INTERNATIONAL TRADE DISPUTES

How to Mitigate Risks in International Trade with buyer from China

1. Conduct Necessary Due Diligence Before Transactions

It is common inquires received for overseas sellers to face issues of non-payment after shipping goods to Chinese manufacturers. From practical experience, pursuing criminal charges for nonpayment or civil liability often results in disproportionate time and economic costs. How can such situations be avoided? We believe that conducting necessary due diligence on the manufacturer before the transaction is one effective way to reduce risk. Sellers can appoint Chinese lawyers to inquire through the buyer’s public information system to learn about the company’s registered address (whether it is a legitimate office space or a individual residential address), registered capital (whether it is fully contributed, if there has been any capital reduction), credit status, ongoing lawsuits, major judicial risks, and more. This allows sellers to gain a preliminary information of whether the enterprise is operating normally. Especially current lawsuits are an important standard for credit checks because if an enterprise has unresolved cases, winning a judgment in the future may still not result in actual compensation. Therefore, whether trading with a Chinese enterprise or considering litigation after a dispute, we believe that conducting necessary due diligence before the transaction can greatly reduce the risk of fraud.

2. Agree on Dispute Resolution Methods in Contracts

In one of our cases, an overseas seller specified an overseas arbitration institution for dispute resolution in the contract, but the specified institution did not exist. After a contract dispute occurred, the seller sought our help, and we initiated litigation for some orders after reviewing the materials. On one hand, we believe that since the defendant is a domestic enterprise, agreeing on a domestic international arbitration institution for jurisdiction is more convenient from trial procedure to enforcement stage. Our goal in resolving disputes is not just to obtain a favorable ruling but to help the seller recover payment or compensation. Thus, we focus on the enforceability of the ruling. Additionally, even if it is a domestic arbitration institution, it can be agreed to use English as the arbitration language, facilitating the seller to provide evidence and stay informed about the case. On the other hand, there is uncertainty and complexity in recognizing and enforcing overseas arbitration awards in domestic courts, despite the progress in international judicial assistance in recent years. According to published data, very few cases of overseas litigation and arbitration awards are recognized recent few years. Therefore, we recommend that overseas sellers choose Chinese arbitration institutions, such as the China International Economic and Trade Arbitration Commission (CIETAC) in Shanghai or Beijing, for dispute resolution in contracts with domestic buyers. This provides a more practical guarantee for resolving potential disputes.

3. Retain Relevant Communication Records and Preserve Valid Evidence During Transactions

It is often said that in civil disputes, buyers, sellers, and courts usually present three different versions of the stories. Why is this so? After a dispute occurs, both buyers and sellers will claim statements in their favor, and the court or arbitration tribunal will ultimately judge based on the specific evidence provided by both parties. Therefore, we believe retaining valid evidence to support one’s claims is crucial in transactions. During transactions, we advise keeping business cards of both parties’ contacts, and set out their contact information (such as WhatsApp, email, cellphone) in the contract or other related documents such as BOL, invoice etc. This way, in case of a dispute, chat records can recreate the transaction process, serving as important factual evidence in the ruling. Additionally, it is necessary to keep courier stubs for important document transmissions to prevent the other party from claiming non-receipt. Sometimes, when the other party does not appear in court, the judge or arbitrator will scrutinize the transaction details more closely, in order to make the final ruling irrefutable. However, this increases the burden of proof on the plaintiff, so sellers should pay special attention to retaining transaction-related evidence in advance.