China Law Blog

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 did a post, entitled, "Enforcement of Foreign Judgments in Korea -- Tips and Traps," on enforcing foreign judgments in Korea that contains good advice for handling international litigation anywhere.

Not surprisingly, he has received similar phone calls from American companies seeking to enforce essentially worthless U.S. judgments in Korea:

For some reason, they [American companies] often think it’s a great idea to sue in the United States (American courts are better, after all) and are egged on by US lawyers to plow through to a default judgment when the Chinese defendant doesn’t turn up. I’m sure they think Aha! Gotcha, you bastards! when that default judgment is in their hands.

But the default judgment is basically worthless, as Dan Harris explains:

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 have had this exact same conversation dozens of times from my vantage point here in Seoul, including cases where the client’s US lawyer in Bakersfield or somewhere like that has persisted in US litigation despite the existence of an arbitration clause in the agreement.

Carr then explains how US judgments can have value in Korea, but service in those cases must be done pursuant to the Hague Convention, which convention both Carr and I have seen ignored far too many times:

In my experience, reciprocity between US courts and Korean courts is not a problem, and in commercial disputes public-policy considerations rarely are raised. That leaves jurisdiction (check the clauses of your agreements, and get an opinion on Korea’s Private International Law Act), and service of process. By far, the most common and tragic mistakes I see involve the US lawyer’s ignorance of the Hague Service Convention, or (worse) unwillingness to let the time required for proper service delay the commencement of proceedings.

Carr then notes there is no point in suing a company without assets and before giving the Korean company the chance to empty its corporate coffers by your threatening to sue them, you should first bring a pre-judgment writ of attachment to tie up its assets. I know from experience that Korea is a particularly good jurisdiction for such actions as the courts there typically require a very low bond and the attorneys there describe these actions by saying "easy to arrest, hard to release. Carr's proposed solution is to "Always, always, always take reliable security in advance."

Problem is that in China, such security is still rarely given, which makes due diligence all that more important.

I would love to hear from readers regarding their experience in convincing the Chinese companies to provide any real security (letter of credit, performance bond, etc.).