The Challenge of China:
Seeking Justice Within
and Outside Its Borders
Edward E. Lehman
Managing Director of
LEHMAN, LEE & XU
November 2, 2007
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Agenda
(1) Background
(2) Litigation in China
(3) Class Actions in China
(4) Case Studies
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Background: A
Comparison
Lawyer Statistics
China (2005) U. S. (2006)
•Number of Lawyers 114,000
1,116,967
•Percent of population 0.009%
0.4%
•Lawsuits per year
75.2 million
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1.5 million
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Litigation in China
• Disputes are under the jurisdiction of
the People’s Court of the location
where defendant is domiciled
• Civil Procedure Law of the People’s
Republic of China
• Two Instances
– First instance (Intermediate/district court)
– One avenue of appeal to a higher level court
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Proceedings
Foreign-related cases
Domestic cases
• Intermediate Court
• District Court
(First Instance)
(First Instance)
– submit evidence
– submit evidence
– time from application to decision:
– time from application to decision:
6 months – 1 year
6 months
– 30 days to appeal
– 15 days to appeal
• High Court
(Second Instance)
– submit new evidences
– 6 months to 1 year
– no appeal
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• Intermediate Court
(Second Instance)
– submit new evidences
– 3 months
– no appeal
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Collection of Evidence
• Submitted in the first instance
• In foreign cases:
– verification and notarization by
– Chinese embassy in home jurisdiction
– translated into Chinese
• Preservation of evidence
– requires application to the People’s Court
– applicable when there is risk that evidence may
be destroyed
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Challenges in
Submitting Evidence
•
•
•
•
Scarce resources and lack of transparency
Different types of documentary evidence some of which may not be recognized by the
court
Expert opinions
Translation must be done by a translator with
both legal and technical background
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Typical Chinese
Court
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Judgment
•
Shall include
–
–
–
–
–
cause of action, claims, facts and cause of the
dispute
facts and causes as found in judgment, and basis
of application of law
outcome of adjudication and costs
time limit for filing an appeal and
appropriate appellate court
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Appeal: second instance
• If party refuses to accept judgment
• 15 days for domestic – 30 days for foreign
cases
• Petition shall be submitted through the Court
which tried the case
• Basis of second instance court review
– relevant facts
– application of the law
• Judgment is final
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Execution
• Effective Judgment executed by the People’s
Court of First Instance
• If a party refuses to comply with the judgment,
the other party may apply for execution and/or
enforcement
• Time limit to apply for execution is 1 year /
6 months
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Class Actions in China
• Joint Action (Article 53 of the CPL)
• Representatives of Joint Action (Article 54)
• Registration Procedures (Article 55)
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Registration Procedures for a
Representative Joint Action
• Three requirements:
– Public notice
– Registration
– Designation of Class Representative
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Public Notice
• Public notice issued by the People’s Court
stating the particulars and claims of the case
• Public notice period can be varied but no
less than 30 days
• Means of public notice: most conveniently
accessible by potential parties
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Registration
• Shall register within the public notice
period
• Basic information of the participants
including identification, relevancy to the
case, proof of the legal relationship with the
opposing party, and proof of injury if in
damage compensation case
• Legal effects of the registration
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Designation of Class
Representative
• Participants who bring the case to or
register at the People’s Court can elect their
representatives
• In the alternative, court can negotiate with
the participants to agree on the
representatives
• Second alternative, court can appoint
representatives among the participants
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Case: Transportation
Insurance
Background
• Nov.15th 2000 plaintiff spent RMB 30,000 on
transportation insurance for machinery
• On the next day, machinery was stolen in Canada.
• Defendant refused to pay because they had begun
taking delivery and transport on Nov.14th (Canada
time) when insurance liability had not taken effect.
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Case: Transportation
Insurance
Result at First Instance
• Defendant pays for plaintiff’s loss
• Defendant refuses to obey appeal
– (day of delivery is earlier than day of insurance)
Result at Second Instance
• Plaintiff demand is rejected
• Defendant gives RMB 30000 back
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Case: Transportation
Insurance
Reasons for rejection
• Time difference: thirteen hours difference between
China and Canada
– By Beijing time, goods stolen on Nov. 16th
• (insurance liability)
– By Ottawa time, goods stolen on Nov. 15th
• (no insurance liability)
• Problematic evidence collection
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Case: Baotou Air Crash
Background
• On Nov. 21, 2005, China
Eastern airlines flight
MU5210 from Baotou to Shanghai crashed less
than one minute after take-off
• Forty seven passengers, six crew members, and
two ground crew members perished
• Lehman, Lee & Xu, in partnership with Lieff
Cabraser, is representing the families of Chinese
victims of this crash
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Case: Baotou Air Crash
Problems with the CRJ-200
aircraft
• Bombardier Company’s wing
design
• Engine manufactured by
General Electric was smoking
as the plane took off
• China Eastern Airlines failed to
properly maintain aircraft
However, no “black box” record
exists
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Case: Baotou Air Crash
Proceedings
• On Nov. 27, 2004, China Eastern Airlines paid each victim
a total of 211,000 yuan
• On Oct. 26, 2005, one Indonesian and thirty Chinese
families of the victims engaged Lehman, Lee & Xu and
Lieff Cabraser to pursue China Eastern Airlines,
Bombardier Company and General Electric as strictly
liable under product defect theory in the Los Angeles
Superior Court – the first time Chinese nationals sued
Chinese, Canadian and American companies in a US court
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Case: Baotou Air Crash
Proceedings
• China Eastern Airlines has moved to have
this case transferred to a Chinese court due
to Forum Non Conveniens – on the first
instance, it was approved.
