China question: How do I initiate litigation for a breach of contract?

I have had a terrible experience dealing with a Chinese manufacturing supplier. Even though we had signed a contract stipulating all the details, the products I ordered were very late and of a substandard quality to the samples I had confirmed. This isn't even my main issue – I only received 70% of the products I had ordered and paid for. The company is refusing to produce the remaining quantity because it claims the materials cost had increased, so my payment only covered 70% of the initial order number. I want to initiate court action against this Chinese company, but have heard that the PRC courts are biased against foreign parties.

How do I bring this unscrupulous supplier to court, receive a fair hearing and avoid a similar situation in the future?

The domestic perspective


First of all, be calm and do not assume that the Chinese courts will be biased against foreigners. According to research by the World Bank, China is ranked as the top 19th country in terms of enforcing contracts (please see http://doingbusiness.org/rankings). You need to pick a good Chinese lawyer to represent you in court. This is easier said than done. Litigation in China, just like in any other country, is not a mechanical process. Rather, its outcome is very much shaped by a lawyer's skills. In choosing lawyers, you should focus on how much courtroom experience he or she has in general and in that particular jurisdiction. A fair hearing is only possible when you have a lawyer who is competent, well-connected and well-established in the legal community so much so that any judge would think twice if he/she ever considers being unfair to his/her client. In China, lower courts pay a great deal of attention to higher courts because being overruled by a higher court will have a direct and almost immediate negative impact on the lower judge's career. If you want to win your case, you and your lawyer need to strategise not only how to win at the trial court level, but also proactively plan your potential appellate battles.

Running into an unscrupulous supplier is rarely just bad luck. More often than not, it reflects that your company does not have in place a system of controlling contractual risks. In doing cross -border business, in particular you need to be carefully screening other parties be they clients or vendors, because the cost of dispute resolution in international settings is very high. China is an extremely competitive society. Just look at any train station - passengers tend to rush instead of walk, even when they hold tickets with guaranteed seats. Why? Because they have been conditioned to step up to compete for resources that have traditionally been scarce. As such, any Chinese business person who sits across the table from you is a battle-hardened person. You must really look beyond the surface in making a decision on whether and how to do business with a Chinese business person. If you only look at prices, delivery time, quality and quantity without understanding the propensities of the other person, you are taking a business risk. A good lawyer in China, like in developed countries such as the US and the UK, should be a good counselor whose experience and wisdom in evaluating people is his or her biggest asset to a business person who deals with China.