Case Study: The "Silent PO" Trap—Why Habitual Practice Won't Save You in a China Supply Chain Dispute

The Incident A Singaporean company (the Buyer) had a long-term, stable sourcing relationship with a manufacturing facility in Tianjin, China (the Supplier). The business model was standard: The Singaporean buyer would secure orders from their downstream global clients, send a Purchase Order (PO) via email to the Tianjin factory, and the factory was supposed to confirm within 2 days via fax. After years of doing business, disputes arose over delayed payments. In May 2017, the Tianjin supplier warned that they would halt production if past-due payments were not settled. Despite this warning, the Singaporean buyer continued to accept new orders from their downstream clients and sent the POs to China. The Tianjin factory remained silent and did not explicitly confirm these new POs. Unsurprisingly, the factory did not deliver. The Singaporean buyer was hit with massive cancellation penalties from their downstream clients. The Legal Battle & The $480,000 Claim The Singaporean buyer countersued the Tianjin factory in a Chinese court, claiming $483,925 USD in lost profits and alternative sourcing costs (like buying new molds). Their core argument? "We have been doing business for years. Historically, the factory sometimes shipped goods even without formally confirming the PO. Under the CISG (United Nations Convention on Contracts for the International Sale of Goods), this is a 'habitual practice'. Their silence meant acceptance." The Court's Verdict: Silence is NOT Acceptance In a landmark ruling by the Tianjin High People's Court (listed as a typical case by China's Supreme People's Court), the judge dismantled the buyer's argument: The Silence Trap: Under CISG rules, silence or inactivity does not constitute acceptance. Unless a strict, undeniable industry custom is proven, a PO is just a piece of paper until the supplier explicitly signs or stamps it. Because the buyer couldn't prove this "habitual practice" (in fact, emails showed the buyer often had to beg the factory to sign), the unconfirmed POs were ruled legally invalid. No contract = No breach. The Chain Reaction of Liability: The court found that the Singaporean buyer continued to accept downstream orders after knowing the Chinese factory might halt supply. The court ruled that these downstream losses were entirely the buyer's own fault and beyond the supplier's foreseeable liability. The Financial Reality: The court slashed the Singaporean buyer's damage claim from $483,925 down to just $68,817 (only compensating for the few POs the factory had actually confirmed). Meanwhile, the buyer was still ordered to pay the factory over $627,000 for past goods and molds. The Truve Intelligence Takeaway Many overseas buyers fall into the trap of "relationship-based sourcing" (Guanxi) after a few successful runs. They assume a long-term Chinese supplier will automatically absorb their downstream POs. This case proves that in China, assumptions do not hold up in court, and silence is not a contract. At Truve Verify, we constantly remind global procurement teams: Your legal leverage is only as strong as your entity verification and your paper trail. Before you make commitments to your downstream buyers, you must verify your Chinese supplier's financial health, ensure they have the actual operational capacity to fulfill your order, and demand authorized, stamped confirmations for every single transaction.