• We are appealing this decision.
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Case: Mattel Recall
•
•
•
•
•
On July 30, Mattel’s safety lab in China
detected lead in the paint used for toy cars.
First week of August, a European retailer
discovers lead in the same Mattel products.
Mattel recalls 1 million potentially leadtainted toys.
Primary manufacturer was Lida Plastic
Toys (Foshan, Guangdong), a longstanding
supplier to Mattel.
Potential suspects: Mattel Q.C., Lida and
Lida’s paint material suppliers.
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Case: Mattel Recall
Results
• Hong Kong businessman and owner, Zhang
Shuhong kills himself on August 11.
• Construction of 3 new factories and a new workers
dorm halted.
• 2500 workers laid off without pay since event of
the recall.
• Xinhua reports total suspension of Lida’s
operations on Sep. 25.
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Case: Mattel Recall
Was the Chinese manufacturer to blame?
A foreign media frenzy:
• Event occurred during a year when various Chinese products were
alleged to be defective: i.e. pet food and medicines
• A senior official with the European retail giant Carrefour even
called upon foreign media to stop exaggerating quality problems of
made-in-China products
• "Mattel revealed the name of our company to the public under
great pressure from the media, which made us the target of the
event," – Xie Yuguang, board chairman of Lida.
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Case: Mattel Recalls
Mattel’s Fault?
Mattel Admits Lack of Sufficient Quality Control Standards:
• Mattel initially blames supplier but then reverses and issues the
following statement: “Mattel takes full responsibility for these recalls
and apologises personally to you, the Chinese people, and all our
customers who received the toys.” “
• ”…vast majority of those products that were recalled were the result of
a design flaw in Mattel’s design, not through a manufacturing flaw in
China’s manufacturers,”
• "We understand and appreciate deeply the issues that this has caused
for the reputation of Chinese manufacturers”
•
– Thomas Debrowski, Vice President of Mattel.
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Case: Mattel Recalls
Potential Lawsuit Remedy Against
Mattel?
• Favorable Forum: U.S. Court
• Amount of Recoverable Damages
• Ability to Enforce Judgment
• Developed pro-plaintiff court system
• Potential Plaintiffs
• Family of businessman, Zhang Shuhong
• Lida
• Suppliers to Lida
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Case: Mattel Recalls
Potential Action: Negligence
• Failure to exercise the standard of care that a reasonably
prudent person would have exercised in a similar situation.
• Legal theory:
• Mattel was negligent because it did not have the proper quality
control standards in place.
• As per industry standards, Mattel didn’t have proper supervision of
its foreign manufacturers.
• Mattel was negligent by disclosing the identity of its supplier, Lida
to the public.
• Mattel was potentially negligent if the paints or materials used on
the toy cars was as per their design and/or specifications
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Case: Mattel Recalls
Potential Action: Wrongful Death
• Wrongful death lawsuit alleges that the decedent was killed as a
result of the negligence (or other liability) on the part of the
defendant, and that the surviving dependents or beneficiaries
are entitled to monetary damages as a result of the defendant’s
conduct.
• Legal theory: Mattel’s negligence through shoddy quality
control standards and publicizing identity of Lida caused Zhang
Shuhong to suffer emotional distress, resulting in his eventual
death.
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Case: Mattel Recalls
Potential Action: Defamation
• The act of harming the reputation of another by
making a false statement to a third person.
• Legal Theory: Mattel made statements to the
international media that Lida was at fault for
manufacturing toys with lead paint. However, after
making such a statement, Mattel reversed its position
and took full blame for the scandal.
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Mattel Case: Next Steps?
• Signing up potential client(s) for possible
“class action” or single lawsuit.
• Searching for and partnering up with a U.S.
firm.
– E.g. Similar to our arrangement with the Lieff Cabraser
firm in the Baotou.
– A plaintiff firm with extensive trial experience in the
correct jurisdiction (where Mattel is domiciled).
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THANK YOU
LEHMAN, LEE & XU
10-2 Liangmaqiao Diplomatic Compound
No.22 Dongfang East Road Chaoyang District
Beijing 100600 China
Tel: (86)(10) 8532-1919
Fax: (86)(10) 8532-1999
E-mail: elehman@lehmanlaw.com
Web site: http://www.lehmanlaw.com
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