Arbitration in China

China Litigation and Arbitration

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Yes, You Can Win in a Court Case in China.

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What should you do if a company in Mainland China owes you money or has done you wrong?

Bring a lawsuit against the Chinese company, of course. But how?

Litigation and enforcement in China is a complicated process. Mainland Chinese courts do not enforce U.S. judgments. Therefore, you may have limited options for bringing suit against a Chinese company without assets in either the United States or in a country that enforces U.S. judgments.

However, you must research where the “Chinese” company actually conducts business because Mainland China, Hong Kong, Taiwan, and Macao are different jurisdictions entirely. China enforces court judgments from many other Western countries, though, so it’s critical to research judgment enforcement for the foreign country relevant to your case.

Chinese court room

Jurisdiction.

Jurisdiction is the first hurdle you’ll need to clear before devising your litigation strategy. When you sue a Chinese company in the United States, you’ll need the typical contact inquiry necessary for 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).

When a U.S. court has jurisdiction over a Chinese company, suing them differs from suing a domestic company on many fronts, including:

  • Service of process
  • Discovery
  • Litigation strategies
  • Judgment enforcement

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China Litigation and Arbitration

Service of Process.

China has signed onto the Hague Convention on Service Abroad of Judicial and Extrajudicial Documents in Civil and Commercial Matters. As a result, service must conform to this law. When serving process in China under the Hague Convention, you do so through the designated Chinese Central Authority in Beijing — the Bureau of International Judicial Assistance, Ministry of Justice of the People’s Republic of China.

U.S. companies pursuing legal remedies against Chinese companies in a U.S. court must submit the following to China’s Ministry of Justice:

  1. A completed United States Marshal Form USM‐94.
  2. An English version of the original serving documents bearing the issuing court’s seal.
  3. An official Chinese translation of serving documents, excluding the USM-94, which doesn’t accompany the service documents.
  4. Photocopies of all the documents above.

China didn’t make a specific request for translations when it agreed to the Hague Convention on Service. However, China’s Ministry of Justice has advised the U.S. Embassy in Beijing that documents for service in China must be in Mandarin. Since this agency is the government entity that carries out service of process in China, it only makes sense to comply with its requirements.

China’s Ministry of Justice will send your service of process documents to the appropriate local court, and that court will provide service. In our experience, Chinese courts are less than quick when navigating this process. If the Chinese company you are suing is a powerful local entity, service may take even longer. You can repeatedly call and email the court and the Ministry of Justice to help move the process along but expect service to take 12-16 months.

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).

Once you file a U.S. lawsuit against a Chinese company, the court’s normal discovery rules apply. China, however, prohibits depositions on its soil, even with witness consent. In its declaration on accession to the Hague Convention on the Taking of Evidence Abroad in Civil and Commercial Matters, China stated it would not abide by those provisions granting consular officers the right to oversee depositions.

In 1989, China allowed a deposition in U.S. v. Leung Tak Lun, et al., 944 F.2d 642 (9th Cir. 1991), but advised that its grant of authority for that particular deposition should not be considered precedent. It has not permitted a deposition since, and conducting one in China may lead to arrest or expulsion. Even a deposing a witness in China via the phone likely violates Chinese law and would not be a good idea for anyone planning to go to China.

The easiest way to depose a China‐based witness is usually to do so in the United States or Hong Kong.

Recognition of Foreign Judgments in US Courts

China allows limited discovery of documents under Articles 1 and 2 of the Hague Convention on Evidence. These articles provide for document discovery via a Letter of Request. The court with the pending action issues and transmits it to the “Central Authority” of the jurisdiction where the documents are.

The Central Authority then sends the request to the appropriate judicial body for response. Under Article 23 of the Convention, a signatory country may “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 made such a declaration, so document discovery can occur for trial purposes, but not merely to gather up information.

Though China has agreed to document discovery for trial, the Chinese Central Authority doesn’t always tell a Chinese court to compel production in your case. 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.

Chinese companies aren’t familiar with U.S.-style discovery, and they often consider compliance with the discovery rules optional.

Litigation Strategies.

U.S. companies hold many advantages over Chinese companies in U.S. litigation. American jurors generally view Chinese companies skeptically. Chinese companies frequently disregard discovery. Alerting the court to this occurrence may cost the Chinese company credibility or force it to incur sanctions. Perhaps most importantly, Chinese companies generally underestimate the importance of U.S. trial court decisions, often holding back on vigorously defending a lawsuit until appeal. From Chinese Companies Court Disaster:

Appeals in China are usually de novo, meaning that if a trial court judge disagrees with your version of the facts, you can make another attempt to tell your side of the story at the appellate level. But in the U.S., appeals courts take as a given the trial court’s findings of fact and will hear only disputes about the trial judge’s interpretation of legal questions. This means that in America you rarely get more than one chance to put forth your version of the facts, so you had better do it right the first time. In China the fight often begins only once a case hits the appeals court.

