Chinese supplier dispute

[GuyMor]

Good morning

Our Chinese supplier decided to change the payment terms even though we have a signed contract to say otherwise.

Are there any realistic tools in my disposal to force their hand? Lightweight legal action?

This is a small order if 15,000usd so I am not looking to be spending 1000s in lawyers or such. Just wondering what my options are.

 

[WaveJumper]

@MOIC may have some insights for you on how to proceed

 

[GraemeL]

Our Chinese supplier decided to change the payment terms even though we have a signed contract to say otherwise.

The Contract was created in China or else where?

 

[GuyMor]

The contract is between us (UK) and them (CN). I am not sure what you mean by where it was created? It's our standard manufacturing agreement if that helps?

 

[IanSuth]

The contract is between us (UK) and them (CN). I am not sure what you mean by where it was created? It's our standard manufacturing agreement if that helps?

At the top of your contract it will say which countries legal system the contract is deemed to be under - unless you can answer that you do not know which countries courts any action would have to be taken through

 

[GuyMor]

At the top of your contract it will say which countries legal system the contract is deemed to be under - unless you can answer that you do not know which countries courts any action would have to be taken through

It doesn't mention it

 

[MOIC]

Our Chinese supplier decided to change the payment terms even though we have a signed contract to say otherwise.

A few questions . . . .

What reason did your supplier give for the change, and how have the terms changed?

When you contested the change (I presume you have), what was their response?

Is this the first time using this supplier?

Have you paid a deposit and when are the goods scheduled to be ready?

 

[GuyMor]

A few questions . . . .

What reason did your supplier give for the change, and how have the terms changed?

When you contested the change (I presume you have), what was their response?

Is this the first time using this supplier?

Have you paid a deposit and when are the goods scheduled to be ready?

This is the second time we are producing with this supplier.

We paid a 30% deposit.

The delivery date was supposed to be early Sep(!). They kept providing samples for approvals but ignored the comments, resulting in a frustrating cycle of producing the same quality samples for 3 months. They blame us, we blame them (we have proof)... long story short, we are 3 months late. The agreement is 100% before delivery (the remaining 70%) but now due to the the products failing a 3rd-party inspection and the late delivery, we are asking for 20% of the production to be shipped by air. We're even willing to pay for it. They are saying "Fine, but pay us the full 100% of those 20%" on top of the 30% deposit which we refuse.

This has been going on for 10 days now and they are simply saying "no", we want 100% + a few more surcharges they have invented now.

 

[Newchodge]

Do you mean you have not yet had a sample of the right quality?

 

[GuyMor]

Do you mean you have not yet had a sample of the right quality?

We have. 6 weeks ago. Production is finished.

 

[AlanJ1]

We have. 6 weeks ago. Production is finished.

I don't get it, you have offered to pay 70% of the stuff by air now (as 30% has been paid) and then a further 70% on the stuff by sea and they said no, they want 100% (forgetting the deposit?)

 

[GuyMor]

Yes. Put the sea part aside, we want 20% of production to be shipped by air, prior to the sea shipment of the rest. We have paid the 30% deposit on the whole quantity.

The still want us to pay the full price per item on the 20%, as if no deposit was paid.

 

[AlanJ1]

Yes. Put the sea part aside, we want 20% of production to be shipped by air, prior to the sea shipment of the rest. We have paid the 30% deposit on the whole quantity.

The still want us to pay the full price per item on the 20%, as if no deposit was paid.

For what reason are they giving?

If such a hassle, put 100% by sea, pay the 70% and find a new supplier.

 

[GuyMor]

The reason for the air is:
1. It's stupidly late, if we have a chance to sell anything this winter, it'll have to come via air. Sea is 10 weeks.
2. We're not sure that the bulk quality is good. Willing to risk 20%.

 

[Newchodge]

Yes. Put the sea part aside, we want 20% of production to be shipped by air, prior to the sea shipment of the rest. We have paid the 30% deposit on the whole quantity.

The still want us to pay the full price per item on the 20%, as if no deposit was paid.

So total cost 100.
Deposit paid 30.
To air freight 20% 20.
Balance by sea 80% 50

Is that what they are demanding? Sounds as if they know the bulk quality is no good.

 

[GuyMor]

I think this thread is taking a direction away from my original question.

 

[IanSuth]

I think this thread is taking a direction away from my original question.

Nobody can answer your original question as you do not know which jurisdiction the contract is legally under

 

[GuyMor]

That's will have limited influence. If the jurisdiction was Chinese, or English, what steps could we take?

