Paying Chinese Companies for Product that Never Arrives
Two to three times a week, my law firm will get a query from a company that paid for Chinese product and received absolutely nothing.
The below is a good example of what we just keep getting. This is an e-mail (modified to hide any possible identifiers) I received from a British company’s CFO after having spoken with him a few minutes earlier:
It was nice to talk to you and thanks for taking my call earlier today.
As mentioned, we paid a 30% advance fee for 250 tonnes of ______________ about six months ago. The supplier, Tianjin _______________ has not honored the conditions mentioned in its Proforma Invoice, and despite several requests and reminders, they have not provided the Bill of Lading as mentioned in the Proforma Invoice. We corresponded with them five or six times during the first few months after not getting any product, but they have been completely silent since then.
I also requested they refund our advance and they refuse to refund till date.
I can share documents that show their receipt of our wire payment (approx 65,000 USD), a copy of the proforma invoice, and other documents upon request.
I hope to hear from you and please let me know of any questions.
I responded to this CFO’s email with the following email:
Thank you for contacting us about the undelivered goods from China. I understand this must be a frustrating situation, and I apologize for the inconvenience.
Unfortunately, these types of cases can be both challenging and costly, and I want to be upfront about the potential difficulties involved. I should also mention that we receive 3-5 inquiries like yours pretty much every week and we rarely take on any of these matters unless the Chinese “company” paid actually exists, and there is a solid contract in place, and at least $100,000 at stake.
1. Does the Chinese Company Exist?
To determine the best course of action, we typically start with a preliminary investigation to verify the existence of the Chinese company and gather relevant information regarding their ability to pay and regarding the specific facts of your case. This requires we first run a conflict check on your company and the Chinese company and then draft a fee agreement to cover our representation. Once we have onboarded you as a client, we conduct what we call our basic due diligence search on the Chinese company and then we provide you with a report on that.
The majority of the time when we are dealing with a situation in which a Chinese “company” has taken money and never provided any product and then gone silent, there either never was a Chinese company or it has shut down — either years ago or soon after taking the money and providing no product.
2. Challenges with Collections
Even if the Chinese company exists, if — as is the case here — you do not have clear and formal contract (ideally in Chinese and under Chinese law), the chances of recouping your funds are slim. See Drafting China Contracts that Work for what is generally required to succeed in a breach of contract action against a Chinese company.
The Chinese company is likely aware of this as well, and therefore not likely settle for much, if anything.
3. Alternative Approaches
Given these challenges and costs, here are some options to consider:
- Continue communication: You could try contacting the supplier directly to see if there’s a misunderstanding or if they can offer a resolution. Our experience suggests that persistent communication sometimes leads to a solution, though not often.
- Future precautions: Conducting due diligenceon potential Chinese suppliers and having a lawyer draft a formal contract can significantly reduce risks in future transactions. Our firm has extensive experience navigating these complexities, and we would be happy to assist you with this process.
4. Next Steps
Based on your not having a good contract, and the amount at stake, I do not think it makes economic sense for you to hire us, but if you think otherwise, please let me know. If you do choose to hire us, I would suggest that we start with just trying to figure out whether this company exists or not, and then from there we figure out next steps.
I ended up having a subsequent conversation with this CFO, and he chose to retain us to determine the existence of the Chinese company. We determined that there had never been such a company and our work ended there.
