The Invoice Said "Deposit". The Court Said It Was Only a Payment.

Many overseas buyers believe that if they pay a "deposit" and the Chinese supplier fails to deliver, Chinese law gives them back twice the amount. Sometimes it does. Often it does not, and the reason is one sentence the contract never contained.

I acted for an overseas buyer in exactly this situation. The court ordered the supplier to return the start-up payment and pay the compensation the contract set out. It refused the claim for double repayment.

What happened

My client, an industrial services business, ordered a batch of specialised instrument modules through the Chinese manufacturer's own online procurement portal. On the portal, the manufacturer confirmed the specification, delivery in batches, a software licence, factory verification and what would happen to money already paid. Both sides then signed electronically.

My client paid a start-up payment. The balance was due as each batch passed remote acceptance.

The delivery date passed. The manufacturer changed its control chip design several times and said a component had been discontinued. My client agreed to a short extension and to batch substitutions. The demonstration material the manufacturer then uploaded did not match the contract's serial information, and the agreed temperature-range verification was never completed. The two sides kept discussing fixes in the portal's support tickets until the manufacturer admitted it could not reach the confirmed parameters in the near term.

My client sent a termination notice through the portal and asked for the start-up payment back, with the fixed compensation the contract provided.

What the manufacturer argued

• The support tickets were only technicians talking, and did not bind the company.
• The buyer had stopped acceptance because its own budget changed.
• Even if money had to be returned, the buyer could not have double repayment, fixed compensation and interest all at once.

The manufacturer said it had bought special components, but it produced no purchase, assembly or test records that matched the order line by line.

How the court dealt with it

The portal created a contract. The portal records set out the goods, price, delivery, payment and refund rules. Both sides used verified company accounts to confirm and sign, and my client paid against the order. That was enough.

The support tickets counted. Every ticket was linked to the same order, and the manufacturer's technical replies matched its version records, remote demonstrations and management-side confirmations. The court treated them as the manufacturer's own statements.

The termination was valid. After several extensions, the manufacturer still had not delivered conforming modules or completed the agreed verification. The contract ended when the termination notice reached it. Later talk about turning part of the money into a repair service package never produced a new order, so it changed nothing.

The start-up payment was part of the price. The contract described it as the first instalment of the price. It said nothing about securing performance, forfeiture or double repayment. The contract also had its own remedy for non-delivery: return of money paid plus fixed compensation. The court held that the parties had chosen that remedy, and refused double repayment.

No interest on top. The fixed compensation covered the ordinary cost of being without the money, so the court did not add interest.

The rule behind it

Chinese law allows a real deposit (定金) that works as security: if the party who received it fails to perform so that the contract's purpose cannot be achieved, it must pay back double (Civil Code art. 587). The deposit cannot exceed 20% of the contract price, and any excess is not a deposit at all (art. 586).

The label on the money does not settle it. Where a party pays something called a guarantee, security, earnest money or a "deposit" in the loose sense, and the contract does not agree that it has the nature of a 定金, a court will not apply the double-return rule (SPC Interpretation on the General Part of Contracts in the Civil Code, art. 67). In English documents the problem is worse, because "deposit" is used for every kind of upfront payment.

If you want a real deposit

Decide first whether you want this. A deposit cuts both ways, and if you are the one who walks away, you lose it.

Keep the record the court relied on

• Use a verified company account on any supplier portal, and keep the signing records.
• Keep version histories and support tickets linked to the order number.
• Give any extension in writing, with a new date.
• If the supplier proposes turning your money into something else, agree it as a new signed order or say no in writing.

Part of my guide to supplier disputes in China.

If you have paid a Chinese supplier upfront and the goods have not come, send me the contract and the payment records. Discuss your supplier dispute →

This article is based on matters I handled. Names, products, places, dates, amounts and other identifying details have been removed or changed, and some facts have been combined. It describes how one court dealt with one set of facts and isn't a prediction for any other case.