Orders in Crisis: Buyer’s Battle for Pandemic Relief

Between 2020 and 2021, a large number of orders from around the world flooded into Chinese suppliers. However, the rising price of raw materials and poor supply have resulted in many orders not being fulfilled. At this time, purchasers have made large down payments.

This is not uncommon in the past 2 years. So what should purchasers do?

One of our clients in the US purchased USD six million of medical masks from a Chinese supplier in the first half of 2020 and paid USD four million in advance. The Incoterm applied shall be CIF somewhere in the eastern US.

Only two deliveries were made by the Chinese supplier with a cumulative value of USD 300,000. After that, the Chinese supplier stopped making deliveries.

The supplier said that the Chinese factory could not produce enough masks and that it could not source enough goods in China. Moreover, it was unable to deliver to the USA because international air transportation had all but stopped.

For more than one year thereafter, the US buyer kept communicating with the Chinese suppliers to urge delivery. However, the Chinese supplier failed to deliver until the epidemic in the US subsided and demand for masks dropped significantly.

The US buyer thought it no longer needed the goods and hired us to recover the down payment from the Chinese supplier.

When negotiating with the Chinese supplier, we discovered that within 12 months of its acceptance of the order, its actual controller had registered eight companies dealing in medical supplies in six Chinese cities, separated by a distance of up to 3,000 kilometers.

We reckon that these companies are attempting to divert the payment and that they have probably succeeded.

As we advised, the US buyer sent the supplier a lawyer’s letter notifying him of the cancellation of the trade contract and demanding the return of the USD 3.7 million deposit.

In the meantime, we immediately filed a lawsuit with the court and applied to freeze its bank account for international trade.

Fortunately, there was USD 450,000 left in the account. Unfortunately, there was only so much left.

Once the account is frozen, however, any funds deposited in the account cannot be transferred. This means that the actual controller can no longer use the company to do business with others and receive income.

We will resume negotiations with it after the commencement of the proceedings.

We assure the actual controller of the supplier that although we cannot recover more from it, the remaining USD 450,000 in the account will definitely belong to us. The litigation will last for around 2 years, during which time the company cannot conduct any normal business.

Ultimately, its actual controller agreed to have the Chinese company pay USD 450,000 to the US buyer to quickly terminate the litigation.

The US buyer did not get the full compensation, but obtained the best result under the current situation as quickly as possible.

Photo by rupixen.com on Unsplash