The Chinese tiles exported to Brazil

by Rui Fernandes, IA Group

A Chinese credit insurance company asked us for our advice regarding a USD 3 million claim in Brazil. Their client – an exporter - was determined to start legal actions in this highly disputed case in the ceramic tiles industry.

Initially, IA’s local team advised against legal proceedings. Particularly since IA knows from experience that legal actions are expensive and highly time-consuming in Brazil, where a dispute case in court could easily take five years. Instead, IA proposed to investigate the situation locally and try to reach an amicable settlement. If this proved impossible, we would proceed with legal actions. The client agreed and entrusted IA with this case.

We scheduled a meeting with the company’s president owing the USD 3 million, a major corporation based in the south of Brazil. He acknowledged the debt amount but claimed that his company had suffered a financial loss due to the delivery of the incorrect goods. IA asked him to quantify the loss, but he stated that this was difficult because they continuously received complaints from the end-users. The problems only appeared after the floor tile company installed the floor tiles.

We asked the debtor to provide IA with all available documents supporting its claim regarding the complaints and incurred losses. A few days later, IA received many documents, mainly internal reports specifying each alleged complaint presented by the end buyers but not the original complaints or proof of the losses. We made an analysis and shared the results with the credit insurance company.

As a next step, IA scheduled a new meeting at the debtor’s premises, and this time we invited the policyholder (the credit insurer’s client) from China to travel to Brazil to join us. The company’s president didn’t attend the meeting. However, debtor’s financial manager and purchase manager met us. During this very tense meeting, both parties discussed many technical specifications; they blamed each other and did not accept each other’s arguments. IA had to intervene to avoid an escalation of the conflict. IA convinced both parties to have a cooling down period of two days. Once cooled down, we scheduled a new meeting where we insisted on the company’s president’s attendance.

During the subsequent meeting, we made it clear that it would be in the interest of both parties to focus on a solution. The Brazilian debtor presented the proposal of paying USD 2 million against full and final settlement. The Chinese creditor, however, did not want to give up the remaining USD 1 million. Our negotiators proposed to separate the undisputed part of the claim from the disputed amount. Intense negotiations between the parties followed and resulted in a provisional agreement. In order not to lose momentum, our legal team started drafting a contract immediately. However, the debtor´s president mentioned he had no time to wait and left the meeting requesting us to send the draft agreement by email.

The draft agreement went back and forth for several days before a final version was reached that was acceptable to both parties. In the meantime, the policyholder had returned to China. When both parties finally accepted and signed the final version, we urged the debtor to immediately pay the agreed USD 2 million to settle the undisputed claim. Suddenly, the debtor informed us they were in the process of obtaining a bank loan and could only make the payment as soon as the bank granted the loan.

After offering the debtor a clear deadline, we warned the debtor that we would file for the execution of the signed payment agreement. After which, the payment of USD 2 million was finally transferred, leaving the disputed balance of USD 1 million.

IA scheduled a new meeting with the debtor to negotiate a solution for the disputed part of the claim. This time, the debtor was much better prepared and showed us specific evidence to warrant a counterclaim against the Chinese supplier. This could, in our professional opinion, still lead to time-consuming and expensive legal action in court.

We advised our client to close the file. Our client (the credit insurance company) and their client (the policyholder) were satisfied with this outcome. IA rescued the relationship between the Chinese exporter and the Brazilian tile company, and they could continue to do business with each other.