A myth that it is impossible to enforce a foreign judgement or arbitral award in China. Interview with S&K Vertical’s managing partner Sergey Slagoda for Kommersant

20 June 2016

Managing partner of S&K Vertical Sergey Slagoda told "Kommersant Business Guide” about the peculiarities of relations with Asian partners, and some of the stereotypes that Russian businesses have.


BUSINESS GUIDE: You have been speaking at the session “Russia – China. Right to investments” of one of recent legal forums. Why did you choose this topic and what was your presentation about?

SERGEY SLAGODA: I just heard in the morning news that in the coming years the trade turnover between the Russian Federation and China is expected to increase by times in the next several years. Our business community has really began to show an increased interest in China latterly, but now we can see real steps in this direction at all levels, including legal community. Thus, the topic of our session at SPIL is actually one of the real steps towards the development of Russian-Chinese relations. The subject of my presentation at the session was "Russia and China: Commercial debt collection." And since my experience of working in China is significant I hope that the presentation was interesting

BUSINESS GUIDE: How active are the investors on both sides? Is there some growth of activity in last two years?

SERGEY SLAGODA: Investment activity on the Chinese side is quite stable over the last six years. Moreover, it seems to me, Chinese investors are ready to invest more. As to Russian investments in China, we can say that the dynamic is more fructuous and now we see a new flow of Russian investments in China at a higher level of quality.

BUSINESS GUIDE: Legal issues are more a deterrent or an incentive in this process?

SERGEY SLAGODA: It may sound like a paradox, but the legal aspects can be both an incentive and a deterrent in the investment process. Both Russia and China have quite favorable investment laws. Both countries try their best to ensure and protect the interests of foreign investors in their territories. However, there are some limitations too, such as certain industry barriers.

There is another thing related to my presentation at the SPILF, namely the problems of contractual non-performance by counterparties or co-investors. This invokes different legal mechanisms governing various conflict situations, in particular those connected with debt collection. And lack of awareness of these legal mechanisms often deters investments. But in general the order of things is quite favorable.

BUSINESS GUIDE: Your report has been devoted to debt collection. What should be expected by the businessmen in China as to this issue?

SERGEY SLAGODA: Until now, in Russia, and, to be honest, in the western business environment there is a myth about the practical impossibility of enforcing foreign judgments and arbitral awards in China for a number of reasons, such as protectionism in respect of local companies, China’s non-participation in some international conventions and lengthy proceedings. In my opinion, these myths have had no basis in reality for already a long time, and they still exist primarily because of the lack of knowledge about Chinese laws. There is a mechanism of eliminating the so-called "protectionism" implemented in China's legislation. According to it, a case on recognition and enforcement of foreign judgments and arbitral awards, as well as the cases "otherwise burdened with a foreign element" are within the competence of the Chinese courts of the second instance. And a negative decision should be approved by a more superior instance.

As to international conventions, China is a party in almost all major conventions, with the only exception, perhaps, of the Hague Convention Abolishing the Requirement of Legalisation for Foreign Public Documents. This, of course, increases the time expenditures, but it does not pose an insurmountable obstacle for the exchange of official documents.

In our practice, we and our Chinese colleagues have repeatedly busted this myth. Therefore, if you think that your rights have been violated in the course of relationship with your Chinese partner and you have exhausted all remedies to resolve the dispute peacefully, then it is advised to refer your claim to the competent judicial authorities.

BUSINESS GUIDE: What would be your legal recommendations for Russian entrepreneurs working in China?

SERGEY Slagoda: To begin with, you are advised to get away from the stereotypes of doing business in Russia and its Western partners. It is important to try to find time to read about the history and culture of China. First of all, it is interesting, and secondly, believe me, the Chinese partners will appreciate your knowledge. For them, even the very procedure of communication, not only within the business format, is very important.

What is also important is the so-called issue of "ranks", i.e. it is not advisable to send a mid-level manager to the meeting with the head of a Chinese company, no matter how good a professional he is; they will neither understand nor appreciate it. Come there by yourself, with a professional manager.

It is also worth bearing in mind that the Chinese partners are experts in bypassing the "rough edges" and always try to avoid conflict situations. This is certainly good, but you should not put off your guard.

BUSINESS GUIDE: What are the main changes that have occurred in recent years in the Russian-Chinese business relations?

SERGEY Slagoda: As I said earlier, the main change in the recent years is a new wave of interest of Russian businesses towards China. It is despite the fact that on the Chinese side there has been a constant interest for a much longer period. By the way, I would not focus only on China. Asia is not just China. And China is not homogeneous too, especially from a legal perspective.

BUSINESS GUIDE: Could you please elaborate a bit more on this?

SERGEY Slagoda: For example, referring to the Chinese law, we must bear in mind that there are laws of the mainland China and those of special administrative regions (SAR), i.e. Hong Kong and Macao. The law of the mainland China is based on the civil law system. As to the law of Hong Kong, it is based upon Anglo-Saxon system. Accordingly, the differences in the legal regulation of a number of issues are very large. At the same time it is no secret that Hong Kong is very attractive for international investments both in terms of investment legislation in general, and from the point of view of its corporate law and the system of dispute resolution.

And since we have already touched this issue, I would say a few words about the other two destinations that are so popular in masses. Japan is very attractive in terms of investment laws, I once took a crash course of Japanese law at the University of Waseda in Kyoto, on which basis I concluded that the investment climate in Japan is very favorable, but at the same time it is very, very hard to squeeze into the Japanese market .

There is another very interesting Asian jurisdiction, i.e. Singapore, which has become one of the most important Asian financial and investment centers. To put it brief, Singapore combines effective economic and legal instruments attractive to foreign investors

BUSINESS GUIDE: So, the future belongs to Asia, doesn’t it?

SERGEY SLAGODA: The future belongs to those who know Asia. 


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