What Happens When Your Chinese Supplier Says: Sure, Go Ahead, Sue Me!
Because American states must, in most cases, enforce a judgment issued by the court of any other American state, Yanks in business tend to take for granted that fabulous feature of our legal system, known as “full faith and credit.” [A dear relative was wont to say "for granite," but the malapropism is nevertheless just as valid, i.e., written in stone.]
But nations do not fall within the American constitutional system: American court judgments aren’t not often enforced outside of the U.S. Unless, of course, there is a treaty between the U.S. and a foreign nation, there is little chance a court of that nation will recognize and enforce an American judgment. And, lest we forget, vice-versa.
For this brief post to be of any value to you, I must mention Don Clarke, who teaches at Harvard. He’s written a brief article, entitled “The Enforcement of United States Court Judgments in China: A Research Note,” and even if you are not an attorney, it is worth your time. Don says, in essence, that Chinese courts do not recognize and haven’t enforced an American judgment.
My point in recommending you read Professor Clarke’s article is this: here lies an important lesson for American companies who do business with China. Don’t expect you can take an American judgment against a Chinese company to China and sue upon it. Your American judgment will not be recognized. Your more likely remedy would exist when the Chinese company has established sufficient presence in the U.S., such that you can sue the company in an American court. But unless that Chinese company has assets in the U.S. upon which you can levy, you are unlikely to recover very much at all.
What implications does this have, exactly? For importers, for example, the Golden Rule is to guard your money carefully — before you even enter into a transaction with a Chinese exporter. Do not pay up front and then expect to receive product. You may not receive it once the money has left your hands. You will simply have no recourse.
The wise prefer to spend the extra fee to open a letter of credit, payable upon your acceptance of the product, rather than resort to prayer. Now prayer is a good thing, but its efficiency in trade is yet to be proven. Who wouldn’t spend the extra? Many inexperienced traders. Perhaps you. Especially if you are new to importing — and some I’ve spoken with are sourcing via the internet without even visiting the physical location of your provider — you should never blindly pay cash up front. [If you haven't visited your supplier, you are neglecting essential due diligence.] But even if you have longstanding relationships with your suppliers, I would not recommend anything but L/C based transactions, except in the rarest circumstances (emergency circumstances where a mold needs to be opened immediately, etc.). Continue to pray, by all means, but, with some recourse in your own country, you won’t need to pray so very urgently.
More on the practical aspects of Don’s article in upcoming posts.
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