Tens of billions of claims! Lujiazui sued Sugang Group and related units, soil pollution was the main cause?

Due to an infringement dispute arising from soil pollution, Lujiazui sued Sugang Group and other units for compensation of 10 billion yuan.

Recently, Shanghai Lujiazui Financial and Trade Zone Development Co., Ltd. (hereinafter referred to as "Lujiazui") announced that due to soil pollution issues, its subsidiaries filed civil lawsuits against Jiangsu Sugang Group Co., Ltd. (hereinafter referred to as "Sugang Group") and other affiliated units.

It is worth noting that the amount involved in this lawsuit is as high as 10.04 billion yuan, and Lujiazui said that when it is subsequently found or clarified that the actual amount is higher than this amount, it will increase the litigation claim or file a separate lawsuit.

According to industry insiders, the subject matter of the lawsuit exceeds 10 billion, and the litigation costs will also rise, and the relevant amount will also set a record. From the previous trading partners to the current court, why did the two sides come to this?

The deal of seven years ago buried a hidden problem

The cause of the 10 billion claim starts with a transaction 7 years ago.

It is reported that in 2016, Lujiazui designated holding subsidiaries Jiawan Company and Jiaer Company (through the trust plan) to form a consortium in Shanghai United Equity Exchange to jointly bid for 95% of the shares of Green Bank Company listed by Suzhou Iron and Steel Group, and the main assets under the name of Green Bank Company are 17 land use rights located in the north of Sutong Road and the east of Sugang Road in Suzhou High-tech Zone.

In the announcement at that time, Lujiazui said that the successful joint bid for 95% of the equity of Suzhou Green Bank is conducive to further increasing the company's land reserve, expanding the company's development space, and further enhancing the brand influence of Lujiazui commercial real estate through the active implementation of the "going out" strategy, enhancing the company's sustainable operation ability and profitability, and is conducive to the improvement and development of the company's competitiveness.

However, what is unexpected is that Lujiazui recently disclosed that since 2022, the company and various environmental investigations have determined that 14 pieces of land under the name of Green Bank Company are polluted, and the pollution area and degree of pollution far exceed the pollution disclosed by Suzhou Iron and Steel Group when it was listed for sale.

Lujiazui also emphasized in the announcement that the company entrusted a professional agency to verify and found that in the process of adjusting the regulations and transferring the land involved in the case, the defendants had a series of tortious acts of violating laws and regulations, committing fraud, and failing to perform their duties in accordance with the law, which jointly led to the plaintiff's transfer of the seriously polluted land involved in the case.

"Now that the court has accepted the case, the follow-up court trial and ruling may have a series of impacts, including financial compensation, project restart, and resolution of soil pollution issues. As the interests of the parties involved in this case, the court's decision could have far-reaching implications for all parties. Bai Wenxi, chief economist of IPG China, said in an interview with a reporter from Dahe Finance Cube.

So what are the possible implications of this lawsuit for the company? On the afternoon of November 8, the reporter of Dahe Finance Cube called Lujiazui several times, and the other party's phone number prompted that it was on the phone. As of press time, Sugang Group and related units have not responded to this matter.

The development, construction and sales of the project involved have been suspended

The reporter of Dahe Finance Cube combed and found that on October 17, 2016, after several rounds of quotation competition, 95% of the equity of Suzhou Green Bank Real Estate Development Co., Ltd. (hereinafter referred to as "Suzhou Green Bank") was successfully transferred with a total amount of about 8.525 billion yuan. Among them, the equity transaction price was 6,840,276,600 yuan, and the creditor's rights of the target company held by the other party were 1,685,000,000 yuan.

In the assessment report at that time, Lujiazui said that in the process of real estate project development, if there are problems with the construction quality of the project, it will not pass the acceptance of the government quality inspection department or cause customer complaints, which will increase additional maintenance costs; In the event of a serious quality accident or other safety incident, it may lead to the suspension of the entire project for rectification and major compensation, which may have a significant impact on the company's business activities.

And according to the latest announcement, the significant impact has clearly occurred. At the performance briefing on November 6, Xu Erjin, chairman and acting general manager of Lujiazui, said that Suzhou Green Bank has suspended relevant development, construction and sales work. At the same time, the company's special working group is going all out to carry out disposal and rights protection work, and promote the relevant responsible parties to bear the responsibility for follow-up disposal, and the company will disclose the relevant progress at the end of each quarter.

However, Xu Erjin also mentioned that the company will continue to pay attention to the follow-up progress of this risk matter, prudently analyze and evaluate its impact on the company, conscientiously implement various response measures, properly handle this risk matter, and timely fulfill the information disclosure obligation according to the progress of the matter, and make every effort to safeguard the interests of the company and all shareholders. At the same time, the company will pay close attention to the market situation in the Yangtze River Delta, choose opportunities to participate, continue to actively support the integrated development and construction of the Yangtze River Delta, and continue to strengthen and optimize the company's main business.

Due diligence of listed companies has become a key proposition

Behind the record of tens of billions of claims, it also leads to a series of questions worthy of reflection.

"Soil pollution is a serious problem, but it is not an immediate problem, i.e. soil pollution is not caused in a short period of time, and it can be detected." According to Shen Meng, executive director of Xiangsong Capital, although some of the defendants may be responsible for polluting the soil, Lujiazui may also lack the necessary professional testing when purchasing the land, and did not conduct sufficient preliminary investigation of the soil quality, so it should also bear some responsibility.

In Bai Wenxi's view, for listed companies, before buying or investing in land, it is necessary to conduct sufficient due diligence, including a comprehensive understanding of the condition of the land. If there are any concerns, detailed environmental testing and analysis must be carried out. "Companies need to establish a better risk management system so that they can detect, assess and control risks in a timely manner when they encounter similar problems."

"In real estate development, soil pollution is inherently irresponsible, and it has a greater impact on the physical and mental health of the occupants. Moreover, this matter may also involve fraud and corruption, which obviously needs to be strictly investigated. Yan Yuejin, research director of the E-House Research Institute, said that in some years of radical development of real estate, some land transfers did not follow the norms and were transferred in violation of regulations, which caused many problems and infringed on the legitimate rights and interests of the people.

He also mentioned that from the perspective of enterprises, they will face economic losses because of such "toxic land" projects, and may also have incidents such as mass rights protection. From the perspective of other enterprises, it is necessary to be cautious about some industrial land development history to prevent sequelae.

Editor-in-charge: Tao Jiyan | Reviewer: Chen Xiaojuan | Review: Li Zhen | Supervisor: Wan Junwei