Reminder of legal risk points for foreign-related enterprises

1. Enterprises do not pay attention to international commercial arbitration and often suffer adverse consequences due to their absence from international commercial arbitration procedures. When domestic enterprises enter into foreign-related contracts, they do not pay enough attention to the dispute resolution methods stipulated in the contract, and arbitrarily agree on foreign arbitration institutions for arbitration, leaving inaccurate delivery addresses. When a dispute arises, foreign arbitration institutions deliver the goods in accordance with their arbitration rules. If a domestic enterprise is unable to receive the notice of delivery due to the issue of leaving a delivery address or, after receiving the notice, considering the time, financial resources, and labor costs of foreign arbitration, refuses to participate, in both cases, the domestic enterprise loses the right to engage in physical defense in the arbitration proceedings. Once the opposing party to the arbitration obtains a successful award, they can apply for recognition and enforcement in Chinese courts in accordance with the provisions of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (i.e. the New York Convention). The recognition and enforcement of foreign arbitration awards is a procedural review, and the substantive defense raised by domestic enterprises in this procedure cannot change the allocation of responsibility determined in the arbitration procedure, unless domestic enterprises have evidence to prove that there are several situations of non recognition and enforcement under the New York Convention in the arbitration award. Due to the wide range of member states signing the New York Convention, commercial arbitration awards made abroad can be recognized and enforced between member states.
2. Enterprises engaged in foreign-related business are not familiar with the application rules of letters of credit and independent guarantee letters. When applying for payment suspension on the grounds of letter of credit fraud or guarantee letter fraud, they are often rejected by the court due to insufficient evidence. In international commercial activities, it is common practice to issue letters of credit and independent guarantees as performance guarantees. However, many domestic applicants are not familiar with the corresponding rules of letters of credit and independent guarantees. In order to facilitate transactions, they blindly apply for the issuance of letters of credit or independent guarantees in cases where the contract terms are not clear and detailed. Once the payment terms stipulated in the contract are met, the bank has a payment obligation when the documents and documents appear to match on the surface. In this case, it is extremely difficult for the applicant or bank to stop payment under the letter of credit or letter of guarantee through fraud, unless there is tangible evidence to prove that the beneficiary colluded with others, fabricated underlying transactions, or forged documents. It is not uncommon for domestic enterprises to suffer losses due to the aforementioned reasons during the process of “going global”. In the cases being tried, a well-known state-owned enterprise has also encountered such situations, which should be given sufficient attention.
3. The frequent use of offshore companies to evade debts and avoid debts has led to an increase in the identification of contract subjects in disputes over international sales of goods. With the development of foreign trade and economic cooperation, there are more and more ways to transfer economic risks through the establishment of offshore companies. Some companies in China that lack a concept of integrity attempt to evade legal responsibility by registering multiple affiliated companies with similar names both domestically and internationally, causing confusion among foreign parties during the process of signing contracts. If such cases are handled improperly, it will not only promote the unhealthy trend of some enterprises evading debts, but also affect the confidence and determination of foreign parties in China’s investment and trade. The trial of such cases requires identifying whether there is any confusion between domestic and foreign affiliated companies in terms of funds, personnel, and business, and whether it is sufficient to affect the judgment of the contracting party on the contract subject, in order to confirm whether domestic companies and overseas affiliated companies need to jointly bear contractual responsibilities.
4. The number of unjust enrichment disputes related to international goods sales is increasing, and the risk prevention awareness of contract subjects needs to be strengthened. In international trade of goods, it is common to enter into contracts through the internet and email. In multiple cases, the payer paid the goods to a third party based on the payment instructions in the email, but the actual recipient was unaware and did not issue payment instructions. The characteristic of such cases is that the email address where payment instructions are issued is extremely similar to the email address of the counterparty in the transaction, usually with a difference of one letter. Once the payer does not carefully check and distinguish, it is easy to make mistakes due to being misled. Once operated incorrectly, it can result in huge losses that are difficult to claim. Therefore, it is recommended that commercial entities enhance their awareness of risk prevention during the actual performance of contracts, carefully check their email addresses, and prevent disputes that may lead to improper enrichment.
5. The number of disputes involving product quality and construction projects outside the region has increased, and the lack of agreed quality standards and timely fixed evidence has made it difficult to guarantee rights. For evidence formed outside the territory, it should be certified by the notary office of the host country and authenticated by the Chinese embassy or consulate in that country, or the certification procedures stipulated in the relevant treaties between China and the host country should be fulfilled. Domestic cases can be assessed and determined regarding quality, price, etc. through judicial appraisal and evaluation procedures, and responsibility can be assigned accordingly. However, when it comes to disputes over product quality and construction projects outside of the region, due to geographical limitations and the timeliness of product quality inspection, it is difficult to complete the corresponding evaluation and appraisal in domestic judicial procedures. Therefore, in addition to clearly agreeing on the corresponding quality standards in the contract, the parties must also notify the other party in a timely manner when problems occur, and use authoritative institutions to notarize and fix the corresponding quality issues. For project costs Issues such as engineering quantity accounting should be promptly reconciled and signed for confirmation during contract performance to prevent unfounded claims.
6. The number of cases requiring shareholders of overseas companies to bear responsibility has increased, and the identification and application of the laws of the company’s registration place has become an important part of the case trial. In order to ensure the realization of the creditor’s rights, the parties involved intentionally listed multiple litigation subjects during the litigation process, and listed the counterparty and its shareholders as defendants. For commercial entities registered outside the territory, whether and how their shareholders should bear responsibility depends on the law of the place of registration. Therefore, the investigation of foreign law has become an important link that affects the progress of cases and the determination of responsibility. However, some domestic parties, based on their understanding of Chinese law, have unreasonable expectations about the progress and outcome of the case, and lack awareness of litigation risks.