China’s Supreme People's Court Delivers Favourable Settlement to Foreign Supplier in Cyber Fraud-Driven Dispute

In a recent dispute, our client, a non-Chinese supplier, was successful in its claim against a Chinese corporation following the non-payment of goods under an international sale of goods contract. The non-payment stemmed from a cyber fraud involving both parties and a fraudster.

The case was successfully resolved through mediation under the supervision of China’s Supreme People’s Court (SPC), the country’s highest judicial authority. The settlement exceeded expectations and serves as a testament to the SPC's growing focus on complex international commercial disputes.

Case Background

Our client, a non-Chinese supplier, entered into a sales contract worth over USD 600,000 with a Chinese buyer. The dispute arose when a third-party fraudster intercepted communications between the two parties, impersonated the supplier, and redirected payment to a fraudulent account.

Though the contractual value fell below the standard threshold for SPC jurisdiction, the SPC's International Commercial Court (CICC) exercised its discretionary authority to take up the case, citing its “exemplary significance” in accordance with the Provisions of the Supreme People’s Court on the Establishment of International Commercial Courts. This proactive decision highlights China’s commitment to tackling fraud, especially in cross-border cybercrime cases, and reinforces the SPC's role in setting precedents for international commercial litigation.

During court hearings before the SPC, the buyer contested its liability, arguing that the supplier's failure to detect discrepancies in communication channels contributed to the fraud. We carefully analyzed the factual and legal details of the case, presenting documentary evidence and transaction records that demonstrated the buyer's failure to exercise due diligence in verifying sudden changes to payment instructions.

Key Takeaways

I. Critical Issues in Determining Liability in Fraud-Related Disputes

From our experience, Chinese courts typically prioritize the following principles when adjudicating fraud-impacted contracts:

1. Contractual Fulfilment: Whether the supplier conclusively demonstrated full performance of delivery obligations through shipping documents and customs records.
2. Payment Vigilance and Duty of Care: Whether the supplier maintained consistent payment instructions across transactions, and whether the buyer failed to verify sudden changes to payment accounts.

Here, the supplier had duly performed the delivery obligations, and the buyer’s omission to cross-validate payment details via established channels (e.g., direct phone confirmation) materially breached its duty of care, outweighing the supplier’s reliance on historical communication channels.

II. Navigating the Risk of Fraud in International Business Transactions

This case highlights the increasing risks of fraud in international commercial transactions, particularly when communications are intercepted or payment instructions are forged. To mitigate these risks, businesses should implement multi-layered verification protocols for financial transactions, such as confirming changes through secure communication methods or in-person meetings. Strong Know-Your-Customer (KYC) procedures are vital when handling alterations to banking details or contract terms.

Additionally, clearly defining contractual parties and obligations in written agreements can prevent disputes over liability. In cases of suspected fraud, engaging experienced legal professionals early on is crucial to navigate cross-jurisdictional challenges, preserve evidence, and explore efficient resolution mechanisms like mediation.

III. Mediation as an Efficient Alternative Dispute Resolution Mechanism in China

This case also shows that mediation is a key component of China’s judicial system and serves as an effective alternative dispute resolution (ADR) mechanism. In China, court-led mediation allows judges to assist parties in reaching a mutually acceptable agreement before rendering a judgment.

A key advantage of mediation in China is that once a settlement agreement is reached and approved by the court, it becomes binding on the parties. This allows businesses to recover funds more swiftly, avoid the lengthy enforcement process that often accompanies traditional litigation. In cross-border disputes, mediation provides an expedited route to financial recovery, reducing legal costs while fostering long-term commercial cooperation. Moreover, court-mediated settlements, when documented properly, carry the same enforceability as judicial decisions, ensuring compliance by the counterparty.

Conclusion

We understand that some non-Chinese businesses remain hesitant to pursue legal action against Chinese counterparties due to perceived challenges in litigation. However, this case clearly demonstrates China’s growing commitment to improving the business environment, particularly in terms of its judicial practices and treatment of foreign-related disputes. China has shown increased dedication to addressing foreign-related cases with greater transparency, efficiency, and fairness—both procedurally and substantively.

This settlement also represents a significant success for our client and reinforces our expertise in handling cross-border disputes, particularly in the realm of fraud-related litigation. Through our joint venture with Westlink Partnership, known as Clyde & Co Westlink JLV, our team has successfully navigated the complexities of Chinese legal procedures, ensuring effective resolution and enforcement of international claims. If you need assistance with international trade-related matters (especially involving cyber fraud), we are here to provide legal advice and support you in protecting your rights and securing your claims under China’s legal system.