Prepayment Paid, Steel Never Shipped: One 2025 Claim From Filing to Settlement

In June 2024 a Dubai engineering contractor paid US$39,329 to a steel supplier in Jinan for a first batch of 249.725 tonnes of S355JR plate at US$525 per tonne. The plate was never shipped. Six weeks after confirming receipt of the money, the supplier asked for a further US$89.5 per tonne before it would load anything. Seventeen months later a Chinese court ordered the prepayment returned, and held two shareholders personally liable for it, because the company had cut its registered capital by 96% while the claim was outstanding. This page is a de-identified record of that matter: what the paperwork actually said, the two decisions by the buyer that preserved the claim, how the court reasoned, and how the file ended. It is a record of one matter. It is not a prediction about yours.

What this record is, and what it is not

No company names, no case number, no individual names, no court below the level of a basic-level people's court in Jinan, Shandong. The amounts are the amounts: US$39,329 paid, US$42,510 received. The dates are the dates in the judgment. What has been removed is everything that would let a reader identify the parties. What has been kept is everything that decides whether a claim like this can be built at all: the documents, the timing, the procedural choices, and the one asset that turned out to be collectable.

The judgment is dated 21 November 2025. It did not take effect. The three domestic defendants appealed, and at second instance asked for mediation. A mediation document is not published, so there is no public record of the terms. The settlement figure was US$42,510 and it has been paid and received in full. Everything below about the first-instance reasoning is from the judgment; everything about the ending is from the file.

The transaction, as it was actually documented

The commercial deal was ordinary. On 8 June 2024 the parties agreed terms in principle; on 10 June the seller sent a proforma invoice; on 12 June it sent a revised version after the buyer asked for changes. On 21 June the buyer's procurement engineer emailed a purchase order covering the first of four monthly batches, 249.725 tonnes for June delivery, and said the remaining batches would follow separately. On 24 June the seller returned the purchase order stamped, with corrected bank details. On 25 June the buyer paid US$39,329 from a bank in Abu Dhabi into the seller's NRA account. On 1 July the seller confirmed in writing that the money had arrived.

Two features of that paperwork decided everything that came later.

Read the table again and the shape of the dispute is visible before anything went wrong. The proforma invoice described a four-batch contract worth US$524,384.80. The purchase order that the seller stamped described the same four batches but fixed only the first. The buyer paid 30% of the first batch. The seller, when it later wanted more money, argued that 30% of the whole contract — US$157,315.44 — had fallen due, that only US$39,329 had arrived, that the three-day price validity had expired, and that the price therefore had to be renegotiated.

Where it broke: not a delivery delay, a price demand

Between 24 July and 5 August 2024 the buyer asked five times for a production update. On 6 August the seller replied. Raw material and production were fine, it said, but tax and freight were not. It could now only invoice business-to-business, which meant absorbing 'a dozen-odd points' of tax it had previously avoided, and ocean freight was rising. The quoted price, it said, was ex-tax. On 12 August it put a number on it: US$89.5 per tonne, taking the price to US$614.50 — a 17% increase — and asked the buyer to confirm.

Legally this is not a hard question. A seller that has stamped a purchase order, received the prepayment against it and confirmed receipt cannot rewrite the price because its own input costs moved. If it wants a variation it must obtain consent; if it withholds the goods until consent is given, it is in breach, and the buyer acquires a choice between insisting on performance and terminating. The difficulty in practice is never the rule. It is that most buyers, at this point, do one of two things: they negotiate, which looks like acceptance, or they go quiet, which looks like waiver. Both destroy the file.

The two decisions that preserved the claim

Neither was clever. Both were written, and both were written fast.

1. Refuse the increase in writing the same day, and ask for the money back in the same email

On 13 August, the day after the demand, the buyer's engineer replied. Once price and payment terms have been agreed, it said, there is no reason to raise the price; we do not agree to this increase; we formally request the return of our prepayment today, to the bank details attached. That single email did two separate jobs. It recorded that the buyer never accepted the new price, which forecloses any argument about variation or estoppel. And it created a dated written demand for repayment, which is the fact a court needs before it can find that a party has refused to perform.

2. Offer a way to keep the contract alive, with a deadline, while reserving rights

On 14 August the buyer went further. It offered two alternatives: raise the price by US$10 per tonne if the material shipped within five days, or, failing that, ship material equal in value to the prepayment within five days; all additional cost to fall on the seller. This is the email that mattered most in the room. It shows a buyer trying to perform, not a buyer manufacturing an exit. Under the Civil Code a party may terminate where the other delays performance of the main obligation and still has not performed after demand within a reasonable period, or where the breach defeats the purpose of the contract. A claimant who can point to a written, time-limited attempt to save the deal is in a materially stronger position than one who terminated on day one.

