Breach of Contract –What Are My Legal Options in China?
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Breach of Contract –What Are My Legal Options in China?

Suppose you close a contract with a supplier from China. The contract is about the sale of 2.000 kitchen sinks to be used in a construction project. You pay 70% upfront and the remaining 30% is due after delivery. When the goods arrive, you conduct a random inspection and you discover that the size of the drain hole is incorrect. Furthermore, you notice that the material used is not the same alloy as you agreed upon.

Clearly, this case leads to a conflict with your supplier. But what can you do? And what are your legal options in China?  In this article, I will explain some of your legal options in case of a conflict over the sale of goods.

Do You Have a Valid Contract of Sale?

The first question you must answer is whether or not you have a valid contract of sale. A contract is valid when an agreement is reached between two parties. That is to say, the seller has made a legal offer to you, and you have accepted the offer. The offer itself is only legal when three basic conditions are described:

1. Quantity

2. Object

3. Price

To illustrate, if the quantity is not described, there is no valid contract of sale. Of course, in most contracts, much more terms are included. For example: payment, delivery and defect terms. However, if one basic condition is missing, it is not a legal offer. Now that you know about the validity of your contact, let’s see which law applies to your situation.

What Law Applies to Your Contract?  

The law applicable to your contract depends on the agreement with your supplier. If there is a choice-of-law-clause in your agreement, it should be clear what law to apply. If no choice has been made, a court will decide which law is applicable. In case of a contract over the sale of goods, a court will often apply the law of the seller’s country. This is because the most significant performance of a contract is often executed in the seller’s nation.

However, no matter what law will be applied, Chinese or domestic, chances are that your own country is part of the United Nations Convention on the International Sale of Goods (CISG). And since China is also a member of this convention, the court will apply the provisions of the CISG to resolve your conflict.

CISG –Convention on International Sale of Goods

The CISG is an agreement between states on how to resolve an international conflict over the sale of goods. The convention deals with the formation of international sales contracts and the rights and obligations of buyers and sellers. Furthermore, it defines how to settle a breach of contract by either party.

As of today, the CISG has 89 member states. Below, you can find some countries that have signed the treaty. For an overview of all participating countries. Please visit the website of the [United Nations].

 

CISG countries

 

When a court will handle your conflict, it will first establish whether your contract meets the requirements of the CISG. These requirements are described in articles 1 to 6 of the convention. [You can read all articles of the CISG here]. Once you satisfy all requirements, the court will determine if there is a breach of contract. In other words, the court will check if your supplier has violated any of its obligations.

What Are the Obligations of the Seller Under the CISG?

Obligations of the seller are described in articles 30 to 44 of the CISG. Articles 31 to 34 define the legal obligations with regard to delivery of the goods and accompanying documents. Articles 35 to 44 specify the legal obligations with respect to conformity of the goods and third-party claims. Some of the most important obligations are described hereunder:

 

Art. 31: Where to deliver to goods

Art. 32: How to deliver the goods to a carrier

Art. 33: When to deliver the goods

Art. 35: Quality, quantity and characteristics of the goods

 

If any of these legal obligations are violated, the seller has committed a breach of contract. In this case, you can demand remedial action from the seller.

What Remedial Action Can You Propose? 

Under the CISG, a buyer has four remedial actions at its disposal. Below, all four legal options are listed. A brief description of each option follows.

 

Art. 46-48: Require additional performance

Art. 49: Void the contract

Art. 50: Reduce the price

Art. 74: Claim damages

 

Your first legal option is to request additional performance from the seller. For example, you can request the seller to deliver substitute goods or to repair the current delivery. Your second remedy is to nullify the contract. You can resort to this legal option when the goods are not delivered, or when the seller has committed a fundamental breach of contract.

Your third legal option is to request a reduction in price. This can also be done after you paid for the goods. The price may only be reduced to the actual value of the goods at the time of delivery. Your fourth remedy is to claim damages. You can claim an amount equal to your loss suffered including lost revenues.

It is up to you which remedy you choose. However, do bear in mind that you cannot use all legal options at the same time. E.g. you cannot void the contract and ask for a reduction in price at once. Claiming damages, on the contrary, can be done simultaneously with any of the other options. However, no matter what option you think might be best, if there is a breach of contract, it is always wise to conduct a legal counsel first before you take any action.

Long Story Short

If your supplier did not deliver on its promise, several legal options are available to you in China. In order to be eligible for the legal options described in this article, you must have (1) a valid contract of sale and (2) your country must be a party of the CISG. If you satisfy these requirements, and you meet the criteria of articles 1 to 6 of the CISG, you have four remedial actions at your disposal. Whichever remedy you choose, keep in mind that it could be a real challenge to enforce an action in a foreign country. Therefore, a wise thing to do would be to partner with a lawyer in China.

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Written by
Ezra Bisschop
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