Trouble in a tranquil zone of Shanghai: A US-style retreat has turned into an embarrassing headache for the Chinese city, writes Richard McGregor
Financial Times; Mar 15, 2002
By RICHARD MCGREGOR
<<Time to Jay to step in, perhaps??>>
In the early 1990s, when multinational executives and their families began moving in large numbers to Shanghai, two Canadian brothers hit on an idea to make them feel at home.
Barry and Stuart Hansen rustled up international investors to build "Shanghai Links", a multi-million dollar residential and golf development conceived as a tranquil piece of America in China's commercial capital.
On 350 acres of reclaimed land jutting into the sea, residents drive along streets with names like Augusta Drive to their imported brick suburban homes, adjoining a Jack Nicklaus signature golf course. But since 1998, when the first tenants moved in, a bitter falling-out between the Hansens and the investors and contractors has ensured that Shanghai Links is anything but tranquil.
Only 51 of a planned 500 or more homes have been built, and just 30 of them are occupied. The shell of a half-built golf clubhouse sits rusting near the fairways.
Instead of a US-style retreat, Shanghai Links has become an embarrassing headache for China's showpiece city, which prides itself on its even-handed administration and sophisticated management of foreign investment.
No one's reputation has suffered more than that of the Hansens themselves, who were found by a judge in London in December to have lied and forged documents to obtain the Banker's Trust-led consortium's USDollars 50m (Euros 57.5m, Pounds 35.5m) investment.
The allegations against the Hansens by Banker's Trust, a subsidiary of Deutsche Bank, and the other investors have spawned a global legal tangle in England, China and the Turks and Caicos Islands (TCI), where the project's holding companies are registered.
The investors commend the Hansens on one level - for energetically selling their vision for the project, even if they were prone to exaggerating its qualities.
"Stuart Hansen would say the chemical smog in the city centre was so bad that your suits would eventually dissolve to persuade people to move out of town for the cleaner air," said one foreign executive.
But it did not take long for the Hansens' claims on a range of issues to come under greater scrutiny.
A number of contractors complained they were not being paid. One of them, Siemens AG of Germany, has since been awarded about Dollars 8m in an arbitration action in London against the Hansens' company and the housing project's Chinese enterprise.
Worse was to follow for the investor consortium, which included HSBC Private Equity, H & Q Asia Pacific and Wardley China Investment Trust. After hearing the complaints of the contractors, they discovered that only about Dollars 260,000 of the Dollars 37m which the Hansens said had been paid to the Shanghai landowners in China to secure the site had in fact been handed over.
The investment consortium had invested their Dollars 50m on the basis that the Hansens had already put Dollars 37m cash into the project.
In his judgment in December, Mr Justice Lightman, of the High Court, said Barry Hansen had persuaded the Shanghai company to execute documents "which falsely stated the (money) had been paid".
In upholding the consortium's claim for damages against the Hansens, the judge said the brothers had "no regard for court orders" and had shown themselves to be "totally unreliable witnesses".
As the consortium probed into the Hansens' background they found, among other things, that in Canada they had been sued for damages, and judgment entered against them for CDollars 3,198,152 (approx USDollars 2m, Euros 2.2m, Pounds 1.3m), of which they had "not yet paid one penny", said Justice Lightman.
Despite Justice Lightman's judgment and two successful applications by the investors in the TCI for a receiver to be appointed to run the housing development company, the Hansens remain active in the Shanghai project.
They still control the golf course business which, in another action, has been accused by the consortium in a Shanghai court of illegally transferring the course land, an asset of the housing company, to its control.
The deep bitterness engendered by the dispute was on display at a meeting last September to update the residents about the project's status, held a few days after the September 11 attacks. Barry Hansen said it was a pity that the terrorists had not hit the Banker's Trust building in Manhattan, instead of the Twin Towers, as it may have ended his legal troubles, according to residents, who later demanded, and received, an apology.
"How is it possible that a year after the receivers were given the authority (in the Turks and Caicos Islands court action) to manage the Shanghai Links China company that they still cannot get a person appointed?" said a lawyer involved in the case.
Neither the Hansens, nor the Shanghai office of the Ministry of Foreign Trade and Economic Co-operation, which is handling the dispute, would comment.
Justice Lightman in London, however, explained in his judgment how he thought the Canadian pair had managed to beat the odds to stay in business in Shanghai.
"They are both bright and intelligent, and plausible and sophisticated, as well as unprincipled, businessmen," he said. "To this, I attribute his (their) success to date in China."
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