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 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.
The China lawyers at my law 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. The below is 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?
China Lawyer: The Chinese courts do not 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.
Bottom Line: Don’t bring a lawsuit outside China against a Chinese company without first making sure there is some benefit in doing so. Also, be sure to get your choice of jurisdiction right in your contracts with your Chinese manufacturers. What’s the point in putting in US jurisdiction if it will only add to your litigation costs and reduce your likelihood of ever collecting?