Quick Question Friday: China Law Answers, Part 85

Because of this blog, our China lawyers get a fairly steady stream of China law questions from readers, mostly via emails but occasionally via blog comments or phone calls as well. If we were to conduct research on all the questions we get asked and then comprehensively answer them, we would become overwhelmed. So we usually provide a quick general answer and, when it is easy to do so, a link or two to a blog post that provides some additional guidance. We figure we might as well post some of these on here as well, which we generally do on Fridays, like today.

With the slow (or maybe not so slow) decoupling happening between China and the United States (and to a lesser extent between China and Europe), problems between foreign and Chinese companies has grown. And with the increase in these problems comes an increase in litigation and arbitration. and questions on how to handle these disputes.

Yesterday, I met with William Mansfield of Emergent IP to discuss various matters on which we are working. William is —  to put it mildly — a somewhat unique sort of lawyer. I usually describe him as “an emerging market troubleshooter”  and then talk about how he is the person you want if you have a really terrible or intractable law related problem in a country like Yemen or Chad or Belarus or wherever else Western-style lawyering is not going to cut it. William is famous (or at least quasi-famous) for parachuting (not literally, but you get my point) into countries few if anyone knows much about and those who do know are not willing to go there.

William  has been and will go just about anywhere. Per his website, he’s “traveled to 55 countries in his professional capacity and directed actions in over 150 countries.” William typically will go to the country and then spend weeks figuring out how best to help his client. The sort of terrible situations William handles can range from stopping counterfeiting to helping figure out how to extricate an executive in trouble, to figuring out how to mollify a village angry about what a former employee did right before leaving. In other words, the sort of thing a foreign company must resolve to be able to continue operating  in the emerging country, but for which no textbook or laws can help.

One of the things William and I discussed was how too many lawyers handle litigation and arbitration in emerging countries “backwards” by incurring hundreds of thousands of dollars on getting a court judgment or arbitration award before they even start figuring out how to collect on it. This path can make sense for the United States or the EU because they have well-functioning and effective legal mechanisms for collecting on a judgments and arbitration awards. But for a country like China, India, Pakistan, Thailand, Vietnam or Indonesia, this usually makes no sense at all.  But lawyers are inherently legalistic and so they often have trouble thinking outside a legal box.

Take China for instance. Chinese courts rarely enforce foreign judgments, and this is especially true of U.S. judgments. Actually, many countries do not like enforcing US judgments, but that is an issue for another day.  See though this article by Nadja Vietz (one of our Spain lawyers): Will your US judgment be enforced abroad? China’s refusal to enforce foreign court judgments does not mean you should not pursue your claims against a Chinese, but it does mean you should early on account for if and how you will be able to collect on a judgment or award when you win. It is usually a mistake to just sue a Chinese company in a U.S. or EU court assuming you will get paid on your judgment as a matter of course.

Anyway, at one point yesterday William talked about having attended a big-time international law conference where a speaker talked about how to sue Chinese companies in the United States. Ten to fifteen minutes into this talk, a lawyer in the audience asked whether China enforces U.S. court judgments and, without missing a beat, the speaker answered “no” and went right back to his hour long talk as though the mere fact that suing Chinese companies in the United States seldom leads to money was of no import. As William said, “only a roomful of lawyers would have kept listening after that.”

Less than three hours later, an American litigator called me to say he had read an article on our law firm website, Disputes with Chinese Companies, and could he “pick my brain” (this is lawyer-speak for discuss at no charge) on what to do when suing a Chinese company. I had less than five minutes to talk and I told him that when contemplating suing a Chinese company (or a company from any emerging market country, for that matter) the first thing my firm’s international litigation lawyers usually do is try to determine whether it will be possible to collect any money from that company and, if so, how. And then they figure out how to proceed based largely on that. I then very quickly told him how before we sue any company based in Asia, we extensively research the company. This costs money and a client raring to sue sometimes will feel somewhat waylaid, but if that research prevents them from incurring hundreds of thousands of dollars in legal fees pursuing a case it can win but never collect any money on, it will be well worth it.

We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.