How to Sue a Supplier in China?
As a foreign trader, you may encounter Chinese suppliers who breach the contract, for instance, no delivery or delayed delivery of goods, or goods fail to meet agreements or quality requirements, etc.
Under such circumstances, if such matters cannot be settled in an amicable way, usually you are left with no choice but to bring a lawsuit against the opposing party. So, what is the process of civil litigation in China?
As many foreign individuals and enterprises have consulted us on similar issues, we summarize the procedure of bringing civil litigation in China for your information. Please bear in mind that it could be rather complex to bring a case on your own if you have not come across the Chinese legal system before, and we strongly suggest you contact Chinese lawyers for more information. Having years of experience working with foreign clients, Landing has offices based in several cities in China, with sufficient resources and seasoned Chinese lawyers to assist in your matter.
JURISDICTION OF LOCAL COURTS
In order to bring a case against your counterpart, it is essential to firstly establish the jurisdiction of local courts. In other words, you need to file your case with the correct court which has the power to decide on your matter, otherwise your case will not be accepted. Jurisdiction will usually be the first issue you need to deal with in building your litigation strategy. There are 2 common circumstances concerning the court’s jurisdiction:
1. Normally in China, the court of the defendant’s place of domicile/main location of business has jurisdiction over civil or commercial disputes.
2. The local court of the place where the contract is entered into, or the local court of the place where the contract is performed, may also have jurisdiction.
However, there are 4 exceptions:
1. If there is a valid commercial arbitration clause in the contract, then the court will not accept this case, we need to commence an arbitration pursuant to the agreement.
2. Labor Dispute: Once a labor/employment dispute occurs, it is required by law that the parties involved must firstly apply to a labor dispute arbitration commission for labor dispute arbitration. In labor dispute, it is instead essential to establish which commission has jurisdiction over your case. After the arbitration hearing, any party objecting to the arbitral decisions can then appeal to a court with jurisdiction.
3. If any crime is involved in the case, then normally it shall be handled by the police department and the prosecution department.
4. Each province in China may have their own rules of accepting cases with foreign-related matters (e.g. one of the parties is a foreigner or over sea entity).
If you decide to file a case, you may need to make the following preparation for it:
1. Notarization and Verification of Documents: The plaintiff shall notarize the commission documents, the certificates of its qualification with local notary office/lawyers and submit the notarized documents to the Chinese Embassy/Consulate in your country for verification.
2. Evidence Collection and Translation: Any evidence in another language shall be translated into Chinese, if such evidence is originally produced overseas including Hong Kong, Macau, and Taiwan when submitting to the court as evidence, they shall be notarized and verified.
3. Collect asset information of the defendant: In order to file asset preservation orders during or before the litigation.The total time needed in preparation mainly depends on completion of notarization and verification in your country.
COMMENCEMENT OF LITIGATION
1.Pre-hearing procedures usually include the following stages and it may take within one month:
File your case at the court. Your case will commence once the court has accepted your case application. If the court dismisses your application, you can appeal against the court’s decision to a higher court within 10 days receiving the notice.
2. Apply for asset preservation (freeze the asset of the other party) if you hold any asset information of the other party (if you successfully freeze the asset, the other party may be more inclined to settle, and if settlement cannot be reached, it could be a guarantee for enforcement after you get the winning judgment).
3. Once the case is accepted by the court, you must pay court fees within 7days.
TRIAL OF FIRST INSTANCE
If settlement cannot be reached, a trial of first instance for a civil claim shall be concluded within 6 months from the commencement of the proceeding(depending on the trial date set by the court), which includes the following stages:
1. Notice to the Defendant: The court will deliver the subpoena to the defendant.
2. Evidence Submission: The period for evidence submission can either be decided by the parties subject to the court approval, or determined by the court (15 days minimum from the date of defendant’s receipt of the subpoena).
3. Hearing: The court will deliver summons to both plaintiff and defendant and arrange a date for hearing; During the court hearing, the procedure is generally divided into the investigation of the facts and the presentation of arguments.
4. Issuing judgment: After the hearing, the court will issue its judgment. Normally speaking, the period for first trial shall be within 6 months. However, the period for trial of foreign-related civil cases by courts shall not be subject to the 6 month time limit and other restrictions.
