Back to Category » Understanding Litigation for the Chinese Business Community in the Bay Area

Writing is of critical importance in reaching agreements in America. In China, insisting on putting an agreement in writing may be considered an insult. In America, it is considered good business. And, it is. Language and cultural differences can cause honest disagreements between parties. Those disagreements can be greatly reduced if the parties go through the process of thinking about how their agreement is going to work and putting their expectations and procedures down in writing. And, it is important to have lawyers who understand the American legal system involved as soon as possible, even at the negotiation stage. Laws which one or both of the parties may be unaware of can have an impact on their business dealings. For example, interest on debt exceeding ten percent (10%) cannot be charged except by financial institutions, loan brokers and some others, no matter what any agreement says. The penalty for violating this limitation is that no interest can be legally paid and all interest paid must be applied to principal. And, international business transactions are governed by many such (often not well known) rules. Similarly, in America, oral agreements that contradict the terms of the written agreement may not even be allowed in to court as evidence, so if a term is important to you, you should make sure it is in the written agreement and never rely on an oral promise. Further, perhaps because it is considered rude or bad karma, business people often do not discuss how the business relationship might end. It is necessary to discuss and agree on such things, as doing so will strongly tend to avoid a lawsuit by laying out just what happens if the business relationship does not meet the expectations of one of the parties. It must be remembered that spending time and money on an agreement that is understood well by the parties, is designed to achieve their goals and avoids tripping over relatively unknown laws is like putting a strong foundation under a building. It will make the building (business relationship) more profitable and long-lasting.

 

2. Why should I sue other people?

Unfortunately, even when you do your best to structure a good business relationship, things can go wrong. So, you must be prepared for the possibility of having to resolve any problems in an American court. Although commercial litigation is sometimes a business strategy of U.S. companies, used for such things as to discourage competitors or obtain settlements through the coercion of having to face expensive litigation, lawsuits have been deemed as the least favorable thing to do for many Chinese individuals and businesses. Part of the reason is that China lacks the long tradition in America of the rule of law which has been prevalent in Western countries for hundreds and even thousands of years. Under the Confucian “Zhong-Yong” culture and Taoist “Wu-Wei” doctrine, the Chinese population is more apt to resolve problems in a harmonious and peaceful way. Also, the thousands of years’ tradition of equating lawsuits to crime makes Chinese regard it as a shameful thing to be involved in lawsuits. Another reason, which is true, is that litigation can be very expensive.

However, these reasons should not prevent you from taking the initiative and either filing a lawsuit to better protect your businesses and its assets or vigorously defending yourself in court, when necessary and done in a proper way. Determining whether to file a lawsuit or defend one depends on the circumstances of the litigation. It is common sense, and lawyers should also encourage you, to try negotiating with the potential disputing party before a lot of money is spent on litigation. Negotiation can work well where the parties have good faith disputes based on reasonable, but different, interpretations of events causing a business problem. However, if your opponent is not being reasonable or is trying to achieve some goal (such as pushing you out of the particular business), a much firmer and more aggressive stance may be necessary. Even at this stage a lawyer’s involvement is desirable to either ensure your interests are completely protected during the negotiation process to create a well-written settlement agreement or to convince the other party that their goals cannot be achieved through already filed litigation and to give them a reason to withdraw it.