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Tips from a Chinese lawyer about contracts and PO’s

Purchase Order vs Contact. What language?

 

PO and Purchase Contracts

A good contract sets the tone for the relationship and protects the buyer’s rights. Even in China!

I noticed that sometimes the buyers just sign a simple English language PO instead of using a written contract.  It’s very risky.

I strongly recommend that a bilingual contract be signed before any PO is placed and in the contract make the responsibilities, rights and remedy for breach of contract very clear.

 

Actually, one of the hallmarks of a good Contract is that it provides for very specific penalties or say, liquidated damages if the supplier fails to abide by its crucial terms, such as shipping date or quality specifications.

 

Make sure the penalty is large enough to make the supplier take them seriously but not so large as to scare them away.

As long as the penalty is reasonable, liquidated damages provisions are enforceable in Chinese court and it will save you lot of trouble as without pre-agreed terms for compensation, it is very hard to prove how much lose you have suffered.

The main value of putting a penalty in your contract is that it will motive the supplier to comply with the terms so that actually you never have to enforce it.

 

Official Language?

Another thing is to make sure the contract is bilingual and the official language of the contract is Chinese.

Why? There are many reasons for such an arrangement.

First you have to list the Chinese name of the supplier for the contract to be valid. The name should be the same as what you see in their business license.

Local AIC only register Chinese names so the English name, whatever the seller call themselves for marketing purposes in English, is not an official name.

The most important reason is because to conduct litigation outside China, in US for example , against a Chinese supplier is meaningless.

Most Chinese companies do not have any assets outside China and court in China does not enforce foreign judgments, so it means that you actually get nothing even you prevail in an overseas court. So if litigation is the only option to solve the dispute, a lawsuit should be filed in a Chinese court.

The only language allowed to use in any Chinese court is Chinese, so you had better find a lawyer to prepare a bilingual contract for you, in advance.

 

Written for CSIC by the Chinese lawyers of AsiaBridgeLaw.com and AsiaBridgeLaw.com

 




6 thoughts on “Tips from a Chinese lawyer about contracts and PO’s

  1. mr chuks

    Thanks a lot. This has really opened my eyes. Now I can tackle or prevent the poor quality problem I have been experience sometimes with the goods my Chinese company supplies me.

  2. Harvey Justmann

    Sophie,

    Thanks for your always practical and very important tips for buyers.

    Harvey Justmann

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