The seller's answer, in writing, was that it had already invested in cost, raw material and production, that a refund would cause it heavy loss, and that the buyer should at least complete the order. No goods ever moved. Fourteen months later that email was still the cleanest evidence in the file that the contract had been abandoned by the seller.

What the first-instance court decided

Proceedings were filed on 16 June 2025 and judgment was entered on 21 November 2025, on the ordinary procedure, after a contested hearing. Five holdings did the work.

Governing law

Chinese law. Neither side had chosen a governing law, so the court applied Article 41 of the Law on the Application of Laws to Foreign-related Civil Relations: the parties may choose, and failing a choice, the law of the place of the party whose performance characterises the contract or the law most closely connected. The seller was Chinese, performance was in China, and neither side argued otherwise. This is worth internalising: omitting a governing-law clause does not produce neutrality, it produces Chinese law by default in most supplier contracts.

Termination, and the date it took effect

The court terminated the purchase order under Article 563(1)(3) and (4) of the Civil Code. It fixed the termination date at 11 July 2025 — the date the claim document was served on the seller. This is the most instructive line in the judgment. The buyer had demanded a refund on 13 August 2024. Had it also served a notice of termination under Article 565, the contract would have ended when that notice arrived, and interest would have run from August 2024. It had not, so eleven months of interest were lost. A refund demand is not a termination notice.

Restitution and interest

Under Article 566 the seller was ordered to return US$39,329 with interest at 5.33% per annum from 11 July 2025. The rate was not invented: it is the six-to-twelve month US dollar lending average published in the appendix to the People's Bank of China's quarterly monetary policy report, which the buyer had pleaded. Pleading a published rate rather than an approximate one is a small habit that removes an argument.

Notarisation, translation and preservation insurance

The buyer claimed ¥32,686.44 in notarisation and authentication fees and ¥6,500 in translation. The court awarded ¥20,000 in total: neither the contract nor any statute allocated those costs, but the international character of the dispute and the seller's breach justified an award, and the balance was refused. The preservation insurance premium of ¥500 was refused outright, because nothing had been agreed about it. Both outcomes are typical. Budget for documentary costs as a partial loss.

Court fees

Case acceptance fee ¥5,551 and preservation application fee ¥1,937, together ¥7,488, borne entirely by the defendants. The preservation fee is worth a second look: under the fee schedule it corresponds to a preserved sum of roughly ¥283,000, which is the US dollar claim converted. Preservation was granted over the whole claim, and it cost about 0.7% of it.

The holding that actually produced the money

Everything above produces a judgment. It does not produce payment. What produced payment was a fact the buyer found after filing — and it is the part of a Chinese trade dispute claim that is planned least and decides most.

The supplier's registered capital had been ¥88.88 million, subscribed in two equal halves of ¥44.44 million, with a contribution deadline of 31 December 2051 — that is, nothing had been paid in and nothing was due for another twenty-seven years. On 25 November 2024, while the refund demand was outstanding, the two shareholders resolved to reduce the registered capital to ¥3 million, cutting each subscription from ¥44.44 million to ¥1.5 million. The resolution recorded that the notice and announcement procedures had been lawfully carried out. The buyer was never notified.

The court applied Article 224 of the Company Law as revised in 2023, in force since 1 July 2024. A company reducing its registered capital must prepare a balance sheet and a schedule of assets; must notify creditors within ten days of the resolution; must publish in a newspaper or on the National Enterprise Credit Information Publicity System within thirty days. Creditors who are notified have thirty days to demand repayment or security; creditors who are not have forty-five days from publication. The purpose is not procedural tidiness. It is that a creditor is entitled to know that the pool it is relying on is being drained.

The consequence was that each shareholder became liable, up to the ¥42.94 million by which his subscription was reduced, for the part of the company's debt that the company cannot pay. Two defences were run and both failed. One shareholder said he had since transferred 49% of his shares and now held 1%; the other said he was a historical shareholder who had transferred everything and held nothing. The court did not engage with either, because liability under Article 224 attaches to the shareholders who resolved the reduction, not to whoever holds the shares when the judgment is enforced.

