Just came across a truly excellent article, entitled, “Patent Procurement and Enforcement in China: A Field Guide.” This guide was written by four Morrison & Foerster patent lawyers. : Ken Xie, David YangGlenn Kubota  and Peng Li (formerly with MoFo).

The article is in two parts. Part I consists of a nuts and bolts overview on China patent procurement. If you are considering filing a patent in China, you should read Part I of this article.

But it was Part II that I enjoyed most. Part II is entitled, “Patent Litigation in China: An Overview” and I liked it because it is a very clearly written and very helpful overview on Chinese litigation. Though focused on patent litigation, much of what it says applies with equal force to China commercial litigation in general.  I particularly liked its section on the “Practical Issues to Consider When Litigating Patents in China.”

That section started off discussing some of the advantages and disadvantages of litigating in China. The advantages for a plaintiff include a fast docket (typically less than a year to trial) and generally lower overall attorney’s fees (than the United States) due to a lack of discovery. On the flip side, the lack of discovery makes it difficult to collect evidence to prove up your claim  and to establish damages. The article notes that, “outside the few exceptional cases, large monetary awards are unusual” in Chinese cases. It then offers the following “practical Art of War advice”:

  • Because there is no discovery in China, collect as much evidence as possible before filing suit. “For every piece of evidence collected, strictly observe the evidentiary rules, including any necessary notarization, legalization, and translation requirements.”
  • “Choose your venue wisely. Although Beijing and Shanghai are popular venues for foreign entities, the size of the dockets in these jurisdictions has caused a considerable slowdown in how quickly cases go to trial. At the same time, be sensitive to the political environment of the venue and take into consideration current events; certain venues in China are friendlier to certain foreign entities than others.”
  • The article then provides the following (among others) China litigation tips:
  • “Think fast and move fast. Extensions in China are not guaranteed and the element of surprise is very much a part of the gamesmanship of … litigation in China. Expect the unexpected and be ready to improvise and adapt. In China, everything is dynamic.”
  • “Carefully select your local counsel. For the same reason an attorney in Los Angeles would not be considered local counsel in Texas, an attorney in Beijing is not “local” in other cities of China, such as Guangzhou, where people speak different dialects of Chinese. It is important that the local counsel be familiar with the judicial landscape. Sometimes it may be necessary to engage a Chinese attorney who is an expert in Chinese patent law and trial procedures, and also retain local counsel who is familiar with the local administrative agencies and judges.”
  • “Show up to all the proceedings. Unlike the US, where courts often never see the faces of the litigants and judges don’t really consider it important for the actual parties to be present, some judges in China consider it important that representatives of the litigants attend the proceedings along with their attorneys. This can be especially true for venues outsides of Beijing and Shanghai, where homage may be important. In this regard, be mindful of the time it takes to obtain a Chinese visa.”
  • “Retain bilingual US attorneys familiar with both US litigation practice and China legal practice to monitor the case. Although many attorneys in China are educated in English, not all such attorneys are accustomed to dealing with US clients. In certain situations, it may be valuable to involve a US attorney to bridge any communications gap that may exist and to manage the case proactively in order to minimize surprises….”

All good advice, the one about local counsel particularly so as I am aware of too many cases where American companies chose to use just their Beijing or Shanghai counsel in the hinterlands where they should have used truly local counsel to bolster their litigation team. They then complained about having gotten “home-towned.”  Well yes. Knowing when to use truly local counsel can be difficult because the calculation involves far more than just geographic distance.  For example, it probably would not be a problem to use a Qingdao lawyer in a Beijing court or vice-versa, but it almost certainly would be a problem to use a Qingdao lawyer in a Shanghai court and vice-versa.  The difference isn’t the distance, it’s the language and the culture.  But, it is more than just the language and the culture, it is also the case itself. For example, though it would probably be fine to use a Beijing lawyer in a case in Qingdao involving a straight-on breach of contract action against a mid-sized privately held Qingdao company, whereas it would probably not be a good idea to use a Beijing lawyer to defend your China managing director against charges of having bribed a local official.

