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China Litigation And Arbitration. Maybe.

By Dan Harris and Steve Dickinson

I started my career doing massive case litigation. I remember being the 25th most senior lawyer on the litigation side of a matter, which side was actually secondary to the bankruptcy/workout side. In other words, I was No. 50 on the totem pole. About all I remember from that case is that I got to pore through Playboy Enterprises' annual reports. I can remember another case where I and a bunch of other lawyers spent months poring through documents on a massive case in Philadelphia. All I remember from that case is that we would spend loads of money at Le Bec Fin and act like we were being frugal by making sure to spend "only" $75 or less per bottle of wine. Ahh, BigLaw litigation. But stripped down, litigation can actually be a blast. I am always analogizing it to backgammon. Litigation is like backgammon because your first move is likely to be your most important as it often sets the tone for the entire game. Also, like backgammon, you have to adjust your game depending on what your opponent does. The strategy is the fun part. The strategic decisions one has to make in international litigation are not really any different from the ones that need to be made in domestic litigation. There just are more decisions and they tend to be more complicated. I was on a China panel once when someone asked whether there are disadvantages to being a foreign litigant in a Chinese court.I replied of course, but then mentioned about how there are disadvantages to being a Seattle lawyer in the Tacoma courts forty-five minutes away. I bring this up because I just read yet another great post on Santiago Cueto's International Business Law Advisor blog, which blog if you are not reading, you should be. The post is entitled "International Litigation: How to File a Lawsuit Against a Foreign Investment Advisor," but it could have been titled, "Strategic Considerations for Your China Lawsuit" because the big strategic issues are going to be the same. Cueto sets up his post by talking about having been contacted by a client who lost millions in an overseas investment and then sets out some options. Cueto starts out by implicitly noting something I see as commonly misunderstood, even by lawyers:

Almost all legal systems have a concept of negligence, which would make a financial adviser potentially liable if the quality of their advice fell below that to be reasonably expected, causing loss to a client.

People far too often focus on the law or the choice of law, when so often it is not the law so much that determines the best place to proceed with a lawsuit, but the intangibles. The reality is that most breaches of contract in the United States also constitute a breach of contract in China, in Russia, in the Sudan, or wherever else. Buying a product and then not paying for it is, as far as I know, a breach of contract everywhere in the world. Similarly, getting drunk and running someone over with your car gives rise to a cause of action probably everywhere in the world as well. I am not saying the choice of law is not important, but I am saying it is wrong to assume it is the most important. Take negligence. Getting run over by a drunk driver is probably pretty much the same cause of action in both China and the United States and the laws for that cause of action will probably be pretty much the same. But let's get real here and ask where would you rather have that lawsuit if you are the plaintiff? In the United States where you could put your friends and relatives on the witness stand to testify in front of a jury on how you have never been the same since the accident and where multi-million dollar verdicts are commonplace, or in China where your only evidence may end up being a written doctor's report and where you will be lucking to get $30,000? Or take a breach of contract where you purchase a defective part to go into a piece of equipment you make and sell for a million dollars. In the United States you would have a good chance of collecting the profits you lost by not being able to sell your million dollar equipment, whereas in China your chances of getting those lost profits would be minuscule. Cueto's post sets out part of the analysis he (and every good lawyer) go through when confronted with an international litigation matter: 1. Where should the lawsuit be filed? Cueto tells us not to assume "you have to sue in the courts of the country where the adviser is located." He rightly notes "there is often a choice, including the courts where you are domiciled or the courts of some other country." He then notes Miami's reputation for "high payouts." I can remember a large contingency fee case my firm had where we thought we had the choice of suing in Spain, suing in Seattle, or suing in a town in Texas known for large verdicts. We chose the Texas town and brought in a Texas lawyer to assist, cutting our own contingent fee by 75% and "giving" the Texas lawyer that portion. Within months we settled the case for such a high amount, that had we kept it to ourselves in Seattle and received the full contingency fee, we probably would not have received a dollar more. But moving it to Texas meant our client's recovery was at least double. These are the sorts of decisions that go on all the time. 2. Do I have a choice of where to file a lawsuit? Cueto notes how each court has its own laws about its jurisdiction and that though the general rule is that you can sue where the defendant is domiciled, you might have the option to proceed where the service was provided. Cueto also notes how the agreement itself might mandate a specific jurisdiction. 3. Does that mean I have no choice? Though courts generally respect "jurisdiction agreements" which prevent you from suing elsewhere, these are not always binding. "There may be technical arguments that the terms and conditions were not incorporated into the contract or that insufficient effort was made to ensure you were aware of them." Cueto also notes how "'consumers'" can often avoid the unfair and onerous effects of terms and conditions. My firm has brought many a case in what we consider the best jurisdiction for our client, even though our chances, legally, of keeping the case in that tribunal may be weak. We do this to force the defendant to request a case transfer from a tribunal unfavorable to them and because just starting a case in such a jurisdiction can go a long way towards convincing defendants to settle early, for fear of never getting out. 4. But the contract says it is governed by overseas law. Cueto notes that "the 'choice-of-law clause' can be a factor but mostly has no bearing on the choice of court. A court can apply ­foreign laws, although it might need expert evidence." 5. If I have a choice, what factors should I take into account? a. Judgment Recognition "It is important that any judgment obtained in one court is "recognized" by the courts of the place where you might want to enforce the judgment - which will be where the defendant has any assets." "If your judgment was the subject of an arbitration, the judgment is enforceable in any country that has signed on to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (over 142 countries are parties to the Convention)." Judgment recognition is an absolutely critical component in deciding where to bring your case. For example, it may be easy to get a multi-million dollar judgment in a U.S. court against a Chinese defendant, but since U.S. judgments are not enforceable in China, that judgment will almost certainly end up being completely worthless unless the Chinese company has assets in the United States or in some third country which will enforce your U.S. judgment. For more on this, check out "Chinese Drywall Plaintiffs Get US Court Judgment Against Chinese Company. Yawn." b. Time "Time is also an important consideration, as some courts - in Italy and Germany, for example - are notoriously slow. There have been cases of potential defendants filing their own proceedings in Italy for the express purpose of delay." So true. China is actually one of my favorite jurisdictions to sue foreign companies because cases there tend to move so quickly. c. Quality of Courts "The quality of courts and local lawyers is also important. There are courts, even within the EU, that have the reputation of being susceptible to corruption and most developing-world courts are best avoided. In the U.S, the integrity and quality of the courts are generally first rate." But if your case is weak, maybe you want to be in a lousy court? Also, I have generally found that there is an inverse relationship between speed and quality/accuracy. Countries where cases move fast tend to be less concerned with the accuracy of the result and vice-versa. d. Jurisdiction "From a practical standpoint, it's also worth considering where the defendant would not want to be sued, as that should influence their decision to settle the dispute." I am going to add one more thing we always consider and that is the scope and breadth of discovery. The United States will allow you to dig deeply into the records and history of your opposing party (and of you). Most other countries permit either far more limited discovery or virtually none. In October, I will be giving a talk in Seattle pretty much on the above so I certainly would LOVE to get your comments and questions now so I can incorporate them.

Full post as published by China Law Blog on April 26, 2010 (boomark / email).