China Litigation and the Benefit of Assuming Nothing

International dispute resolution lawyers

Sometimes the strangest things get me to thinking. Today it was an article, Court of Appeal rules on without-prejudice communication, by London lawyer, Andrew McGregor. An incredibly rough summary of the article is that British courts will exclude settlement negotiations as evidence.

Bear with me here, as there will be a China angle soon.

As an American lawyer, my first thought was, “of course.” Of course because US Courts have long had a similar rule. But does China have such a rule? It does not. The point here is not whether China has such a rule or not, but how often foreign lawyers engage in settlement negotiations with Chinese companies without giving any thought as to whether their communications might one day show up as evidence in court. It is difficult to take what has become instinct and re-examine it each time you are dealing with a new country.

Back when I was just starting out as a lawyer focusing on emerging markets, I wrote an article setting forth what I saw as the Four Essential Principles of Emerging Market Success, which included the following:

PRINCIPLE TWO: Keep an Open Mind. Assume Nothing.
Doing business in an emerging market means taking nothing for granted. I have a mantra for my own legal work in these countries that translates well to the business world: “Assume nothing, but assume that you are assuming things without even realizing you are doing so.”

Things will be different. Very different. Things you take for granted in your home country might not exist in the emerging market country. Things you take for granted in your home country might be the exact opposite in the emerging market country. Things you think will be totally different in the emerging market country may be exactly the same. Things you thought you knew about emerging market countries based on what you know from another emerging market country may be completely different in a neighboring country, or even in another region within the same country. The principle, one more time: Keep an open mind, and assume nothing.

A couple of the international dispute resolution lawyers at my law firm are right now involved in a high profile case in an Asian country other than China that is forcing us to confront anew certain legal doctrines we usually just take for granted, such as the following:

1. Right to counsel of your own choosing.

2. Right to due process.

3. Admissibility of hearsay evidence.

4. Conflicts and waivers of conflicts.

These are the sort of things that go to the heart of lawyering and yet seldom arise in the typical international business transaction.

We are finding ourselves wanting answers to these sorts of very basic issues as those answers may influence our overall strategies.

I personally like being thrown out of my comfort zone from time to time and I would guess most of our readers do as well. I say this because those not from China who are interested in China almost have to be the sort of people who revel in the new and different.

Am I Right?

Stories welcome…..

6 responses to “China Litigation and the Benefit of Assuming Nothing”

  1. This isn’t an emerging market issue, it’s a civil/common law distinction. Civil law countries in general do not like people to make out of court settlements, and would prefer cases to go before a judge which is why they have rules designed specifically to make out of court settlements difficult.
    There are also reasons for the other rules. Hearsay rules exist on the premise that the evidence will be considered by an untrained jury that is likely to be swayed by weak evidence, whereas civil law court systems have cases heard before a judge.
    For due process, there is such as thing as too much due process. Because civil law courts think out of court settlements are a generally bad thing, they do not want trials that can go on for years and years, so the trial procedures are set up so that the trials are quick and efficient, even if sometimes the outcome may imperfect, on the theory that justice delayed is justice denied.
    As far as counsel of one’s choice and conflicts of interest. In principle lawyers everywhere are officers of the court, and some places place the duty to the client versus duty to the state or duty to society differently than where the US or England draws the line.
    One thing that you see when you look at comparative law is that different may or may not be bad. People do things in different ways, and sometimes different is better, sometimes it’s worse, sometimes different is just different. But if you just study one legal system you often have no idea how different other systems are, and you come up with the mistaken idea that there is just one true way of doing justice right.

  2. Also the English and US legal systems have common roots, but they are different in some pretty significant ways (for example, England has a two tiered legal profession, whereas the US has one tier. US commercial law is much more codified. England does not allow for punitive damage awards except in some rare situations. English law is not subject to constitutional review by the English courts. England is part of the EU, which adds another layer of complexity. You have the interaction between English law and Scots Law)
    The terms “judicial review” and “stare decesis” mean something quite different in English and US law. (In US law, judicial review generally refers to constitutional issues, and stare decesis does not prevent a court from overturning its own rulings.)

  3. Also you have to look at the rules as a “system” rather than in isolation.
    If you and another party are in settlement talks in say Germany, and it is obvious that you are offering a settlement in “good faith” (i.e. you are trying to be fair and reasonable), this will help you if the case goes to a civil law court, and if the opposing party takes the information you’ve provided and going to court trying to bash you with it, the court will see this as a lack of “good faith” and they generally won’t allow the evidence to be used that way.
    In common law, the courts are less likely to look at the motives and intentions of the people involved, and judges are much less willing or able to use their own discretion so if you say something and the opposing party tries to use it to bash you later, the judge has very little discretion to prevent this, so people come up with another rule saying that certain communications cannot be used against you in reaching a settlement. Note that this applies only to private law, in criminal law, as the cops are required to warn you, “anything you say can and will be used against you.”
    The other thing is that Chinese settlement negotiations usually are shorter than negotiations in England or the US. Part of the reason for this is that in Chinese law, there is often nothing to negotiate. There was damage, the facts are not under dispute, there is a legal formula for calculating damages, what’s there to discuss? In the US, there isn’t a formula for calculating damages.
    Also this isn’t a China thing. If you take a US lawyer and put them in France or Germany or even Canada, there are some odd things. For that matter you often see strange things if you cross state or even county lines.

  4. I think the original article has been misinterpreted a little. English courts have long excluded settlement negotiations (or without prejudice communication) as evidence. However, the issue in this case was whether the communication was actually a without prejudice communication or whether the term “without prejudice” in the communication was being used in a less technical sense.

  5. I found a reference to “Settlement Agreements in Commercial Disputes” which mentions that German (and I presume Chinese) law doesn’t recognize that settlement negotiations are privileged, and that German lawyers deal with this by talking in hypotheticals during settlement negotiations.
    Apparently this isn’t a civil/common law thing because France, Spain, and the Netherlands have different rules.
    It’s also fascinating how *different* the rules are for country to country.
    One thing that I found that I thought was *really* weird is that in some countries I think Spain, lawyers have a “professional secrets privilege” which requires them to withhold information from their clients. Which means that you have the situation in which the lawyers will negotiate a settlement, but they would then be barred from communicating any secret information they received from opposing counsel to their clients.
    This creates some very interesting situations when you have cross-border negotiations.

  6. One other big difference between different judicial systems is how much is written and how much is spoken. Common law systems tend to emphasize spoken face to face communications, whereas civil law courts tend to focus on written communications so much of the testimony in civil law courts consists of written depositions which would be rejected as hearsay in common law courts.

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