Tuesday, March 02, 2010

Think Again Before Specifying US Courts in a Cross-Border Agreement

As I have written in the past, we seldom recommend that clients specify US courts as the choice for dispute resolution in cross-border agreements that may need to be enforced in another country. Not to single out China, but the China research below confirms an enforcement issue that US parties face in most countries.

Arbitral awards are simply a better enforcement bet among the many signatory countries to the New York Convention – enforcement is required by the Convention in the absence of fraud and other specified instances. By contrast, the enforcement of US court judgments is discretionary and usually based in part on whether the US has enforced judgments from the other country on a reciprocal basis.

Back in June, 2007, I posted a blog entry referring to a search for even a single example of a US court judgment that has been enforced in China. The search was posted by Don Clarke, a George Washington Law School professor who moderates an excellent China law discussion group. As far as I know, nobody in the discussion group was able to produce a single example.

A member of the China discussion group just posted (on March 1) his own preliminary review of the 26 foreign court judgments and 16 arbitral awards that he could locate that requested enforcement in China through Chinese courts. The member is Wei Luo, Director of Technical Services and Lecturer in Law, Washington University School of Law Library.

Mr. Luo found that almost all of the Chinese courts agreed to enforce the foreign court judgments if requested by a Chinese applicant. Yet, he did not find a single instance of enforcement if the applicant was a foreign party and the Chinese party did not agree with the enforcement.

In contrast, Mr. Luo found that most of the Chinese courts granted the applications to enforce a foreign arbitral award.

Many are finding that Chinese courts are improving and are becoming more open to arguments presented by foreign parties, and the uncertainty over the enforcement of foreign court judgments is an issue in most countries, not just China.