There are three things you can do to get your deposit or advance payment back from a defaulting or fraudulent Chinese company: (1) negotiate a refund, (2) claim liquidated damages, or (3) terminate the contract or order.

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.

1. Negotiating a refund

You can negotiate with the Chinese company for its voluntary refund.

Undoubtedly, this is hard to achieve. Very few companies will agree to give a full refund. The company will probably demand to withhold some of the money and only return the rest to you.

You need to do a calculation in this situation — if the amount that the Chinese company intends to withhold is less than or equal to the cost of debt collection in China, you can consider accepting the proposal.

You might be upset by the loss, or even refuse to accept the proposal.

But economically speaking, this may be the best solution for you. You can make up for the loss by exposing the notorious record of this Chinese company somewhere as a way to balance your emotional loss.

So, how much will it cost to recover your debts in China? To get the answer, you can refer to our previous post titled “Sue a Company in China: How Much Does It Cost?“.

If upon calculation, you know the cost and time (say, 12 to 18 months in general) in collecting your debt in China, you’d be better off getting most of the refund as soon as possible while allowing the Chinese company to withhold some money as a compromise, as long as the amount is less than that cost in debt collection. Because at least in this way, you can get your money back sooner.

2. Claiming Liquidated Damages or Compensation

The claim for liquidated damages or compensation can be your first choice if your claim for refund is based on the Chinese company’s breach of contract.

If the liquidated damages or compensation can cover your deposit or advance payment, they are equivalent to the supplier refunding your deposit or advance payment.

Under Chinese law, liquidated damages are the “compensation” of which amount or calculation method is specified in the contract. When lodging a claim, you don’t need to prove the amount of liquidated damages, but simply to invoke the amount stated in the contract.

The compensation, on the other hand, is for your loss incurred by the Chinese company’s breach of contract. The amount of compensation paid by the Chinese company should be equal to the amount of your loss. When claiming compensation, you need to prove your loss and the amount thereof to the court.

If liquidated damages are specified in your contract, you can only claim that liquidated damages; otherwise, you can only claim compensation.

It should be noted, however, that the claim for liquidated damages or compensation does not amount to the termination of the contract or order. Once the Chinese company continues to fulfill its contractual obligations (e.g., dispatching the goods), you may be required to make other payments under the contract.

Put another way, it also means that you can get an additional refund while continuing the cooperation with the Chinese company.

3. Termination of the Contract or Order

If you want to terminate your cooperation with the Chinese company and get your payments back before the termination, you should terminate the contract or order with the Chinese company.

As we have mentioned in another post titled “How Do I Terminate a Contract with a Company in China“:

(1) Chinese judges are unwilling to uphold any claim on termination/rescission of a contract. In order to promote transactions, most judges are inclined to encourage the parties to continue the contract, rather than to terminate the transaction. This leads to de facto extremely strict requirements to termination/rescission claims in judicial practice.

(2) You are entitled to unilaterally terminate a contract with a Chinese company only if the conditions for rescission as agreed in the contract or under Chinese law mature. Otherwise, you can only terminate the contract with the consent of the other party. In addition, you must follow specific steps. Otherwise, your notice to terminate the contract will likely be considered a breach of contract by the judge in the later lawsuit in China.

If you want to figure out what measures you can take to make the Chinese company actually refund, you can refer to another post titled “How Do I Get My Money Back From a Chinese Supplier?”

The Cross-border Trade Dispute 101 Series (‘CTD 101 Series’) provides an introduction to China-related cross-border trade dispute, and covers the knowledge essential to cross-border trade dispute resolution and debt collection.

Photo by Bernd Dittrich on Unsplash

Contributors: Meng Yu 余萌

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