This past week a client has come into our Shanghai office seeking to initiate legal action against one of their buyers. The client, an auto parts manufacturing company, had sealed a new supply agreement with a buyer at the beginning of this year, and has supplied products to this customer each month since then. The client identified the buyer as a regular client and gave this buyer a 30 day grace period for payment after the date of delivery of goods.
For first several months, the buyer made payments on time, however since this middle of August the buyer stopped making payments. As the customer indicated they were experiencing problems with cash flow, our client extended the grace period on payment as a sign of trust, and continued to provide products to the buyer for another 2 months. The buyer never made any further payments to our client, and the client finally decided to take legal action.
During an evidence collection visit to the client’s offices, our China lawyers were surprised to find 35 unpaid purchase orders, with only 17 documents confirming delivery of product. Normally, there should be a delivery receipt with a signature from the buyer for each product delivery. However it seems that some items were delivered by courier service and the receipt was not maintained in good order. The client’s Finance Manager mentioned referred to the standard VAT invoices for each delivery with the expectation that the VAT invoices would service as evidence to certify the delivery.
Unfortunately, VAT invoices cannot serve of evidence of the delivery, as these are only a finance settlement document, thought these VAT invoices can to some extent demonstrate the existence of the Buyer-Seller Relationship. If we were to submit a claim using only VAT invoices and related tax data, and the buyer may still refuses to admit such claim. For good order the lawsuit must include evidence of delivery of the products.
Without the direct evidence for the delivery, is extraordinarily difficult to prove to a court that products were actually transported and delivered, we would have to prepare a pile of circumstantial evidence to support the contention and there would be no guarantee that the court would accept such evidence in the end.
The lesson here is to not overlook simple paper work. Delivery receipts are vital evidence in the event of a lawsuit which cannot be easily replaced. Even where you feel the business to business relationship is strong, “
trust but verify
”.