International Law

China Litigation. You've Got It All Wrong.

By Dan

Excellent article in Asian Lawyer Magazine by Fangda lawyer, Gordon Gao. The article is entitled, "Dangerous Myths About Litigating in China." 

Crudely summarized and grossly exaggerated to conform to my own views of the litigation world, the article basically puts forth the following propositions:

1. Big Western companies do not know how to litigate in China. They think the way to litigate in China is by having their BigLaw Western firm run everything and that is a big mistake.

2. Big Western companies often lose and lose big in China and then when that happens they blame China. 

He is 100% right and I will raise him one by saying the same thing is true in reverse with respect to Chinese companies in the United States and the same thing is true just about everywhere.  

Let me explain.

Gao's thesis is that multinational companies "allow their beliefs and assumptions about cultural differences to prevent them from seeing the reality of the [litigation] situation in front of them." He then talks about a China IP litigation matter Schneider Electric lost and then settled before exhausting all of its appeals.  Gao notes how "to many observers, this case offered a clear example of how Western multinationals simply cannot get a fair hearing in Chinese courts," but Gao, notes how "things could have turned out very differently."  

Gao asks what went wrong on Schneider's case and then gives the following as his answwer: 

Schneider hired multiple law firms, both Chinese and foreign. On an informal basis, Schneider consulted still other firms (including my firm, Fangda Partners, on an unpaid basis). But since foreign firms are barred from appearing in Chinese courts, the firm that actually argued the case before the court was a relatively small Beijing firm. However, strategy and arguments were chiefly formulated by a large and well-known British firm, which coached the Chinese firm.

If Schneider had been sued in any other country, would it have used the same strategy? I doubt it. In Europe or the United States, Schneider would have immediately sought the best litigators with experience in the relevant jurisdiction. Instead, it opted for a team of firms led by a familiar international name--albeit one that, by Chinese law, could have zero experience of Chinese courts.

In contrast, Chint hired only one medium-sized Chinese firm hailing from Wenzhou, where the case was heard. From accounts I received from Schneider in-house lawyers who attended the trial, these shrewd and articulate lawyers outmatched their Beijing adversaries in court thanks in part to their thorough understanding of the issues.

Gao then talks of how he thinks Schneider still could have prevailed on appeal, but instead, chose to settle:  

So why did Schneider settle for more than half the damages award? The president of Schneider's China operations told the Financial Times at the time that the company was 'happy to stop fighting.' (A spokesperson for Schneider declined to comment for this article.)

Perhaps the company had had enough of what many regard as the unpredictable, inscrutable Chinese court system. Avoiding the courts at any and all cost has long been the dominant litigation strategy of multinationals in China. Like poor Bouriscot [of Madame Butterfly fame], they can become so fixated on the differences between China and the West that they cast more sober analysis aside. 

Now I have absolutely no idea what happened in the Schneider case (beyond what other people have said about it) nor do I have any idea of what Schneider's chances on appeal would have been, but I can tell you that I have many times seen what Mr. Gao describes. I have seen it with foreign companies in China and elsewhere and I have seen it with Chinese and Korean and Russian companies in the United States. I have even seen it with American companies in other states. 

The "it" I am talking about is refusing to recognize the strong contributions that are often necessary from local counsel. I would love to be able to tell my own stories to be able to back all of this up, and I started trying to do so, but realized that I would have to mask them so badly they would lose all impact. You will just have to trust me when I say Mr. Gao is speaking the truth and that when you have a case in a foreign country, in most instances, you should seek out top flight local counsel and your regular law firm should play only a secondary role. This is true in China and this is true pretty much everywhere else as well.

When you are involved in a litigation matter in a foreign country, you are on someone else's turf and usually the best way to try to neutralize that is to use the right local attorneys. I do not care how could your United States or British attorney is, that attorney does not know the local Chinese courts and judges as well as the Chinese lawyer you should hire. Your regular counsel can and should play a role in much of your litigaiton oversees, but that role should usually be more in the nature of the role of in-house foreign litigation counsel, and not first chair trial lead.  

What do you think?

Full post as published by China Law Blog on March 02, 2011 (boomark / email).