China Laws as Written Versus China Laws in Real Life

One law does not a legal system make

I assume every lawyer has had a client who starts out emphatically stating exactly what the law is and exactly what you as the lawyer should do for them in light of that law. The biggest problem with this sort of client is they are usually wrong. They are wrong because they usually have read just one law and, without any context, they assume it applies 100% everywhere. A classic example in the United States is those who believe First Amendment free speech rights apply everywhere, when in fact they most certainly do not. A U.S. employment lawyer once told me it is commonly believed private sector employers cannot fire someone for what they say. This is dead wrong.

I thought of this today after reading a New York Times article on artificial intelligence, entitled, The End of Lawyers? Not so Fast. Among other things, this article concludes that robots will not be replacing lawyers any time soon. One reason no doubt for this is that real life human to human (and judges and bureaucrats are human) can trump the written. All of this is to segue into what I see as an example of a potential client who sought to interpret Chinese law as a computer might.

A while back, I got an email from a U.S. company instructing me to force a particular Chinese company into a China bankruptcy and then use that bankruptcy to seize the Chinese company’s assets and then sell them at a judicial sale to generate funds to ensure payback on the debt.

This company (the email was from a non-lawyer) not only told me exactly what I needed to do to achieve all this but they included a really cursory English language write-up of a PRC Supreme Court judicial interpretation making “clear” how “easy” it would be to do what they were proposing we do. As a nice finishing touch, the U.S. company noted that because taking this action would be “so clear” and because they are just a “small company,” they would “expect” our fee for doing this would be low.

My response (which I no longer have so I am really just winging it here) stated as follows:

What you provided me is one judicial interpretation, standing alone. What matters in China (and in pretty much every other country of which I am aware) is not just what one law says, but how things are actually done. Here in the United States, when our firm has a large litigation matter in another state we bring in local counsel even though we are eminently capable of reading the court rules. But just reading the court rules is not enough because they are always going to be silent on many things and even sometimes flat out wrong in terms of how a particular court or even a particular judge handles thing. Without knowing the local flavor, you can be lost. This is even “more true” in China and this is certainly true of China bankruptcies, which are still very rare in China.

And here is the thing about China bankruptcies. Whenever I talk with other China attorneys about their experience with China bankruptcies they look at me like I have two heads and mumble something about how there pretty much is no such thing. Sometimes they will jokingly lecture me about how one should not expect a Chinese judge to “break harmony” by putting a Chinese company under and throwing people out of work. But on one level they are not joking and I just do not see a Chinese court throwing a Chinese company into bankruptcy in favor of you getting paid on your $270,000 debt. That is just not how Chinese courts operate.

So though we would be happy to take on this matter for you, you should realize it is anything but the sure thing you seem to believe it will be and it will be anything but cheap either.

Back in 2011, in The Basics on China Litigation, I listed out a number of “rules” for litigating in China and one of them was that you should “think about the equities of your case, not just the law. Ask what is fair and what would be good for China.” Putting a Chinese company into bankruptcy to pay a foreign company on a debt does not jibe with this rule. This Reuters article nicely sums up the realities of China bankruptcies: “Courts also have wide discretion on whether to accept bankruptcy filings and must work closely with local government officials, who are generally more concerned about jobs, local tax revenues and social stability than creditors.”

I never heard back from the US company that wanted us to push their Chinese debtor into bankruptcy, so I have no idea whether they decided to pursue the involuntary bankruptcy or just sought out another lawyer who would tell them what they wanted to hear. But there is definitely a very simple lesson to be learned here: one translated law does not a legal system make.

China laws as written versus China laws in real life: there is a connection, but it sure isn’t one to one.

You agree, right?

6 responses to “China Laws as Written Versus China Laws in Real Life”

  1. This should be simple common sense to any of our friends who have lived in China – it’s against the law to cycle/ride a motorbike on the sidewalks, but just TRY to get a policeman to enforce that rule.
    Stability will trump the law any day of the week, regrettably.

  2. I’m a new reader (I’ve actually set it up so my tab opens to this website every morning), and I really enjoyed this article. There’s a strange belief among my classmates that most countries are pretty much uniform in culture and treatment of the law. Thank you for sharing.

  3. One thing is for certain, your client also believes that “big boss” Chinese mentality and low ball negotiating tactics work in the US.
    Did he try and type Chinese in his email to reinforce just how much he knows about China?

  4. I wish that considering the equities was routine in US courts!!! Sounds like China has an advantage over us at the moment!

Leave a Reply

Your email address will not be published. Required fields are marked *