Jenny Zhang, Attorney at Law, Lawyer, Law firm in Dalian, China

 TRIAL in China.

There is just an oral contract between the parties. How does the local court have the jurisdiction over such an oral contract without choice of forum? In this situation,  we must adpot the rules of choice of law.

In accordance with basic principlies of choice of law with respect of contract dispute, the closest relationship is the standard to decide the forum. In contract dispute, the place of performance has  the closest relationship with choice of forum. The parties have not expressly agreed upon the place of  performance, therefore, under Chinese Contract Law Article 61, paragraph (c), the place of performance shall be at  where the obligator is located. The parties agreed to deliver the goods with the term of CIF,  according to “International Incoterms 2000″, the Seller shall complete delivery obligations in the port of shipment, DAlIAN.  THUS, Dalian is the actual place of performance.

Without express agreement of place of performance, where CIF is adpoted, the Seller can lodge a suit in Dalian. BUT where both parties choose D-terms, it is hard for local Chinese court to accept the case. 

 Because international enforcement is very difficult and time comsuming, for such a small order, the Seller wouldnot choose to enforce it overseas. Then WHY DO WE LODGE A SUIT? The answer is , under Law of the People’s Republic of China on Control of the Entry and Exit of Aliens, we could apply the Chinese court to issue an injunction restricting the default party to leave China since it involves in unsolved civil cases. I guess that is most of the  foreign businessmen are reluctant to accept.

Recently, I got a case, a payment dispute in  international sales of goods.

China is an typical exporting country, foreign importers and distributors just got enough proceeds from importing Chinese goods. As most foreigners are trustworthy, Chinese exporters get used to sell goods overseas just on open account. In the good time, there is no problem. But depression finally came,  a lot of credit also become “credit”. Many Chinese exporters can’t get the payment any longer.

When the importer established  an agency in China,  it is easy to lodge a lawsuit in China. But if the defaulting party has  no office and property in China, how would we do? Solution?

Step One  Arbitration  Here I don’t want to talk about the advantages of arbitration. Since almost all the countries around the world participated in New York Convention, it’s just SO easy to enforce the arbitual award. In oral contracts, generally the parties haven’t even mentioned the possible disputes let alone resolution. There is, therefore, no arbitration clause in the contracts. If any party intends to choose arbitration, it can only resort to the agreement from the other party. However, when both parties really begin their “fight”, I guess the defaulting party just don’t care what the aggrieving party will do as it has no porperty to be enforced in China. Moreover, the attorney fee is that dear in western countries, they just gamble that Chinses party would not sue in their countries.

Yeah, they were right. Espacially in such recession, it seems that Chinese exporters are more torlerant.

BUT to those who deliberately refuse to pay money even if they have the ability to pay, we must protect us from such loss.

And the solution is TRAIL in China. (continued)