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Lawyers, other representatives, expert(s), tribunal’s secretary

Award

[1].
Claimant is Chongqing Rato Group Holding Co., Ltd, residing at Zone B, Shuangfu Industrial Park, Jiangjin District, Chongqing, China, uniform social credit code 91500000660899429M.
[2].
The legal representative is Zhu Liedong, chairman of the board.
[3].
Authorized representative Zhang Tao, attorney of Solton & Partners, special authorization.
[4].
Authorized representative Chen Qiao, male, Han ethnicity, DOB March 26, 1976, resides at Zhengfa Yi Cun No. 6 1-1 Shapingba District, Chongqing, citizen ID card No. 510212197603261612, employee of the Claimant, general authorization.
[5].
Respondent Roger Joseph Leon, nationality: USA, male, DOB: September 21, 1954, resides at 7245 Tallwood Drive, Denver, North Carolina, USA, passport number: PUSA441227521.
[6].
In the case of the Claimant, Chongqing Rato Group Holding Co., Ltd, and the Respondent, Roger Joseph Leon, regarding the matter of dispute over the Equity Transfer Agreement, the Chongqing Arbitration Commission (hereinafter referred to as "this Commission") heard this matter on June 7, 2016 in accordance with the arbitration clause of the "Equity Transfer Agreement" signed by the Claimant and the Respondent on November 28, 2012 and the Claimant’s application for arbitration.
[7].
In accordance with the "Chongqing Arbitration Commission Arbitration Rules" (hereinafter referred to as "Arbitration Rules"), this Commission authorized Barefoot Professional Investigations, a qualified US service of process agency, to serve the Respondent on August 11, 2016 with the Notice to Attend Arbitration Proceedings, a copy of the application, the Arbitration Rules, the List of Arbitrators of the Chongqing Arbitration Commission, the Notice of Composition of Tribunal and Appointment (Designation) of Arbitrators, and other arbitration documents.
[8].
The Respondent failed to submit a statement of defense within the time limit stipulated in the Arbitration Rules.
[9].
Within the period specified in the Arbitration Rules, the Claimant selected Deng Xiaohua as an arbitrator and authorized the chair of this Commission to appoint the presiding arbitrator. The Respondent did not select and did not authorize the chair of this Commission to select an arbitrator. The chair of this Commission, in accordance with the Arbitration Rules, appointed Sun Peng as the presiding arbitrator and Peng Jianjun as arbitrator, and along with Deng Xiaohua, the arbitrator appointed by the Claimant, they comprise the Arbitral Tribunal in this case.
[10].
This Commission authorized Barefoot Professional Investigations, a qualified US service of process agency, to serve the Respondent on October 7, 2016 with the Notice of Composition of the Arbitral Tribunal and the Notice of Hearing.
[11].
This case was reviewed in-camera by the Arbitral Tribunal on October 31, 2016 in accordance with applicable laws. The Respondent had already been notified by this Commission in writing, but provided no valid reason for failure to appear. In accordance with Paragraph 2 Article 42 of the "Arbitration Law of the People’s Republic of China" and Paragraph 2 Article 41 of the Arbitration Rules of this Commission, a hearing by default was held for this case. Representatives of the Claimant Zhang Tao and Chen Qiao appeared at the hearing and described the arbitration request and factual reasons, presented the original copies of evidence, and answered questions asked by the Arbitral Tribunal, and the Claimant made a final statement.
[12].
This Case has been heard and the award is hereby given.