Choosing your China lawyer for litigation is complicated.

What do you think?


Been a bit consumed preparing for a China seminar I am co-hosting.  Today I spoke with Sage Brennan, one of the consumer products panelists and we ran through some possible questions.  I threw out the following question as a possibility:  “What are some of the most pervasive myths you see about the Chinese consumer.”  Sage’s response was that would take him at least an hour to answer.  I then said in mock surprise: so you mean all the headlines about China’s consumers are not accurate.  We laughed.  I told him it was the same way in law and that there are certain things that are viewed almost as gospel and they are just flat out wrong.

My favorites follow:

1.  There is no point in having a contract with a Chinese company because they will just violate it anyway.  For a rebuttal of this, check out  China Contracts Make Sense.

2.  There is no point in registering your intellectual property in China because it will get stolen anyway.  For a rebuttal of this, check out China: Do Just One Thing. Trademarks.

3.  Corruption makes China impossible.  For why this is not exactly true, check out China Corruption By The Numbers.

4.  For some of the reasons set forth above, there is just no point in suing a Chinese company in China.  For a rebuttal of this, check out Litigating in China.

What myths about China are there in your industry?

My firm has been gearing up for a couple of CIETAC commercial arbitrations against Chinese companies and one thing we can state with near certainty is that neither will settle. The reason for this is Chinese companies virtually never settle their in-country litigation matters. In the United States, something on the order of 97% of all cases in the United States settle or are otherwise resolved before trial.  I actually think the settlement numbers are even higher on business litigation matters, but I am not aware of any study on this.  Nearly every litigation matter settles in the United States because the costs are so huge for litigating a case through trial and both parties usually have a pretty good idea of how the court or arbitral body is going to rule.

Neither of these things hold true in China where so many of its laws are too new to have clear Supreme Court decisions on them.  Without clear and established law, nobody knows how a court will rule.  Parties in the United States can settle cases because they essentially agree on the likely outcome.   There is always a 10% chance of an aberrant verdict either way, but within the 80% of expected rulings, the numbers are usually close enough so that both sides can reach agreement at some number near the top of the bell curve.  But since China cases have no bell curve and no 80%, settlement is as much of a gamble as trial.  Since going to trial often costs only marginally more than not going to trial, there is little incentive to do anything but see the case through.

Adding to this is that many cases in China do not require an outside lawyer (this is also true of CIETAC arbitration) so Chinese companies often fight their lawsuits without having to pay for any lawyer at all.  Chinese courts rarely award the winning party its attorneys fees and they are also slow to award much in interest, further reducing the risk of going to trial and further reducing the incentive to settle.

On top of all this, even when one company prevails in a China lawsuit, collecting from a Chinese defendant company is typically anything but easy.

We hear that around 90% of the business cases filed in China actually go to trial. So if you are going to sue in China, you must be prepared to participate in the litigation for the long haul.

All of this only increases the need to have a well-written (preferably in Chinese) clear-cut contract with clearly set out liquidated damages provisions for breaches.  Such a contract will not only decrease your chances of ever needing to litigate, the certainty it will bring will make settlement of any dispute far more likely.  A contract that is so clearly written that both sides will have an easy time predicting how the court will rule increases the chances of settlement.  A contract provision that requires the losing party pay the winning party’s attorneys’ fees also helps, but such a provision may not always make sense.

China litigation. Have fun with that.

For more on litigating against Chinese companies, check out the following:

The China Law Insight Blog has a very thoughtful post entitled, “Evidence Collection and Alternatives to “Discovery” in P.R.C. Litigation.” The post does an excellent job explaining the lack of pretrial discovery in China court cases and why American companies and lawyers tend to be so ill-prepared for this. To grossly summarize and oversimplify the article, foreign (especially American) companies need to know the following three things about litigating in China:

  1. Once a case begins in a Chinese court, things move fast. Very fast. Within a month or so of filing a case the court will issue a notice of the evidence production period and that period is usually 30 days. This means you will need to provide the opposing party and the court with enough evidence to win the case and that evidence must be translated into Chinese. 
  2. Chinese courts strongly favor documentary evidence over other kinds of evidence, including live testimony. 
  3. Chinese courts do not have discovery as we know it in the United States.

