Still undecided whether to bring a lawsuit in China?
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.We will explain how debt collection works in China below.
It’s time to get a full picture of the advantages and disadvantages of litigation in China.
This post provides a detailed overview in terms of judgment enforcement, applicable law, language, evidence rules, service of process, interim measures, and time and cost.
I. Pros
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.
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.
If you sue in other countries, there might be some problems with the enforcement, because not all foreign judgments are enforceable in China.
2. 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.
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.
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.
3. 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.
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.
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.
4. Time & Cost
In general, suing in China is more time-efficient and cost-effective.
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?’.
II. Cons
1. Applicable 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?
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.
You may worry that it is different from your common sense. Although, at least for business-related law, most Chinese regulations will not exceed your expectations, since business practices are similar around the world.
2. 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.
Chinese courts only allow the Chinese language for litigation. Therefore, all your documents must be translated into Chinese.
3. Evidence Rule
Evidence is the key to your success. However, this issue might be a bit special 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.
But, the civil proceeding in other countries, at least in common law countries like the United States, follows the evidence discovery rule, which reduces the difficulty for courts to obtain evidence but forces litigants to disclose the evidence against them.
Tips:
Here are two tips for you:
i.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).
ii. 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.
Contributors: Meng Yu 余萌
