Be Cautious when you use a contract template, otherwise, this may lead to an awkward situation where you have to apply for arbitration to an institution out of nowhere.
This post was first published in CJO GLOBAL, which is committed to providing consulting services in China-related cross-border trade risk management and debt collection. We will explain how debt collection works in China below.
Recently, a client from the US West Coast contacted us to sue his Chinese supplier in China, demanding a refund of the advance payment.
Because most of this Chinese supplier’s assets available for debt repayment are located in China, he thought it would be more convenient to sue him here.
However, when reviewing his contract, we found that they had agreed on an unknown arbitration institution on the US East Coast in the dispute resolution clause.
According to that clause, all trade-related disputes should be settled in an arbitration institution 4000 km away from him and 10,000 km away from his Chinese supplier.
Our client was a bit confused, as he had no recollection of choosing this arbitration institution.
When we asked how they put that in the contract, he said, “Oh, I found a contract template, and I didn’t pay much attention to the clauses unrelated to the transaction.”
Unfortunately, the truth is that this clause, which seems to have little to do with the transaction, had greatly increased his cost of resolving disputes and recovering payments to the point where it is no longer worth his while to collect the debt.
Whenever using a contract template, you should always check the dispute resolution clause. It’s better to write nothing than to provide for a dispute resolution institution that doesn’t work in your or anyone’s favor. Because even without a dispute resolution clause, you and the other party may as well choose a relatively convenient court afterwards.
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Contributors: Meng Yu 余萌