I am going to add one non-procedural item to the list of things that Americans should know about Chinese courts and that is that the courts tend to look much more at the equities of a case (as opposed to the law) than do American courts.

All of the above mean that American companies involved in litigation in China must engage in the following strategies so as to increase their chances of prevailing;

  1. If you are going to pursue litigation in China (or if you are sued in China), you need to gather up your evidence and have it translated as quickly as possible.
  2. Your case is likely going to rise or fall on the strength of your documentary evidence and if you do not have strong documentary evidence you probably should not bring the case. And as I discussed in the post, “China Contracts. Email Not Usually Included,” Chinese courts in determining the terms of a contract typically stay within the four corners of a signed document and tend to give little credence to email or oral “understandings.”
  3. You should not count on being able to get evidence from your opposing party.
  4. Think about the equities of your case, not just the law. Ask what is fair and what would be good for China.  

If you want to read more about litigating against Chinese companies (in China or elsewhere), check out the following:

What do you think?

Excellent article in Asian Lawyer Magazine by Fangda lawyer, Gordon Gao. The article is entitled, “Dangerous Myths About Litigating in China.” 

The article puts forth the following propositions:

1. Big Western companies often do not know how to litigate in China. They think the way to litigate in China is by having their BigLaw Western firm run everything and that is a big mistake.

2. Big Western companies often lose and lose big in China and then when that happens they blame China. 

He is 100% right and I will raise him one by saying the same thing is true in reverse with respect to Chinese companies in the United States and the same thing is true just about everywhere.  

Let me explain.

Gao’s thesis is that multinational companies “allow their beliefs and assumptions about cultural differences to prevent them from seeing the reality of the [litigation] situation in front of them.” He then talks about a China IP litigation matter lost at the lower court by Schneider Electcic and then settled by Schneider without pursuing all possible appeals. Gao notes how “to many observers, this case offered a clear example of how Western multinationals simply cannot get a fair hearing in Chinese courts,” but Gao writes on how “things could have turned out very differently” for Schneider.  

Gao lists the following as what went wrong on Schneider’s case:

Schneider hired multiple law firms, both Chinese and foreign. On an informal basis, Schneider consulted still other firms (including my firm, Fangda Partners, on an unpaid basis). But since foreign firms are barred from appearing in Chinese courts, the firm that actually argued the case before the court was a relatively small Beijing firm. However, strategy and arguments were chiefly formulated by a large and well-known British firm, which coached the Chinese firm.

If Schneider had been sued in any other country, would it have used the same strategy? I doubt it. In Europe or the United States, Schneider would have immediately sought the best litigators with experience in the relevant jurisdiction. Instead, it opted for a team of firms led by a familiar international name–albeit one that, by Chinese law, could have zero experience of Chinese courts.

In contrast, Chint hired only one medium-sized Chinese firm hailing from Wenzhou, where the case was heard. From accounts I received from Schneider in-house lawyers who attended the trial, these shrewd and articulate lawyers outmatched their Beijing adversaries in court thanks in part to their thorough understanding of the issues.

Gao then talks of how he thinks Schneider still could have prevailed on appeal, but instead, chose to settle:  

So why did Schneider settle for more than half the damages award? The president of Schneider’s China operations told the Financial Times at the time that the company was “happy to stop fighting.” (A spokesperson for Schneider declined to comment for this article.)

Perhaps the company had had enough of what many regard as the unpredictable, inscrutable Chinese court system. Avoiding the courts at any and all cost has long been the dominant litigation strategy of multinationals in China. Like poor Bouriscot [of Madame Butterfly fame], they can become so fixated on the differences between China and the West that they cast more sober analysis aside. 

