Dispute Resolution

Can a foreign person or foreign company sue a Chinese person or Chinese company in China?

Yes they can! 

The process is far less expensive than in the West and a decision is usually made in a fairly short period of time.

The playing field is much more level these days and foreign companies are indeed having success in Chinese courts when they have solid local representation and can clearly show breach of contract.

Does the loser pay the court fees in China?

A  Chinese court is very unlikely to instruct the Chinese party to cover your legal fees if you win (unless that was pre-agreed in writing).

In China, can I sue for indirect damages?

Yes!

Keep in mind that you may be able to seek compensation based on the “Value of Goods Sold” to your customer rather than just the “Purchase Price” from the Chinese supplier!

If your mark up is large, and if you can prove that the actions of the bad supplier caused you to lose the order with your customer, then suing for indirect damage can give you a lot of leverage.

Is the winner able to collect punitive damages in China?

Chinese judges very rarely award punitive damages.

What kind of testimony and types of evidence work best in a Chinese court?

Chinese judges rarely allow testimony in a business dispute. So you will need to rely on hard evidence. A written contract and a bank statement showing proof of payment will have much more weight than an email and a packing slip from a 3rd party.

Sometimes the Chinese judge will accept English language evidence, but more often than not, they will exercise their right to request that key evidence is both notarized/authenticated and translated. That may require you contact the nearest Chinese consulate as they are authorized by the courts in China to authenticate official documents.

Tip:  Make it easy for the Chinese judge

It will save time and money if you work with the lawyer to select the key evidence and only have those items authenticated/translated.  Don’t expect the Chinese judge to dig down too deep into either party’s pile of evidence. It is very much to your advantage to make a simple and concise case, based on a short stack of solid evidence, rather than trying to impress the judge with a big stack of paperwork!)

Tip:  Since you are paying by the hour for their support, avoid overwhelming the lawyer with non-essential information.

If the lawyer is requested to review a large case file, full of irrelevant emails for example, it will significantly increase the workload for the paralegal and lawyer, resulting in a higher than necessary expenses for the client. 

The better option is to provide a clear summary of the situation, state what you feel are the key arguments and offer the lawyer the core pieces of evidence supporting your position.  The lawyer will review and request additional information if needed.  

I don't have a signed contract with the company I want to sue. Can I still win in China?

Having a written contract will help your case a lot. But even in the absence of that document, know that Chinese exporters are legally obligated to supply a product that is “fit for function”. 

So if you ordered red umbrellas without a contract and received blue ones, the case can be complicated because you don’t have clear evidence that the two parties agreed to red umbrellas. 

But if those umbrellas showed up with quality defects that prevent them from working like an umbrella should, then you still have a decent case.

If I win the court case, how to collect the compensation awarded by the court?

Even if you win in a Chinese court, collecting court ordered compensation can take time, assuming the Chinese company is still in business. 

It is possible to go after the legal representatives of the Chinese company, but you will first have to show the court that the company is non-compliant with the court order.  

Here is a blog post explaining in detail how the the court can apply the following pressure to the company that has not respected the court order to compensate you:

1. 1. Requiring the non-performing party to report its asset status.
   2. Checking the non-performing party's bank accounts.
   3. Freezing and transferring the deposits of the non-performing party.
   4. Sealing, freezing, auctioning and selling the assets of the non-performing party.
   5. Searching the residence of the non-performing party's home or the other places where the assets may be hidden.
   6. Prohibiting the legal representative of the non-performing party from leaving China.
   7. Recording the non-performance in a credit-ranking system and disclosing this information to the public.

The entity may also be placed on a government blacklist.  More on that in the above-mentioned blog post.

I'm worried the Chinese company will go out of business or hide assets before I win the court case.  Can I freeze their assets?

You may be surprised to learn that even as a foreigner, you have the ability to freeze the assets of a Chinese company (or individual) in the opening phases of a lawsuit.  

There are two types of expenses to consider if you are thinking about freezing the assets of a Chinese company.

1. 1. Court Fees related to your application to freeze assets
   2. Collateral

TIP: You will need to provide collateral to the court when submitting the application to freeze the assets of the Chinese company. But you can use an insurance company to issue a letter of guarantee to the court. The rate charged by the insurance company is between 0.05% and 0.5% of the amount to be frozen.

In most cases, if you win, the full collateral will be returned to you.  But if the Chinese side wins the case they have the option to have you compensate them for any damages to their business that resulted from having their assets frozen.  In that case, the collateral will not be returned to the plaintiff until the compensation amount is determined by the judge.

This is the mechanism Chinese courts use to prevent frivolous lawsuits and unjust freezing of assets by either party.

For a detailed look at the process and costs involved in freezing the assets of a Chinese entity, check out the 2nd half of this blog post entitled "China Lawsuits: How to freeze assets of a Chinese company". 

A Cease & Desist letter is essentially the same as a Demand Letter.  It's a demand that the target entity cease doing something.  

Cease & Desist letters cost less than Demand Letters as the Due Diligence phase can be skipped in most situations. 

Bulk discounts are applicable if a Cease & Desist letter needs to be sent to multiple parties.

Cease & Desist letters sent from an actual lawyer, registered in China, are far more effective than letters sent from locals lawyers back home as Chinese companies know that non-Chinese lawyers can't practice in China and overseas courts have no jurisdiction in China. 

The good news is that court fees and attorney fees in China are a fraction of those found in USA or Europe.   And the time frame for the case to move thru the system in China is usually much faster than in N. America, for example.

The not so good news is that it is very hard to estimate in advance, how many hours will be needed to complete the court case in China.  There are just too many variables to give an accurate estimate.

It is also worth noting that some courts will ask for key evidence to be notarized, authenticated or translated. This is an additional expense to consider, especially if you have a large case file.

Court fees are invoiced at cost with no mark up.  The legal fees for the attorneys in the AsiaBridge network are found on our rate sheet, which can be downloaded from the website at https://www.asiabridgelaw.com/contact-us/.

Clients are invoiced in the form of  “general counsel blocks” offered in 4, 10, 20, 40 and 80 hour blocks.  In this fashion the clients only pay for one block at a time and has direct control over the amount they spend on a court case. The larger the block, the lower the per-hour fee.

Covid-19’s Impact on the Timeline:

As of 2020, we experiencing delays in the following situations:

Court dates can change at last minute if government offices in China are shut down or a key person is out on sick leave.

Official authentication of evidence often requires the input of the Chinese consulate or embassy overseas. If that office is closed or working with a skeleton crew, you can expect delays.

Keep in mind that in China you can include direct and indirect losses when seeking compensation.  But if the value of your direct plus indirect loss is not larger than 6,000 USD in total, it probably doesn't make economic sense to retain the services of a lawyer as minimum service fees need to be invoiced.

You would be better off spending your money on things like supplier verification & bilingual contracts to ensure your future orders don’t have problems. 

Phone lines and emails are easy to change. But if the seller was a real company with a real business licenses (we can find out using the due diligence) then you have a chance of tracking down the target entity and getting in touch.   The due diligence will confirm if the business license is active but tracking down individuals who have gone into hiding is outside the scope of due diligence.

Keep in mind that if the case review shows your case is not strong, or if the due diligence shows the company has no assets, then the remaining service fees are returned to you. Most lawyers bundle the three together and don’t offer to return any of the funds if the case is weak.  At AsiaBridge Law, we charge a fair fee for a transparent service that respects our clients. And we are willing to make refunds when the case can't move forward!