This is the part foreign buyers consistently miss. Registered capital with a 2051 contribution date is a book entry, not an asset. A supplier can be a registered company with a nine-figure capital figure and no money in it, and the capital figure can be reduced to almost nothing by a two-line resolution while your claim is being negotiated. When that happens, the shareholders who took the value out are the only remaining defendants worth having — and finding it late is the difference between a judgment and a receipt.

What the file cost, and what it took

The domestic defendants had fifteen days to appeal; as a foreign party the buyer had thirty. They appealed and then asked for mediation at second instance, which meant the first-instance findings were never tested on appeal and never became a public judgment.

What US$42,510 represents: the prepayment, the notarisation and translation costs the court had awarded, and interest to settlement. What it does not represent: the buyer's own legal costs, the internal time of two staff over fourteen months, the ¥500 premium the court refused, or whatever was conceded to obtain payment eighteen months earlier than enforcement would have delivered it. A settlement replaces a judgment. Whether that trade is worth making depends on whether the defendant has assets today, and on nothing else.

Three places this kind of file is usually lost

The gap between the proforma invoice and the purchase order

The seller's entire defence was built on the three-day price validity in the proforma invoice, the delay before the order was placed, and a prepayment base computed on the whole contract instead of the first batch. It failed only because the stamped order fixed the first batch on its own terms. Had the order restated the full US$524,384.80 with a 30% prepayment, the same defence would have had a real foothold. If two documents in a file describe different contracts, expect the seller to choose whichever version suits it at the moment of dispute.

Paying a figure that has no written allocation

US$39,329 is not a round number. It is 30% of US$131,096.20, to the dollar. That is why it was performance of the first batch rather than a partial payment of something larger. A round US$40,000 sent with no statement of what it was for would have handed the seller the argument that the buyer underpaid and therefore breached first.

Suing the company and stopping there

Without the capital-reduction claim, this file ends with a judgment against a company whose subscribed capital was dated 2051. The capital history is a public record. It should be pulled when the contract is signed and pulled again before the claim is filed, because a reduction that happens during the dispute is both the problem and the remedy.

The thread running through all three is that none of them is decided at the hearing. They are decided in the week the problem appears, and in the half hour before the claim is drafted. For the enforcement machinery that follows a judgment — what can actually be seized, and in what order — see how to recover money from a Chinese supplier that stopped shipping.

What to do before you pay a Chinese supplier

These are the eight steps that, on this file, would have cost little and mattered most. They belong to the same checklist as the pre-payment enquiries described under supplier due diligence.

1. One contract, one version. The purchase order should state price, quantity, delivery date, loading port and payment split, and say that it supersedes the proforma invoice. If the proforma invoice carries a price validity period, delete it or extend it.
2. Allocate every payment in writing. State in the payment advice which batch and which percentage the money is for.
3. Get written confirmation of receipt, and keep the email with its headers.
4. Demand a status update on the delivery date, in writing, and keep the chain. Silence from a seller is evidence only if you have asked.
5. Refuse a price increase within twenty-four hours, in writing. Never let a demand sit unanswered; unanswered is how waivers are built.
6. Serve a termination notice under Article 565 of the Civil Code rather than relying on the lawsuit to terminate. The date of service is the date interest starts.
7. Pull the registered capital history twice — at signing and before filing. A reduction without notice to you is a claim against the shareholders.
8. Apply for preservation. It cost 0.7% of the claim here and it converted a piece of paper into a negotiating position.

Two of those eight are worth more than the other six: the written refusal of the price increase, and the capital history. The first preserves the claim. The second decides whether the claim is worth anything.

What this record does not tell you

It does not tell you what your claim is worth. One matter, one set of documents, one set of defendants, and a settlement rather than a contested final judgment. Different facts produce different results, and the same facts in front of a different court can produce a different number. The figures above are stated because they are true, not because they are typical.

Past results do not predict the outcome of any other matter.

About the author

Li Xinlei (Aaron Li) is a partner at Beijing Huicheng (Jinan) Law Firm in Jinan, Shandong, where he acts for foreign companies and individuals in international trade disputes, cross-border enforcement and construction claims. He has five years of international engineering and market development experience in the Middle East and South Asia, and writes on China trade lawyer practice from the buyer's side — what to check, what it costs, and what can actually be recovered.

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Disclaimer: This article provides general legal information and does not constitute legal advice for any specific case. Procedural rules and judicial practice change, and the appropriate route depends on the facts of the individual matter. Please consult and appoint a qualified lawyer for your own case.