Resolving the Dilemma of Unilateral Authorization Termination by a European Brand
Case Background
Our firm represented East China-based machinery enterprise Company A (Plaintiff) in a chain dispute arising from European industrial giant Company B’s (Defendant) unilateral cancellation of its exclusive agency rights in China. An agency relationship was established in 2006, with Company B issuing written authorization letters for two consecutive years, promising comprehensive technical support and long-term cooperation. However, while Company A held tens of millions worth of unsold inventory, Company B suddenly issued a statement to Chinese clients:
- Designated a competitor in Northern China as the sole authorized distributor.
- Declared Company A was “no longer the designated importer”.
- Implied Company A might sell competing products.
This caused numerous downstream distributors to collectively return goods, resulting in massive losses for Company A due to unsold inventory.
Case Difficulties:
- e Authorization characterization challenge: Did the authorization letter constitute contractual obligations? Was the unilateral revocation a breach?
- Loss quantification dilemma: Could claims for both unsold inventory returns + lost contract profits be asserted simultaneously?
- e Convention applicability conflict: The CISG did not explicitly regulate liability for termination of agency authorization.
Our Firm's Breakthrough Four-Step Approach:
1.Reconstructing the Transnational Transaction Relationship
- Penetrated the “sale + authorization” dual structure: Built a continuous transaction evidence chain using customs declarations and payment records.
- Argued the authorization letter constituted an ongoing guarantee: Transformed promises like “provide technical support” and “establish long-term cooperation” into implied contractual obligations.
2.Innovative Application of International Convention
- Activated CISG Article 7 (Good Faith): Proved the authorization withdrawal violated the parties’ “established practices”.
- Overcame CISG limitations on returns: Created a right of return based on the practical reality that remedies like price reduction were impossible.
3.Precise Quantification of Indirect Losses
- Loss Type | Law Firm Evidence Strategy
- Inventory backlog loss — Coordinated with customs to obtain the dutiable value of unsold goods.
- Lost anticipated profits — Compared historical sales data to build a profit projection model.
- Reputational damage — Collected written evidence of terminated cooperation from downstream distributors.
4.Transnational Enforcement Early Warning Mechanism
- Applied for freezing Company B’s domestic accounts concurrently with litigation.
- Created an asset intelligence dossier on Company B’s European branches.
Victorious Results:
- Full return supported: Court ordered Company B to accept all unsold inventory and refund the purchase price.
- Indirect losses covered: Compensation awarded for tariffs/warehousing fees/anticipated profits.
- Industry rule reshaped: Established the international agency practice requiring “synchronization of authorization revocation and inventory clearance”.
This Case Showcased Our Firm's Core Competencies:
- Deconstruction of transnational authorization systems: Transforming commercial authorizations into actionable contractual obligations.
- ° Dynamic modeling of unsold losses: Accurately quantifying intangible losses like future earnings.
- Flexible CISG application: Invoking the good faith principle in areas left uncovered by the convention.
- y Eurasia execution channel: Establishing a preventive cross-border asset preservation network.
Benchmark Significance:
This case shattered the traditional perception of “agent vulnerability”, demonstrating our firm’s capability to regulate international commercial dominance using Chinese judicial procedures, providing a rights defense model for transnational cooperative enterprises.
