Let’s face it, even in a down economy, suing Chinese companies is a growth area. On top of that, it is fun and lucrative. My firm originally made its mark handling international litigation and of late, it is litigation against Chinese companies that is feeding our rapid growth. We just hired two more full time lawyers (more on that in a later post) and both will be mostly focused on our international litigation and arbitration practice.

What it takes to litigate against Chinese companies is one of my favorite speaking topics because so many lawyers get it wrong and are surprised to hear what it takes to get it right. Rule number one on that front is not to just go off and sue in a United States court based on the assumption that a U.S. court judgment will have any value in terms of actually collecting money. For more on the value (or lack thereof) of simply suing a Chinese company in a U.S. court, check out the following:

So what should you do if you are owed money by or have been wronged by a Chinese company?

I recently wrote an article for the Wall Street Journal, entitled, “Chinese Companies Court Disaster: Doing business in America means also learning how to navigate the U.S. legal system.” That article focuses on the increasing number of lawsuits being brought by foreign companies against Chinese companies and on how poorly most Chinese companies are handling those lawsuits. In response to that article, Bloomberg Law Reports [subscription required] and requested I write an article setting out how to handle litigating and arbitrating against Chinese companies.

I brought in one of our new international litigation lawyers to assist me with this article and Bloomberg published it a few weeks ago in Volume 3, No. 7 edition of the Bloomberg Law Reports—Asia Pacific, and our freeze on our being able to cite to that article has now ended. That being the case, and it being a long article, we are going to post it in serial form here on the blog. Please note that rather than using footnotes, we will use brackets, [] instead.

So without further ado, here is part I.

Suing Chinese Companies: The New Wave

Introduction

The rapid increase in business transactions between Chinese and American companies has been  matched by a concomitant rise in legal disputes. Attorneys who have dealt with such litigation recognize a pervasive impediment to successful resolution: the daunting task of collecting on any judgments achieved. Chinese courts do not enforce U.S. judgments and they have only recently acquired sufficient power to fully enforce their own domestic awards.

It is typically most effective, therefore, to sue a Chinese company in the United States, provided that the Chinese company has assets in the United States or in a country that recognizes U.S judgments. If the Chinese company has no such assets, suing in China may be the only choice.

This article will clarify the challenges of litigating against Chinese companies and will offer guidance in overcoming these challenges both in the United States and in China.

Jurisdiction

Jurisdiction is a fundamental issue in international legal disputes. Suing a Chinese company in the United States requires the typical contact inquiry involved in suing any foreign company. See Asahi Metal Industry Co. v. Superior Court of California, Solano Cty., 480 U.S. 102 (1987); Glencore Grain Rotterdam B.V. v. Sinvnath Rai Harnarain Co., 284 F.3d 1114 (9th Cir. 2002). An American company usually faces no jurisdictional bar to suing a Chinese company in Mainland China. [Chinese courts have jurisdiction over international cases involving a foreign plaintiff against a Chinese company. Civil Procedure Law of the People’s Republic of China, Articles 3 and 237.]

However, it is important to research where the company is based: Hong Kong, Mainland China and Taiwan are different jurisdictions entirely.

Suing in the United States

If a U.S. court has jurisdiction over a Chinese company, litigating and winning against that company in a U.S. court is, with a few exceptions, comparable to suing any other company. The most notable differences typically arise in service of process, discovery, litigation strategy, and, if necessary to execute the judgment in China, enforcement.

Service of Process

China is party to the Hague Convention on Service Abroad of Judicial and Extrajudicial Documents in Civil and Commercial Matters. [http://www.hcch.net/upload/conventions/txt14en.pdf]   Therefore, service on a Chinese company must fully comply with this Convention. Service under the Hague Convention on Service is effected through the designated Chinese Central Authority in Beijing, which is the Bureau of International Judicial Assistance, Ministry of Justice of the People’s Republic of China. The U.S. company must submit the following to the Ministry of Justice:

(1) a completed United States Marshall Form USM‐94 [available at http://www.usmarshals.gov/forms/usm94.pdf] (2) the original English version of the documents to be served (the summons must have the issuing court’s seal); (3) the Chinese translation of all documents to be served; and (4) a photocopy of each of these documents. Note that because the USM‐94 will not be served, translation is not necessary. In addition to the documents, a payment of approximately US$100 by an international payment order must be sent with the service request, payable to the Supreme People’s Court of the People’s Republic of China. [Although China did not make a specific reservation regarding translations when it acceded to the Hague Convention on service, China’s Central Authority has advised the U.S. Embassy in Beijing that documents to be served in China must be translated into Mandarin Chinese. Since it is China’s Central Authority that effects service of process, the best approach is to comply with its requirements.]

The Ministry of Justice will then send the service documents to the appropriate local court, and that court will finally effect service. In the authors’ experience, Chinese courts are often fairly slow to send out service. If the Chinese company being sued is a powerful local entity, the service may be even slower. However, repeatedly calling and emailing both the court itself and the Ministry of Justice can often expedite service. Service normally takes around one to three months.

Service on a Chinese company by mail is not effective and U.S. courts have held that China’s formal objection to service by mail under Article 10(a) of the Convention is valid. See DeJames v. Magnificence Carriers, Inc., 654 F.2d 280 (3d Cir. 1981), cert. den., 454 U.S. 1085; Dr. Ing H.C. F. Porsche A.G. v. Superior Court, 123 Cal. App. 3d 755 (1981).

 

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.

  • CB Earl

    I am enjoying this series. I didn’t know serving a Chinese company would be so relatively easy.

  • We use international law firms in Shanghai to draw up our supply contracts. We always write arbitration in to the contract and select HK or Sing at the country where any claim will be heard. I’m advised that enforcing the outcome of arbitration is very easy now and the inland bent judges can’t ignore the orders for very long. Never having to enforce one I can only go on what I’ve been advised.

  • Philip Wan

    You are absolutly right when saying “If the Chinese company has no such assets, suing in China may be the only choice”. But, thinking alternatively, to use international arbitration. China is a signed party to NY convertion on recognition and enforcement on international arbitration award. We have sveral foreign arbitration cases this year that filed and eventually recognied in the PRC, and most of the case have been forwarded to the enforcement bureau of the court. So they ware carried out just like a jugnment from the PRC court, except some of the judicial review /pre-hearing precedure in the court that must be presented by your local PRC attorney in China !

  • peter.corp@on.aibn.com

    Is there a Chinese government run companies registry that can be accessed either online or through direct contact to search for relevant company information for process of service? Most jurisdictions in the world have some sort required registry system for domestic & foreign companies doing business in that jurisdiction. I have yet to find one for China.