I. Arbitration Requests and Defense

[13].
The facts, reasons and arbitration requests in this case were given by the Claimant as follows:
[14].
In August 2010, the legal representative of the Claimant, Zhu Liedong, and the Respondent held talks in Chongqing regarding their joint sale of outdoor power equipment in the United States. In September of the same year, Zhu Liedong reviewed the business plan submitted by the Respondent, and additionally communicated with the Respondent and Wang Qian (Chinese American, English name: Larry Qian Wang) by telephone with regard to this matter. The three parties reached a consensus that Denver Global Products, Inc. (hereinafter referred to as "DGP"), and JRT Metals, Inc. (hereinafter referred to as "JRT") were to be established by the Respondent, and the Davis Sales Group Company (hereinafter referred to as "DSG") was to be formed by Wang Qian, whereby DGP would be responsible for the manufacture, promotion and sales of outdoor power equipment products, including MPV. The main purpose for creating JRT and DSG was to obtain the equity held in DGP by the Respondent and other shareholders. After the creation of DGP, JRT, and DSG, DGP shareholders -including the Respondent - would transfer 50% of DGP equity into both JRT and DSG. JRT and DSG then respectively would invest 50% of DGP’s upfront capital. In October 2010, the Respondent established the companies JRT and DGP in North Carolina, and Wang Qian established the limited liability company DSG in Illinois. DSG then contributed US $2 million in startup capital to DGP, accounting for 50% of the total investment amount.
[15].
On December 9, 2011, Zhu Liedong and Xiang Jin, a senior manager of the Claimant, held talks with the Respondent and Wang Qian regarding the matter of the Claimant’s investment in DGP. During the talks, the Respondent provided the "Stock Purchase, Merger and Employment Agreement" (hereinafter referred to as the "Leon Agreement") drafted by the Respondent to all other parties present. The execution date of the agreement was December 31, 2011. In accordance with the "Leon Agreement", the Claimant would swap its own shares for DSG and JRT’s equity in DGP, and the Respondent would serve as the Vice-Chairman of the Claimant as well as the Chairman of DGP. In mid-2012, the Claimant learned that the Chongqing Foreign Trade and Economic Relations Commission (hereinafter referred to as "CFTERC") refused to approve the "Leon Agreement", with the reasons being: (i) in accordance with Chinese law, the shareholders of the Claimant were the sole parties with authority to transfer the Claimant’s equity; (ii) the terms of employment and the terms relating to the Claimant’s purchase of DGP equity should be stipulated in other separate contracts, and should not be included in the agreement for the transfer of the Claimant’s equity. In accordance with Chinese law, the approval system applies to investments made by foreign enterprises and persons in China; the "Leon Agreement" had not been approved by the CFTERC, so a foreign company could not purchase the Claimant’s equity.
[16].
In order to solve the legal issues involving the "Leon Agreement", after conducting negotiations, the Claimant, the Respondent and Wang Qian agreed that: 1. The Claimant would establish a wholly-owned subsidiary, Chongqing Rato Power Manufacturing Corporation (hereinafter referred to as "Rato Manufacturing"), and the Claimant’s main business as well as its related assets, debts, and personnel would be transferred to Rato Manufacturing; 2. The Respondent and Wang Qian would receive shares in Rato Manufacturing; 3. The terms of the transactions would be divided up into several separate agreements.
[17].
On November 28, 2012, a total of six parties, including the Claimant, the Respondent, and Wang Qian, signed the following four agreements (hereinafter referred to collectively as the "Substitute Agreements") to complete the transactions stated above and to replace the "Leon Agreement" completely: 1. The "Framework Agreement for the Purchase of 100% Equity in Denver Global Products, Inc." between Rato Manufacturing, JRT and DSG; 2. The "Equity Transfer Agreement" between the Claimant and the Respondent regarding the transfer of equity in Rato Manufacturing to the Respondent; 3. The "Equity Transfer Agreement" between the Claimant and Wang Qian regarding the transfer of equity in Rato Manufacturing to Wang Qian; 4. The "Chinese-foreign Joint Venture Enterprise Chongqing Rato Power Manufacturing Corporation Agreement" (hereinafter referred to as the "Joint Venture Agreement") between the Claimant, the Respondent, Wang Qian, Chongqing Minghui Gree Electronics Sales Co., Ltd., Chongqing Yaorun Investment Management Center (Limited Partnership) and Chongqing Jurun Investment Management Center (Limited Partnership). Following the execution of the above-mentioned Substitute Agreements, the Claimant was to transfer its main business and related assets, debts and personnel to Rato Manufacturing in accordance with the content of prior negotiations, and furthermore to cease to engage in the operating activities related to the development, manufacture and sale of general power equipment products. The Respondent and Wang Qian performed the obligation under the Substitute Agreements to contribute funding, and DGP became a wholly-owned subsidiary of Rato Manufacturing.
[18].
On December 20, 2012, the CFTERC granted approval for the equity purchase of Rato Manufacturing by foreign investors, and also approved the "Joint Venture Agreement" signed by the company’s investors on November 28, 2012. Subsequently, the Chongqing Administration for Industry & Commerce completed the registration of Rato Manufacturing. At this time, the Claimant transferred its 10% equity in Rato Manufacturing to the Respondent, and transferred 5% of equity to Wang Qian. The Respondent served as the Vice Chairman of Rato Manufacturing until resigning on April 26, 2013.
[19].
On December 30, 2015, due to the Respondent’s embezzlement of DGP funds and misappropriation of DGP assets, DGP filed a civil case in the General Court of Justice Superior Court Division of Lincoln County, North Carolina, USA (hereinafter referred to as "the North Carolina, USA Court") against the Respondent, Keith Piercy, and Jeanne Hendrix. On February 29, 2016, the Respondent submitted the "Answer, Counterclaim and Third Party Claim" to the North Carolina, USA Court, holding that the Claimant had failed to perform the transfer of equity in accordance with the "Leon Agreement" and further denying that his execution of and performance under the "Equity Transfer Agreement" and the "Joint Venture Agreement" reflected his genuine intention, initiating a counterclaim for over US $40 million. Based on the Respondent ignoring objective facts, filing a malicious lawsuit against the Claimant, and severely damaging the Claimant’s commercial reputation, the Claimant has submitted the following arbitration requests:

(I) Confirm that the "Equity Transfer Agreement" signed on November 28, 2012 in Chongqing, China by the Respondent and the Claimant and subsequently performed by them is an expression of the Respondent’s genuine intention and that said agreement is a valid legal document that is legally binding upon all signatories;

(II) Find the Respondent liable for payment of the attorney fees of RMB 350,000 paid by the Claimant;

(III) Find the Respondent liable for payment of arbitration fees in this case.

