Case Study – Resolution of Disputes

Vietnam and China: ‘Where are My Shrimp!?’

November 2017
Note: This is a fictitious fact situation and any resemblance to real characters is coincidental.

Characters

 Nguyen Tran Van: President and founder of Tran Shrimp Company, Ho Chi Minh, Vietnam
 Pham Tuan (Jerry): VP of Vietnam Association of Shrimp Farmers
 ZHANG Lin: CEO (until November 2017) of RT Supermarkets, Tianjin, China
 QIU Qin: CEO (from November 2017) of RT Supermarkets, Tianjin, China
 WANG Wei: Customs Broker, Beijing and Tianjin, China

Facts

Tran Shrimp Company (Tran Shrimp) is a small company located in Ho Chi Minh City, Vietnam and is
specialized in the sale of fresh frozen medium and large-size shrimp. The company contracts with
numerous shrimp fishermen and farmers and refrigeration experts who catch and fast freeze the
shrimp. This shrimp is then sold to supermarkets in Vietnam. Tran Shrimp has been successful thanks to
its reliable service and the top quality of its shrimp, however the President, Nguyen Tran Van (Van), feels
they need to move into international markets in order to advance to the next level and become a bigger
player in Vietnam. He has decided to commence with China as he believes there is a market for medium
and large size frozen shrimp with a limited cost for export. Chinese people love fresh shrimp, which they
can find in any supermarket, however these are generally smaller than the shrimp Van harvests. His
opinion, based upon his numerous trips to China, is that this niche could be very successful in China.

RT Supermarkets is a medium-sized supermarket chain located in eastern China. There are

approximately 25 retail stores mainly concentrated in the north and it is Chinese owned. It has a
peculiar structure as the RT stores in each city (Beijing, Tianjin, Harbin) or province place their orders
only for the stores in that city or province. The CEO of the RT chain in Tianjin (7 stores) is Zhang Lin
(Zhang) who has worked for the company for over 15 years. He is a Communist Party member and is
part of the ‘old boy’ network in Tianjin.

Zhang loves to travel, loves good food and wine, and is known as a womanizer who drinks too much and
then talks too much. His Communist Party colleagues have had enough of him as he has not adapted to
the changes in China since the arrival of President Xi in 2012. During an exploratory visit to Vietnam to
see if RT Tianjin could do business with Vietnamese suppliers, Zhang met with Van and discussed the
opportunities to import fresh frozen Vietnamese shrimp for his RT stores. Van made sure Zhang was
treated to lots of wine, food and other pleasures during his visit and they struck a tentative deal to
import Vietnamese frozen shrimp into China. A team (again including Zhang) planned to return to Hanoi
to negotiate the contract and finalize the deal 4 weeks after this initial visit. During this period, Van
spoke to his shrimp fishermen and farmers and refrigeration experts and decided to add numerous

© Stephen Murdoch
others to source him in the event the contract was finalized. This would be a huge success for Van and
Tran Shrimp.

The Chinese team, including Zhang and 2 Chinese lawyers educated in the U.S., returned to Vietnam 4
weeks later and, after 5 days of negotiation, finalized and signed a contract with Van and Tran Shrimp
for the import of 1 ton of fresh frozen shrimp (to be reviewed for further shipments after the sale of the
first batch). The contract was negotiated and signed in Hanoi. It was Tran Shrimp’s biggest contract to
date and, as Van hoped, was their entrance into the huge Chinese market. The contract did not include
any incoterms and was the first international contract negotiated by Van.

Tran Shrimp contracted with the extra shrimp farmers and refrigeration experts for this large amount of
shrimp as his current suppliers did not have the capacity to fulfil this order. Van did not know these new
people but they were recommended to him by his colleagues.

