Mediation for cross-border investment disputes in covid-19

By Jefferey Quan and Chen Congfa, ETR Law Firm
0
212

In international business disputes, facilitative mediation, compared with biased and forceful assessment-based intervention, is more likely to enable mediators to bring the parties in cross-border disputes to mediation and settlement. This article introduces the facilitative mediation process and summarizes experiences of the authors’ legal practice during the covid-19 pandemic.

A case study

The claimant (party A), a company operating in Hong Kong, planned to pay in cash, in two instalments, for the shares it would acquire from party B in the target company. The respondents (parties B1 and B2) lawfully held 100% of the shares in party C together. Party C, the target company of the acquisition deal, is a company lawfully incorporated and existing in mainland China.

mediation
Jeffrey Quan
Senior Partner
ETR Law Firm

All the parties entered into a share acquisition agreement in October 2019, through negotiation with respect to party B transferring at premium its shareholding in the target company to party A. According to the share acquisition agreement, party A planned to pay 80% of the share transfer payment in two instalments.

The first instalment would be RMBX million, which should be transferred by party A to an escrow account in February 2020. Party B should complete the registration of share ownership change in January 2020 to become entitled to the payment of RMBX million out of the escrow account as the share transfer payment payable by party A.

mediation
Chen Congfa
Associate
ETR Law Firm

In mid-January 2020, when the covid-19 outbreak was officially announced in mainland China, all the staff of party A were ordered to work from home for covid-19 containment purposes, and so were unable to carry the company seal to the province to open the escrow account. Parties A and B had a talk on whether the payment method should be changed, from “payment to the escrow account” to “direct payment into the other party’s shareholder account”.

However, such a change aroused the concern of party A, as the investor, that to pay the initial instalment of RMBX million to party B’s shareholder account was risky. This issue would give rise to bigger disputes as to payment by party A and normal operation by party B in accordance with the contract.

Analysis and assessment

Before the formal mediation or settlement began, the authors’ team members first filed the case (or prepared for filing), and communicated with the parties concerned using negotiation skills. With the basic concerns and claims of both parties summarized, analyzed and handled, the team figured out the negotiation and mediation procedures and methods.

For this case, these procedures mainly included the following: (1) the meditator immediately disclosed its independent status and proved the parties concerned as lawful entities; (2) the parties concerned conducted a self-assessment of the solutions to the dispute; (3) assessing the outcomes of optional solutions and how to guarantee them; and (4) judging whether the parties concerned should make their own decisions or even resort to “false mediation” in an attempt to play for time.

Since the virus outbreak prevented face-to-face meetings, the mediators communicated with the parties concerned remotely, allowing them and their lawyers sufficient time to communicate. The mediator summarized the commonalities of both parties and focus on the listed issues: (1) both parties are willing to resolve the dispute through negotiation and mediation; (2) most clauses of the investment/financing contracts are undisputed and undisputed facts can be confirmed prior to mediation; and (3) the claimant and the respondent hope to maintain a longer-term partnership with each other.

The covid-19 outbreak was not the root cause of the dispute, and the systemic risk was just a part of the case for the parties. There were more non-systemic risks in the case (i.e., how to deal with and performance the contract). However, these could be overcome and jointly handled through negotiations between the parties.

Elements to consider

The mediator should consider the following elements: (1) the negotiation/mediation skills needed for case assessment and handling, aimed at facilitating the parties’ discretionary decision making and procedural fairness; (2) a checklist of issues should be used in the communication with the parties and their lawyers, and thus the parties can determine their own needs; (3) the parties concerned and their lawyers should be encouraged most of the time to resolve the dispute themselves in the negotiation and mediation process; (4) with regard to facts and emotions, giving off “positive energy” is a necessary skill in negotiation and mediation; and (5) cost testing of solutions proposed by the parties, or other practical issues regarding litigation, international investment and financing, etc.

Mediation and settlement

After three rounds of negotiation as to the way of share transfer payment and its preconditions, the authors assisted the parties concerned in settling the dispute and changing the payment method, namely from the payment to an escrow account to the direct transfer from party A to a designated account of party B.

The parties concerned reached a settlement on the schedule and steps of payment. A more prudent three-step approach was adopted, i.e., the RMBX million, originally payable in two instalments, was split into three instalments due at the ends of January, February and March of 2020, respectively. In addition, the parties reiterated and confirmed the registration of share ownership change as a precondition on payment to party B.

Conclusion

The above case represents the authors’ experience in mediating an RMBX million cross-border investment dispute. The payment in dispute has now been effected between the parties as agreed. In the authors’ opinion, if the dispute were not resolved promptly through business negotiation and mediation, the additional time costs and expenses that might otherwise have been incurred would trigger more cross-border uncertainties.

Business negotiation and its just procedures will enable foreign-funded projects to pursue a resumption of business while ensuring covid-19 containment compliance and taking part in stabilizing the cross-border investment/financing markets, thereby providing legal support for the parties concerned to tackle crises reliably with diverse approaches.

Jeffrey Quan is a senior partner at ETR Law Firm. He can be contacted by email at [email protected]

Chen Congfa is an associate at ETR Law Firm. He can be contacted by email at [email protected]

mediation

ETR Law Firm
10 & 29/F, Chow Tai Fook Finance Centre
No. 6 Zhujiang Dong Road, Tianhe District
Guangzhou 510623, China
Tel: +86 20 3718 1333
Fax: +86 20 3718 1388
E-mail:
[email protected]
[email protected]
www.etrlawfirm.cn