Capital Contribution Agreement].
• Therefore, the decision to have Mr. Th as the registered owner of the warehouse was also made by mutual agreement between the parties.
• These cases have not yet been raised, so demanding a refund from Mr. Thiet is unfounded.
• [5] The parties’ agreement to cooperate in investment to establish an economic organization and purchase warehouses is not in accordance with the provisions of the 2014 Investment Law and the 2020 Investment Law, and has not been granted an Investment License by the Ministry of Planning and Investment. The process of currency exchange and money transfer abroad is also not in accordance with the regulations of the State Bank. Therefore, these agreements are invalid.
• When a contract is void, both parties must return what they have received. However, it is evident that the void contract occurred due to the fault of all parties involved in an agreement that did not comply with legal regulations. The actual recipient of the money transferred by Ms. Nh and Mr. T was not Mr. Th, but the Milk Company and Warehouse. Both parties were aware of this, and the Milk Company had already been established and was operating, the Warehouse had been purchased, and Mr. Th’s name on the property was also agreed upon by the parties. Therefore, Ms. Nh should have sued the Milk Company and/or sued for the division of assets related to the Warehouse, in one or more lawsuits in the United States or Vietnam.
• [6] The first-instance court has not clarified how Mr. Th, Ms. Nh, and Mr. T jointly purchased the land, which is a failure to clarify the content of the case. While the content of the money transfer recorded by Ms. Nh and Mr. T is according to the investment contract, to buy a warehouse. So what is that contract? What is the term? The plaintiff has not requested that the contract be declared invalid, or that the defendant must return the money because of a breach of obligations stipulated in the contract, but forcing the defendant to pay money and interest is not based on solid grounds and is an incorrect application of legal regulations. In the worst-case scenario, if the investment contract or business cooperation contract to implement the project in the US is invalid, then the issue of interest does not arise. The parties only return to each other what they have received.

V. COURT’S RULING

• The case is currently being heard, and Inter Justice will provide updates on the court’s ruling.