When your Chinese suppliers or distributors defraud or default, where will you file the lawsuit? China or somewhere else (eg. the place of your domicile), provided that both have jurisdiction over your case?

There is no doubt that you will prefer to sue in your home country, but can you ensure that the lawsuit will have a material impact on your Chinese partners? Can you guarantee that you will receive the expected compensation?

To answer these questions, we need to compare the litigation in China with that in other countries.

This post was first published in CJO GLOBAL, which is committed to providing consulting services in China-related cross-border trade risk management and debt collection.

It is definitely not an easy job.

Admittedly, we are experts on cross-border dispute management in China, but not on that in all other countries. Besides, the laws and customs differ from other countries, making it difficult for us to compare them to China as a whole.

In fact, you can hardly find someone with a good grasp of China’s legal system and that of any other country.

That being said, however, we try our best to make a brief comparison from various perspectives, including enforcement, law, language, evidence, service, interim measures, time, and cost, to help you get a sense.

1. Enforcement

The main purpose of bringing a lawsuit is to get compensation. Therefore, wherever you win the lawsuit, you need to have the judgment enforced. Enforcement is essentially the most crucial issue in litigation, though you might not think of it at first.

Most Chinese companies have their principal assets in China, which means that you must get your judgment enforced in China.

So, what will happen in the enforcement?

(1) Suing in China

If you sue in China, it will be very convenient to enforce the judgment, since the people’s courts are responsible for enforcement in China. They can investigate the companies for their assets in China and adopt compulsory measures to seize the assets for your compensation.

(2) Suing in Other Countries.

If you sue in other countries, there might be some problems with the enforcement, because not all foreign judgments are enforceable in China.

According to our survey, as of May 2021, fewer than 50 countries’ judgments are enforceable in China. Among 47 such cases handled by Chinese courts, only 18 were enforced, reflecting a 38% success rate. You can check out our list of countries and their groupings for more information.

In summary, you need to confirm whether Chinese courts can enforce your winning judgment before commencing a civil action outside China.

2. Law

When your dispute is brought to court, another issue that may occur to you is the law: Should you apply Chinese law or the law you are more familiar with to the case?

(1) Suing in China

The Chinese courts will probably apply Chinese law to your case.

You and your partners can surely agree upon the law of your country as the applicable law. Chinese judges will accept this choice of law, but they are, just as those in other jurisdictions, not very good at ascertaining and interpreting foreign law. Thus, many litigants turn to Chinese law later to accelerate the proceedings.

So, what is Chinese law like? You may worry that it is different from your common sense.

But don’t worry. At least for business-related law, most Chinese regulations will not exceed your expectations, since business practices are similar around the world. Take the Contract Part of China’s Civil Code as an example, which you will mainly apply when settling trade disputes. Here is its English translation, from which you can see that most of its provisions are comprehensible.

And with the help of Chinese experts, you can better understand how Chinese law will impact your transactions and disputes.

(2) Suing in Other Countries

If you sue in other countries, your case is likely to be governed by the law of the forum state (lex fori), for instance, the law being that of your country. This will put the odds in your favour.

Furthermore, if your winning judgment is enforceable in China, Chinese courts usually don’t conduct a substantive review on how foreign judges apply the law in this foreign judgment. Their primary concern is whether foreign trials follow due process.

3. Language

For many people, language is a major barrier to foreign litigation, not to mention that Chinese is one of the most difficult languages in the world.

(1) Suing in China

Chinese courts only allow the Chinese language for litigation. Therefore, all your documents must be translated into Chinese. We have discussed this issue in more detail in another post on whether contracts should be written in English.

(2) Suing in Other Countries

I believe that most courts in other countries use their official languages for litigation. Presumably, their judges do not understand Chinese as well. Thus, if your documents are written in Chinese, you should also translate them into corresponding languages.

4. Evidence

Evidence is the key to your success. However, this issue might be a bit special in China.

(1) Suing in China

The civil preceding in China follows the general rule that “the burden of proof lies with the party asserting a proposition”, so you bear the duty to provide evidence in support of your allegations.

In other words, the other party generally doesn’t have to comply with your request and submit evidence against them. There are, of course, a few exceptions to this rule.

You should communicate appropriately with your Chinese partners before filing a lawsuit and collect as much evidence as possible during this process. Otherwise, once the legal proceedings begin, you may not get any evidence from them.

We will also help you scrutinize the evidence you are going to submit, so as to make sure that no evidence is submitted against you.

It will help if you perfect your strategy for submitting evidence in Chinese litigation. For the evidence strategy, please read our post “What Evidence Strategy Should You Adopt in a Chinese Court?“.

