Academic journal article The George Washington International Law Review

Enforcing and Collecting Money Judgments in China from a U.S. Judgment Creditor's Perspective

Academic journal article The George Washington International Law Review

Enforcing and Collecting Money Judgments in China from a U.S. Judgment Creditor's Perspective

Article excerpt

I. INTRODUCTION

Suppose that a New York resident (NY Creditor) wins a judgment in a tort lawsuit, including punitive damages, in a New York court against a wholly-owned California subsidiary of a Chinese corporation (CA Debtor). The action involves an auto accident that occurred in New Jersey in which a truck owned by CA Debtor allegedly smashed into the car of the plaintiff, a New York resident. The New York court exercised general personal jurisdiction over the CA Debtor, which does a substantial volume of business with New York residents via Internet and mail orders through a leased warehouse in California. The CA Debtor attempted but failed to transfer the case to California alleging lack of personal jurisdiction or otherwise inconvenient jurisdiction. The NY Creditor wants to enforce and collect on the judgment. The CA Debtor's only real asset, however, is a manufacturing facility located in China. The NY Creditor learns that, after the lawsuit began, the CA Debtor sold the facility for a consideration far less than the market value, and hid the proceeds. The NY Creditor also learns that the CA Debtor might be a "shell" corporation; all of its board members and principal officers reside in China and hold posts in the parent corporation.

Given the momentum of globalization and the ever-increasing amount of U.S. investments and trade with China, there is a growing likelihood that the above-scenario will occur, and U.S. creditors will target more and more assets in China for collection. A large percentage of cross-border disputes are resolved by way of arbitration, and enforced under the New York Convention, to which most trading powers, including the United States and China, are signatories.1 Not all international contracts, however, have arbitration clauses. Even when a contract has an arbitration clause, a judicial tribunal may still be needed to resolve questions about its scope.2 There are also times when the parties' pre-negotiated arbitration clause is found to be invalid, the arbitration award is set aside for various reasons, or when a party must resort to the court to compel arbitration.3 Further, a lawsuit is the only option to resolve disputes involving alleged torts, property claims (including intellectual property infringement), and/or family law. Given the nature of State sovereignty, a judgment of one country's courts does not automatically enjoy extraterritorial recognition and enforcement in another country.

The enforcement of foreign judgments in China has been notoriously difficult in recent years. Due to a lack of transparency and no case reporting system in China, there has not been an empirical study quantifying this difficulty. It is said, however, that a large percentage of judgments, both domestic and foreign, are never enforced. The difficulty of enforcing foreign judgments has become a major concern of foreign business, and has diminished the confidence it may have had in China's judicial system.4 Enforcement of foreign judgments will always result in a flow of wealth out of the country. The sources of China's "difficulty-in-enforcement" problem, however, are far more complicated than the Chinese courts' possible parochial protection of Chinese parties. The other factors include the following: the lack of judicial independence in China, the prevalence of local protectionism, the unimaginable social consequences of bankrupting state-owned enterprises (SOEs), the paucity of necessary legal provisions curbing debtor fraud and facilitating judgment collection, and the lack of understanding of and the conceptual conflict between the Chinese and U.S. legal systems. Although there is an abundance of literature analyzing some of these factors, the last two factors have generally escaped the attention of scholars and legal practitioners.

U.S. judgment creditors should not assume that Chinese law protects their interests in the same manner as the U. …

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