[20].
The Respondent failed to appear at the hearing to make a statement in his defense.

II. Evidence and Verification

[21].
The Claimant has presented the following evidence to the Arbitral Tribunal to substantiate its arbitration requests:

No. 1 Evidence Group

[22].
(I) A copy of the Claimant’s business license; (II) the "Notification of Approval to Change Registration"; (III) the "Equity Transfer Agreement" signed by the Claimant and the Respondent, which also substantiates the No. 4 evidence group; (IV) a copy of the Respondent’s passport, which also substantiates the No. 7 evidence group; (V) a notarized and authenticated copy of an affidavit issued by Attorney Matthew F. Tilley from Robinson, Bradshaw & Hinson, RA. Law Office in the United States, which also substantiates the No. 2 evidence group. This evidence group substantiates the following: the Claimant and Respondent’s identification and qualifications, the Chongqing Arbitration Committee’s jurisdiction over this case, and the Respondent’s address of residence.

No. 2 Evidence Group

[23].
(VI) The notarized and authenticated copy of "Answer, Counterclaim and Third Party Claim" submitted by the Respondent to the North Carolina, USA Court and all of the parties in the case; (VII) the notarized and authenticated copy of an affidavit submitted by the Respondent to the North Carolina, USA Court, including an email sent on February 20, 2013 to the Respondent and Jeanne Hendrix by Michael Anthony Parkins (hereinafter referred to as "Michael"), proving that the email addresses of Michael, the Respondent, and Jeanne Hendrix are accurate and valid. This evidence group substantiates the following: the Respondent’s denial of the legal validity of the "Equity Transfer Agreement", the serious accusations made by the Respondent against the Claimant, and the existence of a dispute over the validity of said Agreement on the grounds of the Respondent’s denial of any previous knowledge of or consent to the content of said Agreement.

No. 3 Evidence Group

[24].
(VIII) "Stock Purchase, Merger and Employment Agreement" (the "Leon Agreement"); (IX) Wang Qian’s testimony and certificate of notarization, which also substantiate the No. 4 and No. 5 evidence groups. This evidence group substantiates the following: the "Leon Agreement" does not comply with Chinese law and is not enforceable, and the Chongqing foreign investment regulatory authorities did not approve the "Leon Agreement", so therefore it is invalid.

No. 4 Evidence Group

[25].
(X) The "Equity Transfer Agreement" between the Claimant and Wang Qian; (XI) the "Joint Venture Agreement"; (XII) the "Chongqing Rato Power Manufacturing Corporation Articles of Incorporation" (hereinafter referred to as "Articles of Incorporation"). This evidence group substantiates the following: four agreements, including the "Equity Transfer Agreement", were signed by the Respondent, the Claimant and other relevant parties to replace the "Leon Agreement", and the target of the equity purchase in China has already been changed to Rato Manufacturing rather than the Claimant, as initial negotiations indicated. Combined with the No. 7 evidence group, this evidence substantiates that the "Equity Transfer Agreement" has been actively performed by all the parties including the Respondent.

No. 5 Evidence Group

[26].
(XIII) The appointment letter in which the Respondent appoints Michael to serve as the supervisor of Rato Manufacturing, which also substantiates the No. 7 evidence group; (XIV) notarized email correspondence between the Respondent and Michael, Michael and a partner of Parker Poe Law Firm in the United States, Albert Guarnieri (hereinafter referred to as "Al"), Michael and Wang Qian, Michael and Jeanne Hendrix; (XV) "Verification of Chongqing Rato Power Manufacturing Corporation Joint Venture Project Status" issued by Rato Manufacturing shareholder Chongqing Minghui Gree Electronics Sales Co., Ltd.; (XVI) verification from Rato Manufacturing shareholder Chongqing Yaorun Investment Management Center (Limited Partnership); (XVII) verification from Rato Manufacturing Shareholder Chongqing Jurun Investment Management Center (Limited Partnership); (XVIII) a notarized copy of an attorney letter from the King & Wood Mallesons Chengdu Office (Chinese and English versions); (XIX) the public notice regarding the annual lawyer inspection posted on the Sichuan Province Department of Justice’s official website on September 24, 2014; (XX) the notarized copy of the Respondent’s personal introduction posted on the social media site LinkedIn. This evidence group substantiates that: prior to the execution of the agreements, the Respondent had knowledge of, had translated on his own, and had thoroughly discussed the content of the agreements, and the Respondent had additionally hired an attorney in the US to conduct a review of the agreements, after which he appointed a Chinese lawyer to claim his rights as a shareholder in Rato Manufacturing, and therefore, the "Equity Transfer Agreement" reflects the genuine intention of the Respondent.

