Let's face it, even in a down economy, suing Chinese companies is a growth area. On top of that, it is fun and lucrative. My firm originally made its mark handling international litigation and of late, it is litigation against Chinese companies that is feeding our rapid growth. We just hired two more full time lawyers (more on that in a later post) and both will be mostly focused on our international litigation and arbitration practice.?
What it takes to litigate against Chinese companies is one of my favorite speaking topics because so many lawyers get it wrong and are surprised to hear what it takes to get it right. Rule number one on that front is not to just go off and sue in a United States court based on the assumption that a U.S. court judgment will have any value in terms of actually collecting money. For more on the value (or lack thereof) of simply suing a Chinese company in a U.S. court, check out the following:
So what should you do if you are owed money by or have been wronged by a Chinese company??
I recently wrote an article for the Wall Street Journal, entitled, "Chinese Companies Court Disaster:?Doing business in America means also learning how to navigate the U.S. legal system." That article focuses on the increasing number of lawsuits being brought by foreign companies against Chinese companies and on how poorly most Chinese companies are handling those lawsuits. In response to that article, Bloomberg Law Reports[subscription required] and requested I write an article setting out how to handle litigating and arbitrating against Chinese companies. ?
I brought in one of our new international litigation lawyers, Rebecca Carlson, to assist me with this article and Bloomberg published it a few weeks ago in Volume 3, No. 7 edition of?the Bloomberg Law?Reports—Asia Pacific, and our freeze on?our being able to cite to that article has now ended. That being the case, and it being a long article, we are going to post it in serial form here on the blog. Please note that instead of using footnotes, we will use brackets, [], instead.
So without further ado, here is part I.
Introduction
The rapid increase in business transactions between?Chinese and American companies has been ?matched by a concomitant rise in legal disputes.?Attorneys who have dealt with such litigation?recognize a pervasive impediment to successful?resolution: the daunting task of collecting on any?judgments achieved. Chinese courts do not enforce?U.S. judgments and they have only recently?acquired sufficient power to fully enforce their own?domestic awards.
It is typically most effective, therefore, to sue a?Chinese company in the United States, provided?that the Chinese company has assets in the United?States or in a country that recognizes U.S?judgments. If the Chinese company has no such?assets, suing in China may be the only choice.
This article will clarify the challenges of litigating?against Chinese companies and will offer guidance?in overcoming these challenges both in the United?States and in China.
Jurisdiction
Jurisdiction is a fundamental issue in international?legal disputes. Suing a Chinese company in the?United States requires the typical contact inquiry?involved in 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. Sinvnath 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. [Chinese courts have jurisdiction over?international cases involving a foreign plaintiff against a?Chinese company. Civil Procedure Law of the People's?Republic of China, Articles 3 and 237.]
However, it is?important to research where the company is based:?Hong Kong, Mainland China and Taiwan are?different jurisdictions entirely.
Suing in the United States
If a U.S. court has jurisdiction over a Chinese?company, litigating and winning against that?company in a U.S. court is, with a few exceptions,?comparable to suing any other company. The most?notable differences typically arise in service of?process, discovery, litigation strategy, and, if?necessary to execute the judgment in China,?enforcement.
Service of Process
China is party to the Hague Convention on Service?Abroad of Judicial and Extrajudicial Documents in?Civil and Commercial Matters. [http://www.hcch.net/upload/conventions/txt14en.pdf] ? Therefore,?service?on a Chinese company must fully comply with this?Convention.?Service under the Hague Convention on Service 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. The U.S. company?must submit the following to the Ministry of Justice:
(1) a completed United States Marshall Form USM‐94 [available?at?http://www.usmarshals.gov/forms/usm94.pdf]?(2) the original English version of the?documents to be served (the summons must have?the issuing court's seal); (3) the Chinese translation?of all documents to be served; and (4) a photocopy?of each of these documents. Note that because the?USM‐94 will not be served, translation is not?necessary. In addition to the documents, a payment?of approximately US$100 by an international?payment order must be sent with the service?request, payable to the Supreme People's Court of?the People's Republic of China. [Although China did not make a specific?reservation regarding translations when it acceded to the?Hague Convention on service, China's Central Authority?has advised the U.S. Embassy in Beijing that documents?to be served in China must be translated into Mandarin?Chinese. Since it is China's Central Authority that effects?service of process, the best approach is to comply with?its requirements.]
The Ministry of Justice will then send the service?documents to the appropriate local court, and that?court will finally effect service. In the authors'?experience, Chinese courts are often fairly slow to?send out service. If the Chinese company being sued?is a powerful local entity, the service may be even?slower. However, repeatedly calling and emailing?both the court itself and the Ministry of Justice can?often expedite service. Service normally takes?around one to three months.
Service on a Chinese company by mail is not?effective and U.S. courts have held that China's?formal objection to service by mail under Article?10(a) of the Convention is 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).?
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