Equal Protection of the Legitimate Rights of Domestic and Foreign Investors to Create a First-class International and Legal Business Environment ——Xiong v. Qiu on Contract Dispute

Basic Facts

On May 7, 2017, Chinese mainland investor Qiu and China's Hong Kong investor Xiong signed an investment cooperation agreement on the operation of the Xinyi Tile brand Shenzhen agent project. Both parties agreed that Qiu shall register and set up the company. Xiong should invest 1 million yuan, accounting for 20% of the equity, and Qiu Mou should invest 1.3 million yuan, accounting for 80% of the equity. After Xiong transferred the agreed capital contribution of RMB 1 million to Qiu, Qiu did not jointly prepare for the establishment of Xinyi Company with Xiong. As the registered shareholders of the company were Qiu and Ye Mou, Xiong could not participate in the decision-making matters of the project’s operation and management, and Qiu did not fulfill his capital contribution obligations. Xiong sued Qiu Mou to Qianhai Court, requesting for the termination of the investment partnership and the return of capital.

Judgement

The court held that Qiu was under the obligation to establish a company in accordance to the agreement on investment cooperation, but Qiu did not confirm the identity of Xiong’s shareholder and apparently did not have the will to establish a company together with Xiong. Qiu constituted a breach of contract. In addition, judging from the situation of the two parties' interactions and disputes, the two sides have a weak foundation of trust and do not have a humane basis for jointly establishing the company, and the purpose of Xiong’s addition into an investment cooperation agreement falls short, so Xiong can exercise the statutory right of cancellation. Therefore, the court decided to support Xiong’s lawsuit, requesting for the termination of the cooperation agreement and the return of investment funds.

Significance

With the deepening economic cooperation between Shenzhen and Hong Kong, an increasing number of China's Hong Kong residents have invested in the Chinese mainland and investment disputes have also increased. Investment disputes often arise because the investment parties have not entered into an investment cooperation agreement, or the contents of the concluded agreement are incomplete, which makes it difficult to define the relationship of power and responsibility between the investment parties. This case conducts a comprehensive analysis of the investment cooperation agreement, combines the situations of the two parties, further investigates the true meaning of the two parties' cooperative investment, accurately defines the rights and obligations of both parties and supports China's Hong Kong investor’s claim for returning investment funds. This case provides full and equal protection for the legal property rights formed by China's Hong Kong investors in Chinese mainland in accordance with the laws, which is conducive to creating a first-class international legal investment environment and promoting the formation of a new pattern of full-scale opening to the outside world.