Now I have absolutely no idea what happened in the Schneider case (beyond what other people have said about it) nor do I have any idea of what Schneider’s chances on appeal would have been, but I can tell you that I have many times seen what Mr. Gao describes. I have seen it with foreign companies in China and elsewhere and I have seen it with Chinese and Korean and Russian companies in the United States. I have even seen it with American companies in other states.  The “it” to which I am referring is an over-reliance on existing counsel and an unwillingness to delegate sufficient authority to local litigation counsel.

I would love to be able to tell my own stories to be able to back all of this up, but I cannot talk about the times I have seen this sorts of mistakes, without either revealing client confidences, angering clients and attorneys who I do not wish to anger, or both. So you will just have to trust me when I say Mr. Gao is speaking the truth and that when you have a case in a foreign country, you should seek out top-flight local counsel and give them enough authority to actually run your case.

When you are involved in a litigation matter in a foreign country, you are on someone else’s turf and usually the best way to try to neutralize that is to use the right local attorneys. I do not care how good your United States or British attorney is, that attorney does not know the local Chinese courts and judges as well as Chinese lawyers who are allowed to appear in Chinese courts. Your regular counsel can and should play a role in much of your litigaiton oversees, but that role should usually be more in the nature of in-house litigation counsel, not first chair trial counsel.  

What do you think?

By Steve Dickinson

The Chinese press has been very excited to report this week on an increase in foreign litigants making use of the Chinese courts. Under the somewhat misleading title of “Commercial disputes with foreign nation [sic] flood Chinese courts,” the reports state that the PRC Supreme People’s Court reports the following statistics:

• Through November of 2010, 13,131 cases involving foreign elements were heard by the Chinese courts. This is a 15% increase over the previous year.

• Companies from the United States were the most numerous litigants, followed by Japan, South Korea, Germany and Britain. This group accounted for 40% of the foreign related cases.

• The vast majority of cases were commercial, with only 4% of the cases concerning criminal matters.

Though 13,000 cases is hardly a “flood” of litigation, this report does show an increase in foreign acceptance and use of the Chinese legal system for resolution of commercial disputes.

Why would any foreign litigant want to make use of the Chinese courts? The most common reason is that there is often no alternative. Take a typical example. A U.S. company has a contract with a Chinese factory to manufacture a product. The Chinese manufacturer has no assets outside China and no contacts with the U.S. other than this one contract. The Chinese manufacturer delivers defective product and delivers late. The U.S. company as a result suffers substantial damage.

What legal recourse is available to the U.S. company? As a practical matter, the only recourse is litigation or arbitration in China. Why is this the case? Because if the U.S. company sues the Chinese company in the U.S. and wins, its judgment will be worthless because Chinese courts will not enforce it. Say the U.S. company thought ahead and provided for arbitration in China. China is a signatory to the New York Convention on the enforcement of arbitral awards. China should therefore enforce an arbitration award in favor of the U.S. company. Right? Not necessarily. China is one of a group of Asian countries (including Indonesia and Thailand) that do not have a very good record of enforcing foreign arbitration awards. In particular, Chinese courts rarely enforce foreign default arbitration awards obtained when the Chinese company fails to show up to contest the arbitration. This means that all the Chinese company has to do is refuse to participate in the U.S. arbitration and it will probably never need to pay on the default award.

All of this means that in the situation I described above, the best and perhaps only recourse will be to pursue legal action in China. Note that concerns about fairness of Chinese courts and arbitration panels are simply irrelevant in this situation. A legal action in China is the only course of action. So the rational foreign business will work to ensure that it makes the best possible use of the Chinese legal system to maximize their prospects of success. Our firm (always working in tandem with licensed Chinese lawyers/litigators have had excellent success pursuing litigation in China when the foreign company we are representing has used a contract that well-prepared it for a China lawsuit.   

