Got an email the other day from a very savvy client of ours for whom we are working on a China product distribution agreement. The client wanted to know whether it would make sense to have a dispute resolution provision that included an additional sentence stating that both parties agreed that the Chinese courts would be able to enforce any foreign court judgment. Client wanted to know whether we thought the Chinese courts would enforce the “agreement to enforce” portion of this.
One of our China lawyers responded as follows:
Very interesting idea, we simply do not know whether this additional language would increase the odds of a Chinese court enforcing a foreign country court judgment. On one hand, it seems like it would/should, since it is just a contract and Chinese courts generally do abide by freedom of contract by enforcing contract provisions. But I really have my doubts because the Chinese court would also likely be concerned about relinquishing some aspects of China’s sovereignty to a foreign court. There was a short period where we wrote contracts calling for arbitration in Singapore/HK/NYC of monetary disputes but litigation of IP disputes in Chinese courts. By doing this we were choosing one of the best methods for resolving monetary disputes (foreign arbitration) while also leaving it open for our clients to be able to stop IP infringement via the Chinese courts — usually the best method for stopping China IP infringement as quickly as possible. But we started hearing about and reading Chinese cases where Chinese courts were rejecting such dual-venue provisions and just ruling that everything needed to be arbitrated. Chinese courts are not terribly flexible.
The other concern I have about your contracts is that one of the main reasons to have a Chinese court be the venue for disputes is to be able to stop the Chinese company from using your IP. When drafting our contracts, we typically try to figure out the worst thing that can happen to our client and then figure out the best place to deal with that worst thing. Most of the time, the worst thing that can happen to our clients is the Chinese company running away with our client’s IP, in which case a China court is almost always the best place to deal with it. If you have a liquidated damages provision in your China contract, you can effect a pre-judgment seizure of the Chinese company’s assets relatively quickly and easily and that tends to almost instantly get Chinese companies to stop messing with someone else’s IP.
So though I find your idea interesting, I have my doubts as to its overall efficacy. Let’s talk more about your goals and your concerns on this particular contract and then we will talk more about the venue specifics that will make sense for it.