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 wrote for 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.