Analysis On The Case Of Haifu Capital Vs. Gansu Shiheng

Haifu Capital vs. Gansu Shiheng became known as ’the first case ofVAM in China. There were three trials of this case and the three-tiedcourts make totally different judgtments. The court of first instance ruledthe VAM invalid. The court of second instance believed the essence of theVAM was loan contract and they found the contract invalid which claimedto about joint ventures but was actually about loans. At the end of2012,the highest court ng became known as ’the first case of VAM in China.There were three trials of this case and the three-tied courts make totallydifferent judgtments. The court of first instance ruled the VAM invalid.The court of second instance believed the essence of the VAM was loancontract and they found the contract invalid which claimed to about jointventures but was actually about loans. At the end of2012, the highest courtstarted the retrial proceeding and made the final judgment. They held aportion of the VAM to be valid and demanded that Diya Company of HKfulfill obligations to Haifu Capital by the contract to pay19,980,000yuancompensation. About the effect of the VAM and the undertake of theresponsibility， many discussions are existed in the industry. What is thenature of VAM(valuation adjustment mechanism)? Gambling contract, loancontract, conditional contract or aleatory contract? Another point is that ifthere are any restrictions of the subjects who sign the contract? Besides theinvestee company,can the other shareholders, controlling shareholders,oractual controller become the subject of the VAM and how to takeresponsibilities? Even though there are different opinions in the field oflaw, most jurisprudents expressed support for the judgment of the highestcourt. They also believed that this case would become a landmark in PEinvestments.