China court systems

Excellent post on the Managing the Dragon blog, entitled, Danone/Wahaha: Divine Intervention (Pt. 6). Forget Danone/Wahaha and focus on the divine intervention part. The post is about the role of the Chinese “government” in legal disputes.

Some definitions are in order here since courts are government as well. The issue with which Managing the Dragon deals is the role/influence the non court government plays in Chinese court cases. This is actually a favorite issue of mine, both in China and elsewhere.

Many years ago, the United States Federal government seized a Russian fishing vessel for allegedly fishing in U.S. waters. The US attorneys’ office in Anchorage, Alaska, was demanding a $700,000 fine. The vessel owner’s response was to seek Russian government intervention, which went nowhere. Weeks passed and the vessel remained docked in Alaska, as its crew grew weary and the spouses of the crew grew angry. The Russian media ran story after story on the crew’s terrible plight. President Yeltsin called President Clinton and requested the vessel be released, but there it sat. Eventually, a Russian client of mine based here in Seattle told the vessel owner to hire a lawyer and I was brought in on the case.

I immediately flew to Anchorage, sat down with the US attorney, explained that the fine was too high, that my client did not have $700,000 to pay, that the Russian flagged vessel would sell for scrap only in Alaska, and that we needed to resolve the problem. Within about a day, we had struck a deal, my client would pay $190,000 (most of which was to reimburse the government for the charges it had incurred while the vessel was in port) and the vessel would be released.

The Russian media hailed me as a hero for having achieved what President Yeltsin could not. Of course, it was ALL BULL. All I had done was what any decent American lawyer would have done, which was to work within the US legal system. The Russians had tried to use political forces to sway the US Attorneys’ office in Anchorage and there was just no way that was going to work.

Not saying politics are completely irrelevant in U.S. legal matters, but the U.S. system is set up to minimize that relevance as much as possible.

The Managing the Dragon post starts out by noting how scarce the news has been lately on the Danone Wahaha dispute. It then talks about how recently elected French President Nicolas Sarkozy brought up the dispute in his state dinner with President Hu Jintao told volumes, which Managing the Dragon sees as having the following meaning:

What it told me is that the dispute must be at a stalemate, hopelessly mired in the legal system, with divine intervention by the nations’ highest leaders seen as one of the only remaining ways out.

Enlisting the help of senior government officials from your home country to intervene and help resolve a dispute in China, or to push a deal approval over the finish line, is a tactic that has been used ever since the country opened up to the outside world. I can admit to resorting to this tactic myself, and companies like Airbus and Boeing use it all the time to clinch deals for new aircraft orders. My contacts tell me that General Motors used a visit to Beijing by then Vice President Al Gore to maximum effect as a way to obtain approval for Shanghai GM’s highly successful assembly joint venture in China.

Managing the Dragon questions the effectiveness of state intervention in this sort of dispute:

Resolving disputes is another matter, however. Disputes in China tend to be complicated, with each side convinced of its own righteousness. While billions for new Airbus jets and Alcatel-Lucent telecom contracts were announced, there was no obvious progress on Danone. The fact that these disputes even exist and need to be discussed at the senior-most levels of government represents a loss of face for both leaders. No doubt, both President Hu and President Sarkozy had been briefed ahead of time by their respective staffs and received somewhat different versions of events that were biased one way or another.

Given these circumstances, the best one can hope for is that the visibility the dispute received at the top level of China’s leadership is enough to incentivize a lower level official to help resolve the matter. In some cases, this may be just enough to clear up outstanding issues. But in most, I am afraid, a great deal of tough negotiations remain ahead.

I tend to agree with Managing the Dragon with respect to this particular case, but as a whole, I just do not know. It would seem to me that if politics were going to resolve the Danone Wahaha dispute, it would have already happened by now.

Would love to hear more views on this important issue.

Photo of Dan Harris Dan Harris

Dan is a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain.

He primarily represents companies doing business in emerging market countries, having spent years building and maintaining a global, professional network. 

Dan is a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain.

He primarily represents companies doing business in emerging market countries, having spent years building and maintaining a global, professional network.  His work has been as varied as securing the release of two improperly held helicopters in Papua New Guinea, setting up a legal framework to move slag from Canada to Poland’s interior, overseeing hundreds of litigation and arbitration matters in Korea, helping someone avoid terrorism charges in Japan, and seizing fish product in China to collect on a debt.

He was named as one of only three Washington State Amazing Lawyers in International Law, is AV rated by Martindale-Hubbell Law Directory (its highest rating), is rated 10.0 by (also its highest rating), and is a recognized SuperLawyer.

Dan is a frequent writer and public speaker on doing business in Asia and constantly travels between the United States and Asia. He most commonly speaks on China law issues and is the lead writer of the award winning China Law Blog. Forbes Magazine, Fortune Magazine, the Wall Street Journal, Investors Business Daily, Business Week, The National Law Journal, The Washington Post, The ABA Journal, The Economist, Newsweek, NPR, The New York Times and Inside Counsel have all interviewed Dan regarding various aspects of his international law practice.

Dan is licensed in Washington, Illinois, and Alaska.

In tandem with the international law team at his firm, Dan focuses on setting up/registering companies overseas (via WFOEs, Rep Offices or Joint Ventures), drafting international contracts (NDAs, OEM Agreements, licensing, distribution, etc.), protecting IP (trademarks, trade secrets, copyrights and patents), and overseeing M&A transactions.