TNAG-1059-FCO40-1309-Guangdong-nuclear-power-station-project-1981 — Page 154

CONFIDENTIAL

ARTICLE 7

ARTICLE 13

The net profit of a joint venture shall be distributed between

the parties to the venture in proportion to their respective

shares in the registered capital

In the event of heavy losses, the failure of any party to a

joint venture to execute its obligations under the contracts or

the articles of association of the venture, force majeure etc.

prior to the expiration of the contract period of a joint venture,

the contract may be terminated before the date of expiration by

consultation and agreement

In cases of losses caused by breach of the contract(s) by a

party to the venture, the financial responsibility shall be borne

by the said party.

Article 4 states that "joint ventures shall take the form of a limited liability company". It also states that "the profits, risks and losses of a joint

venture shall "be shared by the partners to the venture in proportion to their contributions to the registered capital".

It is not easy to reconcile these two statements unless the latter phrase is

merely meant to mean that, in the event that all the equity capital is not

repaid in a winding up, the "shareholders" will bear the reduction in their

capital pro rata. The alternative construction of the latter phrase, which

would conflict with the former and with UK law is that, to the extent that there

is actually a deficiency as regards creditors, then the joint venturers would be

liable to make good such deficiencies pro rata to their contributions to the

registered capital. If this construction is correct then clearly the concept of limited liability would be an illusion.

Furthermore it would be interesting to know the full implications of Article 13 which, in essence, stipulates that if a joint venture fails because of heavy losses resulting from, inter alia, a breach of contract by one party then "the potential responsibility shall be borne by the said party". It would probably be zadro to think that the Chinese concept of breach of contract and

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