Chapter 19 – Can a Local Lawyer Help with Your Claim?

I definitely answer that question with a resounding “yes”. In case study 2 from chapter 14, you learned that we employed an international Shanghai law office for intermediate negotiations.

The lawyer we worked with even spoke German making communication with him much easier. He informed us about something that I did not know until that time, that the Chinese laws are not very different from our laws in Germany and that the Chinese Government used outside help when establishing their new legal system. What this amounts to, is legally everything is in place to prevent copyright infringement and other fraudulent business practices but…the enforcement is much more difficult than in Western societies.

Take, for instance, a product recall in the U.S. by an importer. The importer has to pay the cost of the recall. However, it remains next to impossible to take legal action in China to recover the costs and only in the rarest case can an importer successfully sue the supplier responsible for a product failure. Since most suppliers are paid in full, well before the goods arrive at the destination port, the importer does not enjoy the leverage that comes with owing payment to the supplier.

Chinese courts have no obligation to enforce judgments rendered in the U.S. or European courts and thus, a contractual provision calling for U.S. or European litigation is a mistake if the Chinese party does not have sufficient fixed assets within the United States or Europe to satisfy the judgment.

On the other hand, Chinese courts are generally obligated to enforce foreign arbitral awards, and to attach assets in satisfaction of such awards, pursuant to China’s treaty obligations. As a result, it is far easier to collect on an arbitral award in China than it is to collect on a foreign court judgment in China.

With that said, care should be taken in drafting an international arbitration clause with a Chinese entity. China has special rules that must be followed in order to ensure the enforcement of an arbitral provision or arbitral award in China; in this regard, importers of Chinese goods should consult with an IDR lawyer (Informal Dispute Resolution) for specific advice on the drafting of a Chinese arbitration clause.

Hiring a local lawyer with knowledge of the international laws involved, can therefore certainly help you either to proceed with lawsuits or to avoid them through arbitration. The latter is more desirable because it will help you to save time and most likely money. Having an interpreter for your most important negotiations is fine but having professional legal advice may make the most difference.

International lawyers in Hong Kong or Shanghai are not cheap. You should inquire with them regarding their fee and add that cost onto the total amount you are trying to recover before you make a decision here. For smaller cases, it may not be worth it to get a lawyer involved at all.

The magic word is here “Arbitration”. Finding a solution outside of the courts is better for all parties. You may also underestimate how much information is exchanged between Chinese suppliers. They are usually busy people but do get together for fun and relaxation. They will not hesitate to tell other factories that they have been unjustly treated, whether it is fully true or not. Having said that, I suggest that for high value claims you employ a local lawyer. At least to the extent that they advise you how to proceed next.