Dispute Resolution Strategy: Negotiate first or directly initiate a lawsuit？
There is a situation which frequently happens: a trader orders some goods from Chinese counterpart, but the other party does not deliver the goods after they receive the payment. In this case, shall the trader negotiate first or directly enter into the litigation/arbitration process first? Which is a more appropriate way to solve the trouble?
Strategy A: Sending Lawyer's Demanding Letter and Negotiation First
Advantage:
a. Cost: You do not have much cost at this sage, only the attorney fee, normally less than USD 1,000.
b. Time: A demanding letter could be drafted and delivered in around one week upon engagement.
c. Chance of Settlement: After receiving the letter, your Chinese counterpart may settle with you (From our past experience, we have around 31% chance to reach an agreement by sending demanding letter and negotiation)
Disadvantage: It may increase the risk that your Chinese counterpart may transfer their assets/shut down companies to avoid liability once they know you hired a lawyer
Strategy B: Filing Litigation or Arbitration and Applying for Asset Preservation First
Advantage: At the same time the plaintiff filed a case, the plaintiff could apply to preserve the defendant's asset, for example, freeze its bank account, real estate, and cars. If you successfully freeze the assets of your Chinese counterpart, then you have a good chance to come with a settlement. Or even settlement cannot be reached, your Chinese counterpart is unable to transfer the asset, thus the enforcement of future judgment/ arbitration award could be guaranteed.
Disadvantage:
a. The arbitration committee/ court will charge for this procedure, whether they successfully make it or not. Normally the arbitration committee/ court will not investigate what asset your Chinese counterpart has, which means, as plaintiff, you shall collect and submit asset information in order to make it work. If you cannot find enough asset information, it would be a waste of money.
b. Filing a case first may take longer times (for arbitration case it usually takes 2-3 weeks, for litigation it could take around one month or more since the plaintiff shall notarize and legalize its power of attorney)
c. Filing a case first costs more than a demanding letter.
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Larry Zhou, Partner
Landing Law Offices China
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