Uncle Barney owns and is the key sales contact of an outdoor furniture business.
ID: 394940 • Letter: U
Question
Uncle Barney owns and is the key sales contact of an outdoor furniture business. His principal supplier is Bing Fabric Manufacturing Company, a publicly listed company in China. Barney and Bing have been in talks about some collaboration to ensure that Bing gets paid in a timely fashion and increased sales opportunities in Canada. Barney is interested in preferential pricing manufacturing.
Barney also plans on retiring in 5 years when his daughter graduates from medical school. Barney and Bing are at the cusp of an agreement where Barney would sell 49% of his company to Bing, whereupon he would be hired as Bing’s executive director of North American sales and marketing for 4 years, after which Bing will buyout Barney and he can retire. The parties have almost completed the due diligence for the purchase and are keen to proceed but have reached a bit of an impasse. Barney is obviously concerned about making sure that he will continue to have a job for the next 4 years (as those medical school bills are high). Being a public company in China, Bing’s owners insist that the choice of law and jurisdiction for all transactions have to be Chinese law. Also, because Bing is a public company, all disputes must be submitted to confidential arbitration in China.
Barney heard that you are taking a Business Law course at Yorkville University and wants your advice. What are the risks for him to be subject to Chinese law and Chinese arbitration? In any case, what alternative plan might he propose?
Explanation / Answer
The risks involved in having a clause stating subject to Chinese jurisdiction and arbitration in China are as follows:
The alternative plans proposed for Barney to finalize the agreement with Bing a public limited company are as follows:
Option 1: Opt for a clause for arbitration in Hong Kong which is also in the Chinese jurisdiction. The benefits are that they are rated the third best arbitral institution following London and Paris.
They have a modern regime for arbitration. Their procedures are based on the UNCITRAL model law on international commercial arbitration 1985. They follow international best practices. They have modern infrastructure and facilities to help in resolving international disputes. They allow qualified lawyers from outside Hong Kong to assist in international disputes.
Hong Kong awards are enforceable outside Hong Kong in countries which are signatories of unconventional on recognition and enforcement of foreign arbitral awards (1958) New York convention and also in main land China through the arrangement concerning mutual enforcement of arbitral awards. This is a less expensive method and saves a lot of time over court proceedings. Confidentiality is an additional benefit you get out of arbitration.
Option 2: Barney can agree to Chinese jurisdiction and arbitration but take the following precautions:
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