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Claiming refunds from Chinese suppliers

Discussion in 'China Sourcing' started by chrisbawden, Aug 30, 2012.

  1. IMEX Sourcing Services

    IMEX Sourcing Services

    Joined:
    Sep 28, 2006
    Messages:
    386
    Hi Johnny,

    From our experience, contracts actually do play a huge role in managing the process and setting expectations to the supplier. More importantly, it tells the supplier that we are serious about every single expectation we have set, and would take action if and when things go wrong. To answer your questions:

    - how many of your customers actually complete contracts??
    - None of our customers sign contracts with the supplier directly, we sign the contracts on their behalf. This means the contracts are not a short 1 page summary of the order, but include several clauses generated over several transactions over years. Our contracts have been professionally made with the help of our companys legal consultants and we keep refining them as we learn new lessons along the way. Needless to say they are all written out in "Mandarin". We have clauses for quality control measures, inspection conditions & environment, dispute resolution (Arbitration process defined in a lot of detail), payment terms, liquidated damages, flow of payment and goods and several other things. This means, we are highly protected to begin with. Also because the supplier is signing a contract with our company and they are aware that we are physically present here in China and would enforce contracts, that is a huge deterrent in itself as compared to a client sitting in a foreign land 1000's of miles away.

    - how many have had a positive result from any litigation as a result of poor performance from the supplier??
    - Believe me when I say this, we have had recoveries from several suppliers in terms of refunds for quality not being up to the expected level and even discounts for delays in delivery of goods. We hardly ever have to go to litigation to achieve this, because like I mentioned above our chosen method of dispute resolution is "arbitration" and that is usually sufficient to get the results.

    - how many have lost more money chasing up a bad supplier with no positive result??
    - None actually. One of the most important factors in deciding whether to go into arbitration or not, is the value of the deal and the value of the potential recover. If it outweighs the costs, then we have a host of other methods we try for recovery. Arbitration is always the final option. Some of the these other methods are of course a "business secret", but they work better than arbitration

    The key point is, in most cases contracts when they are professionally written and backed by good supplier research to begin with (which we also do on our clients behalf) act as a strong "Deterrent". Most good suppliers, especially the ones who own assets and reputation hate getting into legal trouble as much as you and I do, therefore they try their best to comply. Then there are the other kind of suppliers, the lower end workshop/wholesalers type suppliers, they can be harder to deal with, but they usually have no legal resources or the knowledge and in most cases, they would do anything to avoid legal troubles. To summarise, in my humble opinion, good contracts certainly do give you a lot of protection and make the process smoother. But quality control is much more than that and contracts need to be used along with the other tools like background research, follow-ups, factory audits (for large value order) and what I call "Relationship Building" with the supplier.
  2. IMEX Sourcing Services

    IMEX Sourcing Services

    Joined:
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    Messages:
    386
    Hi Johny,

    Appreciate the comments and that is why this is a great forum. I think we may be on a different page about the "purpose" of a contract. You are focussing on the "Litigation" element, which is not the purpose of the contract in my humble opinion. For us, a contract is designed to assign responsibilities and put agreements into writing. In our contracts we do not even mention "Litigation". We clearly state that "Arbitration" would be the only way of dispute resolution and arbitrator's decision would be final and binding on both parties. If either party still wants to go for litigation, they would be on the backfoot to begin with as they are in breach of the contract by going for litigation. If you use the right arbitration agency, they have pretty much the same powers as a courts order. We also believe, the big cities of China now have have good arbitration agencies like the CIETAC, and they are getting more and more fairer by the day. We also use Hong Kong for arbitration in a lot of our contracts, and HK is known to have one of the fairest arbitration system in the world and a legal system that supports arbitration, and has world class arbitration agencies like the International court of arbitration (backed by International Chamber of Commerce) and the HK International Arbitration Center.

