What to Do When You Get Bad Product from China

Our international dispute resolution lawyers must get some form of the following at least twice a week:

I just received a shipment of bad product from China and my manufacturer is ignoring my refund requests. What should I do? Do I have a case?

Our attorneys usually answer by saying it depends and then asking questions about the following.

1. How much is at stake.

2. The history of the relationship with the Chinese company.

3. The city in which the Chinese company is located.

4. The legitimacy of the Chinese manufacturer.

5. The nature of the defects in the product.

6. Whether there is a written manufacturing contract and, if so, whether that contract clearly addresses the defect.

7. What the contract says about dispute resolution.

Much of the time there is either not enough at stake or not a good enough China Manufacturing Contract to warrant our law firm’s involvement. In those cases we tell them that it would not be worth retaining our law firm and they usually then ask what else they should do.

Much of the time I will suggest they do nothing and just make sure to do the right things the next time so as to prevent this sort of thing from recurring. Occasionally, I suggest they try to find a China licensed lawyer who will take the case on a contingency fee basis. If they ask about involving “the Chinese government” or the Embassy or Consulate from their home country, I tell them that if they want to try either or both of those things, they should, but that I am not aware of this ever having helped anyone.

For someone to have a good case against their Chinese manufacturers they usually need to be able to “check off the following five things:

1. A signed/chopped China-centric manufacturing agreement that clearly defines the acceptable level of quality.

2. A paper trail showing proof of payment. This is sometimes much tougher than you would think because if you paid a Hong Kong holding company your Chinese product supplier will likely claim that you never paid for your product at all. Be wary of this, both with respect to who you pay and in analyzing the value of your bad product claim. See The Legal Relationship Between China and Hong Kong and Why This Matters to You and Your Business.

3. The seller named on the contract matches the party that received the payments. With so many trading companies out there it is a common mistake to have a contract with a supplier but pay a trading company! See number 2 above re Hong Kong.

4. Your supplier has physical and financial assets (small “one-man-bands” disappear as soon as they “feel” a lawsuit is on the way). You should do your due diligence before you pay anyone anything.

5. The jurisdiction on the contract matches the location of the supplier’s assets at a city, province or country level.

It always helps have future orders you can leverage to get a refund as well and we often work with our clients to time these future orders in a way that maximizes their benefits and minimizes their risks.