Who should I sign the contract with, the supplier or the agent?

Key words: Nitrile gloves, loss of expected profits, International Trade Sales Contract

During the pandemic, the entire market for medical supplies trading was in chaos, with the supply situation and prices of goods changing drastically every day. In the entire transaction process from production to final sales to consumers, there are a large number of intermediaries and agents, each of whom is trying to make a profit through different means.

If you order directly from the factories producing the goods, it is likely that you will miss the golden sales period for overseas goods. Therefore, many of our clients can only turn to intermediaries and agents, hoping to speed up the purchasing process. In this case, should I sign the purchase contract with the intermediary or with the factory?

In this case, our client signed a sales contract with the intermediary, which specified the quality requirements and shipment time of the goods, and directly paid the payment to the intermediary. Therefore, in the Chinese court’s litigation, we listed the intermediary as the defendant and demanded that the intermediary bear the responsibility for refund and compensation.

In court, the intermediary argued that they had made the purchase from a specific factory at the direction of our client and believed that the defendant in this case should be the factory.

However, the judge did not support the intermediary’s defense.

The specific reason is that the judge held that this case is a purchase and sale relationship, and our client directly purchased from the intermediary. For our client, the intermediary is the seller. Since we signed the contract with the intermediary, the intermediary is responsible to us. If the intermediary cannot provide strong evidence to prove that the relationship between our client and the intermediary is only an agency relationship for purchasing, then the intermediary’s defense is not supported.

In this case, we not only demanded the intermediary to refund the payment for the undelivered goods but also to compensate for our foreseeable loss of expected profits. This claim was also supported by the judge.

Generally speaking, in Chinese litigation, if one wants to claim compensation for the loss of expected profits, they need to prove that the loss is foreseeable by the defendant in advance.

The reason why the judge supported our claim was that the intermediary knew we were purchasing goods with the purpose of selling them to a specific buyer. Therefore, the judge held that the intermediary knew that if we obtained the goods smoothly, we could earn profits by selling them to the specific buyer.

However, the judge did not fully support our claim for compensation for the expected profits. The judge only required the defendant to compensate us for 20% of the expected profits. The reason given by the judge was that the intermediary was not clear about the contents of the contract between our client and the specific buyer, and the specific buyer was not satisfied with the samples provided by our client. To be fair, the judge ultimately only supported a small part of our claim, which was the compensation for 20% of the expected profit loss.

To summarize, this case provides several experiences in international goods trade that can serve as a reference for everyone.

Firstly, it is important to confirm the identity of the supplier and agree on the purchase terms when signing a contract for purchasing goods from China. It is recommended to include as many parties as possible in the contract, such as the intermediary and the factory, and require them to jointly assume responsibility for the purchased goods.

Secondly, if purchasing goods from China for resale to a specific buyer, it is advisable to disclose the buyer’s information to the Chinese supplier, and even the content of the contract between the purchaser and the buyer. In this case, if the Chinese supplier fails to fulfill the contract, the purchaser can claim compensation for the profits that could have been earned from the buyer.

For more information on purchasing from China, please consult our lawyers or purchase our “International Trade Sales Contract” template to minimize your business risk.