A US company orders product from a Ningbo factory. After the payment of deposit, the Ningbo factory can not deliver the product as agreed. As the attorney of the US company, I reviewed all relevant documents and find out that the international purchase contract is concluded with an Hongkong offshore company not the Ningbo factory. And the deposit is paid to the bank account of HK offshore company. Whether the US company may sue the Ningbo factory directly in the court of Ningbo?
The offshore company is usually established by investor for tax avoidance. In the international trade practice, a lots of factories sign the contract in the name of offshore company. Due to the ignorant of Chinese law, and lack of due diligence of contract party, in lots of international trade cases, the buyer and the supplier do not sign the formal purchase contract. If there is any dispute, the foreign buyer is difficult to safeguard legal rightsand interests.
Pursuant to the Chinese law, international civil or commercial dispute is governed by the court in the place where the defendant is domiciled. As to the company, the domicile of the a company is the address registered in the company business license. That means, if the purchase contact is signed with an offshore company, the registered address of the company is not in Ningbo. Therefore the court in Ningbo has no jurisdiction of the case unless the parties agreed clearly about the governing court. The US company may not sue the factory in Ningbo.
As a experienced international business attorney, I suggest that the foreign buyer, including the foreign invested company or representative office, shall investigate the contract party and the supplier before the conclusion of contract. In order to lower the legal risk, I don't suggest my client to sign a contract with an offshore company but actually purchase the product form the local factory.
Articles of law：
Civil Procedure Law of the People’s Republic of China
Article 21 A civil action instituted against a citizen shall come under the jurisdiction of the people’s court in the place where the defendant is domiciled; if the defendant’s place of domicile is different from the place of his habitual residence, the people’s court in the place of his habitual residence shall have jurisdiction.
A civil action instituted against a legal person or any other organization shall come under the jurisdiction of the people’s court in the place where the defendant is domiciled.
Contact： Brain Xu
If you have more questions or are interesting with our services, please feel free to inquiry with our service consultant.
Tel : +86 574 2772 1008 / 2772 6526