How to Sue a Chinese Company, Part 2

As China’s relationship with the outside world continues to deteriorate (especially with the United States and to a somewhat lesser extent with  Australia and Europe) the number of lawsuits and potential lawsuits between Chinese and foreign companies is rising. Lawyers do best in times of great change and that is even more true of attorneys that focus on litigation and arbitration and litigation thrives in down times. Thriving  companies see lawsuits as a distraction; sinking companies view it as a lifeline. During downtimes, lawsuits are a way to secure profits.

In part one of this series, How to Sue a Chinese Company, The 101, we focused on jurisdiction and service of process issues and we noted the following:

This post assumes you have brought a lawsuit against a Chinese company in the United States and deals with how to conduct discovery against that Chinese company. Why are we writing about suing a Chinese company in the United States right after noting how Chinese courts rarely enforce U.S. judgments? Because despite this, there are often very good reasons to sue Chinese companies in the United States, first among them is because the Chinese company has assets in the United States. Second, it sometimes will make sense to get a U.S. judgment and then take that judgment to another country in which the Chinese defendant has assets and which enforces U.S. judgments. We have found South Korea, Canada, Hong Kong, Taiwan and the United Kingdom to be excellent for this.

Discovery

Once a U.S. company succeeds in serving a Chinese company in a U.S. lawsuit, discovery can begin. Because the Chinese company is now a party to a U.S. lawsuit, it is bound by the normal discovery rules of whatever court in which it is the defendant. However, discovery in China can be difficult/impossible. Apart from the restrictions placed on discovery by the Chinese government, few Chinese companies are accustomed to U.S.‐style discovery, and they often consider compliance to be optional.

Deposition Discovery

China prohibits even voluntary depositions from being taken on its soil. In its declaration on accession to the Hague Convention on the Taking of Evidence Abroad in Civil and Commercial Matters, China stated that it would not be bound by Articles 16‐22 of the Convention, portions of which would grant consular officers the right to oversee depositions. In 1989, China permitted a limited deposition in U.S. v. Leung Tak Lun, et al., 944 F.2d 642 (9th Cir. 1991) but advised the United States that its grant of authority for that one deposition should not be regarded as precedent and there has been no subsequent record of China permitting a deposition. Conducting a deposition in China may lead to arrest, detention, or expulsion. In other words, don’t even think about it.

The best way to depose a China‐based witness is to have that witness to come to the United States. However, if the witness is unable or unwilling to do so, there are several additional options available. One common method is to fly the potential deponent to Hong Kong or to a neighboring country and conduct the deposition there, either in person or by video or telephone from the United States. Deposition by written questions is yet another option.

Document Discovery

Under the Hague Convention on Evidence, China has agreed to allow some limited discovery of documents. Articles 1 and 2 of that Convention provide for document discovery by means of a Letter of Request issued by the court in which the legal action is pending. The court/judge should transmit its document discovery request to the “Central Authority” of the jurisdiction where the discovery is located. The Central Authority is then responsible for transmitting the request to the appropriate judicial body for a response. However, Article 23 permits a signatory country to “declare that it will not execute Letters of Request issued for the purpose of obtaining pre‐trial discovery of documents as known in Common Law countries.” China has executed such a declaration and, therefore, though document discovery for trial purposes is permissible, the “fishing expedition” discovery for which the United States has become famous is not.

Yet even for the document discovery authorized in China, it is unlikely the Chinese Central Authority will instruct a Chinese court to compel production. The U.S. State Department made the following accurate summary of how China tends to respond to U.S. court document discovery requests:

While it is possible to request compulsion of evidence in China pursuant to a letter rogatory or letter of request (Hague Evidence Convention), such requests have not been particularly successful in the past. Requests may take more than a year to execute. It is not unusual for no reply to be received or after considerable time has elapsed, for Chinese authorities to request clarification from the American court with no indication that the request will eventually be executed. See “China Judicial Assistance” by the U.S. Department of State.

Part 3 of this series will focus on litigation strategies when suing a Chinese company and enforcing U.S. judgments against such companies. Part 4 will discuss arbitrating against Chinese companies and suing them in China.

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