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 part 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. How should he structure his transaction with Bing? What are the risks for him to be subject to Chinese law and Chinese arbitration? In any case, what alternative plan might he propose?

Answer 1

Question - Barney heard that you are taking a Business Law course at Yorkville University and wants your advice. How should he structure his transaction with Bing?

Answer - As Barney and bing has agreed to sell only part of the company to Bing, which means he can request that the part of company which is sold to Bing will be subject to law in China, however the company which is yet to sold still holds primary ownership with Barney should follow the law of Canada as owner of the company lives in Canada, with a specific clause a that the decision to sell remaining part of company will still with Barney and his decision in this regard will be final and can’t be questioned in rule of law Canada and China.

Question - What are the risks for him to be subject to Chinese law and Chinese arbitration?

Answer - As he is not citizen of China, obviously he is subject to some risk which may or may not be direct impact him but the case.

Further in case any such dispute arise in future he will need to always travel to China to present his point which will call for extra cost in terms of travelling and hiring a local lawyer which Berney might able to bear.

Question - In any case, what alternative plan might he propose?

Answer - In order to avoid any issues, he can recommend that if company wants that rule of China jurisdiction should only apply than, they have to issue bond which should be legally enforceable by rule of Canada where they will agree that they will employ Berney for 4 years and will appropriate remunerate him and in case company wish to terminate his employment before this time, than they have to pay all salary that is remaining for the period of the employment with all such benefits that he should have received if he was on employment.