Fujian court gives equal protection to foreign investor

    Updated : 2015-08-03

1. Brief

The Thumb Co, a wholly foreign-owned enterprise, is set up by a Singaporean environmental protection company. On June 30, 2008, the company gets approval to increase its registered capital to 380 million yuan ($61.29 million). Thumb then files a claim against the Singaporean company, on April 27, 2012, accusing it of failing to provide enough investment and asking the court to demand that it provide 45 million yuan in additional funds to fulfill its duty as a shareholder. In deciding on this trial of first instance, the Fujian Provincial High People’s Court ruled that the Singaporean company had not performed its duty as a shareholder in funding, and had infringed on the rights of Thumb as a judicial person, and the Thumb had the right to ask the company to perform its duty and add supplemental funds. The court then ordered the Singaporean company to pay 45 million yuan, and the company appealed to the Supreme People’s Court.

2. Results

At a public hearing on June 11, 2014, the Supreme People’s Court announced its decision in this trial of second instance as follows: The funding agreement between the Chinese-foreign joint-venture and the foreign investors in relation to Chinese law are covered by the first section of the 14th Article of the Law on the Application of Law for Foreign-related Civil Relations and that the foreign investors and liquidator’s civil rights and conduct should apply the law under which the foreign investor was registered. The Company Law of Singapore states that the rights and obligations that the company established in its articles of incorporation should be recognized in a judicial hearing. Therefore, the administrator of the Singaporean company’s resolution on Thumb’s board and judicial person was valid. The Thumb Co’s board failed to implement the resolution by its only shareholder – the Singaporean company, which leads to inconsistency between information of legal person registered at the industrial and commercial agencies and information of legal person appointed by shareholders, causing the dispute. China’s company law states that a registered judicial person is valid and when a dispute over representation arises between the company and a third party, the registration information is to prevail whereas if a dispute arises between the company and a shareholder, the shareholder’s role is to prevail, and the change of judicial person should take effect inside the company. The litigation could not represent Thumb’s true intention and the court decided to deny the original judgment and reject Thumb’s appeal.

3. Significance

This is a typical case concerning the protection of Chinese and foreign investor rights on an equal basis to ensure shareholder rights in management selection and for improving the environment for foreign investors. It is considered one of the most important cases for the 65th anniversary of the Supreme People’s Court and clearly states the need to identify a foreign company’s administrator’s and liquidator’s limits within Chinese territory and their representation, which can helps increase foreign investor confidence in the Chinese market. This was also the first case where the SPC invited foreign envoys and media to witness, to demonstrate the fairness and efficiency of China’s administration of justice.