    The purpose of the contract is to detail every single term & condition in detail, so that in case of a dispute, the supplier cannot say "oh you mean you said ABC on the phone, I though you said XYZ, if we do ABC, we will have to charge you $20/Pc extra because we have to buy so and so raw material which is more expensive". In that case, we say, "please refer to page X on contract and it clearly states that we both agreed to ABC" and this is usually enough to get the supplier to agree to do ABC without charging the $20/pc. Secondly, I would have to disagree that legal threats and legal jargon does not work on chinese suppliers. If you are in China and you use the right strategy to deliver the legal notice, it is very effective. Once again, in chinese culture, people absolutely abhor going to courts and would usually settle outside as long as you are "Fair" in your demands and you have "Genuinely" being wronged by the supplier. Once again, nothing guarantees that you will get a recovery of funds from a supplier or you will win in court but it is the responsibility of the buyer to do as many things as per recommended procedures so that if things really do get to litigation, they have the best possible chance of winning.
  3. Keith Elcomb

    Keith Elcomb

    Joined:
    Nov 27, 2011
    Messages:
    254
    I will be flying to Shanghai this Wednesday to do a round of factories, specifically to inspect engineering and electrical products prior to shipping. Frankly, this is now becoming a necessity for most companies, as it is almost impossible to sort out problems after goods have been dispatched. I will be moving between Shanghai, Shenzhen and Jinan if anyone is interested. keith@qubikuk.com
  4. IMEX Sourcing Services

    IMEX Sourcing Services

    Joined:
    Sep 28, 2006
    Messages:
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    Hi Johny,

    Sorry for the late reply, I lost track of this post:

    In our case, it is almost impossible to put those details on 1 page, as we have product drawings, detailed specs, detailed clauses on dispute resolution, inspection procedures etc. Many of the procedures, for e.g. the our inspection procedure, may add cost to the supplier, so if we do not have this agreed in writing upfront, even if the supplier has good intentions, he may not be willing to bear these costs, therefore, we find having this upfront makes a big difference.

    In my opinion, the problem with "verbal agreements" is that,, they are bound to "misinterpretation", especially when working with people between different cultures or a misunderstanding of what the resulting costs of an action would be and who would be liable to pay this. We try to "anticipate" pretty much everything that can go wrong with an order, and then refine our contract to reflect those scenarios and the plan of action under those scenarios to minimise risk. This is a time consuming process, but it does give us a lot of security.



    I agree, we probably have the same problems, but I feel when a supplier knows that there is "compensation" attached to each mistake, he is much less likely to make mistakes. Also, when the mistake has been made and it is expensive to fix the mistake, the contract is our strongest level to get the supplier to pay those costs.



    Suppliers agree because they want the business, else we go to their competitor. For chinese suppliers, we very often use CIETAC which is a china based arbitration agency.

    To top it all, I would say, we have just recovered some money from a supplier from a supplier, for a 2nd time this year, solely on the basis of the contract (without going to arbitration or litigation). The pressure of the conrtact being in place was enough to convince the supplier, it was not worth the "hassle" he would have to go through, if he does'nt refund us. I am almost certain, that without these contracts this would have been impossible. Both suppliers were of good understanding and had a good background. But even the best suppliers, make mistakes in production.


    I totally agree on the last point. A contract is not a replacement for "due diligence". Due diligence helps in ensuring buyers select the best possible supplier before entering into a purchase agreement, a contract helps in ensuring they have insurance against the "best supplier" making expensive mistakes and disowning responsibility for those mistakes.
  5. myka.chou

    myka.chou

    Joined:
    Nov 22, 2012
    Messages:
    37
    Hmmm...need to keep attention on this.
  6. giorgi12345

    giorgi12345

    Joined:
    Aug 11, 2014
    Messages:
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    Hi, depends how you make payments, if you pay by paypal you can open case and might get money back. i have ordered samples for 500 pounds which i paid by paypal,but samples was different and i got money back. just lost money for sent samples back.
    good luck.
  7. Keith Elcomb

    Keith Elcomb

    Joined:
    Nov 27, 2011
    Messages:
    254
    As pointed out, there is no such thing as a worldwide patent. I am aware of this issue of the blade-less fan blowers, as a Chinese company two years ago engaged with us to try and find a loophole to the Dyson patent. But it's tied up as tight as a drum. Getting your money back? It's China you are dealing with !!! So the chances are pretty much nil. Legal action would be throwing money into the wind. Sorry about your loss.
  8. NPD

    NPD

    Joined:
    Apr 10, 2014
    Messages:
    19
    As as as I know, patents are protected by the countries the applicant have filed for, respectively. The Chinese supplier may have its own patent in China and the company dealing with OP may have its patent in UK regardless of the similarities between the patents. Best that OP turns to a Patent Attorney for evaluation of the patents.
  9. Dean

    Dean

    Joined:
    May 22, 2008
    Messages:
    9,366
    The original discussion is 2 years old so I would imagine the OP has either sorted it or moved on by now.
    Gary likes this.

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