No. 6 Evidence Group

[27].
(XXI) "CFTERC Approval Regarding the Equity Purchase of Chongqing Rato Power Manufacturing Corporation by a Foreign Investor"; (XXII) "Certificate of Approval for Establishment of Enterprises with Foreign Investment in the People’s Republic of China". This evidence group substantiates that: the "Equity Transfer Agreement" is valid and has been approved by the CFTERC.

No. 7 Evidence Group

[28].
(XXIII) Materials on file with the Chongqing Administration for Industry & Commerce (including: application of foreign invested company for change of registration on file, the passport Michael submitted when changing the registration, the appointment letter in which the Respondent appointed himself to serve as the Vice Chairman of the Board of Rato Manufacturing, and the resolution from the January 23, 2013 board of directors meeting); (XXIV) the attendance sheet and board resolutions from the October 25, 2015 board of directors meeting. This evidence group substantiates that: the "Equity Transfer Agreement" has been actively performed by all parties including the Respondent.

No. 8 Evidence Group

[29].
(XXV) "Engagement Letter Regarding Representation of Arbitration Case"; (XXVI) invoices for attorney fees; (XXVII) proof of payment for attorney fees; (XXVIII) standard of attorney fees for Chongqing Municipality. This evidence group substantiates that: the Respondent has paid RMB 350,000 in attorney fees in this case.
[30].
The Respondent failed to appear at the hearing to make a statement regarding the evidence, and failed to present evidence to this tribunal.

III. Verification by the Arbitral Tribunal

[31].
Based on the presentation of evidence by the Claimant, the Arbitral Tribunal has conducted a thorough review of the evidence documents, and confirms the following with regard to the evidence:
[32].
Considering that the Respondent failed to appear at the hearing to make a statement regarding the evidence, and that all the evidence in the eight groups of evidence the Claimant presented is critical to this case, the sources and formats of the evidence are lawful and deemed admissible by this tribunal.

IV. Findings of Facts in the Case

[33].
In accordance with the verification of evidence above, and through questioning during trial, the Arbitral Tribunal is able to ascertain the following facts:

