Illustrative Case Studies of Common Problems in UK – China Commercial Contracts
Extended case studies on UK-China commercial contracts highlight recurring risks in cross-border trade disputes, enforcement uncertainty, and the necessity of clear drafting, compliance mechanisms, and robust arbitration clauses. They demonstrate how contractual oversights and regulatory mismatches can escalate into multimillion-pound disputes and unenforceable obligations.
Case Study 1: Defective Medical Equipment Supply (UK–China, 2020)
During the COVID-19 pandemic, a UK healthcare distributor entered into an urgent contract with a Chinese manufacturer for the supply of PPE and ventilators. The agreement required compliance with EU safety standards and CE certification.
Problem: Upon arrival in the UK, the MHRA inspected the shipment and found the goods non-compliant with Directive 93/42/EEC on Medical Devices. A large portion was impounded, causing millions in losses. The Chinese supplier argued that meeting PRC domestic standards fulfilled its obligations.
Legal Complexity:
- Under English law, the principle of fitness for purpose (Sale of Goods Act 1979, s.14) applied.
- Under PRC law, the supplier relied on compliance with the Product Quality Law (2018 revision).
Lesson: Contracts must specify applicable standards (EU/UK vs PRC) and include international arbitration enforcement clauses (e.g., ICC arbitration) to resolve disputes neutrally.
Case Study 2: Joint Venture Deadlock in Shanghai (UK–China, 2017)
A British technology company entered into a joint venture with a Chinese partner to develop AI software for the financial sector, with a 50-50 equity split.
Problem: Deadlock arose as both parties held equal voting rights. The Chinese partner blocked export of technology citing the PRC Cybersecurity Law (2016). The UK partner sought to exit but the JV agreement lacked buy-out or exit provisions.
Legal Complexity:
- The PRC Cybersecurity Law restricted cross-border data transfer.
- Relief under the UK Arbitration Act 1996 was uncertain for enforcement in China.
Lesson: JV contracts must include deadlock-resolution mechanisms, exit strategies, and explicit allocation of IP and data rights.
Case Study 3: Pharmaceutical Licensing Dispute (UK–India, 2019)
A UK pharmaceutical company licensed a patented drug to an Indian manufacturer with royalties tied to production volumes.
Problem: The Indian partner challenged the validity of the UK patent under Indian law and began producing generics without paying royalties. Indian courts applied the Patents Act 1970, which allows compulsory licensing for public health reasons.
Legal Complexity:
- The TRIPS Agreement permits compulsory licensing under specific conditions.
- Enforcement of UK patent rights was undermined by statutory exceptions under Indian law.
Lesson: Licensing agreements in Asia must anticipate compulsory licensing and include neutral arbitration clauses to protect IP value.
Case Study 4: Electronics Supply Chain Fraud (UK–China, 2016)
A UK electronics retailer contracted with a Chinese supplier for smartphones, paying a substantial deposit via bank transfer.
Problem: The goods delivered were counterfeit and lacked CE certification. Shortly after shipment, the Chinese company dissolved, leaving no legal entity to pursue.
Legal Complexity:
- Under PRC Company Law, once a company is liquidated, creditors’ rights are severely restricted.
Lesson: UK buyers must verify supplier status via the National Enterprise Credit Information Publicity System (NECIPS) and secure payments through escrow or letters of credit.
Case Study 5: Enforcement of Arbitral Awards (UK–Singapore, 2021)
A UK maritime services company initiated arbitration in London under LMAA rules against a Singaporean counterparty.
Problem: The Singaporean company resisted enforcement, claiming the award violated public policy. The case reached the Singapore High Court, which upheld enforcement under the Singapore International Arbitration Act (2012 rev.).
Legal Complexity:
- Singapore, a New York Convention signatory, enforces arbitral awards.
- The court confirmed the narrow scope of the public policy defence.
Lesson: International arbitration enforcement is reliable in Asia when recognised institutions (SIAC, HKIAC, ICC) are chosen.
