When reviewing a contract, it’s important to check the signing parties whereas most legal occupants ignore it. Here below a contract lawyer from China discuss about the importance on doing working on the signing parties of a contract.
Case:
An energy company in US (Party A) entered into a sales contract with a Chinese energy company (Party B) on Nov.30th,2007, where the Party B signed the contract in the name of its subsidiary, HK limited company. In the contract, Party B agreed to sell energy components to Party A and set out the terms and conditions. The total price of the contract is 15971670RMB, which will be divided into 8 batches. In the first batches, both parties fulfilled their obligations, but in the second purchase order, Party A asked for raising up the price by 10%. In this situation, if Party A choose to find new resources and supply companies, the components already bought might be wasted and addtional time might be spent. So Party B is compelled to accept it. In the third purchase order, Party B failed to supply the goods as ordered by Party A. Thus, a dispute arose between Party A and Party B, and then Party B claimed for compensation of losses.
An arbitration request was submitted to China International Economic and Trade Arbitration Committee (CIETAC) thereafter. On Feb.1st, 2013,the Arbitration Committee made a conclusion that Party A should compensate Party B for loss of 322281USD and attorney fees 10000USD. However, in the enforcement procedure, the court revealed that Party B’s subsidiary, the said HK limited company is an off-shore company that can only be operated outside the HK. Furthermore this company don’t have any real asset in mainland China. Thus, it makes it very difficult to fully execute the arbitration award.
Comments by lawyer Wang.Jingzhan
Composing this article, I don’t want to discuss the details on how this case would be going if it proceeds to the enforcement stage. I want to keep you in mind that we should not only put our eyes on the text when reviewing a contract, but more importantly, we should observe the contracting party that we’re putting their name in the contract. This named contracting party should not only be legally established, but salso should have the corresponding capability and competence to perform the contractual obligations and take responsibilities. In some cases, the counterparty may use its parent company in the negotiation or tendering stage, but when it comes to time for signing the contract, they sign it in the name of its son company or affiliated company, instead of themselves. This would make it difficult for you as a victim to sue the company that you have been negotiating and dealing with, because finaly they use another company (afflicated) to sign the contract. You may have to claim the company who signed the contract, whereas such company may not have enough assets to fullfil its obligitions pertaining to the contract in case that a legal dispute arise. Finally you may suffer a loss even you’re awarded by a judgment.