The most common mistake we see by foreign companies is using a contract that is not enforceable in China. By doing this, they ensure the contract is not enforceable anywhere in the world. How does this happen? They do this by writing a contract with these features:

• The contract is governed by U.S. law.

• The exclusive forum for dispute resolution is litigation in a U.S. court.

• The language of the contract is English.

Foreign companies are frequently quite proud that they have “forced” the Chinese side of the contract to accept these onerous terms. Apparently they think the terms protect the foreign side because it forces the Chinese side to file a lawsuit outside of China and subjects them to foreign law and procedure. However, this is an illusion. How many times does a Chinese manufacturer file a law suit? The party that will normally want to file a law suit is the buyer of the product, not the seller. 

The Chinese side is usually happy to sign a agreement with these dispute resolution terms because it fully understands 1) that if it wants to sue the foreign company, it will need to sue it in their home (foreign) country since very few countries enforce Chinese judgments and 2) it also knows that it will have now ensured that it is nearly free of any risk that an enforceable judgment will be entered against it. In other words, the Chinese company knows that it has just been “forced” by the foreign side to execute an unenforceable contract. Since the terms of the contract cannot be enforced, the Chinese side can then be quite relaxed about the contract terms.

Why does this happen? The reason is that at the start of litigation, a Chinese court will first look at the dispute resolution provisions of the contract. If the contract provides for dispute resolution (litigation or arbitration) outside of China, the court will refuse to hear the case. There are no exceptions to this. With respect to arbitration, as with most countries, Chinese courts will only allow arbitration in China if there is an explicit, exclusive China arbitration provision. A common trap is a contract that provides for an alternative of litigation outside of China or arbitration inside China. In that case, the Chinese courts have traditionally refused to honor a Chinese arbitration award because the arbitration provision is not exclusive.

It is therefore critical for every company that does business in China to ask a fundamental question: if there is a dispute under this agreement, am I most likely to be a plaintiff or a defendant. If your company will be a plaintiff, then you must ensure that your contract is fully enforceable in China. It is a complete disaster to close the door to the Chinese litigation and arbitration by insisting on litigation outside of China. The next step is then to draft your contract to maximize the chance that you will get a good result in China.

Even though this all seems obvious, I find that almost every week I have to give a potential client the bad news that their contract is unenforceable through their own efforts. When I get a call from a client who wants to collect on a debt or resolve a business dispute with a Chinese company, the first thing I ask about is the dispute resolution provisions in their contract. The client then emails me the contract and I discover that the contact is governed by Arizona law with exclusive jurisdiction in the Arizona courts. I then ask: does the potential defendant have any assets in the U.S. The answer to this question is nearly always “no,” at which point I then have to tell them that their contract is unenforceable and they will have to consider another method for resolving their dispute. This is usually a conclusion that causes distress for the client, because this kind of provision is often included at the tail end of a long and detailed (and expensive) 50 page contract. Needless to say, it is much better to have a 7 page contract that you can enforce than a 50 page contract that is waste paper.

In a future post I will discuss the most important ways to make a commercial contract enforceable in Chinese courts under Chinese law.

In the meantime, if you wish to read more about pursuing claims against Chinese companies, check out the following:

On another note, we are seeking to win the American Bar Association best law blog award for the fourth straight year in our category and to do that we need your vote. To vote for us, please go here to register and then here to vote for us. Anyone can register and vote; you do NOT need to be a lawyer.  Please do take the time to vote for us. It may look grim for us but every year we were behind late in the game and we have always prevailed and we can do the same this year if you vote.

This is part IV of our series on how to sue a Chinese company. This is the final post in our series addressing what to do to secure redress against a Chinese company that owes you money or has wronged you. It is based on an article I recently had published (along with one of my law firm’s new associates, Rebecca Carlson) in Bloomberg Law Reports [one week trial subscription required] and on an article I wrote for the Wall Street Journal, entitled,” Chinese Companies Court Disaster.” Please note that instead of using footnotes, this post use brackets, [], instead.

