Laws and Litigation
International business transactions can be very complex, and even more so for a small to mid-size lighting design firm who has limited experience with international business transactions.
Consider this scenario: A lighting designer in New York is hired by an architect based in London to prepare a lighting scheme for a project in Dubai. Separately, the architect retains the services of a firm in Saudi Arabia to prepare the architectural drawings. In the event that the foreign contractor defaults on payments, who would the U.S. lighting designer sue, and which country would have jurisdiction over the matter?
In a case such as this, it is also important to remember that foreign governments frequently have more control over private construction projects than the U.S. government does. For example, in China, all contracts with U.S. designers must be reviewed and approved by the Ministry of Foreign Affairs before they can become effective.
Separately, there are a variety of other U.S. and foreign laws that may impact a U.S. designer’s international business transactions. One example is the U.S. Foreign Corrupt Practices Act, which makes it illegal for an American company to make any payment or give anything else of value to an agency or official of a foreign government in order to gain approval for a business project overseas. This act imposes monetary penalties on U.S. companies and possible imprisonment for the corporate officers who violate it. While this act is typically applied to U.S. manufacturing companies who engage in foreign manufacturing, it is possible that a lighting designer could unknowingly violate certain national or international laws. To avoid such a violation, you should retain the services of an international attorney.
Foreign laws also have a significant impact on the ability of a U.S. lighting designer to sue or collect monies from a foreign entity. As mentioned above, it is nearly impossible to enforce a monetary judgment obtained in the U.S. against a Chinese entity. This is why it is critical for the designer to have an adequate contract and to insist on the payment of monies up front or be covered by an irrevocable letter of credit confirmed by a U.S. bank.
Jurisdiction
Let’s assume for the purposes of this discussion that a U.S. lighting designer has engaged in a project with a Chinese architect and builder in Hong Kong. We will also assume that the designer only obtained a small retainer fee, which does not cover her costs. In the event that the Chinese company defaults on its payment agreement, the designer has two choices as to where to sue the company.
The first choice is in Hong Kong. This may not be affordable since it would involve the retention of one or more attorneys, including an attorney licensed to practice in China, travel expenses, and the fact that the Chinese government always rules in favor of the Chinese corporation when dealing with contracts and other litigation matters involving individuals located outside of the country.
The other alternative is for the lighting designer to sue the Chinese company in the Federal District Court of New York. It is well-known by international lawyers that the likelihood of recovering money from a Chinese company when suit is brought in the U.S. is slim at best. The exception would be if that Chinese corporation holds assets in the U.S.
After filing the lawsuit in the New York District Court, the plaintiff (the lighting designer) would have to effectuate service of the complaint on the foreign company. The typical way to serve a foreign entity is through the use of the Hague Convention. The lighting designer would have to comply with all of the terms of this, which requires the service of the complaint through the designated Chinese Central Authority in Beijing, and then she must provide various documents and a fee to the Ministry of Justice of the People’s Republic of China. Service of a complaint can take anywhere from two months to a year.
Assuming that the Chinese company has been properly served with the complaint via the Hague Convention, the lighting designer would have the opportunity to engage in discovery with the foreign company. As part of the discovery process, the designer’s attorney would serve the Chinese company with various requests for document production and attempt to obtain oral testimony of particular witnesses at a deposition. The problem is that China has been known to take up to a year to respond to various written discovery requests and also has refused to be bound by Articles 16 through 22 of the Hague Convention, which require a foreign country to appear at a deposition. In fact, China has made it unlawful for a foreign plaintiff to conduct depositions on Chinese soil.
In the event that the lighting designer is somehow successful in obtaining a judgment over the Chinese company, she will not be able to enforce that judgment in China unless it is nothing more than a paper judgment. There is no treaty or reciprocal arrangement between China and the United States regarding the recognition or enforcement of judgments in civil litigation matters, and Chinese courts routinely disregard U.S. judgments. In this hypothetical scenario, the U.S. lighting designer will have spent tens of thousands of dollars on legal fees to obtain a worthless judgment and will not be able to recover the unpaid contract fees. In general, the U.S. is not a party to any international convention or treaty governing the recognition and enforcement of foreign judgments. In the absence of an applicable bi- or multi-lateral agreement or convention, recognition and enforcement of U.S. judgments abroad is determined in accordance with the domestic law of the recognizing country.
While lawsuits against Chinese entities may be an extreme example of the limitations of lawsuits against foreign entities, most of these issues concerning the difficulties of litigation also apply to countries in the Middle East, Asia, and throughout certain portions of Europe.
So what’s the take-away for those designers seeking to do business abroad? Take all precautions in the negotiation of the project to ensure a positive experience and so that you get paid for your work. You cannot always rely on the law.