Suppose you are a U.S. company that manufactures a product that is partially or completely manufactured by a Chinese company. And suppose that your company is sued in a United States District Court and the plaintiffs (or you) believe that discovery from the Chinese manufacturer is relevant to the lawsuit. Can you require the non-party Chinese company to provide this needed evidence, or are you simply out of luck? This article outlines some of the issues and difficulties involved when seeking discovery from a non-party company based in China and offers a practical suggestion for enhancing your ability to do so in future cases.
There are two primary means for obtaining discovery from foreign entities that are not parties to a U.S. lawsuit: the Federal Rules of Civil Procedure (FRCP) and the Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters (Hague Convention). When the court has personal jurisdiction over the foreign company, the FRCP should be the primary means by which you seek discovery. For example, FRCP 45 permits courts to command non-parties to produce documents and may enable discovery of a foreign non-party’s documents based on the foreign non-party’s relationship to a party as within the subpoena power of the court. However, where the foreign entity is not subject to the jurisdiction of U.S. courts, determining whether the Hague Convention is a viable alternative will depend very much on the country in which the foreign entity is located. Unfortunately, the Hague Convention has not proven to be a reliable method of obtaining discovery from within China.
As explained by the State Department, “[t]he Hague Evidence Convention codifies the taking of depositions on notice and commission before consuls and court appointed commissioners, providing minimum standards with which contracting states agree to comply. The Convention’s primary purpose is to reconcile different, often conflictive, discovery procedures in civil and common law countries. The Convention also streamlines procedures for compulsion of evidence, utilizing a form ‘letter of request’ which can be sent directly by the court in the U.S. to a foreign central authority, eliminating the cumbersome ‘diplomatic channel.’”
China became a signatory to the Hague Convention in 1998. In theory, the “Letter Request” process under the Hague Convention should work similar to the Letter Rogatory process many litigators are familiar with in the United States: The U.S. court transmits the Letter of Request for discovery to the designated Central Authority in China, who is then responsible for transmitting the request to the appropriate Chinese judicial body where the discovery is located for a response. As described in a 2008 American Bar Association publication, litigants are seldom successful: “The complexity of the Letter of Request process (i.e. communications flowing from foreign judicial authority → China Ministry of Justice → China Supreme Court → China local court, and backwards), coupled with its inefficiency (usually one year or even longer), means that few litigants in China-related international actions successfully compel either documentary or testimonial discovery using Letters of Request under the Hague Convention. Indeed, lawyers in China have been told informally that the Beijing High Court executes approximately one request per year.”
In addition, China has limited its obligations under the Hague Convention. China has declared it will accept Letters of Request issued for the purpose of obtaining pre-trial discovery of documents as known in common law countries, but only if the request for obtaining discovery of the documents is clearly enumerated in the Letters of Request and the request establishes a direct and close connection with the subject matter of the litigation. Evidence submitted in one case, Tiffany (NJ) LLC v. Forbes from the Southern District of New York, suggested that roughly half of Hague Convention requests from 2006 to 2010 were returned unexecuted. In that case, the court found that “at bottom it remains speculative for either side to assert whether or not China will timely comply with a Hague Convention request.”
Other cases suggest that the process is not necessarily futile and that China typically processes Hague Convention requests within six-to-twelve months and that approximately 50 percent of requests are granted. What is critical is that litigants who seek to use the Hague Convention consult the State Department website for country-specific information on the form and use of Letters of Request as well as for any limitations on discovery. For example, China does not permit attorneys to take depositions in China for use in foreign courts. Whether voluntary or compelled, depositions must be blessed by the Chinese Central Authority and are evaluated on a case-by-case basis. Failure to follow the appropriate procedures could result in the arrest, detention, or deportation of the attorney and other participants.
Given these difficulties, the ability of a U.S. company to obtain needed evidence from Chinese entities in any future litigation should be considered as part of an overall risk management strategy. China is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and arbitration orders are generally enforceable in China. Thus, a carefully drafted contract with an enforceable arbitration provision that requires the Chinese business partner to cooperate and provide evidence in any lawsuits involving the product may be used to address the issues described in this article. Of course, parties should always consult an attorney familiar with the technical details of drafting such provisions to ensure they will be enforced by international authorities.