Chinese Government

The first litigation that should have occurred was a claim against Huaxia, its controlling shareholder, the Shanghai Pudong New Area Government. This should be prefaced by the admission that the Director of Heqing, an area closer to the financial district of Pudong, represented that Huaxia’s management were dishonest. We did not heed this warning because we were told by the then Vice Mayor of Shanghai in charge of Pudong that we would only get approval for a Joint Venture with Huaxia, and because we were assured that the Pudong Government’s effective control of Huaxia through its Shadow Directors, Governor Hu Wei, and MOFTEC Vice-Director, Kang Wei Jing, would prevent any misdeeds. This also turned out to be completely false.

Four serious misrepresentations were made by Huaxia and the Pudong New Area Government:

1. The first a claim for deceit because the parties were told that if the new Pudong International Airport had runways that resulted in landing paths over either Shanghai Links Executive Community or Shanghai Links Golf and Country Club, Sealand Housing Corporation, would withdraw from the MOU.In 1994 Huaxia and the Pudong Government set up a meeting with persons who were represented to be from the Pudong International Airport Development Authority, including the Chairman of the Authority. They presented detailed maps showing that all runways were to be built with an east-to-west orientation. Two years later we accidentally met the real Chairman of the Pudong International Airport Development Authority. He knew of none of the persons whose business cards we were given, and had never been told of the meeting we had had in 1994. He kindly arranged a meeting to study the actual airport runway maps, at which time we learned that the runways were to be oriented north-to-south, and directly over top Shanghai Links. The other persons were fake, as were the drawings we were shown.
2. The second is a claim for deceit because Huaxia and the Pudong Government represented that the land reclamation cost was the only land cost that should be borne by the Shanghai Links’ Projects. The represented that the land reclamation cost was approximately $US35million. We later learned from an internal document between Huaxia, the Pudong Government, and the State Water Bureau that they had reclaimed two (2) pieces of land of roughly the same size, one for the Shanghai Links’ Projects, and the other just a kilometer to the south, for Huaxia’s International Water Amusement Park, and the total cost was RMB45million, which at the time was $US 5.3 million for both reclaimed pieces of land.
3. The third is a claim for the cost of installing certain utility services. Huaxia and the Pudong Government represented that basic water and electrical services would be provided to the perimeter of the site. Neither were provided, but had to be constructed at a cost of several millions of dollars.
4. The fourth is a claim for selling Golf Memberships to State Enterprises for prices well below the market price. Golf Memberships were agreed in the original contract as part of the consideration for the Land Reclamation, but the memberships had to be sold at the prevailing market price, which was more than $US 100,000.

The second claim would have been made against the State Water Bureau, Shanghai Branch.

1. The State Water Bureau misrepresented the cost of reclaiming the land, as indicated above, and thereby assisted Huaxia and the Pudong Government in this deceptive conduct.
2. The land reclamation was finished more than one (1) year past the contracted completion date, and when the land reclamation was purported to have been completed, there were several problems:
   1. The land was substantially below the elevation above sea level that had been agreed;
   2. According to bore holes, the land had not been reclaimed according to the engineering standards set out by Golder and Associates:
   1. the organic material on the foreshore was not removed;
   2. the material that was pumped from the ocean floor contained large quantities of organic material that were not easily compacted;
   3. water had not been drained from the land, which made commencement of work impossible.

There are photos of the first attempt at working on the site. An Excavator literally sank out of sight. Ultimately, several millions of dollars (not RMB), and a year of remediation work had to be undertaken to remedy these significant defects to the Contract. The remediation work continued through to the end of 1998. The costs includes moving soil from storm water management ponds to housing lands to bring the land up to the 100 year flood plain elevation. It includes the cost of pre-loading housing lands and roads, to compress out the water from organic materials that had not been removed. It also includes the cost of excavating down 2 meters, and hauling in 2 meters of aggregate to undergird the roads throughout the community.