Southern Perspective Shenzhen

This is another post that was first posted on the Silk Road International Blog

Third party contracts cover a side variety of topics that concern people doing business in China. These types of contracts involve;

• Contracts of carriage, a contract where you (A) have a shipping company (B) deliver goods to a client (C).

• Some types of insurance contracts where you (A) purchase insurance from a company (B) payable to another company (C).

• Third party inspection contracts where you (A) hire a company to inspect goods (B) from a supplier (C).

What are the obligations of a third party? These contracts are specifically different from contracts in which a task is delegated (subcontracting). These types of contracts are those in which a third party is added to a contract to perform a responsibility or a part of a contract. Under Chinese Law, you are still responsible to uphold your obligation.

So, who is to blame when things go wrong? What happens when a shipping company refuses to deliver goods to your client? When an insurance company refuses to pay a claim? When a line of products that were inspected results in a massive recall? In situations where the third party refuses an obligation or performs their obligation in an unsatisfactory manner, what course of action can you take?

Unlike the Common Law system in Hong Kong, in which consideration, compensation, must be made before a contractual promise becomes legally binding. In the Chinese legal system, even an orally made promise can be legally binding, as long as the three conditions for making a legally enforceable contract are met.

Those three conditions are,

1. The person must have capacity (mentally sound and of age)

2. The person must have intention (no duress or forced conditions)

3. The promise must be legal (no refunds for your illegal drug mules) As long as these conditions are met, any promise that you make can be considered legally binding.

So what are the implications for third party contracts? If the intention of the two parties is to place a legal, contractual obligation on a third party and this intention is accepted by all three parties, then the wronged party has a legal claim against the third party. This means that you have a claim against your insurance company for not paying, against the inspection company for failing to inspect properly and against the shipping company for failing to deliver the goods as agreed to.

The next time you are finalizing a deal make sure that your intentions are clearly expressed. What are each of the parties’ individually responsible for? What are their obligations? What are the remedies in case anyone should fail to perform in a satisfactory manner? It is better for you to decide ahead of time about the solution to a problem rather than rely on a judge here to take a guess.