As China’s relationship with the outside world continues to deteriorate (especially with the United States and to a lesser extent with Europe) the number of lawsuits and potential lawsuits between Chinese and foreign companies is on the upswing. There is an old saying about how lawyers do best in times of great change and that is doubly true of attorneys that focus on litigation and arbitration and it is even more true during down times. When companies are thriving, lawsuits are viewed as more of a distraction. When companies are doing poorly, lawsuits become a way to secure profits Law firms with China practices are gearing up for increased international litigation and arbitration involving Chinese companies and our international litigation and dispute resolution lawyers are already seeing an uptick in such cases.
What though is the best way to you pursue a legal claim against a PRC company that owes you money or has wronged you in some other way?
Since Mainland Chinese courts do not enforce U.S. judgments, it is usually (but not always) a waste of time and money to bring a lawsuit in a U.S. court against a Chinese company that does not have assets in either the United States or in a country that enforces U.S. judgments. See China Enforces United States Judgment: This Changes Pretty Much Nothing. You should, however, be sure to research where the “Chinese” company is actually based because Mainland China, Hong Kong, Taiwan, and Macao are different jurisdictions entirely and each of these jurisdictions have their own laws about enforcing a United States judgment.
1. Arbitration versus Litigation
Whenever someone approaches my law firm wanting to sue someone or being threatened with a lawsuit or having already been sued, the first thing our dispute resolutions ask is whether there is a contract. The reason for this is not so much to determine the merits of the lawsuit, but to see whether there is an agreement out there mandating in what sort of forum disputes between the parties must be resolved. Generally speaking, if there is a contractual agreement to arbitrate, you must arbitrate. And, generally speaking, without an arbitration agreement, your dispute must be resolved in some court somewhere.
Jurisdiction will usually be one of the first issues you will want to resolve when formulating your litigation strategy against a Chinese company. Suing a Chinese company in the United States requires the typical contact inquiry that comes with 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. Shivnath 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. Articles 3 and 237 of the PRC’s Civil Procedure Law grant Chinese courts jurisdiction over international cases involving foreign plaintiffs against Chinese companies. Though suing in China is usually possible, it should not be done without a good understanding of what that actually entails.
If a U.S. court has jurisdiction over a Chinese company, suing that Chinese company in a U.S. court typically will differ from suing a domestic company on service of process, discovery, litigation strategy, and the above-mentioned enforcement of judgment.
3. Hague Service of Process
China is party to the Hague Convention on Service Abroad of Judicial and Extrajudicial Documents in Civil and Commercial Matters. This means service on the Chinese company of whatever complaint you file against it in a U.S. court must comply with this Service Convention. Service under the Hague Convention 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.
A U.S. company suing a Chinese company in a U.S. court must submit the following to China’s Ministry of Justice:
- A completed United States Marshal Form USM‐94.
- The original English version of the documents to be served. The summons must have the issuing court’s seal.
- The Chinese translation of all documents to be served. Because the USM-94 will not be served, that form does not need to be translated.
- A photocopy of all the above documents.
China’s Ministry of Justice will then send your service of process documents to the appropriate local court to effect service. In our experience, Chinese courts can be painfully slow and even random in sending out service. And if the Chinese company you are seeking to sue is a powerful local entity, service likely will be even slower. We have found that service moves along a lot faster when one of our lawyers fluent in Chinese repeatedly calls and emails both the Chinese court itself and China’s Ministry of Justice. These days, you should figure on your Hague Service of Process on a Chinese company taking about a year, maybe longer, and assumes you did absolutely everything 100% correctly from beginning to end. One of the trickiest things about effecting proper service on a Chinese company is that if you do something wrong somewhere along the service route, it is not uncommon for Chinese court or Ministry of Justice officials to wait 6-10 months to tell you that they will not be serving your papers and you need to start all over with your service request. To put it another way, it is critical you do everything correctly.
China formally objected to service by mail under Article 10(a) of the Hague Convention on Service and U.S. courts have held that objection 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).
We will in subsequent posts discuss how to conduct discovery against a Chinese company you have sued in a U.S. Court, the litigation and arbitration strategies to deploy when suing a Chinese company, and arbitrating against Chinese companies and suing them in China.