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Want to Sue a Chinese Company? Do You Have a Contract under Seal?-CTD 101 Series

Thu, 06 Oct 2022
Contributors: Meng Yu 余萌
Editor: C. J. Observer

If you don’t have a contract with the seal of this Chinese company, this Chinese company may deny having transacted with you.

This post was first published in CJO GLOBAL, which is committed to providing consulting services in China-related cross-border trade risk management and debt collection. We will explain how debt collection works in China below.

A client told us that he wanted to sue a Chinese supplier.

Because the Chinese supplier failed to deliver after receiving the advance payment. Moreover, our client could not get in contact with it anymore.

Normally, losing contact with the Chinese supplier does not prevent you from suing it in a Chinese court. The court will find it when it comes to litigation.

However, we were not so optimistic when reviewing the evidence held by our client.

The Chinese supplier and our client had been signing orders via email. There was merely the signature of the business manager in the order, without the Chinese supplier’s seal. The Chinese supplier used email from QQ.COM, a popular email service provider for Chinese people. The payment was made to this Chinese company’s account at a local bank in the US under its English name.

The above circumstances made us believe that it was unlikely to demand a refund through legal action. The reasons are as follows:

1. Will Chinese courts consider your contract valid?

Most likely not.

You shall have the Chinese company stamp on the contract and have its legal representative sign hereon.

It often happens that after you sign a contract with your Chinese supplier, the supplier fails to deliver the goods or the goods do not meet the required standards. Then you file a complaint with the competent market regulation bureau in China or file a lawsuit with a Chinese court.

China’s competent market regulation bureau or the Chinese court, after reading your contract, is likely to state, “we are sorry, but we cannot confirm the contract is concluded by the supplier because it is not concluded with the supplier’s official company seal or the signature of its legal representative.”

Why is this happening?

Because in China, in order for a company to formally indicate its intent to accept a contract, it shall do so by the following means:

(1) it shall affix the official company seal on the contract; and

(2) its legal representative had better sign the contract as well.

If you enter into a contract with a Chinese company that you wish to come into effect under Chinese laws, you had better require the company to adopt the above means. 

2. Can my bank slips prove the validity of the contract?

Even without the seal of the supplier, a Chinese court may consider that a de facto contract exists if you can prove that there was an actual transaction, say, you have paid the Chinese supplier as required by the order.

However, in the above case, our client paid to the US bank account of the Chinese supplier. There is no Chinese name of this Chinese supplier in the account name, only the English name.

All Chinese enterprises have their legal names in Chinese, and they have no legal or standard names in foreign languages.

In other words, their English names or names in other languages are named by themselves randomly. Usually, it’s hard to back-translate their weird foreign names to their legal Chinese names.

The Chinese supplier could deny that the English name in the bank account is its name and thus could deny that the account belongs to it.

Therefore, our client has no way to prove that the Chinese supplier received the payment and that the Chinese supplier has actually transacted with it.

3. Can my emails prove the validity of the contract?

Under Chinese laws, a supplier will not be able to deny the existence of a contract if during the course of the transaction you “have reason to believe” that the email sender has the authority to confirm the contract to you on behalf of the supplier.

So, you need to prove to the court the reason why you believe so.

The typical approaches are as follows:

i. The email address of the supplier uses the domain name of its official website.

ii. The supplier has actually enforced (or partially enforced) the contract in accordance with the content after the supplier confirms it with you via such email address.

iii. The supplier has communicated, concluded, and completed multiple transactions with you via sending emails from such email addresses.

iv. The supplier identifies such email address as its contact information in other “signed written contracts” or other official documents, and websites.

Back to this case, this Chinese supplier could deny that the email address used to contact our client belongs to it. Because anyone can register an email address with this email service provider (QQ.com).

4. If you were this client, what would you better do in advance?

Here are some tips we prepare for you.

i. It is better to have all orders, contracts, or other documents with contents of contracts entered into between you and Chinese suppliers affixed with their company stamp. For more information on this matter, please read our post ‘What Is the Chinese Company Stamp and How to Use It?’.

ii. If a Chinese supplier is registered within China, you had better pay to its bank account in China. Because Chinese courts have the power to investigate the true identity of the account owner at a Chinese bank in a lawsuit.

In case a Chinese supplier requires you to make payment to its bank account outside China, you had better have it present you a document affixed with its official seal, which states that you shall make such payment at its request. In this way, it cannot deny it afterward.

iii. If you sign a contract with a Chinese supplier by email, and the Chinese company does not affix its official seal, you’d better ask it to use the same email address as the domain name of its official company website.

 

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Do you need support in cross-border trade and debt collection?

CJO Global's team can provide you with China-related cross-border trade risk management and debt collection services, including: 
(1) Trade Dispute Resolution
(2) Debt Collection
(3) Judgments and Awards Collection
(4) Anti-Counterfeiting & IP Protection
(5) Company Verification and Due Diligence
(6) Trade Contract Drafting and Review

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Photo by Zequn Gui on Unsplash

Contributors: Meng Yu 余萌

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