Will Scottish Independence Referendum Affect Chinese Enterprises?— Answers from Attorney Edward Huang

Time:2014-09-25 Source: The Author:Edward Huang Browse: Print Font Size:T|T

The Scottish Independence Referendum, has drawn attention worldwide, including that of Chinese people. A plethora of Chinese people are skeptical about the Scottish Independence Referendum. Chinese people are worried that the referendum will prevent Chinese enterprises from investing in Scotland. Specifically, Chinese people are concerned about the legal consequences that investors will encounter if Scotland were to be voted as an independent sovereign state.


Edward Huang, partner of King and Capital Law Firm, was recently interviewed by Tankungpao.com.Edward Huang has been focusing on China’s overseas interests as a legal adviser for Chinese businesses. His legal interpretation of Scottish independence referendum will give some inspiration to Chinese enterprises going global.

Tankungpao.com: As far as you can see, what are the main aspects of Sino-British economic and trade cooperation? And what about that between China and Scotland?

Edward: The frequent visits between the leaders of the two countries has increased the two countries’ cooperation in many areas such as energy, bank, and communication.


With regard to energy sector, it is necessary to mention the $20 billion deal between British Petroleum (BP) and China National Offshore Oil Corporation (CNOOC). According to the contract, BP should provide 15 million tons of natural gas to CNOOC each year.


As for the banking sector, British banks like Hong Kong and Shanghai Banking Corporation (HSCB) and the Standard Chartered Bank and Royal Bank of Scotland have been expanding their businesses into China. HSBC, a foreign-funded bank, has had 144 outlets in Chinese mainland, covering 45 cities. Chinese company, Huawei, has invested in the UK in areas of telecommunications and infrastructure construction, and set up a joint innovation lab with local operation. The service of fiber optic provided by BT and Huawei has covered more than 10 million families. Overall, we can see that the United Kingdom and China are vital cooperative partners in terms of trade and investment.


We also have close exchanges and cooperation with Scotland. In the area of energy, Safehouse Habitats has contracted with China National Offshore Oil Corporation, which is worth 15 billion yuan; in the area of banking, Royal Bank of Scotland has 10% stake Bank of China $3.1 billion dollars.
Tankungpao.com: From a legal perspective, if Scotland were voted as sovereign state, would this impact the contracts signed before its independence? A similar question is whether Chinese businesses in South Sudan are affected by its independence.

Edward: According to the relevant principles and basic spirits of International Economic Law and Contract Law, there are several elements that may affect the complete enforcement of contracts: subject matter of the contract, contract subject, the form of enforcing the contract, and dispute settlement systems. There are two kinds of contracts between China and Scotland. One is between Chinese companies and Scottish public subjects and, the other is between Chinese companies and Scottish private companies.


Different subjects lead to different problems. A contract between private subjects is usually enforced under the contract, with little impact of political factors on the subject matter of the contract, the contract subject and the enforcing form of the contract. However, in some extreme situations, political reforms may lead to the elimination of contract subject. In order to reach favorable agreements, more attentions needs to be paid towards the dispute settlement, litigation or arbitration systems. The key to dispute settlement through litigation relies on the agreement of the proper law, while settlement through arbitration on the agreement of right arbitration agency.


Contracts between Chinese companies and the authorities of Scotland may involve state succession according to international laws. For example, the newly established country gets the ownership of natural resources within its territory, which will make the original country unable to execute the contract signed with China. But this doesn’t mean that China has to suffer the loss. If a Chinese company has signed a contract with warranty clauses with its British cooperative partner then it can secure its economic interests under the law, in spite of the above situation.


As a matter of fact, South Sudan is not a typical example which can be referenced, because it’s a less developed economy that allows limited amount of contracts with China. Unlike South Sudan, which has consistent resources dispute with its original country after the independence, Scotland, as a Western country of civilization, honors contract spirit and respects the contracts that it makes.

Tankungpao.com: If Scotland were voted to be a sovereign state, how could Chinese companies invest in Scotland, and is there any political risk?


Edward: If Scotland won the majority of the votes, it would become a sovereign independent country. According to the principle of International Law, all countries should be treated equally regardless of their sizes and population. In this sense, Chinese businesses’ investing in Scotland is the same in any other country. The essential rule, is to respect each other and cooperate sincerely.

If Scotland were peacefully and democratically voted to be an independent and democratic country, there would be few political risk for Chinese companies investing there. In other words, this political event will have few negative impact on Chinese businesses investing in and cooperating with businesses in Scotland.

Tankungpao.com: Many regions around the world have achieved independence through referendum, which even triggered wars and fights for resources in some regions, like the Sudan and South Sudan. Will it affect China’s going global strategy?


Edward: Going global strategy is actively advocated by Chinese governments. The strategy will expand the financing sources in Chinese market, and promote Chinese companies’ brands. Regional instability brought about by wars for resources cannot change the mainstream of peace and development. We shouldn’t refrain from going out for fear of possible risks. 


Tankungpao.com: From your professional experience, what should Chinese companies do to avoid the risks as China is engaged in more international economic cooperation?


Edward: Just as talked above, political risks can be avoided in the international cooperation. From a legal perspective, more attention should be paid to contracts. We can predict that Scotland will continue to follow the Anglo-American Legal System even if it becomes an independent country. Economic cooperation with countries under the Anglo-American legal system, which values the contract spirit, just needs more attention on the contract articles.

As to the agreement of articles in dispute settlement system, if litigation is adopted, the two parties should agree on the proper law, and if arbitration is adopted, the two parties should carefully choose the right arbitration agency. Warranty clauses should be written in the contract, making sure that property compensation should be given by the party who cannot completely fulfill its duties under the contract. At last, the contract should stipulate that the two parties should respect each other and fulfill their duties under the contract.


Edward Huang