What Does it Mean if My Chinese Supplier Is a Dishonest Judgment Debtor?
You should perform verification or due diligence on a Chinese supplier to find out whether he/it has the capability to perform contracts before you make a contract with the supplier. You can ask us for free verification service.
And if he/it is included into the List of Dishonest Judgment Debtors by a Chinese court, he/it is probably incapable of performing the contract.
I. What is a dishonest judgment debtor?
If the judgment debtor fails to fulfill the obligations specified in an effective legal instrument, while also undertaking certain dishonest conducts, the Chinese court will include the said judgment debtor into the publicly available List of Dishonest Judgment Debtors as a credit discipline, which will prompt the said judgment debtor to voluntarily fulfill the aforesaid obligations. (See our post 7 Tips on the List of Dishonest Judgment Debtors in Chinese Courts)
Where the judgment debtor undertakes any of the following six categories of dishonest conducts, the Court shall include him/it into the List of Dishonest Judgment Debtors:
(1) Having the capability to fulfill the obligations determined in the effective legal instrument but refusing to do so;
(2) Obstructing or resisting the court enforcement by forged evidence, violence or threat;
(3) Evading the court enforcement by sham litigation or sham arbitration, or through concealment or transfer of property;
(4) Violating the property reporting system;
(5) Violating the Order on Restriction of Consumption; and
(6) Refusing to implement the settlement agreement during the enforcement procedure without justification.
II. What will happen to your deal with a dishonest judgment debtor?
A dishonest judgment debtor is very likely to be unable to perform the contract and compensate for your losses.
1. He/It may not perform the contract
He/It was listed as a dishonest judgment debtor not only for his/its failure to perform the judgment, but also for his/its evasion of liabilities in the judgment in a dishonest way.
If he/it treats the court judgment in bad faith, he/it is also likely to resort to fraud in performing your contract.
2. He/It may not be able to perform the contract
China has established a “joint disciplinary mechanism” for the dishonest judgment debtors.
This mechanism allows the information of dishonest judgment debtors to be quickly transmitted to various government departments, financial institutions and enterprises, thereby limiting dishonest judgment debtors to engage in more types of behavior. (See How Does China’s System of Dishonest Judgment Debtors Operate?)
This means that your supplier is subject to restrictions from government departments, financial institutions and other entities because of its status as a dishonest judgment debtor. These restrictions will prevent him/it from performing your contract.
3. He/It may not compensate for your losses
If he/it fails to perform the contract, you may want to force him/it to perform or compensate for your losses in a lawsuit.
However, if he/it has not even fulfilled a previous judgment (and has become a dishonest judgment debtor as a result), you cannot expect him/it to fulfill your judgment either.
In short, you should avoid dealing and signing a contract with a Chinese company that is included into the List of Dishonest Judgment Debtors. You can verify it in advance, and we will provide you with free verification service.
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