Suing Your China Manufacturer for Bad Quality Product

Our international litigation lawyers long ago developed template emails for responding to companies that write us about their China product quality problems. The below is the one we use for U.S. companies that write us with a China product quality problem and the contract provided us is not good at all. Most of the time the U.S company has no contract at all, but usually when they do have one, it is so bad as to work against them. The below is my template response when their contract calls for arbitration in a US city but is pretty much silent on everything else (a far too common scenario when non-lawyers draft a contract).

It’s a tough case and your contract does not help.

What you probably will need to do is begin arbitration in [US City] and serve [the Chinese company] via the Hague Convention. This will require translating the complaint into Chinese and serving it through the Chinese court system, which takes months. We write our arbitration contracts to say that service can be done by email/fax/personal delivery to avoid this sort of situation.

Your contract is silent regarding the arbitration panel to be used and the choice of law. I hate to tell you this, but we had a case with a similar arbitration provision and it cost our client nearly $50,000 to get the case into arbitration in the first place because the other side used the vagueness of the provision to stall. And that was just the arbitration panel alone. It could cost $10,000 easy to figure out what law should apply here and in the end, I am worried it will be Chinese law. I am worried because under Chinese law, terms like “highest quality” and “best workmanship” do not count for anything and those terms are the only quality standards mentioned in your contract.

In the end, the arbitrator will probably use U.S. manufacturing standards (probably without saying so explicitly) but you’ve opened yourself up for a lot of argument in the meantime.  If your complaints are based on the Chinese company’s failure to build your product according to _______ standard or to meet _________ certification, your case becomes a bit simpler because there is at least something clear cut against we can measure the product you received.  You may need an expert to testify regarding the quality problems and that will make your case way more costly.

So now that I’ve told you the many issues that you may need to confront just to get the case into arbitration and then to win in arbitration, I’m going to tell you that even if you do win in arbitration, you will only be about 50% of the way towards collecting anything. I say this because after you win in the United States, you will then need to take your U.S. arbitration award over to China and convert it into a Chinese court judgment and that is going to take a while and will almost certainly involve its own set of risks and fights. Once you have a Chinese court judgment, trying to collect on it will be the next difficult and expensive task.

Here is how I suggest you proceed:

1.  If you are ever going to buy product from China again, you should retain a lawyer experienced in writing Chinese Manufacturing Agreements. See THE Rules When Manufacturing Overseas

We typically write the official contract in Chinese (with a Chinese court dispute clause) and the translation in English.  A good contract scares Chinese companies and your threat of a lawsuit thus has a lot more force. Most importantly, a good contract is much more likely to make it worth your Chinese manufacturer’s while to do things right from the get go and that will greatly reduce the likelihood of you having future product quality problems.

2.  I am skeptical it will be worth your while to pursue arbitration in the United States, but that seems to be the only route you have left for resolving your product quality issues with this particular factory.

3.  One other option you have is to have us write a demand letter to [Chinese company] in Chinese stating that if it does not resolve and pay for the product quality issues, we will pursue arbitration in [US City] pursuant to the contract and then take that arbitration award to China and turn it into a court judgment. We would act like all of that will be easy. We have a decent success rate with these letters in that we sometimes get real money back for our clients by writing them, even when the litigation/arbitration option is gloomy.

If you have any questions, please feel free to write or call.

Bottom Line: Your manufacturing contract is the key to positioning yourself to be able to deal with future product defect issues.

We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.