Additional Common Issues in UK – China Commercial Contracts
1. Company Chop Formalities in China
Case: A UK company entered into a cosmetics manufacturing contract signed by a factory manager but without the official company seal (“chop”).
Problem: The Chinese court rejected the contract as unenforceable without the chop.
Lesson: Contracts must bear the official company seal in addition to signatures to be valid in China.
2. Delayed Deliveries and Force Majeure
Case: A UK importer contracted with a Shanghai producer for dietary supplements during COVID-19. The supplier invoked force majeure due to lockdowns.
Problem: The contract lacked a detailed force majeure clause, and English law does not automatically recognise pandemics as force majeure.
Lesson: Clauses must explicitly define force majeure, accounting for differences between English and PRC law.
3. Non-Conforming Goods
Case: A UK importer purchased sports apparel labelled “100% cotton.” On delivery, garments contained synthetic fibres.
Problem: Chinese standards permit up to 10% synthetic fibres, but UK regulations (Textile Products (Labelling and Fibre Composition) Regulations 2012) prohibit this.
Lesson: Contracts must define technical standards precisely and include independent pre-shipment inspections.
4. Intellectual Property (Trademark Squatting)
Case: A UK business registered its trademark only in the UK, while manufacturing in China. The Chinese partner registered the same mark domestically.
Problem: China’s “first to file” system meant the UK company lost rights to its brand in China.
Lesson: Trademarks and patents must be registered in China before production or distribution.
5. Payment Disputes
Case: A Chinese supplier demanded 100% advance payment for dietary supplements. After receiving funds, delivery was delayed by six months.
Problem: The contract lacked safeguards such as bank guarantees or LCs.
Lesson: Payments should be structured via letters of credit or milestone payments tied to inspection and shipment.
6. Non-Recognition of UK Court Judgments in China
Case: A UK company obtained a High Court judgment against a Chinese partner and sought enforcement in China.
Problem: China does not automatically recognise UK court judgments due to the absence of a reciprocal treaty.
Lesson: Contracts should include international arbitration clauses (ICC, HKIAC, SIAC), as arbitral awards are enforceable under the New York Convention (1958).
Conclusion
These extended case studies of UK-China commercial contracts show recurring patterns: inconsistent standards, unenforceable obligations, limited IP protection, and high risks in cross-border trade disputes. Without explicit drafting, many contracts collapse under conflicting laws, weak enforcement, or procedural defects.
The overarching lesson is that businesses must:
- specify applicable standards in detail,
- embed enforceable arbitration clauses to secure international arbitration enforcement,
- register intellectual property in both UK and Asia, and
- structure payments with safeguards.
By anticipating these common pitfalls, companies can transform fragile trade relationships into resilient partnerships that withstand the complexities of cross-border trade regulation.
Notice: All names in these examples have been changed to protect confidentiality.
Need help? At Express Law Solutions, we review, draft, and negotiate contracts to ensure they’re fair, clear, and enforceable.
Contact Us: +44 7482 928014 | expresslawsolutions@gmail.com or Book A Conslultation
www.expresslawsolutions.com
References / Sources
- Allen & Overy (2021) Doing Business in China: Contractual Formalities and Company Chops. Client Note. Available at: https://www.allenovery.com
- Baker McKenzie (2021) Managing Payment Risks in China Trade Contracts. Available at: https://www.bakermckenzie.com
- China National Standards (2013) GB/T 29862-2013: Textiles – Identification of fibre content. Beijing: Standardization Administration of China.
- Civil Code of the People’s Republic of China (2021) Book III: Contracts. Beijing: National People’s Congress.
- Civil Procedure Law of the People’s Republic of China (2017 Amendment). Beijing: National People’s Congress.
- Clifford Chance (2021) Enforcement of Foreign Judgments and Arbitral Awards in China. Available at: https://www.cliffordchance.com
- Davis Contractors Ltd v Fareham UDC [1956] AC 696.
- Herbert Smith Freehills (2020) COVID-19 Force Majeure under PRC Law. Legal Briefing. Available at: https://www.herbertsmithfreehills.com