U.S. Judgments In China.

Chinese courts virtually always disregard U.S. judgments since there is no treaty or any reciprocal arrangement between China and the United States regarding recognition or enforcement of civil judgments.

If you’re suing a Chinese company with assets in the United States or a country that generally enforces U.S. judgments (such as the United Kingdom, Canada, or South Korea), filing your case in a U.S. court may be the best way to proceed. Otherwise, the judgment of a U.S. court may end up being of little to no use.

Arbitration in the United States.

China is a signatory to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards, so its courts generally will enforce foreign arbitral awards from recognized foreign arbitral bodies. Enforcement is less likely, however, for awards obtained by default. Chinese courts also sometimes delay foreign arbitration award cases for years as a way to hold off on enforcement and make their enforcement numbers look better than they may actually be.

Arbitration in Chinese Courts.

Dispute resolution in China is possible through arbitration, though the process is more limited than domestic arbitrations. Plus, international attorneys have upped their game when it comes to crafting China arbitration clauses. Standard clauses often go to great lengths to protect Chinese companies and frequently don’t include specific language about how and when arbitration occurs.

China has some legitimate arbitral bodies, with the China International Economic Arbitration Commission (CIETAC) being the most prominent.

Generally, these arbitral bodies allow little to no discovery. Often, they permit no live testimony either, so expect them to try your case based on the documents. It typically makes sense to include provisions for English language proceedings in your China arbitration and as many foreign arbitrators as your Chinese counter-party will accept.

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Suing in a China Court.

When suing a Chinese company in American courts isn’t the right solution, doing so in China may be. The Chinese court system differs from the one U.S.-based attorneys are used to, but it’s more navigable than many American lawyers believe it to be. Foreign companies can and do win cases against Chinese companies in Chinese courts. Though suing in China is usually possible, it’s best to do it with a comprehensive understanding of what the process will actually entail.

First, jurisdiction is rarely a challenge. Articles 3 and 237 of the Civil Procedure Law of the People’s Republic of China grant Chinese courts jurisdiction over international cases involving a foreign plaintiff against a Chinese company.

Second, Chinese courts will enforce the law set forth in a contract. However, Chinese judges emphasize the overall context and “fairness” of the case more than the legal technicalities their American counterparts focus on.

For example, if a company performs a contractual obligation poorly because of an individual employee, a U.S. court would almost certainly hold the company liable for all damages arising from the breach. On the other hand, a Chinese court might rule against liability or severely limit the damages, believing it unfair to penalize a company for the incompetence of one employee.

Third, Chinese courts prohibit nearly all discovery, so you’ll need to have a strong case at the outset to prevail. This precedent also means that you should build your case before you sue, especially since the time from filing to trial is usually less than a year.

Fourth, Chinese courts base their rulings almost exclusively on documentary evidence, not testimony.

judicial hammer and scales

Fifth, settlement is rare in Chinese business litigation matters. Litigation costs in China are almost always much lower than in the United States. Plus, after receiving a legal complaint, Chinese culture often views a settlement as losing face. The Chinese company you are suing may prefer to lose the case and blame it on the judge than to settle and have others perceive it as an admission of wrongdoing.

Sixth, Chinese courts rarely issue large damage awards, no matter the case. Businesses there typically operate with low margins, and the courts are reluctant to harm a functioning business or to cause layoffs. In particular, Chinese judges are hesitant to award damages for lost profits or for pain and suffering. Chinese courts simply do not award the sort of damages available in a U.S. court.

Seventh, the ability to collect judgments in China is still not near to the level of the United States or most of Europe, though it is getting better. Chinese courts often lack the authority to enforce collection and get little assistance from the other agencies who have the power to compel payment. In addition, Chinese companies sometimes find it more cost-effective to avoid a judgment by shutting down and re‐opening under a new name.

Our China Track Record.

Representative Work

  • Form Wholly Foreign Owned Entities (WFOE), Representative Offices and Joint Ventures (J.V.).
  • Represent foreign companies in purchasing Chinese companies.
  • Register China trademarks.
  • Represent seafood company in massive fraud litigation.
  • Assist businessperson in appealing his criminal conviction.
  • Secure lower import taxes.
  • Seize debtor assets in Qingdao and Dalian.
  • Assist Fortune 500 company with multiple issues involving Chinese transportation law.
  • Represent companies in protecting their intellectual property rights (IPR) in China.
  • Help companies comply with China’s new labor contract law.

There is no substitute for been there, done that and can do it again.

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