Want to sue a Chinese company? But which court? Jurisdiction Issue

I have been receiving email inquiries from abroad asking for help to sue a Chinese company that failed to deliver goods in compliance with contract terms. Very often, the foreign buyers find that the goods do not comply with quality standards and sometimes, the goods are stone, sands or useless powders. Fraud is pervasive and rampant in international trade with China.

Once the foreign buyer is scammed, they will of course think of trying to sue the Chinese supplier in order to get back their money and further to get some compensation for their losses. Very often, there are factors that often make it inappropriate for us, lawyers based in Shanghai, to represent such clients in litigating against the Chinese companies suppliers.

(1)  the amount in dispute is relatively small, from a few thousands USD to tens of thousand USD;

(2) the Chinese suppliers are often located outside of Shanghai, for instance, in Shangdong, Shijiazhuang and Taiyuan. There is no jurisdiction clause in the contract providing for Shanghai court jurisdiction.

In such a case, it may seem not worthy of hiring a Shanghai lawyer to sue the perpetrators as the legal fee coupled with travel cost will dwarf the efforts by the clients to seek justice with a Chinese court. The reason is related to jurisdiction issue under Chinese laws.

What China Civil Procedures Law say about jurisdiction?

When a Chinese court takes a litigation case, the judge will of course apply China Civil Procedures Law and related interpretations issued by China Supreme Court in deciding whether the court in question has jurisdiction over the case.

Article 23 of China Civil Procedures Law provides that (in the absence of an agreement on jurisdiction) a dispute arising out of a contract shall be adjudicated by the court in the domicile place of the defendant or in the place of performance of the contract. Accordingly, when a foreign buyer wants to sue a Chinese company, basically, he can only have two options: go  to the place where the Chinese supplier is located or incorporated, or go to the place of performance of contract.

It is easy to decide on the domicile place of the defendant Chinese company. But due to drawbacks of Chinese judicial systems, it is wise for any plaintiff to be wary of suing a Chinese company in the place where the company is incorporated because local court may be too ready to be biased against foreign party, or too easy to be inappropriately influenced by the defendant through "connections". We call this phenomena "local protectionism". Even in a domestic dispute, the Chinese plaintiff will try to avoid suing the defendant in his or its domicile place.

So you may think of going to the place of performance of contract. But wait a minute. What is the place of performance of contract? Unlike in other countries, contract dispute jurisdiction is determined to be in the place of the contractual obligation that is in dispute. Place of performance of contract can and ought to refer to the place of any obligations under a contract. Very often, there are multiple obligations under any given contract. It has been so elusive a concept that China judiciary has not made it clear at all, volatile to different interpretation. In practice, due to this confusion and ambiguity, it has bred most jurisdiction challenges in civil proceedings. So the foreign buyer may go to the port for litigation where the goods are delivered over rail of the buyer's ship based on the FOB term. But "FOB Shanghai" is not a ready ground for establish jurisdiction in a Shanghai court, as Shanghai has quite a few courts. So it is not a safe bet to rely on this concept of "place of performance of contract".

What is the best option now?

The best practice is always to think in advance and agree  on the choice of court in the contract.

China Civil Procedures Law allows the parties to a contract to stipulate on the court to which their disputes shall be submitted for resolution. Article 34 of this Law provides that the parties to a contract may agree in writing on the forum court in the following places: domicile of defendant, place of performance of contract, place of execution of the contract, domicile of plaintiff, place where the subject matter is located and other places that have actual connection with the dispute in question.

With this rule in mind, the parties may agree on the court of jurisdiction in the relevant contract they sign, and the court should be the one outside of the domicile places of both parties, which is easy to accept by the parties.

In practice, by taking advantage of this Article 34 in regard of place of execution of contract, foreign buyers  may choose a district court in Shanghai to be the forum court simply by stating in the contract that the contract has been executed in Pudong New Area (other districts such as Huangpu, Changning, Jing'an etc.) in Shanghai despite the fact that the contract is not executed or signed in Shanghai at all and the suppliers are not located in Shanghai. This is possible because China Supreme Court has made it clear in one of its interpretation concerning the determination of place of execution of contract.

Of course, to choose a Shanghai court is based on the general belief in China that Shanghai as an international metropolis city has a better legal environment than the rest of China. My personal experience has warranted that belief.

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By the way, this article does not discuss arbitration which is very much used as an alternative way of dispute resolution to court litigation.

 

 

Jason Tian

Jason Tian, senior partner, specializes in foreign-related legal services ranging from foreign investment in China, banking and capital, real estate, M&A, corporate, international trade, estate planning, inheritance and divorce at his blog: http://www.sinoblawg.com.

