China Law Blog

Nice post up today over at Asia Business Intelligence on the value (or lack thereof) of US judgments against Chinese companies. The post is entitled, "What Happens When Your Chinese Supplier Says: Sure, Go Ahead, Sue Me!" and it is based on a 2004 article written by law professor Donald Clarke of the Chinese Law Prof Blog. The gist of it is that Chinese courts basically ignore US judgments and here is why this is important to know:

My point in recommending you read Professor Clarke's article is this: here lies an important lesson for American companies who do business with China. Don't expect you can take an American judgment against a Chinese company to China and sue upon it. Your American judgment will not be recognized. Your more likely remedy would exist when the Chinese company has established sufficient presence in the U.S., such that you can sue the company in an American court. But unless that Chinese company has assets in the U.S. upon which you can levy, you are unlikely to recover very much at all.

What implications does this have, exactly? For importers, for example, the Golden Rule is to guard your money carefully -- before you even enter into a transaction with a Chinese exporter. Do not pay up front and then expect to receive product. You may not receive it once the money has left your hands. You will simply have no recourse.

This post is wrong to say "You will simply have no recourse," because there is recourse to the extent that you can sue the Chinese company in China. But it is right to say there is no point in suing in the United States.

I wrote on this same issue back in March, 2006, in a post entitled, "Enforcing Foreign Judgments in China -- Let's Sue Twice." In that post, I talked about how my firm gets many calls from United States and European lawyers and companies seeking our help getting their U.S. or European judgments enforced in China against Chinese companies and then I played out a typical such call:

Caller: I have a two million dollar judgment against Chinese company X in China, can you help me enforce it?

Me: Is it a default judgment here in the United States?

Caller: Yes.

Me: The Chinese courts don't enforce United States' judgments and though they often at least look at the basis for a United States judgment on the merits, they don't give any credence whatsoever to United States default judgments. To collect against this company in China we will need to sue them anew in China. Did you discuss this possibility with your U.S. lawyer before you sued here?

Caller: [long silence] .... Yes. He told me getting a judgment here couldn't hurt?

Me: Did he charge you to get it?

Caller: Yea. I had to pay him and I had to pay all sorts of people to get that company served in China.

Me: Sorry.

I concluded that post with this advice:

Bottom Line: Don't bring a lawsuit outside China against a Chinese company without first making sure there is some benefit in doing so. Better yet, put an arbitration provision in your contract with Chinese companies. China (and just about every other country, for that matter) is a signator to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. This means China's courts generally will enforce an arbitration award from the jurisdiction in which the parties contractually agreed to arbitrate.

My advice stands.