Hong Phat initially received approval in principle in 2003, but over a decade later, the venture looks certain to crumble

The final deadline of January 13, 2020 has been set by Long An People’s Committee for Ho Chi Minh City-based Hong Phat Real Estate JSC and China Policy Ltd. (CPL) to set up their $140 million joint venture across 500 hectares in the province’s Duc Hoa district.

According to Tran Van Can, Chairman of Long An People’s Committee, if the deadline is passed without action from both sides, he will submit a proposal to the government consisting of guidelines for bringing the case to court and revoking the land previously granted to the joint venture.

“We must take strict action because this long-lasting dispute has had a negative impact on the investment environment for both the province and the parties in question,” Can said.

At the beginning of 2019, the Ministry of Planning and Investment (MPI) also issued a document confirming that the dispute could be solved by the Law on Investment 2014, Civil Procedure Code 2015, and the Law on Trade Arbitration. This means that both sides can bring their case to the Vietnamese courts, the Vietnam International Arbitration Centre (VIAC), or the International Arbitration to find a solution.

A lengthy dispute

In 2003, Hong Phat received approval in principle from Long An People’s Committee to develop a 493-hectare project in Tan My and Duc Lap Thuong communes in Duc Hoa district. The project’s first phase would include a 273ha exclusive urban area, with the second phase comprising of a modern horse-racing course, a horse-racing club, and a resettlement area.

However, the company was required to undertake site clearance before the project could be licensed by local authorities.

In 2007, Hong Phat signed a “framework agreement” with CPL, to set up a joint venture company to build a high-end residential area with a racecourse. With the total investment capital estimated at $140 million, Hong Phat was to contribute 30 per cent through land use rights, with CPL providing the rest in cash.

According to the framework agreement, CPL advanced $15.6 million for land clearance and compensation, with this capital included in the project’s investment contribution when the joint venture was established.

By 2007, both sides had fully stuck to their commitment, but the following year an additional claim was made to compensate local people removed from the site of the project. Hong Phat requested that CPL add another $20 million for carrying out this work, but CPL ejected the sum, claiming that it was not included in the framework agreement. The project has been at a standstill ever since, despite many meetings and reports being issued.

In a meeting between the joint venture and local authorities held in January, Thai Thi Hong Hau, deputy general director of Hong Phat confirmed that she had accepted a CPL request to let auditors re-evaluate the value of the project so far. This audit result would serve as the basic foundation for any additional flow of investment capital needed for the project, despite this issue not being included in the framework agreement.

However, conflict again reared its head when CPL requested that the increased expenses must be paid by the incoming joint venture only. Meanwhile, Hong Phat forced CPL to prove its financial capacity and legal status to provide evidence that they are capable of investing in Vietnam.

“CPL must soon tell us why it has not taken steps to set up a joint venture with us during the last 12 years,” said Hau. “CPL’s office is based in the British Virgin Islands – a tax avoidance paradise – and investors who intend to do business with investors coming from this country would be at a great disadvantage.”

Despite CPL constantly reaffirming that it wanted to set up a joint venture to implement the project, over the last few years it has filed a number of lawsuits against Hong Phat.

A decade ago, CPL declared to the Ministry of Public Security (MPS) that Tran Thi Viet Thanh, chairwoman of the Board of Directors cum general director of Hong Phat had appropriated $15.6 million which CPL had disbursed to the project.

Not long after in 2010, the MPS issued a document stating that Hong Phat had used this sum for land clearance and compensation, and not in the manner that had been alleged by CPL.

Three years later, CPL filed a lawsuit against Hong Phat with the VIAC, with the outcome being that Hong Phat had to strictly adhere to the framework agreement, including requirements to summit for licence issuance of the project and contribute the land use rights to the incoming joint venture.

The VIAC also requested that Hong Phat cover more than $91,000 of arbitration expenses resulting from the lawsuit. The MPS then blocked 13 of the project’s red books, ensuring that Hong Phat could not use those books to mortgage at the bank.

Hong Phat’s deputy general director Hau said, “We are being pushed into bankruptcy. We stand to lose nearly VND2 trillion ($87 million) which we have poured into this project during the last 10 years, not to mention the thousands of workers who are now jobless.”

While the joint venture issues remain unsolved, in August CPL sent a document to local authorities requesting 130ha of land from the 232.6ha which was granted by Long An People’s Committee to Hong Phat.

CPL claimed Hong Phat only received the red book for this zone due to the initial sum of $15.6 million provided by CPL to cover land clearance and compensation. CPL went on to claim that the 130ha it was asking for still fell well short of the area CPL was entitled to as a result of its financial contribution.

In a meeting held in November between both parties and local authorities, Tong Kwok Lun, CPL general director, requested that Long An halt the project until negotiations were concluded.

Lun also again suggested that CPL receive the 130ha of land, stating that this was the most effective way to get the ball rolling on the project.

According to Chairman Can from Long An People’s Committee, the proposal is unreasonable because legally, the project’s main investor is Hong Phat. In addition, the land transfer can only be carried out with the agreement of both sides.

Representatives from the MPI were of the same opinion, asserting that the land grant to CPL can only take place when they and Hong Phat reach a consensus.

Proving capabilities

According to document No.2463/BKHDT-PC, issued by the MPI in April 2018, the sum of $15.6 million was contributed by CPL in 2007. The Law on Investment 2005 dictates what happens when a foreign investor pours funds into a certain project which is not yet licensed by the local authorities. Under these circumstances, the investor would not be certified as an investor under Vietnamese laws, and the money would not be considered as having contributed to implementing the project.

By this point, CPL had not yet registered its investment in Vietnam, and had not been granted an investment certificate by the local competent bodies. Moreover, Hong Phat claimed that just 20 days after signing the framework agreement in Vietnam in 2007, CPL had brought the unlicensed project to the Hong Kong Stock Exchange to mobilise capital under the name “Saigon Beverly Hills”.

Hong Phat chairwoman Thanh said that the company has paid more than VND1 trillion ($43.47 million) into the project to date. Meanwhile, Can also confirmed that Hong Phat had credited in advance a sum of VND210 billion ($9.13 million) to the local authorities to prove its financial capacity to implement this project.

To date the ambitious project has received the remarkable sum of $15.6 million from CPL and around VND1 trillion from Hong Phat. However the two sides remain incapable of setting up a joint venture. If the last deadline of January 13, 2020 passes without progress being made, the land will be revoked and both sides will suffer tremendous losses.

Chairman Can from Long An People’s Committee said that the committee had done everything in its power to help the two sides come to an agreement. However, they have so far been unsuccessful. “We cannot wait any longer when this long-delayed project is having such a negative impact on the province’s socio-economic development and investment environment,” he said.

According to the MPS, CPL is a subsidiary of Chuang’s Consortium International Ltd., operating in the field of commercial centres, real estate, high-end hotels, registered in the British Virgin Islands. Currently CPL has no information on investment in Vietnam, except for the first investment certificate dated January 22, 2019 by Ho Chi Minh City Department for Planning and Investment.

The British Virgin Islands is considered a “tax paradise” where many companies register their transaction addresses for the special purpose of hiding the owner’s identity to avoid issues of personal property declaration, and to protect personal property in case of bankruptcy as well as avoiding taxes. VIR

Quynh Chau