In general, Chinese courts follow the two instances of trial system as prescribed by law. Normally the first instance judgment or ruling shall not be final. If any party does not accept the judgment of the first trial, it could appeal to the court of higher level for second trial within a certain period specified by law. It is estimated to take around 6-9 months for the second trial.
If we get a winning judgment the opposing party refuse to act accordingly to the judgment, we could apply the court to enforce the judgment. The time limit to apply for enforcement of a judgment is two years commencing from the last day of the time limit for execution of the judgment specified in the written judgment. It is possible to apply for recognition of judgments given by foreign courts and to enforce them in China, the details of which will be introduced in our upcoming articles.
Apart from the general procedures mentioned above, the actual situation tends to be much more complex. If you are uncertain whether or not pursuing civil litigation in China would be feasible in your case, or if you would like to know about the estimated litigation cost in your case, please feel free to contact us.
Commonly Asked Questions
1.To file a civil case to the Chinese court, what materials should we prepare?
If the plaintiff is a company, then it should prepare the following documents to be submitted to the court: (1) original copy of Civil Complaint; (2) original copy of Power of Attorney, or if you do not mandate an attorney, then the Legal Representative or the Authorized Representative needs to participate in the litigation personally; (3) the original copy of Certificate of Legal Representative or Authorized Representative; (4) the copy of Certificate of Incorporation; (5) documents certifying the status of the Legal Representative or the Authorized Representative (e.g. the company’s bylaws, resolution of the board of directors, etc.); (6) passport or other identity documents of the Legal Representative or the Authorized Representative; (7) all evidences related to the case.
As mentioned above, the court usually requires it to be physically and originally signed and stamped by the company’s authorized representatives (copies, faxes and scanning items would be rejected), even signed by the appointed lawyer would be rejected by the court. The foreign company should also apply for notarization in its own country, and then validating them in the Chinese embassy or the consulate seated in the country. All materials in foreign languages submitted to Chinese courts should be accompanied by copies of Chinese translation ( except for the cases trialed by the China International Commercial Court of the Supreme People’s Court ).
In practice, some Chinese courts even require that the translation be provided by the appointed translation agencies.
2. What kind of charges, costs and expenditures may occur when we are proceeding a lawsuit in China?
(1) Notarization fee and authentication fee: When applying for notarization and authentication, you will pay such fees. (2) Translation fee: Since only the Chinese version documents can be accepted by the court, you should appoint a Chinese translation company to do so and pay the translation fee. (3) Litigation costs: It is paid in advance by the plaintiff, and when the judgment is produced, the court will decide whether such cost is to be borne by the losing party or how much is distributed by each party. The litigation cost includes: case acceptance fee, application fee and the traffic expenses, accommodation expenses, living expenses, and subsidies for missed work, which incurred by witnesses, authenticators, interpreters and adjustment makers for their appearing in the court at designated dates. The amount or price under the litigation claim in a property case shall be paid by adding up to the amounts within different rate brackets.
Moreover, for each divorce case, RMB 50 up to RMB 300 shall be paid. If property partition is involved, and the total amount of properties does not exceed RMB 20,000, no additional fee shall be paid; for the part more than RMB 200,000 the fee shall be paid at the rate of 0.5%. Also, in most litigation cases in China, the court will not favor the lawyer’s fee unless it is stated and agreed by parties in the contract. Please be noted to add this in or agree to choose the arbitration court in the contract. There might be other possible cost, such as application fee for applying for the evidence/asset preservation to the court.
Please note that the above-mentioned costs do not apply to your case entirely.
3. What substantive remedies are available in China?
Interest is one of the most common substantive remedies. This is particularly the case when the outcome of the judgment is of a monetary nature. Depending on the nature of disputes, other remedies such as damages, declarations, permanent injunctions and specific performance may also be available. In civil litigation, remedies are mostly compensatory, with punitive damages as an exception. Examples of such exceptions focus mainly on: fraudulent practice in violation of consumers’ rights and interests; and carrying out food production activities without relevant trading licenses.
4. Since we already have cooperated lawyers in our country, can we appoint our lawyers to carry out our case in China?
In the event that any foreign company who wants to file a lawsuit in China, it has to appoint a Chinese lawyer rather than a foreign lawyer to act as its agent.
5. Do I need to appear in court?
Normally, you can be represented by your appointed Chinese lawyer and need not to appear in court.
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