Parties often prefer to settle a dispute rather than revert to
court, but if a satisfactory compromise cannot be found, then the
only way to resolve the dispute may well be to file a lawsuit.
Common risks to Chinese litigation (and to a certain extent,
arbitration in China) are local protectionism, strict evidentiary
rules, and enforcement challenges, but just as important in many
smaller disputes is the cost of litigation. Companies should
carefully consider whether the legal costs are worth the potential
benefits, especially since not all these costs are recoverable.
(1) Pre-litigation Costs
It is not always easy to meet the strict standards of evidence
that Chinese courts apply. Under China's civil law system, the
plaintiff must submit evidence to prove its claim, and so there is
no opportunity to procure evidence through a discovery process.
Where insufficient evidence is collected, a private investigator
may be able to assist, but this presents an additional cost.
Chinese courts are also strict on the form of the evidence. To
foreign companies in particular, this can create a heavy burden:
any evidence created outside the People's Republic of China
must be notarized by a local public notary, and then authenticated
(legalized) by the Chinese embassy or consulate in that
jurisdiction. Charges for notarization and legalization vary from
jurisdiction to jurisdiction, but where a lot of evidence must
undergo this treatment, the costs can become considerable.
(2) Lawyer fees
Lawyer fees vary depending on the case at hand, and the law firm
of choice. Foreign law firms do not have the right to litigate in
China, which can mean that the client may end up paying for foreign
and local counsel.
While judicial departments in China's cities have adopted
standards to regulate litigation fees, most Chinese law firms
dealing with foreign-related cases charge on time basis. To control
costs, it is always advisable to ask advance estimates of time to
be spent on a specific case – in first instance, second
instance and enforcement proceedings. Some law firms will agree to
contingency arrangements, but these are legal only for civil
disputes and not when it involves criminal liabilities.
(3) Court and Preservation fees
Court fees for general civil disputes amount to 0.5-2.5% of the
claim amount; where the claim is RMB 500,000 for example, court
fees will be RMB 8,800. These fees are not prohibitively expensive,
and often cheaper than arbitration fees. However, note that fees
are collected separately for first instance and second instance
trials. Moreover if the opponent refuses to adhere to an
enforceable judgment, the applicant must apply for enforcement
– which presents a further cost.
One of the best ways to ensure that a favorable judgment can be
enforced against your opponent is to apply for preservation of the
opponent's property. However this brings additional costs as
well. First, an (private) investigation to the opponent's
assets may be necessary. The preservation fee itself depends on the
amount preserved and will not exceed RMB 5,000, but a deposit will
have to be paid to the court to guarantee any damages resulting
from wrongful preservation. The deposit, in the form of cash,
(local) bank/company guarantee, title deed of a property etc, is
decided by the court, but can amount to between 20% and 100% of the
Who will bear these costs?
Court fees and preservation fees are generally pre-paid by the
claimant, but the court will apportion this cost between the
parties. A court may also apportion pre-litigation costs such as
for notarization / legalization, but certainly not always. Even if
such costs are reasonable, awarding them to the winning party is at
the discretion of the court.
Unlike in many other jurisdictions, and to the disadvantage of
small claimants in particular, lawyer fees are usually not awarded.
Exceptions are made for those cases where the parties have
expressly agreed (e.g. in a contract between the parties) that in
the event of a dispute, lawyer fees should be apportioned. But even
then, courts may interpret this to their own standards of
reasonableness, generally as per the standard rate issued by the
local bar association. In practice, lawyer fees often become an
expensive but ultimately unrecoverable investment to the litigation
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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We discuss Robinson Helicopter Company Incorporated v McDermott  HCA 22 .
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