Not stating the governing law doesnt render the contract invalid.

 

[Newchodge]

That's will have limited influence. If the jurisdiction was Chinese, or English, what steps could we take?

Not stating the governing law doesnt render the contract invalid.

It depends on whether the jutsidiction is Chinese of English.

I cannot see that the supplier has changed the payment terms in isolation. There has been both a change of delivery date and change of mode of transport as well. That will complicate things. What did the contract say about failing quality control and/or late performance?

I would start by taking the contract to a commercial lawyer and seeking their advice.

 

[peterrepair]

The delivery date was supposed to be early Sep(!). They kept providing samples for approvals but ignored the comments, resulting in a frustrating cycle of producing the same quality samples for 3 months. They blame us, we blame them (we have proof)... long story short, we are 3 months late.

At first signs of this I'd look for a new supplier. Sorry I can't help otherwise.

Any legal dispute will probably take years, so it's better to cut losses and move on.

 

[IanSuth]

That's will have limited influence. If the jurisdiction was Chinese, or English, what steps could we take?

Not stating the governing law doesnt render the contract invalid.

if under UK law I would read the contract carefully and maybe get a solicitor to write a legal letter stating their responsibilities under that contract in clear terms and demanding they stick to them upon threat of action including likely addition of costs to cover that legal action.

But if it isnt a UK contract that would be pointless

@MOIC your opinion ?

 

[GraemeL]

When I read "We blame" in relation to a debate between a Chinese company and a UK company, then relations have broken down terribly. You cannot and will not 'win'. The business culture of China is very different to the UK.

I used to import container loads into the UK (with very few problems) but all contracts were drawn up between my chinese agent and the factory in Chinese under Chinese law. (Also I always visited the factory and met the people, personal relationships are very important)

If I am reading this correctly, you have had the factory sign your own standard contract written in english and you are hoping that contract has some weight. It doesn't.

If you had a Chinese contract you could seek assistance from a chinese lawyer.

As it is, the factory you are dealing with almost certainly now doesnt trust you and will not release any goods without full payment.

Two suggestions:-

1) For the future - Always buy with the assistance of a chinese agent including have them QC check the items immediately before despatch.

2) For now - Decide if you want to risk the quality of the items you have ordered and pay 100% for them. Or else scrap the order and lose your deposit.

My suggested approach to importing anything from China of significant value is not to reduce cost but to reduce risk.

 

[MOIC]

For the moment, forget the ‘jurisdiction’ of the contract, it will get you nowhere, other than more heartache and costs.

It’s normal for a supplier in China to ask for the full balance payment, even if a part shipment is required on your part.

Do the following:

1. Arrange a 3rd party full inspection report, before any further funds change hands.

2. After a SATISFACTORY inspection report, pay the balance and arrange your own shipping and storage for the goods. You can then ship as you need and you’ll find quicker options than 10 weeks, apart from an air shipment.

3. Try to negotiate a 2% discount or payment for the 3rd party QC inspection. No harm in asking, as they will want the balance paid and goods out by the end of this month.

4. For subsequent orders, and certainly for the order values you’re likely to give, have an agent to do the following:

a. A contract that includes discounts if deadlines are not met, plus many other issues to ensure clarity and requirements on both sides.

b. Signed off sample approval before any deposit payment is made.

c. Pre production samples before mass production starts, to ensure they are 100% correct. (Not 99%)

d. Full QC check, including component checks, production line overview and final inspection, including any certificate checks.

e. Arrange shipping to your requirements.

f. Liaise in Chinese to avoid any miscommunication.

China suppliers are becoming increasingly harder to work with, one of the main reasons is that they NEVER own their mistakes, instead they try and offer excuses. Very frustrating!

Feel free to ask for any further advice, by using the link in my signature below.

Good luck.

 

[MOIC]

if under UK law I would read the contract carefully and maybe get a solicitor to write a legal letter stating their responsibilities under that contract in clear terms and demanding they stick to them upon threat of action including likely addition of costs to cover that legal action.

But if it isnt a UK contract that would be pointless

@MOIC your opinion ?

Any legal disputes, irrespective of jurisdiction is not viable for these order values (<USD20,000). Generally, for a legal dispute to be effective (and worthwhile), the order values will typically be >USD100,000, to be cost effective to start incurring legal costs.

This would be my opinion, based on 40 years experience working with China factories.

Finding the ‘right’ supplier that ticks ALL your boxes, is vital. It’s not easy.