The buyer's arbitration request was dismissed in its entirety, and the counterclaim filed by the seller, represented by Sundial's lawyers, was supported.

Date: 2024-03-13

A domestic listed company in China purchases a non-standard automated production line from a supplier. The contract price is RMB 5 million, with the following terms agreed upon by both parties: a delivery period of 90 days, an installation and commissioning period of 90 days, and a warranty period of 1 year. The payment terms are structured as follows: an advance payment of RMB 2 million, followed by a payment of RMB 2.5 million within one month after acceptance of the equipment, with the remaining balance to be paid in full six months later.

After the contract was signed, the supplier delivered the goods and completed commissioning as scheduled. However, the listed company (buyer) conducted intermittent testing and acceptance over a period of more than three years without issuing a formal acceptance conclusion. In July 2021, the listed company abruptly issued a "Notice of Failure to Meet Acceptance Criteria," filed for arbitration on grounds of defective product quality, and requested contract termination, refund of payments, and reimbursement of its legal fees.

Over the three-year period, dozens of trial production records indicated recurring issues with the equipment. Upon receiving the arbitration notice, the supplier faced immense pressure.

After preliminary analysis of case materials, Attorney Ye Bao and his team from Xinda Law Firm concluded:

1. The contract lacked clear provisions on the acceptance period;

2. For three years post-delivery and until the arbitration filing, the buyer had never requested returns, replacements, or contract termination;

3. Regardless of whether the equipment had actual defects, the buyer failed to raise quality objections within a reasonable timeframe;

4. The buyer had utilized the equipment for production and operations, which could be deemed as implicit acceptance.

The specialized legal opinion from Ye Bao’s team was endorsed. The supplier promptly engaged the team to represent it in the arbitration and, following their advice, filed a counterclaim demanding payment of the outstanding balance and reimbursement of legal fees.

After thorough evidence presentation, cross-examination, and debates organized by the arbitration tribunal, the tribunal largely adopted Ye Bao’s arguments. The supplier’s (respondent’s) counterclaim was mostly upheld, the claimant’s arbitration requests were fully dismissed, and the claimant was ordered to pay the supplier’s legal fees.

Key Takeaways for Commercial Practices:
In business transactions, parties should engage professional lawyers to assess commercial and legal risks when negotiating and drafting contracts. A well-drafted contract and clear expressions of intent during performance are critical for defining rights and obligations. Once litigation or arbitration risks materialize, securing assistance from specialized litigation counsel becomes indispensable.