(2) Suing in Other Countries

The civil proceeding in other countries, at least in common law countries like the United States, follows the evidence discovery rule.

On its website, Cornell Law School describes this rule as follows: the “plaintiffs who strongly suspect that they were wronged can file a lawsuit, even if they do not have solid evidence. During discovery, they can force the defendant to give them evidence that they can use to build their case.”

This rule dramatically reduces the difficulty for courts to obtain evidence but forces litigants to disclose the evidence against them. From this perspective, it is a double-edged sword.

5. Service of Process

Courts should serve the summons, writ, and judgment on the plaintiff and the defendant, which is known as the service of process. In cross-border disputes, the service of process can be a bit complicated.

(1) Suing in China

If you and the defendant are both in China, litigation in China will be convenient, as the court can serve the defendant directly. Even if the court cannot find the defendant, it can publish a notice in the newspaper and consider the service effective after 45 days from the date of publication.

(2) Suing in Other Countries

If you and the defendant are in China, and you choose to sue in other countries, the foreign court will need to serve the defendant in China.

This cross-border service of process is very likely to be governed by the 1965 Hague Convention on the Service Abroad of Judicial and Extra-judicial Documents in Civil or Commercial Matters, since China is a member state of the Convention. According to the reservation made by China upon accession, the mechanism for service of documents in China is completed through China’s Ministry of Justice (the ‘central authority’ under the Convention), together with the cooperation from China’s Supreme People’s Court, and the local people’s courts.

Each service may take more than a year and may even fail from time to time.

6. Interim Measures

In legal proceedings, you may require the court to adopt interim measures against your Chinese partners’ property, so as to prevent the property from being concealed, transferred, or sold. Many Chinese companies will transfer their property in anticipation of losing a lawsuit. Therefore, interim measures are vital for you.

(1) Suing in China

In China, “interim measures” is known as “property preservation” (诉讼保全). You can apply to the court for property preservation once you file a lawsuit, so that the other party’s property is preserved in time.

(2) Suing in Other Countries

If you sue in other counties, you can no longer apply to a Chinese court for interim measures. Meanwhile, Chinese courts rarely enforce interim orders from foreign courts.

7. Time and Cost

In general, suing in China is more time-efficient and cost-effective.

(1) Suing in China

Chinese courts do not charge too much. Moreover, the higher the claim amount, the lower the ratio of the court fees. If you claim $10,000, the court fee is $200; if you claim $100,000, the court fee is $1,600.

Chinese attorneys rarely charge by the hour, but by a percentage of the claimed property’s value, say 8-15%.

In China, the court fees and attorney’s fees only account for a portion of the claim amount, and you can predict that cost before initiating legal proceedings.

Additionally, court fees can be awarded to the losing party, yet attorney’s fees usually cannot.

For more information, you can read another post 'Sue a Company in China: How Much Does It Cost?'.

(2) Suing in Other Countries

Take the United States as an example. From what we found on the website of the Federal Court — U.S. Court of Federal Claims Fee Schedule — the initial fee for filing a civil action or proceeding is $350, while other services cost dozen dollars for each. The website of Cornell Law School also mentions that court costs usually include the initial filing fee, fees for serving the summons, complaint, and subpoenas, and fees to pay for the transcription by a court reporter of depositions or in-court testimony.

As for the U.K., we referred to its government website and found that if you claim £10,000, the courts will take 5% as the filing fee, that is £500; if you claim £100,000, the filing fee is also 5% of that, amounting to £5,000.

By contrast, court fees in China are relatively low.

Since lawyers in many countries charge by hours, it is difficult to compare the attorney’s fees in China with those in other countries.

As far as we know, court fees and attorney’s fees are all recoverable in many countries.

From what we have discussed above, you can find both advantages and disadvantages to suing in China and in other countries. So, what should you do?

Tips

Here are two tips for you:

1. If you choose to sue in other countries, you had better consult the experts on cross-border disputes management in advance to confirm whether Chinese courts will enforce the judgment in that country and ensure that the foreign legal procedure meets the requirements of Chinese courts (if it comes to the enforcement of foreign judgments in China at a later stage).
2. If you choose to sue in China, you will also need experts to plan and manage the cross-border dispute. They can put forward and implement the most feasible strategy and engage, direct, and supervise the attorney for you.

The Cross-border Trade Dispute 101 Series (‘CTD 101 Series’) provides an introduction to China-related cross-border trade dispute, and covers the knowledge essential to cross-border trade dispute resolution and debt collection.

Photo by Hiroshi Kimura on Unsplash

Contributors: Meng Yu 余萌

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