Progress on the Enforcement of Judgments in China

Two cases from China provide lessons for companies seeking to enforce favorable judgments, as David Lee of Chang Tsi & Partners explains.

In 2012, the Civil Procedure Law of the People’s Republic of China introduced the idea of a “blacklist” of dishonest debtors (officially named the List of Dishonest Enforcees). In the following years, multiple interpretations of these procedures by the Supreme People’s Court provided guidance on how enforcement measures could be used against debtors. These measures include a prohibition of extravagant consumption, judicial custody, and criminal punishment.

Once a restriction on extravagant consumption is applied, the judgment debtor, or the legal representative of the judgment debtor, can be prohibited from flying via airplane, traveling via high-speed train, or visiting different types of entertainment venues, etc. Judicial custody of the dishonest judicial debtor or the legal representative of the judicial debtor is apparently a great deterrent.

Criminal punishments for resistance to enforcement actions, including imprisonment of up to seven years and fines, have made the toughest dishonest judgment debtors reconsider their decisions to defy the court order to satisfy a judgment.

Case Studies

Below are two successful cases that show the strategic application of enforcement measures.

The plaintiff, a company based in the United States, obtained a favorable judgment in which RMB 4 million (approximately US $600,000) damages was awarded. The judgment was issued by Shenyang Intermediate Court in June 2016. When the judgment became effective, the court found out that the defendant was reluctant to pay the plaintiff the damages.

“A key reason for the victories in these two difficult enforcement cases was the proficient application of enforcement measures against the judgment debtors.”

The plaintiff’s attorney took steps to enforce the judgment. The defendant was placed on a list of dishonest debtors (i.e., debtors which have ignored the order of a court to satisfy a judgment), its intellectual property (IP) rights were frozen, and its legal representative were banned from engaging in extravagant consumption. Online complaints against the defendant were also filed with administrative bureaus, warning the defendant’s business partners, customers, and the general public that the defendant had no business integrity.

In December 2016, an important international exhibition in the relevant industry was held in Shanghai. The defendant was reported as having attended the exhibition. The court acted swiftly. An enforcement team attended the exhibition and, in the company of other international businesses in the same industry, the court seized all samples and equipment of the defendant. Another enforcement team of the court seized dozens of the defendant’s machines in a warehouse in the suburbs of Shanghai. These machines were later auctioned for monetary compensation that was paid to the plaintiff.

These enforcement actions at an important exhibition brought about huge negative effects to the debtor’s reputation, and thus put the debtor under significant pressure for not satisfying the judgment. This case showed that providing accurate and useful information for the court to take timely enforcement action is the key to satisfying a judgment.

This case is a classic example that a combination of different enforcement measures is of great importance. Such a strategy can effectively secure a favorable outcome in enforcement cases, even against a debtor with poor credit.

In another case, the plaintiff, a transnational hotel group, reached a settlement in a dispute over a trademark infringement claim with a hotel in Zibo of Shan Dong Province (the defendant). The court issued a Bill of Mediation, where the defendant was required to stop infringing trademark rights of the plaintiff and pay compensation for the plaintiff’s loss. However, the defendant refused to satisfy the effective Bill of Mediation, even after being urged by the court.

In 2016, the plaintiff filed an enforcement case before the court. Even so, the defendant resisted the full performance of its obligations, which resulted in the slow progress of enforcement. During this period, the defendant falsified evidence to show that the infringing marks had been removed (when in fact they had not), and this constituted a significant impediment to the enforcement.

In this circumstance, the plaintiff’s agent regularly communicated with the court, and conducted a second investigation to acquire the evidence to show that the defendant had not removed the infringing marks and was still making a profit from such business.

These efforts urged the court to include the defendant in the List of Dishonest Enforcees due to its falsification of evidence, interference with court procedures, and resistance to enforcement. Under the significant pressure and extreme inconvenience brought about by the list, the defendant immediately removed all infringing signs in the hotel and ceased the infringement.

The List of Dishonest Enforcees was officially established by the Supreme People’s Court as one of the most important measures to address the frequent and widespread default of judgments by dishonest debtors. Supported by a series of supplementary measures, such as restrictions on loans, business, and extravagant consumption, these joint punishments against people included in the List of Dishonest Enforcees has achieved a significant and positive effect. In this case in particular, the List of Dishonest Enforcees showed its value.

Good Practice

We believe that a key reason for the victories in these two difficult enforcement cases was the proficient application of enforcement measures against the judgment debtors. In China, difficulties in the enforcement of court judgments have been an outstanding problem for years, and for this reason Chinese courts have been looking for a way to turn things around.

Due to the Supreme Court’s focus on addressing the difficulties in enforcement, the Supreme People’s Court, along with other departments at the national level, has issued a series of effective enforcement measures that can be brought against dishonest judgment debtors. Proficient application of such enforcement measures can help IP owners protect their rights and interests in the market and send a strong message to would-be infringers.

Improvements made in the arena of enforcement have clearly been shown and have significantly contributed to the development of the legal environment in China. For multinational companies that have secured favorable judgments in China, such improvements are welcome news.

Footnote:

This article has been independently researched and authored, and does not necessarily reflect the views of INTA.

BIOS:

David Lee is a partner at Chang Tsi & Partners (China). He can be contacted at: davidlee@changtsi.com