(I) Basic Facts of Contract Signing

[34].
At the start of 2010, the legal representative of the Claimant, Zhu Liedong, conducted multiple talks with the Respondent regarding business development-related matters. At the end of August 2010, the Respondent provided the relevant business plan to Zhu Liedong. The plan included development of a hybrid electronic multi-purpose vehicle known as MPV. The vehicle was to be assembled with parts purchased in the US, together with parts to be manufactured by Rato in China and then shipped to the US. During the discussions, Wang Qian, one of the Claimant’s distributors in Illinois, USA, also expressed interest in this investment project. To implement this business plan, the three parties negotiated the following: the Respondent would establish DGP and JRT, and Wang Qian would establish DSG. DGP would be responsible for manufacture, promotion and sales of outdoor power equipment products, including the MPV. The main purpose for creating JRT and DSG was to obtain the equity held in DGP by the Respondent and other shareholders. After the creation of DGP, JRT, and DSG, DGP shareholders - including the Respondent - would separately transfer their holdings in DGP into JRT and DSG. JRT and DSG then respectively would hold 50% of DGP’s equity, becoming shareholders of DGP. In October and November of the same year, the Respondent successively established DGP and JRT, and Wang Qian established DSG. Based on prior negotiations, DSG and JRT become shareholders of DGP, with each holding 50% of DGP’s equity.
[35].
On December 31, 2011, the Claimant, the Respondent, JRT and DSG signed the "Leon Agreement" regarding the matter of the Claimant’s investment in DGP, stipulating that: 1. JRT and DSG would hold 20% equity (10% each) of the Claimant by either capital increase or share transfer, in consideration for the Claimant receiving 100% equity in DGP; 2. After the Claimant’s receipt of the transfer of equity, DGP would be operated as a complete subsidiary of the Claimant; 3. The Claimant would establish a new company in the US, "Rato NA" (Rato North America), where the Respondent would serve as president and be responsible for the company’s operation and performance; 4. From the execution date of the agreement, the Claimant would appoint the Respondent as the Claimant’s vice chairman of the board. The term of such appointment would be for a minimum of 5 years, and the Respondent would continue to serve as the president of DGP; 5. The Claimant would be able to float shares to outside parties when the market favored an initial public offering. After a successful offering, DSG, JRT and shareholders of the Claimant would be able to freely buy, sell, or transfer their shares in accordance with the laws of the place where the offering took place; 6. The place of arbitration in this agreement was to be the Hong Kong International Arbitration Center.
[36].
In mid-2012, the Claimant learned that the CFTERC had not approved the "Leon Agreement", the specific reasons being: 1. The shareholders of the Claimant were the ones were qualified transfer the equity of the Claimant rather than the Claimant itself; 2. Purchases of equity in foreign companies by Chinese companies and purchases of equity in Chinese domestic companies by foreign investors were to be conducted separately, and the review and approval of such transactions were to be conducted separately by two different departments of the CFTERC (the Foreign Capital Management Office and the Foreign Economic and Investment Office); 3. The "Leon Agreement" set out a large number of conditions relating to employment. This did not fall within the scope of CFTERC’s review and approval process, and a separate agreement should have been in this regard.
[37].
After learning that the "Leon Agreement" had not been approved, the Claimant, the Respondent, Wang Qian, and other partners conducted multiple negotiations focusing on investment matters. During the process of the negotiations, all partners hoped the joint venture company would be able to be listed on the main board of the Chinese market, but the Claimant also had side businesses in addition to its main machine and motorcycle businesses, which failed to comply with the requirement that listed companies must focus on one main business. To eliminate the obstacles to the listing, the Claimant suggested that the partners jointly form a single limited liability company as the proposed listed company. Specifically, on the Claimant’s behalf, the main business’s assets, personnel, liabilities, and tasks would be separated, packaged, evaluated, and injected into the proposed listed company. Considering that the procedures to establish a foreign-invested enterprise are relatively complicated, each party agreed that the Chinese domestic partners would first establish a Chinese-invested company, Rato Manufacturing. Then the Claimant would transfer its 15% equity in Rato Manufacturing to the Respondent and Wang Qian while the other shareholders would waive their preemptive rights. Additionally, the equity transfer price would be equal to the evaluated equity value held by the Respondent and Wang Qian. Therefore, an equity exchange would be possible and the transactions contemplated in the "Leon Agreement" could be flexibly carried out.
[38].
At that time, Michael was a senior manager at DGP and Rato NA, and on multiple instances was dispatched by the Respondent to participate in meetings related to the joint venture negotiations. On November 13, 2012, Michael delivered English versions of three documents, the "Articles of Incorporation", the "Equity Transfer Agreement", and the "Joint Venture Agreement" to Parker Poe Law Firm partner Al to review. On November 28, 2012, Al replied to Michael and expressly stated: "Please note, there are two different Rato entities: Chongqing Rato Power Co. Ltd. (hereinafter referred to as "Rato") and Chongqing Rato Power Manufacturing Co. Ltd. (hereinafter referred to as the "Joint Venture Company").......The deal will be consummated by cash transferred to an account in Roger’s name and then immediately used to purchase shares in the "Joint Venture Company"". In his reply, Al analyzed in detail the possible problems with the agreement. On the same day, Michael forwarded this email to the Respondent and reminded the Respondent in the email: "See Al Guarnieri’s comments on the acquisition documents we received from Chongqing.......I have added comments in red for us to discuss today." Previously, Michael had sent an email to the Respondent on November 20, 2012 explaining the situation at the new company the Claimant was in the process of creating, that is, Rato Manufacturing. However, the Respondent’s email response to Michael stated: "But I would not say these topics warranted the trip over, and certainly not for a period of two weeks. Try to wrap up the issues of transfer pricing discussions and other minor administrative issues quickly and plan to come back to the USA at the end of this week." On November 29, 2012, Michael sent an email to the Respondent: "I have a few documents for you to sign for the Acquisition. They also need Larry’s signature. I need you sign them before I leave. I can send them to Larry for his signature. They are due back here by the 10th of December. 1) Opening financial position statement for Chongqing Rato Power Manufacturing; 2) The Articles for Chongqing Rato Power Mfg; 3) DGP purchase (Not clear on this one). These documents are all in Chinese. There are 5 of each. I can get translated as soon as I get back." On December 3, 2012, Michael sent an email to Wang Qian: "I have three sets of (5 each) documents related to the acquisition that require your signature. Roger has signed them. I would like to overnight them to you and have you send them to Mr. Halin Zhang. They must arrive in Chongqing before December 10th." On February 11, 2013, Michael sent an email to Jeanne Hendrix: "Can you have Ping translate this document? Thanks." There were three documents attached to this email: "CFTERC Approval Regarding the Equity Purchase of Chongqing Rato Power Manufacturing Corporation by a Foreign Investor", the "Certificate of Approval for Establishment of Enterprises with Foreign Investment in the People’s Republic of China" issued by the Chongqing People’s Government to Rato Manufacturing, and a scanned copy of the final executed version of the "Articles of Incorporation".
[39].
In order to achieve the goals of the joint venture and the planned listing, all the Chinese domestic partners established Rato Manufacturing on September 19, 2012. Subsequently, the Claimant, the Respondent, Wang Qian, and the remainder of the Chinese investors in Rato Manufacturing successively signed the "Joint Venture Agreement" and the "Equity Transfer Agreement" dated November 28, 2012. The "Equity Transfer Agreement" stipulated: 1. Rato Manufacturing was established on September 19, 2012, with the Claimant as one of the shareholders, holding 75% equity in Rato Manufacturing; 2. The Claimant intended to sell 10% of its equity in Rato Manufacturing to the Respondent, and the Respondent intended to purchase the target equity in accordance with the Agreement; 3. The Claimant, as the legal and actual owner of the target equity, agreed to transfer the target equity to the Respondent. Then, within 90 days of the completion of the equity transfer, the Respondent was to make a one-time lump-sum transfer payment of US $7.11 million to the Claimant; 4. At the time of the equity transfer, the undistributed profits associated with the equity and all of the rights, interests and obligations therein would all be enjoyed or borne by the Respondent. 5. After the equity transfer, the Respondent was to hold 10% equity in Rato Manufacturing. The corresponding contribution of capital was RMB 10 million; 6. In accordance with the relevant regulations, the articles of incorporation were to be revised in accordance with the equity transfer, and the board of directors was to be authorized to promptly process the review and approval procedures at the commercial regulatory authority and to change of registration at the industry and commerce authority; 7. The Agreement was to be effective on the date when approved by the relevant authorities after it had been signed and sealed by all parties; 8. The Agreement was to be governed and interpreted in accordance with the laws of China; 9. Any disputes arising from this Agreement were to be submitted to the Chongqing Arbitration Commission for arbitration. The "Joint Venture Agreement" stipulated: 1. Rato Manufacturing was to be a Chinese corporation, its company type was to be a limited liability company, it was to be governed and protected by the laws of China, and any activities were to obey Chinese laws, decrees, and all relevant rules and regulations; 2. Rato Manufacturing was to have a registered capital of RMB 100 million, invested in RMB or in equivalent foreign currency. The Claimant was to contribute RMB 60 million, accounting for 60%. The Respondent was to contribute RMB 10 million, accounting for 10%. As of the signing date of the Agreement, all shareholders’ contributions were to be paid in full; 3. The board of directors would consist of five directors, with one chairman of the board and one vice chairman, with the vice chairman to be appointed by the Respondent; 4. The company was to establish a board of supervisors, comprised of three supervisors, with one appointed by the Respondent; 5. The investors were to assist in processing applications for approval, registration, obtaining a business license and other matters at the regulatory authorities; 6. Disputes were to be submitted to the Chongqing Arbitration Commission for arbitration, and were to be governed by the laws of the People’s Republic of China.