19 Comments

  1. Erick   •  

    Hello..My name is Erick From Indonesia..I would like to have any suggestion about my supplier that had not ship out my goods since last year up to now. But he had received my Down Payment usd 150,000since 2016 for 40containers 20” then i call him many times for the goods but he don’t give me the goods. and the contract of other supplier is about 6containers 20” also not ship out to me since last year 2017 uo to now. and he had recived my Down Payment About usd 50,000. then how can i sue them

    • Jason Tian   •     Author

      Erick, I am surprised that you have not taken any action against the first supplier who had failed your order for so long.

      Can you please send me more details regarding the first deal to my emails? It is not appropriate to talk about the matter in details.

  2. Iris Leung   •  

    Hello:

    I live in Canada. In Oct 2016, I had personally loaned approx. $5000 (Canadian) to someone who is now living and working in Shanghai. I had tried many times to recover the money but unsuccessful. Will you please provide some advise as to what I can do. Your reply is very much appreciated.

    Iris Leung

    • Jason Tian   •     Author

      I cannot help much on this. You may have to wait till he comes back to Canada. You don’t need to wage a cross legal war against him in China. YOu will spend more than you can get back.

  3. Martin Dansey   •  

    Dear Jason,

    I purchased 2 x 2012 Komatsu PC55 excavators with some ancillaries from a Company operating from Shanghai. I paid $21,000 for them and an additional $10,000 in transport and UK taxes. Upon receipt the goods were not what were advertised as they were not PC55 models and were much older, at least 16 years older, than the model purchased. Alibaba have agreed with me and placed a sanction on their webpage but the company has not answered the request for a refund but have simply said “they are contacting their supplier”. I would like to either sue the company or take them to arbitration to cover my losses. Can I ask for your recommendations? Many thanks

  4. Arjun   •  

    Hello I need some advice please.
    I purchased 50 Electric scooters from a supplier on alibaba and was assured that they pass all EU regulations now trading standards have taken them and are testing them.I have not heard back from them but I was wondering if they are deemed unsafe what is going to happen next? Will they be destroyed?

    Or will I be allowed to return them to the supplier?

    Will there be anyway for me to sue the supplier?

    Thank you 🙂

    • Arjun   •  

      Forgot to say that I am from the UK.

    • Jason Tian   •     Author

      depending on how much is involved in your case, i am not sure what I can do for you if it is too small an amount. The goods will be tested during customs clearance at the port of designation and if they are not qualified, you may have to return them to the supplier or failing which, be destroyed.

  5. tommy   •  

    bought a container of motorcycle helmet from a company in guangdong province.
    last week a customer who using one of those helmet had and accident.
    during the accident the shell of the helmet was intact but injured the head from inside.
    contacted helmet company to explain the situation and tell them that the helmet customer was wearing was different the inner lining compared from helmets bought before.
    helment company said that the made helmet according international standard and according to their analysis there’s no problem at all.
    but if you compare old model and latest model you can see there’s a difference inside the helmet (inner lining)
    wonder if there’s a way to sue that company if helmet really have any production problem and supplier is trying to ignore it?

    • Jason Tian   •     Author

      Hi Tommy, where are you from? I mean which country you are a citizen of? How was tat person injured? critical? China does not have a very stringent product liability law and in particular enforcement.

      What is the goal of your litigating against the seller? return the goods in stock or get compensation for the injured person?

      • tommy   •  

        Hi Jason,
        I’m from mexico. the person got his head cut from the inside before of inner lining of the helmet.
        The problem is that the manufacturer doesn’t want to recognize the difference from first order helmet and second order helmet (second order helment is the one with problem).
        Goal is to get compensation for the injured person and for quality problem helments.

        • Jason Tian   •     Author

          Was that person seriously injured? How much costs have been incurred? have you paid anything to the victim? How many stock of the products do you have? Do your want to replace the stock? I can recommend a lawyer from Guangzhou to help you on this case.

