Fai Hung Cheung, a litigation partner at Allen & Overy, discusses the nuts and bolts of civil litigation on the mainland
Fai Hung Cheung 25 May 2011
I am involved in litigation on the mainland. Can I use a foreign law firm?
If you are before a mainland court, and if you want legal representation, you have to use a mainland law firm. Foreign law firms can have offices on the mainland, and many do. However, they are not allowed to appear for clients before the courts. In complex and high-value disputes, some clients choose to work with an international firm that they are close to, with that firm instructing a local firm for the court work.
More formality is required on the mainland for instructing a local law firm. A formal written power of attorney appointing the firm needs to be signed by the client and notarised. This can create unexpected delays in urgent cases where some injunctive relief is necessary.
What about court fees?
Commencing a civil action on the mainland requires payment of substantial court fees. In Hong Kong, court fees are nominal, just above HK$1,000 for filing a case in the High Court. In contrast, mainland courts charge substantial court fees on acceptance of cases. For example, 13,800 yuan (HK$16,480) will be charged for a claim of 1 million yuan, and 80,000 yuan for a claim of about 10 million yuan.
What about legal costs?
A litigant on the mainland faces rather different cost exposure from that in Hong Kong. In general, legal costs for running a civil litigation on the mainland are substantially lower than Hong Kong, but the gap is narrowing. Mainland fees have been picking up at a quicker pace than Hong Kong law firms, which is a result of economic growth.
In Hong Kong, the court generally awardsa successful party 50 to 70 per cent of the legal fees spent. On the mainland, the courts award costs to a successful party too, but generally the actual recovery rate is much lower.
Hong Kong law generally prohibits a lawyer from charging for court work on a contingency basis, i.e. depending on the case’s outcome, taking a fee as a percentage of what is recovered. Mainland law firms have no similar restriction. However, in the cases we are involved in, we are seeing more mainland firms following Hong Kong lawyers in charging by the hour, and moving away from the contingency model.
Should I be worried about “local protectionism” of mainland courts?
It will be misleading and unfair to generalise. Our experience, say, before a Beijing court differs vastly from that before a court in Qingdao Chengdu. Having said that, this is one factor we would try to explore with clients and local counsel when formulating strategies.
How should I address risks of facing an unfamiliar court in a cross-border commercial deal?
Give serious thought to drafting a jurisdiction and governing law clause in your contracts. The last thing you would want is an argument with your counterparty over whether it should be, say, the Hong Kong court or the Beijing court that should be the proper court to determine the dispute. It brings lost time and money.
This risk can be easily mitigated by having an effective jurisdiction and governing law clause.
Under most legal systems (including Hong Kong and the mainland), parties are generally free to choose where they want their disputes resolved, and what law the courts should apply in resolving them. These choices are generally respected by courts anywhere.
There are exceptions to this freedom; for example, a land transaction will almost as a rule be resolved by the law and the court where the land is. Generally for cross-border trades, this freedom applies.
Negotiating this clause can be a test of the parties’ bargaining power, each party naturally favouring its home jurisdiction and law. Parties can try to agree on a compromise by choosing a neutral court and law system.
For contracts between Hong Kong and mainland parties, some care should go into the drafting of these clauses, so that the parties benefit from the reciprocal enforcement of judgment arrangement between the two jurisdictions.
If parties prefer arbitration to the courts, their commercial contract should have a clear term to provide so. Again, drafting of an effective arbitration clause requires some care and expertise.
Arbitration has one remarkable advantage over courts; arbitration awards are much more widely recognised and enforceable internationally than is usually the case for a domestic court judgment. There is an international treaty on mutual recognition and enforcement of arbitration awards, to which there are more than 140 state signatories. China is one of them. This gives arbitration a powerful edge over the courts in resolving cross-border disputes.
Write to Us Send your legal questions to bizopst@scmp.com.