(II) Basic Facts of Contract Performance

[40].
After the signing of the "Joint Venture Agreement" and the "Equity Transfer Agreement", the Claimant transferred its main business and the related assets, debts, and personnel to Rato Manufacturing, and ceased to engage in business related to the development, manufacture, and sale of general engine products. The parties assisted the Joint Venture Company to undertake the review, approval, and registration procedures, and the Respondent became one of the shareholders of Rato Manufacturing. On November 28, 2012, the Respondent appointed Michael to serve as a supervisor of Rato Manufacturing, and appointed himself to serve as both a Director and Vice Chairman of the Board at Rato Manufacturing.
[41].
On December 20, 2012, the CFTERC issued the document "Yu Wai Jing Mao Fa [2012] Approval No 369", the contents of which were as follows: 1. Approval of the Claimant’s transfer of its holdings of RMB 10 million in equity in Rato Manufacturing (10% of the registered capital) to the Respondent; 2. Payment by the Respondent to the Claimant of a consideration of US $7.11 million; 3. Total investment of Rato Manufacturing was RMB 300 million, with a registered capital of RMB 100 million. Included were contributions from the Claimant for RMB 60 million, accounting for 60% of the registered capital, and the Respondent’s contribution of RMB 10 million, accounting for 10% of the registered capital; 4. The company’s original shareholders had already fulfilled their obligation of contribution, and the Respondent was to make a one-time payment for the full amount of the consideration to the Claimant within 90 days from the issuance date of the Rato Manufacturing business license; 5. Approval of the "Joint Venture Agreement" and articles of incorporation that were signed by the investors in Rato Manufacturing on November 28, 2012. On August 31, 2012, the Chongqing People’s Government issued the "Certificate of Approval for Establishment of Enterprises with Foreign Investment in the People’s Republic of China" with the approval number "Shang Wai Zi Yu Zi Zi [2012] No. 0055" to Rato Manufacturing.
[42].
The Respondent attended the Rato Manufacturing Board of Directors meeting on January 23, 2013 and Rato Manufacturing’s first interim board of directors meeting of 2015 on October 25, 2015. The Respondent signed the formation resolution of the interim board meeting of 2015 and exercised his rights as a shareholder in Rato Manufacturing.