Tran Shrimp was able to complete the order within the specified time frame of the contract and the
fresh frozen shrimp were loaded on a refrigerated vessel in HCMC port. However, Van had some issues
in terms of the quality of about 30 % of the order – the portion furnished by the new suppliers. He said
nothing about this however as without these shrimp he could not fulfil the order as indicated in the
contract. The contract was very precise as it indicated that Tran Shrimp was responsible for these
shrimp until they were delivered to the RT Supermarket warehouse in Tianjin. Chinese quality
inspectors were also required to verify the quality of the shrimp upon their release from the Tianjin
Customs Warehousing after approval by Chinese Customs and Food Safety. This inspection would take
place before delivery to the RT warehouse in Tianjin.

The shrimp were then transported by refrigerated ship to Tianjin port. While the shrimp were in transit,
CEO Zhang was arrested by the Chinese police for accepting bribes and abusing the ethical code of the
Chinese Communist Party. He disappeared one evening and has not been heard from since. He was
immediately replaced as CEO of RT Supermarkets (Tianjin) by QIU Qin (Qiu) a ranking Communist Party
member and good friend of the Chinese Shrimping Association. Qiu totally disagrees with importing
these shrimp as he believes in the ‘China First’ Policy and is no friend of Vietnam. He would do virtually
anything to squash this order with Tran Shrimp.

The refrigerated vessel arrived in Tianjin port within the contract time and the shrimp were offloaded
with a delay of 3 days (due to ‘technical reasons’ at the port) and placed in a refrigerated Customs
warehouse in Tianjin for Customs and Safety Clearance. The Chinese Customs Broker, WANG Wei
(Wang), immediately contacted his friends at Customs and Safety, however he was told that there were
problems with the Safety Certificate of the Vietnamese government and the shrimp did not comply with
the Imported Food Safety regulations of the city of Tianjin and the government of China. They would
not be released and Wang advised his principal Van of this serious issue.

Van was in a panic and believed the Chinese could purposely sabotage the shrimp by turning the
refrigeration off in storage. He also had no idea of the problems with his Vietnamese safety certificate
as he had complied with Vietnam regulations. He had heard stories from Wang that Qiu, the new CEO of
RT, wanted to kill the deal and would do virtually anything to break the contract. Qiu, however, is

© Stephen Murdoch
demanding that Van arrange the immediate release of the shrimp to his RT warehouse according to the
terms of the contract which required inspection and then delivery to the RT warehouse. The Chinese
will pay nothing to Van until they have complied with the terms of the signed contract. As Chinese
lawyers drafted the contract, and Van had no independent legal advice, the contract seems very clear,
however there is no clause in the contract as to actions to be taken by either party in the event of a
disagreement or dispute. Van now believes this was purposely omitted by the Chinese lawyers. Van has
heard rumours from his Customs Broker that the Chinese are purposefully delaying the release of the
shrimp for 2 reasons: to please the Chinese shrimp industry; and because there are worries about the
quality of the shrimp.

Van has even instructed his Agent to subtly offer a bribe to the Chinese custom’s employees to permit
the immediate release of the shrimp. However, this carries all sorts of dangers and the Agent is ignoring
this request as he knows this could result in his going to jail.

Two day’s pass with nothing happening and the date specified in the contract for delivery has now gone
by with the shrimp still sitting in the Customs warehouse in Tianjin. Qiu, CEO of RT, contacts Van and
tells him the deal is off and he can come to Tianjin to pick up his shrimp as he no longer wants them and
will not pay for them. Van, in turn, says the lack of delivery has nothing to do with him and is the fault
of the Chinese Customs authorities. He is prepared to come to Tianjin and try to secure the release of
the shrimp on the condition Qiu accepts them for delivery. Van is frantic as the Vietnamese shrimp
fishermen and refrigeration specialists are now demanding payment and without the money from RT, he
cannot pay his suppliers. Jerry says they will sue Tran Shrimp if his friends who supplied and processed
the shrimp are not immediately paid. As Jerry was educated in California, he has no desire to negotiate
a solution as he knows the American way of resolving disputes. He belief is that talk does not get
results.

Issue

You are the Nguyen Tran Van. What are you going to do?

© Stephen Murdoch