Executive Summary
This page was created with the help of the English-speaking Chinese Lawyers of AsiaBridge Law to explain how Chinese courts work in hopes victims of bad suppliers may be able to get their money back in China.
It answers the key questions:
Can a foreign person or foreign company sue a Chinese person or Chinese company in China?
Does the loser pay the court fees in China?
In China, can I sue for indirect damages?.
Is the winner able to collect punitive damages in China?
What kind of testimony and types of evidence work best in a Chinese court?
I don’t have a signed contract with the company I want to sue. Can I still win in China?
If I win the court case, how to collect the compensation awarded by the court?
I’m worried the Chinese company will go out of business or hide assets before I win the court case. Can I freeze their assets?
Legal Disclaimer:
The article below is based on blog posts written by the English speaking Chinese lawyers in the AsiaBridge Law network and is reprinted with their permission. The following content is intended to serve as general information about options in China; it is not legal advice nor intended as legal advice. Please contact a lawyer if you need assistance in China.
SupplierBlacklist.com (SBL) does not provide legal services nor represent the attorneys/service providers mentioned on this page and website. SBL, its staff (including volunteers) and associated companies, disclaims all liability for any loss or damage arising out of or in any way related to interactions with these 3rd parties.
Getting money back from a bad supplier: What are the main differences between China and the US court cases?
Can a foreign person or foreign company sue a Chinese person or Chinese company in China?
Yes they can! The process is far less expensive than in the West and a decision is usually made in a fairly short period of time. The playing field is much more level these days and foreign companies are indeed having success in Chinese courts when they have solid local representation and can clearly show breach of contract.
Does the loser pay the court fees in China?
A Chinese court is very unlikely to instruct the Chinese party to cover your legal fees if you win (unless that was pre-agreed in writing).
In China, can I sue for indirect damages?
Yes! And keep in mind that you may be able to seek compensation based on the “Value of Goods Sold” to your customer rather than just the “Purchase Price” from the Chinese supplier! If your markup is large, and if you can prove that the actions of the bad supplier caused you to lose the order with your customer, then suing for indirect damage can give you a lot of leverage.
Is the winner able to collect punitive damages in China?
Chinese judges very rarely award punitive damages.
What kind of testimony and types of evidence work best in a Chinese court?
Chinese judges rarely allow testimony in a business dispute. So you will need to rely on hard evidence. A written contract and a bank statement showing proof of payment will have much more weight than an email and a packing slip from a 3rd party. Sometimes the Chinese judge will accept English language evidence, but more often than not, they will exercise their right to request that key evidence is both notarized/authenticated and translated. That may require you contact the nearest Chinese consulate as they are authorized by the courts in China to authenticate official documents.
Tip: Make it easy for the Chinese judge
It will save time and money if you work with the lawyer to select the key evidence and only have those items authenticated/translated. Don’t expect the Chinese judge to dig down too deep into either party’s pile of evidence. It is very much to your advantage to make a simple and concise case, based on a short stack of solid evidence, rather than trying to impress the judge with a big stack of paperwork!)
Tip: Since you are paying by the hour for their support, avoid overwhelming the lawyer with non-essential information.
If the lawyer is requested to review a large case file, full of irrelevant emails for example, it will significantly increase the workload for the paralegal and lawyer, resulting in a higher than necessary expenses for the client. The better option is to provide a clear summary of the situation, state what you feel are the key arguments and offer the lawyer the core pieces of evidence supporting your position. The lawyer will review and request additional information if needed.
I don’t have a signed contract with the company I want to sue. Can I still win in China?
Having a written contract will help your case a lot. But even in the absence of that document, know that Chinese exporters are legally obligated to supply a product that is “fit for function”. So if you ordered red umbrellas without a contract and received blue ones, the case can be complicated because you don’t have clear evidence that the two parties agreed to red umbrellas. But if those umbrellas showed up with quality defects that prevent them from working like an umbrella should, then you still have a decent case.
I’m worried the Chinese company will go out of business or hide assets before I win the court case. Can I freeze their assets?
You may be surprised to learn that even as a foreigner, you have the ability to freeze the assets of a Chinese company (or individual) in the opening phases of a lawsuit. There are two types of expenses to consider if you are thinking about freezing the assets of a Chinese company.
- Court Fees related to your application to freeze assets
- Collateral
TIP: You will need to provide collateral to the court when submitting the application to freeze the assets of the Chinese company. But you can use an insurance company to issue a letter of guarantee to the court. The rate charged by the insurance company is between 0.05% and 0.5% of the amount to be frozen.
In most cases, if you win, the full collateral will be returned to you. But if the Chinese side wins the case they have the option to have you compensate them for any damages to their business that resulted from having their assets frozen. In that case, the collateral will not be returned to the you until the compensation amount is determined by the judge. This is the mechanism Chinese courts use to prevent frivolous lawsuits and unjust freezing of assets by either party.
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