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  • Writer's pictureAvon Y.F. Zhao

How to Get Double Refund of Deposit if Chinese Sellers Do not Ship Goods in the International Trade?

David(alias) from the US wanted to buy steel coils, so he contacted a Chinese company via Alibaba. After several rounds of communication, both parties finalized the contract, agreeing that the buyer would pay 30% of the purchase price upfront, with the balance to be paid after the goods were loaded into the container.

Before the transaction, David asked his Chinese friends and learned that the relevant Chinese law stipulated that if the seller defaulted on the contract, the deposit should be refunded twice.

Therefore, although the amount of 30% of the goods was relatively high, David paid the deposit to the vendor with confidence. However, several months passed, the vendor failed to deliver the goods on time, and David made repeated requests but received no effective response. David came to us and asked what he should do next and whether he could ask the vendor to refund double the amount he had paid.

After carefully reviewing the sales contract signed between David and the supplier, we informed David that according to relevant Chinese laws, if the party who paid the deposit fails to perform the debt or performs the debt is not in accordance with the agreement, so that the purpose of the contract cannot be achieved, it has no right to request the return of the deposit; If the party receiving the deposit fails to perform the obligation or the performance of the debt is not in accordance with the agreement, resulting in the failure to achieve the purpose of the contract, the party receiving the deposit shall return the deposit twice. This is a "deposit penalty".

However, in this case, although David was entitled to a refund of the advance payment, it was difficult to get twice the amount. David used the word deposit in the English contract. Although they meant "deposit" which has a special meaning under Chinese law, the word deposit has several meanings and interpretations in English, it is not only interpreted as "deposit". The parties to the contract did not specifically explain what the word should mean, nor did they specifically state the seller's liability in the event of a breach of contract, David's request for a double deposit was difficult to obtain the support of the Chinese courts in the subsequent litigation.

If the specific meaning and rules of the deposit are not explained in the contract, and it is not possible to determine from the previous transactions and communication records between the parties that the deposit has special meaning under Chinese law, the deposit will not be refunded twice.

We gave David a few examples from our practice:

Case 1: If the contract is signed in English and the deposit is not explained, it cannot be considered a "deposit" under Chinese law.

In the case (2021)鲁02民初1280, the court determined that, the two parties did not specifically explain the deposit; the contract between the two parties was signed in English, and the interpretation of the contract terms in the English context should prevail in the event of a dispute. The unexplained terms cannot be directly equated with the "deposit" in Chinese law.

Case 2: Even if the contract was signed in Chinese and English, if the meaning of the deposit is not determined, it cannot be considered a "deposit" under Chinese law.

In the judgments of (2012) 佛中法民四初4, 64, the two parties adopted a bilingual contract, but also did not clarify the meaning of deposit, the court said that in the bilingual contract, even if the Chinese version of the contract for deposit is translated as "定金", if it is not further defined, it can not be recognized as "deposit" in Chinese law.

In practice, some Chinese courts will recognize that the word of deposit can be directly interpreted as the “deposit” in the "deposit penalty" under Chinese law. But in any case, taking precautions in advance can reduce commercial risks.

So we gave David the following advice: add an explanation of the term "deposit" to the contract, for example by expressly stating that if the seller breaches the contract, the buyer must return double the deposit and compensate the buyer for other losses.

In addition to the deposit penalty, other measures may be taken to protect the buyer's rights and interests, including:

a) Who is the subject of the contract and the payee? Can additional guarantors and securities be added?

b) Is there a penalty clause for the seller's default, particularly in the case of late delivery or quality problems with the goods?

c) What are the payment, trade and other terms to reduce the buyer's risk?

If you need to buy in China or have any questions about the transaction, please do not hesitate to contact us.



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