Nice post 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!”[link no longer exists].

The gist of it is that Chinese courts basically ignore US judgments and here is why this is important to know:

Here lies an important lesson for American companies doing 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 US, such that you can sue the company in an American court. But unless that Chinese company has assets in the US 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 hire a licensed China attorney and sue the Chinese company in China. But it is right to say there is no point in suing in the United States.

We 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 the China lawyers at my firm get many calls from United States and European lawyers and companies seeking our help getting their US 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?

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

Caller: Yes.

China Lawyer: 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. 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?

China Lawyer: Did he charge you to get it?

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

China Lawyer: Sorry.

We 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.

Our advice stands.

  • David Yu

    I hesitate to call this a great post, because it seems so common sense, but great post nonetheless.

  • David Yu —
    Rule #1 here: NEVER hesitate to call one of our posts a great post. Just do it.
    Thanks.

  • Tim

    What about having your partner post a bond?

  • Nick Goseland

    “This means China’s courts generally will enforce an arbitration award from the jurisdiction in which the parties contractually agreed to arbitrate.”
    Extra added emphasis on “generally”. In fact, capitalize every letter in that word, and put a disclaimer behind it. Particularly since the recognition aspect of the NYC appears to be far more often complied with than the enforcement aspect.
    My apologies to David Yu, as this is probably just stating more of the obvious.
    And, as always, great post China Law Blog. I celebrate you.

  • Tim’s question about having your partner post a bond raises a very good point: A Chinese (or other foreign) judgment you cannot collect is more frustrating than not being able to get a judgment at all.
    Although there are a lot of laws which aren’t respected, when it comes time to enforce your judgment you’ll find that limitation of liability by share capital is one which is observed all around the world.
    So your judgment against XYZ Co., Ltd. in Seoul doesn’t do you a bit of good if the managers of XYZ clear the bank accounts out once they know a dispute is possible (you should silently file a pre-judgment attachment against accounts and against shares in the company, then start blustering about possibly taking legal action) or if the company is basically an insolvent shell.
    Always, always, always take reliable security in advance. If your partner can’t get a domestic financial institution or insurer to put up a letter of credit or a performance bond, that should be a signal to you. Where nobody in China wants to be this guy’s unsecured creditor, why should you volunteer?
    Looks like I’m going to do a post on this topic over at my Korea Law Blog.

  • Taking Judgments To China (And Korea), Let’s Not Sue Twice

    I often write on how American (and other companies) must not rush into suing Chinese companies in their home country because such lawsuits are usually of no value at all. See my posts on this here and here. Brendan Carr over at the Korea Law Blog just …

  • Susan

    Shenzhen ___________[editor deleted company name] steals American images, copy written designs and patents and cheaply reproduces them. Their lack any integrity, creative ability or quality causes them to take what others have created and diminish the brand name. This they have done to company and many others. Unless I can speak Chinese and travel to China and hire a Chinese Attorney I have little to no recourse. Truly a sad situation that costs American Companies millions if not billions of dollars.