(III) Other facts ascertained by the Arbitral Tribunal

[43].
Chongqing Rato Power Co., Ltd. was established on June 1, 2007. On December 15, 2014, with approval from the Chongqing Administration for Industry & Commerce, the company changed its name to Chongqing Rato Group Holding Co., Ltd., to wit, the Claimant in this case.
[44].
On September 23, 2014, King & Wood Malleson Chengdu Office was authorized by the Respondent to send an attorney’s letter to Rato Manufacturing, the contents of which were as follows: 1. The "Joint Venture Agreement" was signed by the Respondent in November 2011 with the then-current shareholders of Rato Manufacturing, and the Respondent thereby became one of the shareholders in Rato Manufacturing, holding 10% equity in Rato Manufacturing; 2. On January 18, 2014, Rato Manufacturing, without the Respondent’s knowledge and in his absence, convened a board of directors meeting at which Rato Manufacturing stripped the Respondent of his rights and interests as a shareholder; 3. The Respondent did not receive any further financial reports as a shareholder in Rato Manufacturing in any form from February 2013 onward; 4. A request to Rato Manufacturing to provide all relevant information regarding Rato Manufacturing that had already been provided to other shareholders, and to fully respect the Respondent’s rights as a shareholder of Rato Manufacturing.
[45].
On December 30, 2015, DGP filed a civil lawsuit against the Respondent and others in the North Carolina, USA court concerning the Respondent’s embezzlement of the company’s funds and misappropriation of the company’s assets. In the "Answer, Counterclaim and Third Party Claim" submitted by the Respondent to the North Carolina, USA Court, the Respondent stated that the Claimant failed to perform the obligation to transfer equity in accordance with the "Leon Agreement", and additionally, that the equity subsequently transferred by the Claimant consisted of the shares it held in Rato Manufacturing, rather than the Claimant’s equity as stipulated in the "Leon Agreement". The Respondent further stated that the de facto transferee was the Respondent himself and not JRT, the party stipulated. It is the Respondent’s position that the Claimant purposely concealed changes to the company and the asset structure, and neither the execution of nor performance of the "Joint Venture Agreement" or the "Equity Transfer Agreement" expressed the Claimant’s genuine intention.
[46].
On May 25, 2016, the Claimant and Solton & Partners signed the "Engagement Letter Regarding Representation of Arbitration Case", which stipulated that the Claimant retained Solton & Partners and also authorized Solton & Partners to appoint Zhang Tao and other relevant personnel to serve as representatives for the arbitration case. The representatives were granted special authorization, and the Claimant was to make a lump-sum payment of RMB 350,000 of attorney fees payment to Solton & Partners within 10 days of the signing of said Letter. On June 30, 2016, the Claimant made a transfer of RMB 350,000 to the account of Solton & Partners at the Shangqingsi Sub-branch of China Merchants Bank’s Chongqing Branch.

V. Opinion of the Arbitral Tribunal

(I) Regarding the legal validity of the "Equity Transfer Agreement"

[47].
It is the position of the Claimant that the "Equity Transfer Agreement" is legally valid because: 1. The execution of and performance of the "Equity Transfer Agreement" reflected the genuine intention of the Respondent. The evidence presented by the remaining shareholders at Rato Manufacturing as well as the email correspondence between the Respondent and Michael, Michael and the American lawyer Al, Michael and Wang Qian, and Michael and Jeanne Hendrix uniformly demonstrate that the Respondent, of lucid mind and of his own volition, conducted multiple discussions regarding the Rato Manufacturing joint venture project transaction proposals and project documents. The Respondent not only had knowledge of the agreements, but also translated them himself and thoroughly discussed their content, in addition to hiring a professional attorney to review the agreements; 2. The "Equity Transfer Agreement" had been approved by the CFTERC on December 20, 2012, the "Certificate of Approval for Establishment of Enterprises with Foreign Investment in the People’s Republic of China" had been granted, and the agreement had already become legally valid; 3. On September 23, 2014, the Respondent authorized King & Wood Mallesons Chengdu Office to send a bilingual (English/Chinese) attorney’s letter to Rato Manufacturing, demonstrating that the Respondent clearly knew that he was a shareholder of Rato Manufacturing; 4. Owing to his background in legal studies as well as his rich experience in senior management, the Respondent could not possibly sign a blank page that he did not understand himself.
[48].
The Respondent failed to appear at the hearing to make a statement.
[49].
It is the position of this tribunal that the "Equity Transfer Agreement" is an expression of the consensus reached by the Claimant and the Respondent regarding transfer of the Claimant’s equity in Rato Manufacturing. The "Equity Transfer Agreement" stipulates in detail such information as the equity subject to the transfer, the transfer process and methods, and the conditions for the agreement taking effect. The signature page bears the signature and seal of the Claimant and the Respondent, and is dated November 28, 2012. Although the Respondent’s related lawsuit in the US mentions that his signing of the "Equity Transfer Agreement" was not an expression of his genuine intention, during this case the Respondent failed to present relevant substantiating evidence. Based on the evidence presented by the Claimant, in addition to the facts ascertained, regardless of the version of "Equity Transfer Agreement" - the Chinese version that the Claimant sent to the Respondent or the English translation that the Respondent read - the agreement demonstrates that the Respondent knew and thoroughly understood that he himself would become a shareholder in Rato Manufacturing upon receiving the transfer of the Claimant’s equity in Rato Manufacturing. Also, after the Respondent signed the "Equity Transfer Agreement", he positively assisted with the amendment of the "Articles of Incorporation", appointed himself to serve as a director of Rato Manufacturing, and in at least two different instances attended meetings of the Rato Manufacturing Board of Directors. In mid-2014, upon learning that his own shareholder’s rights may have been infringed upon, the Respondent authorized a Chinese law firm to send an attorney’s letter to Rato Manufacturing, positively maintaining his rights as a shareholder in Rato Manufacturing. Therefore, this tribunal has sufficient reason to believe that the Respondent’s signing of the "Equity Transfer Agreement" reflected his genuine intention at the time. In accordance with the stipulations of Article 32 of the "Contract Law of the People’s Republic of China", which states that "If the parties enter into a contract in the form of a contract instrument, the contract is executed at the time when both parties put their signatures or affix their seals thereto", the "Equity Transfer Agreement" had already been executed as of November 28, 2012. However, considering that foreign investment possesses qualities that differ from those of the transfer of equity by a domestic Chinese company, Article 3 of the "Law of the People’s Republic of China on Chinese-Foreign Equity Joint Ventures" stipulates: "The joint venture agreement, contract and articles of association signed by the parties to the venture shall be submitted to the competent authorities of foreign economic relations and trade (hereafter referred to as approval authorities)." Therefore, an "Equity Transfer Agreement" should be submitted to the CFTERC for review and approval, and only then does it take effect. Additionally, the parties in this case clearly established conditions for the agreement taking effect in Article 8.1 of the "Equity Transfer Agreement", which states, "This agreement will take effect at such time as it has been signed and sealed by all parties and approved by the relevant review and approval authority." In accordance with Article 45 of the "Contract Law of the People’s Republic of China," which states, "The parties may agree to attach conditions on the validity of the contract. A contract with collateral conditions on its entry into effect shall become effective upon the fulfillment of the conditions", it is the opinion of this tribunal that the "Equity Transfer Agreement" has been approved by the CFTERC, and there is no fraud, coercion, material misunderstanding, obvious unfairness or any other situation that would affect the effectiveness of the agreement. Also, there is no violation of laws or mandatory requirements of administrative regulations; therefore the contract is lawful and effective.
[50].
In accordance with the facts ascertained above, as the "Leon Agreement" was not reviewed and approved by the CFTERC, the contract has not assumed legal validity. Therefore, it is the position of this tribunal that the "Equity Transfer Agreement" and the other Substitute Agreements signed by the Claimant and the Respondent to complete the transactions related to the "Leon Agreement" should be protected by the laws of China. The "Equity Transfer Agreement" is legally binding upon all signatories of the agreement.

