"Shall we litigate in China" by Michelle Tzhori, Partner at Yinke Law Firm

Michelle Tzhori, Partner

Admitted in Israel and NY
15F, 500 Hengfeng Road, Shanghai, China
Tel: +86-21 6056-1288
M: +86-18-501658062
Email: Michelle@yingkelawyer.com

SHALL WE LITIGATE IN CHINA? PART I
1 July 2013, By Michelle Tzhori, Esq.

Whenever foreigners discuss the worthiness and feasibility of PRC litigation we hear the same mantra. “It is like a market…” claims an amateur legalist; “You should do whatever it takes to avoid the PRC judicial system…” other proclaims; “ONLY arbitration in Hong Kong or CIETAC!” precludes the expert.

 In this article, and the ones to follow, we do not intend to rebut the above statements but lead you through some common phases of a decision-making process related to dispute resolution in China.

The PRC Judicial system in a nutshell

The PRC court system is combined of the highest instance, the Supreme Court, and two subordinate systems, the Local Courts and Special Courts. The Special Courts try cases related to specific subject matters under their jurisdiction whereas the Local Courts try all remaining matters. The hierarchy within the Local Court system is dictated by the seriousness of the subject matter, the expected criminal penalty and the nationality of the parties. A final verdict can be appealed to a higher instance and the verdict of the second instance is final and binding.

The court trials can be led by a single judge or a collegiate panel combined of at least three judges or a combination of judges and people’s assessors.

The trial system is an open system, in which trials are open to the public except for cases involving state secrets, personal privacy or criminal liability of minors.

 Arbitration V. Litigation

The parties can stipulate on their inherent right for litigation, and agree to voluntarily submit the commercial dispute for arbitration by a third party. Once agreed to arbitration, the parties are obliged to arbitrate and cannot approach the court system.

An Arbitration Association controls several arbitration committees that are combined of representatives of the government and the chambers of commerce. The association sets the arbitration rules in accordance with the Arbitration Law and the Civil Procedure Law. The arbitral award is final but the parties can apply, under certain circumstances, for annulment of the award.

While there are many arbitration committees in various areas in China, until 2012 there has been only one arbitration agency handling international commercial dispute – the China International Economic and Trade Arbitration Committee (CIETAC). With three chapters in Beijing, Shanghai and South China, CIETAC was regarded as the main solution in China for commercial disputes involving foreigners. Last year, due to internal disagreements over arbitration rules, CIETAC has gone through changes in which the Shanghai and South China chapters separated from CEITAC Beijing and started acting independently under new names and arbitration rules.

If you are entering into new commercial relationship in China, and you are at a position to dictate the dispute resolution method, you should consider various factors including the complexity of the subject matter, the language that underlies the documents that may later on become evidences, and the total amount in question. Note that arbitration proceedings are substantially costly comparing to the litigation option; in addition, the current status of the separated CIETAC chapters is unclear and the enforceability of the arbitral awards issued in Shanghai and South China (Shenzhen) is questionable. On the other hand, international litigation in China involves rigorous procedural steps that may impede the handling of the case, lead to delays and frustrations and eventually become as costly as the arbitration option.

Diving into litigation? Take a deep breath!

Assuming you – a foreign company – have no arbitration clause in your relationship with your counterpart, and you are about to commence litigate in China, please take a deep breath and be patient! Prior to commencing the litigation you will go through procedural phases in preparation for your day in the Chinese court.

Certification of a PoA and the incorporation documents – First step of your long journey would be the certification of your company’s incorporation documents and a Power of Attorney. This involves interaction with the Ministry of Foreign Affairs and the Chinese embassy/consulate at your home country.

Evidence Collection Process – when filing to court, a plaintiff is required to submit a comprehensive evidence book to support his case. Such book shall include any documents, agreements, correspondence and opinions the Plaintiff intends to use during the litigation. The evidences must be notarized by a public notary in order to become admissible. The notary book will then be certified in the Chinese embassy/consulate. There are no shortcuts and the process may last several months, however this is a prerequisite for a successful litigation pertaining to foreigners.

Last step prior to heading to court – documents translation. The loads of documents you intend to use during the trial must be translated to Chinese by a translation institution acceptable by the specific court you are intending to apply to.

Filing to court – you are now ready with your lawsuit and are anxious to commence the litigation. Your first encounter with the PRC court system would be at the filing counter. While you are convinced that your lawsuit is complete, the court clerk may think otherwise. Upon submitting the case, a court clerk will initially review the documents package and use his discretion to decide whether the documents are supporting the case and justify the acceptance of the materials. Only to the extent this front desk clerk believes you have done a thorough job, will your day at the PRC court begin.

In the next articles we shall go deeper into the PRC litigation adventure and share our attorneys’ experience and views.

According to article 67 of the Civil Procedure Law states, “Legal acts, legal facts and documents that have been notarized through legal procedures should be regarded as a basis for establishing facts, except where opposing evidence is sufficient to overrule the notarized documents.”