Part I focused on how to effect service of process on a Chinese company pursuant to the Hague Convention and on the jurisdictional issues involved in suing a Chinese company. Part II focused on how to conduct discovery against a Chinese company. Part III was on overall litigation strategies and on how to enforce your judgment against a Chinese company. This final post will focus briefly on arbitrating against a Chinese company in the United States and also on suing a Chinese company in China.

Arbitration in the United States

China is a signatory to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards, so its courts typically do enforce foreign arbitral awards from recognized arbitral bodies. However, Chinese courts typically do not enforce foreign arbitral awards obtained by default, which means that if your Chinese company simply fails to show up for the arbitration, your award may end up being worthless.

Suing in China

If suing a Chinese company in the United States does not make sense, pursuing litigation in China may. Though China’s court system is very different from that to which American lawyers are accustomed, it is more navigable than many American lawyers believe it to be. Foreign companies can and do regularly win cases against Chinese companies in Chinese courts. Before suing in a Chinese court, though, it is important to understand some basics about its court system.

First, though Chinese courts will enforce the law prescribed in a contract, their analysis will have Chinese characteristics. Chinese judges place more emphasis on the overall context and “fairness” of the case and much less upon legal technicalities than their American counterparts. For example, if a company executes a contractual obligation poorly because of an incompetent or uncaring employee, a U.S. court would almost certainly hold the company liable for all damages arising from the breach. A Chinese court, on the other hand, might limit damages, because a Chinese judge might consider it unfair to penalize a company for the incompetence of one employee.

Second, Chinese courts prohibit nearly all discovery. Companies suing in China without a strong case at the outset seldom prevail.

Third, Chinese courts base their rulings almost exclusively on documentary evidence as opposed to testimony. [See Margaret Y.K. Woo and Yaxin Wang, Civil Justice in China: An Empirical Study of Courts in Three Provinces] [link no longer exists].

Fourth, settlement is very rare in Chinese business litigation matters. The cost of litigating is low, and once a complaint has been filed, Chinese culture is such that the company will lose face if it settles. In this regard, it is preferable to lose the case and to blame it on the judge than to settle and be viewed as having been at fault.

Fifth, Chinese courts rarely award high damages. Chinese companies generally operate at very low margins and Chinese courts are loath to avoid harming a functioning business or causing layoffs. In particular, Chinese judges are hesitant to award damages for lost profits or for pain and suffering. The damages available in U.S. courts are simply not awarded by Chinese courts.

Sixth, collectability on judgments in China is improving, but it is still not to the level of the United States. [See Randall Peerenboom, Between Global Norms and Domestic Realities: Judicial Reforms in China].

Chinese courts often lack the authority over and fail to receive the assistance from other law enforcement agencies necessary to force collection on their judgments. In addition,many Chinese companies find it more cost effective to simply avoid the judgment by shutting down and re‐opening under a new name.


Though suing Chinese companies in U.S. courts can be advantageous, it is not always possible and it does not always make sense. When suing in a U.S. court either cannot be done or does not make sense, it does make sense to weigh the option of suing in China. Suing and collecting from a Chinese company is typically not going to be easy as suing and collecting from a domestic company, but the chances of success against a Chinese company in both the United States and in China will usually warrant pursuing litigation in one country or the other.

We will return you now to our regular programming.

The above excerpt comes from an article originally published by Bloomberg Finance L.P. and has been reprinted with permission. The opinions expressed are those of the author. © 2010 Bloomberg Finance L.P.

A couple weeks ago, an American company contacted us about representing them before the China International Economic and Trade Arbitration Commission (CIETAC) in Beijing.  The American company claimed to be owed hundreds of thousands of dollars by a Chinese company that had failed to make final payment on a large piece of industrial equipment.  The Chinese company was contending the equipment did not work as it should.

The American company was absolutely convinced that if we brought the arbitration, the Chinese company would settle quickly.  We insisted the exact opposite would likely be the case.  I know we are right, and here is why:  Chinese companies almost never settle their in country litigation matters.