(II) Regarding responsibility for payment of the Claimant’s attorney’s fees

[51].
It is the position of this tribunal that the attorney’s fees paid by the Claimant in this case were caused by the Respondent and that the statements by the Respondent in the "Answer, Counterclaim and Third Party Claim" submitted to the North Carolina, USA Court do not conform to the facts in the case, and it was actually the contradictory actions of the Respondent that caused the dispute in this case. In addition to the above-described ascertained facts, the Claimant has already paid RMB 350,000 in attorney’s fees to Solton & Partners, and this amount does not exceed the relevant standard of attorney fees. In accordance with the stipulations of Article 64 of the Arbitration Rules, the Arbitral Tribunal has the right to demand one party to compensate the other party for all reasonable expenses incurred during the arbitration of the case, including attorney’s fees, in accordance with the result of the award and the responsibility assumed by each party. It is the position of this tribunal that the Respondent is liable for compensating the Claimant for the attorney’s fees of RMB 350,000 incurred in this case.

(III) Regarding responsibility for payment of arbitration fees in this case

[52].
It is the position of this tribunal that, according to the stipulations of the Arbitration Rules, the Arbitral Tribunal has the right to determine whether one or both parties will be responsible for arbitration fees and other expenses based on the award of the case and the responsibility assumed by each party. As stated above, because the dispute in this case was caused by the Respondent, this tribunal supports the Claimant’s arbitration requests. Therefore, this tribunal has determined that the arbitration fees in this case should be paid by the Respondent.

6. Award

[53].
In accordance with the stipulations of Article 44, 45, and 52 of the "Contract Law of the People’s Republic of China", Article 3 of the "Law of the People’s Republic of China on Chinese-Foreign Equity Joint Ventures", Article 2 and 18 of the "The Law of the Application of Law for Foreign-related Civil Relations of the People’s Republic of China", and Article 42 of the "Arbitration Law of the People’s Republic of China", the award is as follows:

(I) The "Equity Transfer Agreement" signed by the Claimant and the Respondent on November 28, 2012 reflects the genuine intention of the Respondent and the agreement is lawful and valid;

(II) The Respondent shall pay the Claimant for attorney’s fees of RMB 350,000 incurred in this case.

[54].
The Respondent is responsible for the payment of RMB 294,500 of arbitration fees for this case. The arbitration fees have been paid in advance by the Claimant. The Respondent shall pay the Claimant the arbitration fees as well as the fees in award (II) above in a lump-sum within 10 days from being served with this award.
[55].
This award is the final decision and becomes legally effective on the date that the award is granted.
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