Updated: Mar 8, 2021
The cost considerations of litigation as a foreign entity
Shenzhen Qian Hai Court
One of the most common questions, I receive from clients in the early stages of engagement is the cost of litigation. Many believe they just need to pay an attorney and that takes care of the costs. However, in addition to an attorney’s fee, there are other fees to take into consideration that is not under the control of your attorney which I will highlight in this article.
1. LEGALIZATION FEE
Legalization includes the process of notarization and verification in the home country of the suing entity.
a. Article of the Civil Procedure Law of the People’s Republic of China (2017 Amendments), any foreign entity who engages a Chinese lawyer for litigation shall provide a Power of Attorney notarized by a local notary (a notary in their home country) and verified by the China Embassy or Consulate of that country.
b. Article 16 of the Supreme Court’s Evidence Rule (Effective as of May 1, 2020) states that any official documents produced outside of the People’s Republic of China shall be notarized by a local notary or shall comply with the verification process provided in the treaty between their country and China.
PRC Consulate-General in Los Angeles, California USA
Basically, the foreign suing party needs to engage a local notary and specify to the notary the documents to be notarized will be verified by the China Embassy/Consulate. After notarization, the documents should be submitted through a liaison department for approval. If approved, the notarized documents will then be submitted to the China Embassy/Consulate.
Fees related to the Legalization process will depends on each country.
2. TRANSLATION FEE
All non-Chinese documents need to be translated into Chinese prior to submission to the Chinese Courts. Under both the Civil Procedure Law and the Evidence Rule, any documentary evidence in a foreign language shall have an attached Chinese translation.
The fee for translation is highly dependent on the volume and content of the documentary evidence. In practice, we would review the case and discern which material documents should be submitted as evidence. We then would submit these documents for a cost quotation from the translator for client approval.
3. LITIGATION FEE
The litigation fee is essentially the court fees.
The cost will depend on the case type and the procedure, subject to the Litigation Fee Rule (Order No. 481, 2006) approved by the State Council. In this article we will only discuss the Case Filling Fee and Restrain Order Filling Fee for “Property Case”.
Property Case is the most common case type in China, differing from Divorce, Tort on personal reputation, Labor, Administrative (suing government agencies) or other non-property cases.
The Case Filling Fee is charged based on the claimed amount in Chinese Yuan (CNY). Though the claim can be in other currencies, the amount needs to convert into CNY for calculation. There are different fee rates for different portions of the claimed amount. For instance, any amount below 10,000 CNY, the Case Filing Fee is a fixed fee of 50 CNY; and for the portion between 10,000 CNY to 100,000 CNY, the fee rate is 2.5%; and for the portion between 100,000 CNY to 200,000 CNY, the fee rate is 2%.
The Restrain Order Filing Fee is also charged based on the amount of the asset value the Plaintiff wants to put a restrain on the Defendant, with a cap on 5,000 CNY. The Restrain Order is not mandatory but recommended if a Plaintiff believes a Defendant is likely to transfer property during the litigation.
The following is a table for Case Filing Fee and Restrain Order of specific amounts.
4. INSURANCE FEE
When a motion of the Restrain Order is filed, the court will most likely, in accordance with Article 100 of the Civil Procedure Law, require the movant to provide a mortgage (a.k.a. insurance), which is used to cover the other party’s loss if the Restrain Order was found to be wrongfully ordered. In China, many insurance companies provide such insurance for movants (the party who files the Restrain Order) and charge 0.1% to 0.5% of the filed restraint amount. The Insurance Fee is not applicable if no motion for the Restrain Order is filed.
5. ATTORNEY’S FEE
The Attorney’s Fee in China is negotiated between the attorney and client, subject to any limits imposed by government or association guidance.
To highlight the average hourly billing rates charged by law firms in China, we refer to a survey of 29 law firms:
Hourly Billing Rates - Lowest and highest rates at PRC law firms
Based on an Article in the China Business Law Journal, published by Richard Li on November 29, 2019,
As result of market pressures and to provide cost control for their clients, law firms in China are adopting more flexible billing methods. Traditional hourly billing rates are becoming ubiquitously replaced with fixed fee, combination of fixed and contingency fee based, or hourly billing rates capped. Many clients ask for a success fee billing, however, exclusively success fee-based billing is not popular, especially for international cases as there are a greater number factors involved, including luck, that can increase the risk.
In order to initiate litigation, the plaintiff will need to pay the above mentioned fee upfront, with exception of the attorney’s fee which could be negotiated and paid in stages. Under Chinese Law, there is no such ruling as “loser pays” or “costs following the event”.
Legalization and translation fee
Some judges rule them as damages and could be claimed as part of the case while other judges do not by ruling the provision of evidence is a party’s natural obligations.
The court will typically order the losing party to reimburse the prevailing party a litigation fee in proportion to the award amount out of the claim. For example, if the claim is for 1,000,000 CNY the Litigation Fee would be 13,800 CNY. If the award is only 500,000, then the reimbursement is 8,800 CNY (refer to Case Filing Fee table above).
Many judges will deny the Attorney’s fee be paid by the “losing” party, except pursuant to specific contractual rights. However, Shenzhen Qian Hai Court, a specific court to govern international related cases in Shenzhen, has been favoring the attorney’s fee since 2017, even without any contractual terms. In our practice, we have succeeded in convincing judges the necessity of the above cost in many international-client-involved cases heard outside of the Qian Hai Court, however, there is still risks if such cost is not being specified by contract.
The total cost of going to the courts in China to resolve a dispute with a Chinese company can be varied and dependent on the fees as outline in this article. To help reduce your costs, always remember to have a good bilingual contract, Chinese as the other language, and ensure you have a "loser pays" provision in the contract.