In the United States, something on the order of 97% of all cases settle.  Indeed, Houston based mega-firm, Fullbright & Jaworski concluded that 60% of the cases it took to trial settled before a verdict could be reached.  I actually think the settlement numbers are even higher on business litigation matters, but I am not aware of any study on this.  The reasons usually given for nearly every case settling are the huge costs of litigating and that both parties usually have a pretty good idea of how the court is going to rule.  I agree with both these reasons and neither usually apply in China.

Chinese lawyers often complain to us how cases in China almost never settle.  They attribute this to the newness of so many of China’s laws and so few Supreme Court decisions on them.  Without clear and established law, nobody knows how a court will rule.  We hear that around 90% of the business cases filed in China actually go to trial.

Adding to the problem is that many cases in China do not require an outside lawyer (this is also true of CIETAC arbitration) so Chinese companies can and do fight their lawsuits without having to pay anything at all.  Because Chinese courts rarely award the winning party its attorneys fees and are slow to award much in interest, there is little incentive to settle quickly.

So using the American company’s breach of contract case as an example, one can quickly see a smart Chinese company defendant in this case being very reluctant to settle.  First off, the Chinese company will probably choose to handle the case without a lawyer, so its costs will be minimal.  The American company, on the other hand will, ideally, use an American lawyer who speaks Chinese.

Secondly, it is likely the Chinese company will either fully prevail or lose entirely, depending on whether it can convince the arbitrator(s) the product was bad.  If the Chinese company prevails, it will owe nothing.  If it loses, it will almost certainly owe the full amount of the claim.  But, is it not better to fight until the bitter end and at least gain the time value of the money?

Thirdly, even if the American company prevails, there is still the very sticky matter of collection.  The Chinese company might shut down and form a new company.  The Chinese company may just shut down.  And, even if it keeps operating, it very well might take a lot of time and even more money on legal fees to get them to pay.  In the meantime, if it wishes, the Chinese company could initiate settlement discussions.

The Hoaran blog [link no longer exists] recently did a post commenting on the thrills and the agonies of how everything in China is “in progress”:

living in china is like peeking behind the scenes of how things work. nothing is finished and everything is “in progress”. because of this, you get to see the infrastructure of a society and see how it functions – its built environment and transportation infrastructure, its economy, its legal system, its workplaces and schools, its shopping malls.

on the surface, you are confronted first with endless construction. in fact, i don’t think there is a person living in Beijing who is not within a block of a building site. so if you observe, you see how a field is cleared for construction, how the foundation is laid, the concrete structure established, the scaffolding erected, the worker’s temporary housing built, etc.

at the workplace, you see basic filing systems and h.r. policies being set up. management strategies, business processes and procedures, consistency between offices and other basic systems are still being figured out.

The Hoaran blog is written by an attorney and he sees this same “in progress” situation in the legal arena as well:

in the legal system, practicing judges, lawyers and customs authorities are being trained in basic legal issues. laws are being adjusted all the time. cases are constantly being tried for the first time with no predictable outcome because there is no precedent, no body of legal theory, and no previous experience to rely on

Parties in the United States can settle cases because they essentially agree on the likely outcome.   There is always a 10% chance of an aberrant verdict either way, but within the 80% of expected rulings, the numbers are usually close enough so that both sides can reach agreement at some number near the top of the bell curve.  But since China cases have no bell curve and no 80%, settlement is as much of a gamble as trial.  Since going to trial often costs only marginally more than not going to trial, there is little incentive to do anything but see the case through.

Bottom Line: A good contract can not only help prevent the need to litigate, but it can make settlement of any dispute more likely.  A contract that is so clearly written that both sides will have an easy time predicting how the court will rule increases your chances of an eventual settlement.  A contract that requires the losing party pay the winning party’s attorneys’ fees also helps, but may not always make sense.  A contract calling for mandatory arbitration without appeal and requiring the posting of a bond will often also make sense.