Crossing the legal divide with the mainland
ReplyDeleteFai Hung Cheung, a litigation partner at Allen & Overy, discusses the nuts and bolts of civil litigation on the mainland
Fai Hung Cheung
25 May 2011
I am involved in litigation on the mainland. Can I use a foreign law firm?
If you are before a mainland court, and if you want legal representation, you have to use a mainland law firm. Foreign law firms can have offices on the mainland, and many do. However, they are not allowed to appear for clients before the courts. In complex and high-value disputes, some clients choose to work with an international firm that they are close to, with that firm instructing a local firm for the court work.
More formality is required on the mainland for instructing a local law firm. A formal written power of attorney appointing the firm needs to be signed by the client and notarised. This can create unexpected delays in urgent cases where some injunctive relief is necessary.
What about court fees?
Commencing a civil action on the mainland requires payment of substantial court fees. In Hong Kong, court fees are nominal, just above HK$1,000 for filing a case in the High Court. In contrast, mainland courts charge substantial court fees on acceptance of cases. For example, 13,800 yuan (HK$16,480) will be charged for a claim of 1 million yuan, and 80,000 yuan for a claim of about 10 million yuan.
What about legal costs?
A litigant on the mainland faces rather different cost exposure from that in Hong Kong. In general, legal costs for running a civil litigation on the mainland are substantially lower than Hong Kong, but the gap is narrowing. Mainland fees have been picking up at a quicker pace than Hong Kong law firms, which is a result of economic growth.
In Hong Kong, the court generally awardsa successful party 50 to 70 per cent of the legal fees spent. On the mainland, the courts award costs to a successful party too, but generally the actual recovery rate is much lower.
Hong Kong law generally prohibits a lawyer from charging for court work on a contingency basis, i.e. depending on the case’s outcome, taking a fee as a percentage of what is recovered. Mainland law firms have no similar restriction. However, in the cases we are involved in, we are seeing more mainland firms following Hong Kong lawyers in charging by the hour, and moving away from the contingency model.
Should I be worried about “local protectionism” of mainland courts?
It will be misleading and unfair to generalise. Our experience, say, before a Beijing court differs vastly from that before a court in Qingdao Chengdu. Having said that, this is one factor we would try to explore with clients and local counsel when formulating strategies.
How should I address risks of facing an unfamiliar court in a cross-border commercial deal?
ReplyDeleteGive serious thought to drafting a jurisdiction and governing law clause in your contracts. The last thing you would want is an argument with your counterparty over whether it should be, say, the Hong Kong court or the Beijing court that should be the proper court to determine the dispute. It brings lost time and money.
This risk can be easily mitigated by having an effective jurisdiction and governing law clause.
Under most legal systems (including Hong Kong and the mainland), parties are generally free to choose where they want their disputes resolved, and what law the courts should apply in resolving them. These choices are generally respected by courts anywhere.
There are exceptions to this freedom; for example, a land transaction will almost as a rule be resolved by the law and the court where the land is. Generally for cross-border trades, this freedom applies.
Negotiating this clause can be a test of the parties’ bargaining power, each party naturally favouring its home jurisdiction and law. Parties can try to agree on a compromise by choosing a neutral court and law system.
For contracts between Hong Kong and mainland parties, some care should go into the drafting of these clauses, so that the parties benefit from the reciprocal enforcement of judgment arrangement between the two jurisdictions.
If parties prefer arbitration to the courts, their commercial contract should have a clear term to provide so. Again, drafting of an effective arbitration clause requires some care and expertise.
Arbitration has one remarkable advantage over courts; arbitration awards are much more widely recognised and enforceable internationally than is usually the case for a domestic court judgment. There is an international treaty on mutual recognition and enforcement of arbitration awards, to which there are more than 140 state signatories. China is one of them. This gives arbitration a powerful edge over the courts in resolving cross-border disputes.
Write to Us Send your legal questions to bizopst@scmp.com.