China Product Quality Problem? Here's My Template Answer.

Because I receive countless emails every day and because so many of them involve the same questions, I have developed various templates to respond. 

Here's the template I use when a US company writes me with a China product quality problem and the contract they have provided me is not good at all. Much of the time the US has no contract at all, but usually when they do have one, it is usualy so bad as to work against them. Here's my "stock" answer in that situation.

This is our template response when the 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 matters at all.

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 so as 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 $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 very worried it will be Chinese law.  I'm worried about that because under Chinese law, terms like "highest quality" and "best workmanship" can be very different from the US.  Very different.

In the end, the arbitrator will probably use US standards (without saying so explicitly) but you've opened yourself up for a whole 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 is more cost.

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 win in arbitration, you are only about 60% of the way there. Because after you win in the US, you will need to take your US arbitration award over to China and then convert it into a Chinese court judgment and that is going to take a while and will likely involve its own set of 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 hire us or some other law firm experienced in writing Chinese OEM Agreements. 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.

2.  I am very skeptical that it will be worth your while to pursue arbitration in the United States, but that seems to be the only litigation/arbitration route you have.

3.  One other option you have is to have us write a demand letter to [Chinese company] in Chinese to 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 (but not great) success rate with these letters in that we do 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.

What do you think? Part II of this will be the letter we write when the contract calls for litigation in a US city (which is even worse than arbitration, BTW).