  6. MIKAIL   •  

    dear Jason
    MY COMPANY CHINESE PARTNER LIVES IN SHANGHAI.
    HE FIND THIS BANGLADESHI SUPPLIER AND GIVE %30 DEPOSIT. ON OTHER HAND HE ALSO GOT DEPOSIT FROM THE OUR BUYER JUST OVER 10000 BRITISH POUNDS. WE HAVE LOST CONTACT FROM BANGLEDESI SUPPLIER, HE GOT OUR MONEY BUT NO PRODUCTS.
    MY PARTNER DANIEL HE DID NOT WANT TO RETURN THE BUYER MONEY. ALL HE WANTED TO DO RECOVER WHAT WE LOST.
    WHILE I AM IN ENGLAND DANIEL DID NOT GIVE ME MUCH INFORMETION.
    THEN THE BUYER SUE DANIEL BEACOUSE HIS ATTITUDE. AND BUYER TOOK HIM TO THE COURT AND SUE HIM WITH CASE OF CHEATING THEREFORE BUYER WANTS MORE MONEY BACK FROM HIM. THEN HE WAS FACING TO GO JAIL HOWEVER COURT SAYING YOU MIGHT GO TO JAIL BUT IF YOU PAY BAILOUT THEN HE WILL BE OK. WITHOUT ASKING ME HE WITHDRAW ALL THE COMPANY MONEY ABOUT 200,000 RMB FOR BAILOUT. IT IS VERY UPSETING.
    HE USE MY MONEY ORDER TO SAFE HIMSELF BECOUSE OF HIS DISHONESTY.
    NOW CAN WE OPEN A CASE AGAINST HIM FOR HIS MISTAKES AND SUE HIM.
    HE HAS A COURT HEARING NEXT TWO WEEKS IN SHANGHAI.
    I HAVE ALL HIS CONTACT DETAILS.

    LOOK FORWARD TO HEAR FROM YOU!
    KIND REGARDS
    MIKAIL OZTURK

    • Jason Tian   •     Author

      HI Mikail, I will later reply in email to you. In the meantime, can you please send me more information of your company? For instance, the business license, company name etc, and the articles of association of the company. thanks.

      • MIKAIL   •  

        HI JASON
        OUR COMPANY DOES INPORT&EXPORT.
        BASE IN ENGLAND AND SHANGHAI.
        COMPANY DETAILS:
        MT LION LTD
        COMPANY NUMBER:07802122

        LOOK FORWARD TO HEAR FROM YOU

        REGARDS

  7. serafim da costa   •  

    Good afternoon, Jason

    We are a portuguese company working on commission basis and we have had a relationship of some 15 years with a chinese manufacturer of CARPETS in LIANYUNGANG/JIANGSU/CHINA.

    Few months ago we sold one container of goods to a client of ours in Spain.

    Our client paid for the goods normally and the chinese supplier acknowledged the payment.
    Over one month has gone and our supplier has not paid our commission (even in several emails they said they would pay it »today», »tomorrow», »next week») and now they just do NOT answer even the company is still there.

    We have proofs of everything and our relationship.

    I would like to ask you if U could advise us how to proceed in such cases.

    The name and address of the company is:

    Lianyungang Haida Arts and Crafts Co., Ltd.
    Miss Xu Zhen
    No.8, Xincun Road, Lianyungang, Jiangsu, China
    Tel: 0086 518 85112457/85111026
    Fax: 0086 518 85111048

    Our commission amounts to around USD 6.000,00 (USD six thousand).

    Thanks for yr attention and regards
    Serafim Costa
    RADICAL SEARCH LTD
    PORTUGAL

    • Jason Tian   •     Author

      Hi there, given the relatively small amount involved in the dispute, i would suggest that you approach a local lawyer for advice. I am based in Shanghai, quite a distance from Lianyungang, thus i am not in the best position to help you.

  8. Andrew Maristela   •  

    Hi,

    We placed an order of 24 Jumbo Thermal Paper Rolls and 10 bags of plastic cores with Shenyang Sasuol Chemical Products Ltd in October last year. The name of the person we were corresponding with is Leo Zhang. After paying a 30% down payment of $6128.00 on October 9 2013, we paid the remaining $15089.00 on November 9, 2013 before the shipment was sent out. We received word that the shipment arrived at Long Beach port in December 2013. After the shipment was examined, it was found that not only were the goods damaged, but the shipment only included 14 jumbo thermal paper rolls instead of the 24 we ordered. According to the invoice, we paid for a length of 12000m for the thermal paper rolls, but the labels on the rolls show a length of only 6000m. Also, no plastic cores were included. Not only did they not send us the correct amount of rolls and cores, but the length of each roll is only half of what we paid for. We have been in contact with the supplier throughout and have been requesting a refund but we have not heard back from him in a week. He also has not confirmed that our money will be returned.

    We would like your good office for assistance to get our money back for some goods not delivered.

    Your help is much appreciated.

    Andrew Maristela

    AMARIST PAPER INDUSTRIES

    • Jason Tian   •     Author

      Hi Andrew, it is a pity that you are caught in an international trade scam. The person may be just a scammer without much recourse you can turn to. Of course, this is just a guess. Maybe you need to hire a local attorney in Shenyang to find out more about the person or the company appearing in your proforma invoice.

      I am in Shanghai, far away from Shenyang, and thus not in a good position to help you out esp given the small amount of money involved. the Travel expenses from Shanghai to Shenyang will be sufficient to retain a local attorney there. I know that you may have difficulty in finding a local lawyer commanding good English, but I can give limited help here.

      I will see whether I could find one for you. Good luck!

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