China Law Blog

Well not always, but more often than credited. 

In a recent post on the Citizen Yang Blog, entitled "Local Governments Lose 30-50% of Administrative Lawsuits," Vermont Law School Professor Tseming Yang notes that "local governments lose an astonishing 30-50% of law suits in China."  Most of these cases "involve land seizures, housing relocations, social security and state-owned-enterprise reform (in essence, folks getting laid off from their state company jobs)."  Professor Yang is "astonished" by this success rate, particularly when factoring in that many of these cases were outside Beijing and Shanghai:

The assertion that local governments oftentimes act contrary to the law and are sued as a result seems pretty unremarkable. However, I am astonished that the plaintiffs appear to win so often. From all the things I have heard, the plaintiffs most of the time come out on the losing end. My sense was that judges would not ordinarily rule against local government officials in such matters. Even if judges in large metropolitan areas like Beijing and Shanghai may be more professional, and so such a high loss rate seems likely in such regions, that is less the case in the rural areas and away from the coast.

I am not astonished by these numbers.  In a previous post, entitled, China Rises -- The TV Show/"Food is Heaven," I noted the success rate small players had in their lawsuits in Chinese courts against big polluting companies and ascribed it to fair courts:

This episode did a story on fish farms wiped out by pollution emanating from an up river leather factory.  The story focused on a Beijing lawyer trying to determine whether he had enough evidence to sue the leather factory for damages on behalf of the fish farmers. This Beijing lawyer has won about half of his 70 environmental cases against Chinese companies.  The lawyer talked about how the leather factory was violating the law but corrupt local authorities were ignoring the violations.  This lawyer's success rate bolsters my view and that the Chinese courts generally rule fairly in business disputes.  The Beijing central government controls China's courts and Beijing generally wants corrupt local party hacks reigned in.

Every time I tout the fairness of China's courts, however, I still feel called upon to make clear I am not a naif.  I fully realize that the Chinese courts virtually never rule against the government when central government policy is at issue.  And, when I am talking about fairness, I am completely ignoring criminal and political cases.  I also recognize that even though China's courts are controlled from Beijing, the chances of getting a fair trial are much greater in prosperous commercial cities like Shanghai, Tianjin, or Qingdao, than they are in a small city in Anhui Province.  I know too that a foreign company prevailing against a powerful local company in a Chinese court is always going to be less likely than if all parties are of the same strata. 

So China's courts are not always fair. 

But, they are fair way more often than credited by the western media and I am absolutely convinced (as are all of the Chinese lawyers with whom we work) that they are fair often enough to make it as ill-advised to do business in China without written contracts or Intellectual Property (IP) protections as to do business that way in the West. 

Even if China's courts are fair only 60% of the time, this is enough to cause the rational Chinese businessperson to make decisions based on legal ramifications. 

There is a commonality to judicial corruption worldwide.  Corrupting a judge is expensive.  The greater the amount at issue in the case, the more the judge will charge for a favorable decision.  The more publicly visible the case, the more the judge will charge.  The more the judge has to trample the law to reach the decision for which he or she is being paid, the bigger the bribe will need to be.  Local, trial court judges (who are most likely to know the lawyers and/or the parties) are more likely to be corrupt than appellate court judges.  Supreme Court Judges are the least likely to be corrupt. 

All of this means that even in the most corrupt legal systems, the better your contract, the more it will cost your opponent to prevail and the better your chances will be as you climb each step of the court system and the more it will cost to change that.  When I tell clients this, their reaction is usually, something like, "great, all this means is that my opponent will need to pay the judges half a million dollars to beat me, rather than only $10,000. That still doesn't help me." 

Oh yes it does. 

If the other side is going to need to spend $500,000 to beat you, they should be willing to settle with you for even more than that.  They should be willing to pay you more than a judge because settling with you has a greater certainty of finality and outcome and because it has a greater certainty of not getting arrested for bribery.  If you have no contract or a lousy contract, the other side may be unwilling to pay you anything, figuring a small judicial bonus is all it will take to assure legal victory or that you will choose not to sue at all. 

Chinese courts generally fairly resolve commercial disputes and they are continuing to improve.  China's courts already are sufficiently fair that Chinese businesses for the most part do consider the legal ramifications of their actions and act accordingly. 

Bottom Line:  There is no justification for those doing business in China to fail to take the same legal precautions there (such as written contracts and IP protection) as they do when doing business in the West.  Those who justify their failure to do things by the legal book in China because "the courts don't enforce the law there anyway" are both empirically wrong and foolish.