Recently, the China International Economic and Trade Arbitration Commission (“CIETAC”) issued a decision in a private equity investment dispute between an investor represented by JT&N and a private fund manager. The CIETAC accepted the advice of JT&N’s legal team, upheld all of our client’s arbitration claims, and ordered the private fund manager to return all of the investment funds and compensate for the loss of interest.
This case was handled by attorney Dongmin HE, partner of JT&N, throughout the trial, with the assistance of team members Yanhua XU and Yuchen YANG. The judgment in favor of our client has now come into effect.
Brief of the Case
In 2020, the investor and the fund manager signed the Admission Agreement, pursuant to which the investor agreed to purchase the private equity fund products managed by the fund manager. The investor has fulfilled its capital contribution obligations under the Agreement, but the fund manager has failed to fulfill its contractual obligations, including failing to register the investor as a partner in the fund, failing to complete the filing of the fund products, and failing to invest in accordance with the Agreement.
Highlights of the Case
After accepting the entrustment, the attorneys of the Firm, taking into account the fact that the dissolution of the Admission Agreement is rather difficult in the judicial practice, formulated the basic agency strategy of “although the investor signed the Admission Agreement, it only established the bilateral contractual relationship of entrusted financial management with the fund manager and did not establish the partnership relationship” in combination with the basic facts of the case, claiming that the Admission Agreement should be dissolved in accordance with the Contract Law rather than the Partnership Enterprise Law. The agency’s opinion was adopted by the collegial panel, and the CIETAC accordingly upheld all of the investor’s arbitration claims.
It is worth noting that in this case, the investor demanded the fund manager to repay all the investment funds, but the fund manager was only awarded compensation of 20% of the subscription amount in Case 1 among the ten typical cases in 2022 issued by the Beijing Financial Court during the hearing of the case by the arbitral tribunal. In the event that the court issued a guiding case against our client, it was hard-won for JT&N’s attorneys to successfully persuade the collegial panel to rule in favor of our client and obtain a successful recovery of all investments.
Significance of the case
JT&N has a traditional strength and reputation for resolving complex civil and commercial disputes. Financial disputes have always been a difficult area of commercial litigation due to the high level of complexity and professionalism involved.
In recent years, due to the impact of the macroeconomic environment, defaults on financial products have occurred from time to time. As a result, financial consumers’ investments have been severely damaged, and some have even lost all their money. In practice, the court’s standard for terminating the fund contract is relatively strict. In addition to the guaranteed income of private funds, there are few cases supporting the termination of the contract and the return of principal and interest, making it extremely difficult for investors to exit the fund in this way.
The success of this case provides a new way for private equity fund investors to protect their rights, and is of great significance for the protection of the legitimate rights and interests of financial consumers.
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